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AMRS > SEC Filings for AMRS > Form 10-Q on 5-Nov-2013All Recent SEC Filings

Show all filings for AMYRIS, INC.

Form 10-Q for AMYRIS, INC.


5-Nov-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The following discussion and analysis should be read in conjunction with our condensed consolidated financial statements and the related notes that appear elsewhere in this Form 10-Q. These discussions contain forward-looking statements reflecting our current expectations that involve risks and uncertainties which are subject to safe harbors under the Securities Act of 1933, as amended, or the Securities Act, and the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements include, but are not limited to, statements concerning our strategy, future production capacity and other aspects of our future operations, ability to improve our production efficiencies, future financial position, future revenues, projected costs, expectations regarding demand and acceptance for our technologies, growth opportunities and trends in the market in which we operate, prospects and plans and objectives of management. The words "anticipates," "believes," "estimates," "expects," "intends," "may," "plans," "projects," "will," "would" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements and you should not place undue reliance on our forward-looking statements. These forward-looking statements involve risks and uncertainties that could cause our actual results to differ materially from those in the forward-looking statements, including, without limitation, the risks set forth in Part II, Item 1A, "Risk Factors," in this Quarterly Report on Form 10-Q and in our other filings with the Securities and Exchange Commission. We do not assume any obligation to update any forward-looking statements.

Trademarks
Amyris®, the Amyris logo, Biofene® and No Compromise® are trademarks or registered trademarks of Amyris, Inc. This report also contains trademarks and trade names of other businesses that are the property of their respective holders.

Overview

Amyris, Inc. (referred to as the "Company," "Amyris," "we," or "our") is a renewable products company focused on providing sustainable alternatives to a broad range of petroleum-sourced products. We developed innovative microbial engineering and screening technologies that modify the way microorganisms process sugars. We are using our proprietary synthetic biology platform to design microbes, primarily yeast, and use them as living factories in established fermentation processes to convert plant-sourced sugars into renewable hydrocarbons. We are developing, and, in some cases, already commercializing, products from these hydrocarbons in several target industry sectors, including cosmetics, lubricants, flavors and fragrances, performance materials, and transportation fuels. We call these No Compromise products because we design them to perform comparably to or better than currently available products.

We have been applying our industrial synthetic biology platform to provide alternatives to a broad range of petroleum-sourced products. We have focused our development efforts on the production of Biofene, our brand of renewable farnesene, a long-chain, branched liquid hydrocarbon molecule. Using Biofene as a first commercial building block molecule, we are developing a wide range of renewable products for our target markets.

While our platform is able to utilize a wide variety of feedstocks, we are focusing our large-scale production plans primarily on the use of Brazilian sugarcane as our feedstock because of its renewability, low cost and relative price stability. We have also been able to produce Biofene through the use of other feedstocks such as sugar beets, corn dextrose, sweet sorghum and cellulosic sugars.

Our first purpose-built, large-scale Biofene production plant commenced operations in southeastern Brazil in December 2012. This plant is located at Brotas, in the state of São Paulo, Brazil, and is adjacent to an existing sugar and ethanol mill, Paraiso Bionergia. We have also commenced initial construction of a second large-scale production plant in Brazil, located at the Usina São Martinho sugar and ethanol mill also in the state of São Paulo, Brazil, which we intend to complete the construction of when market developments to support the start-up of that plant.

Our business strategy is focused on our commercialization efforts of specialty products while moving established commodity products, including our fuels and base oil lubricants products, into joint venture arrangements with established industry leaders. We believe this approach will permit access to the capital and resources necessary to support large-scale production and global distribution for our ubiquitous products. Our initial renewable products efforts have been focused on products for the cosmetics, niche fuel opportunities, fragrance oils, and performance materials sector.


Total Relationship

In June 2010, we entered into a collaboration agreement with Total Energies Nouvelles Activités (f.k.a Total Gas & Power USA SAS) ("Total"). This agreement provided for joint collaboration on the development of products through the use of our synthetic biology platform. In connection with this agreement, Total invested $133.2 million in our equity. In November 2011, we entered into an amendment of the collaboration agreement with Total with respect to development and commercialization of Biofene for diesel. This represented an expansion of the initial collaboration with Total, and established a global, exclusive collaboration for the development of Biofene for diesel and a framework for the creation of a joint venture to manufacture and commercialize Biofene for diesel. In addition, a limited number of other potential products were subject to development for the joint venture on a non-exclusive basis. In July 2012, we entered into a further amendment of the collaboration agreement with Total that expanded Total's investment in the Biofene collaboration, incorporated the development of certain joint venture products for use in diesel and jet fuel into the scope of the collaboration, and changed the structure of the funding from Total to include a convertible debt mechanism. In connection with the amendment, we entered into a purchase agreement for the sale of an aggregate of $105.0 million in convertible promissory note (the "Total Purchase Agreement" and together with the amendment to the collaboration agreement, the "July 2012 Agreements"). Under the new agreements, we issued senior unsecured convertible notes to Total for an aggregate of $30.0 million in new cash in the third quarter of 2012 and an additional $30.0 million in 2013. Total may decide to provide further funding in 2014 and 2015. Upon completion of the research and development program, we and Total would form a joint venture company that would have exclusive rights to produce and market renewable diesel and/or jet fuel. Should Total decide not to pursue commercialization, under certain conditions, it is eligible to recover up to $100.0 million, payable in March 2017, in the form of cash or in the form of common stock at an initial conversion price of $7.0682 per share for those notes issued in 2012 and an initial conversion price of $3.08 per share for those notes issued in 2013 as determined under the March 2013 Letter Agreement (as described below).

In connection with a private placement of our common stock that occurred in December 2012, Total elected to participate by exchanging approximately $5.0 million of its $53.3 million in senior unsecured convertible debt outstanding for 1,677,852 shares of our Common Stock at the purchase price in this private placement of $2.98 per share. As such, $5.0 million of the then outstanding $53.3 million in senior unsecured convertible debt was cancelled.

In March 2013, we entered into a letter agreement with Total (the "March 2013 Letter Agreement") under which Total agreed to waive its right to cease its participation in our fuels collaboration at the July 2013 decision point and committed to proceed with the July 2013 funding tranche of $30.0 million (subject to our satisfaction of the relevant closing conditions for such funding in the Total Purchase Agreement). As consideration for this waiver and commitment, we agreed to:

• Reduce the conversion price for the senior unsecured convertible promissory notes to be issued in connection with such funding from $7.0682 per share to a price per share equal to the greater of (i) the consolidated closing bid price of our common stock on the date of the March 2013 Letter Agreement, plus $0.01, and (ii) $3.08 per share, provided that the conversion price would not be reduced by more than the maximum possible amount permitted under the rules of The NASDAQ Stock Market ("NASDAQ") such that the new conversion price would require the Company to obtain stockholder consent; and

• Grant Total a senior security interest in our intellectual property, subject to certain exclusions and subject to release by Total when we and Total enter into final documentation regarding the establishment of a new joint venture between Total and Company for the commercialization of the products encompassed by the Company's diesel and jet fuel research and development program (the "Fuels JV").

In addition to the waiver by Total described above, Total also agreed that, at our request and contingent upon us meeting our obligations described above, it would pay advance installments of the amounts otherwise payable under the Total Purchase Agreement in July 2013. Specifically, if we requested such advance installments, subject to certain closing conditions and delivery of certifications regarding our cash levels, Total was obligated to fund $10.0 million no later than May 15, 2013, and an additional $10.0 million no later than June 15, 2013, with the remainder to be funded on the original July 2013 closing date.

In June 2013, we sold and issued a 1.5% Senior Unsecured Convertible Note to Total in an aggregate principal amount of $10.0 million with a maturity date of March 1, 2017 pursuant to the Total Purchase Agreement. This convertible note has a conversion price of $3.08 per share in accordance with the March 2013 Letter Agreement. We did not request the May advance described above, but did request the June advance, under which this convertible note was issued. Subsequently, in July 2013, we sold and issued a $20.0 million senior unsecured convertible note to Total with the same conversion price as the note sold to Total in June 2013. This purchase and sale completed Total's commitment to purchase $30.0 million of such notes by July 2013.


In October 2013, we entered into the letter agreement with Total relating to the Temasek Bridge Note (as defined below) and to the closing of our August 2013 Financing (as defined below) discussed below under "Financing," (the "Amendment Agreement"). In the August 2013 Financing, we were required to provide the purchasers under the August 2013 SPA (as defined below) with a security interest in our intellectual property if Total still held such security interest as of the initial closing of the August 2013 Financing. Under the terms of a previous Security Agreement with Total, we had previously granted a security interest in favor of Total to secure our obligations under certain convertible promissory notes issued and issuable to Total under the Total Purchase Agreement. The Security Agreement provides that such security interest will terminate if we and Total enter into certain agreements relating to the formation of the Fuels JV (the "JV Agreements"). To induce Total to (i) permit us to grant the security interest under the Temasek Bridge Note and the August 2013 Financing and (ii) waive a secured debt limitation contained in our outstanding Total convertible promissory notes, we entered into the Amendment Agreement. Under the Amendment Agreement, we agreed to reduce, effective December 2, 2013, the conversion price for the Total convertible promissory notes issued in 2012 (approximately $48.3 million of which are outstanding as of the date hereof) from $7.0682 per share to $2.20, the market price per share of the Company's Common Stock as of the signing of the Amendment Agreement, as determined in accordance with applicable NASDAQ rules, unless we and Total enter into the JV Agreements on or prior to such date.

In October 2013, Total canceled $9.2 million of outstanding convertible promissory notes with a conversion price of $7.0682 as payment for the Tranche I Notes issued to Total in the first closing of our August 2013 Financing. We expect that Total will cancel an additional portion of its outstanding convertible promissory notes in connection with its exercise of pro rata rights in future closings of our August 2013 Financing (with the final amount of such cancellation to be determined based on the final size of each such closing).

Sales and Revenue

To commercialize our Biofene-derived product, squalane, in the cosmetics sector for use as an emollient, we have entered into a number of distribution agreements in Europe, Asia, and North America. As an initial step towards commercialization of Biofene-based diesel, we have entered into agreements with municipal fleet operators in Brazil. Our diesel fuel is supplied to the largest Company in Brazil's fuel distribution segment which blends our product with petroleum diesel, and sells to a number of bus fleet operators. For the industrial lubricants market, we established a joint venture with Cosan for the worldwide development, production and commercialization of renewable base oils in the lubricant sector.

We transitioned out of the ethanol and ethanol-blended business during the third quarter ended September 30, 2012. We do not expect to be able to replace prior year revenue levels in the near term as a result of this transition, particularly in 2013 while we focus our efforts to establish our renewable products business.

Financing

In 2012, we completed multiple financings involving loans and convertible debt and equity offerings. In February 2012, we completed a private placement of 10.2 million shares of our common stock for aggregate proceeds of $58.7 million and raised $25.0 million from an offering of senior unsecured convertible promissory notes. In May 2012, we completed a private placement of 1.7 million shares of our common stock for aggregate proceeds of $4.1 million. In July 2012, we sold and issued to Total a senior unsecured convertible promissory note in the face amount of $38.3 million for cash proceeds of $15.0 million and our repayment of $23.3 million in previously-provided research and development funds. In September 2012, we completed a sale of an additional senior unsecured convertible promissory note to Total for additional cash proceeds of $15.0 million. In December 2012, we completed a private placement of 14,177,849 shares of our common stock for aggregate proceeds of $37.2 million and the cancellation by Total of $5.0 million of outstanding senior unsecured convertible promissory notes. We issued 1,677,852 shares of our common stock to Total in exchange for this cancellation. Net cash received for this private placement as of December 31, 2012 was $22.2 million and the remaining $15.0 million of proceeds was received in January 2013. In connection with this private placement, we entered into a letter agreement with Biolding Investment SA ("Biolding") under which we acknowledged that Biolding's initial investment of $10.0 million in December 2012 represented partial satisfaction of its preexisting contractual obligation to fund $15.0 million by March 31, 2013 upon satisfaction by us of criteria associated with the commissioning of our production plant in Brotas, Brazil.

In March 2013, we completed a private placement of 1,533,742 of our common stock to Biolding for aggregate proceeds of $5.0 million. This private placement represented the final tranche of Biolding's preexisting contractual obligation to fund $15.0 million upon satisfaction by us of certain criteria associated with the commissioning of our production plant in Brotas, Brazil.

Pursuant to the March 2013 Letter Agreement discussed above under the caption "Total Relationship", we sold and issued a $10.0 million senior unsecured convertible note to Total with an initial conversion price of $3.08 per share in June 2013. Subsequently, in July 2013, we sold a $20.0 million senior unsecured convertible note to Total with the same initial conversion


price of $3.08 per share as the note sold in June 2013. The July 2013 purchase and sale completed Total's commitment to purchase $30.0 million of such notes by July 2013.

In October 2013, we completed an additional private placement of convertible promissory notes in the August 2013 Financing as described in more detail below under "Liquidity and Capital Resources." In addition, in September 2013 and October 2013, we entered into two bridge loans with existing investors to provide additional cash availability before the initial closing of the August 2013 Financing.

Liquidity

We have incurred significant losses since our inception and believe that we will continue to incur losses and negative cash flow from operations into at least 2014. As of September 30, 2013, we had an accumulated deficit of $682.0 million and had cash, cash equivalents and short term investments of $6.3 million. We have significant outstanding debt and contractual obligations related to purchase commitments, as well as capital and operating leases. As of September 30, 2013, our debt, net of discount totaled $118.8 million, of which $5.4 million matures within the next twelve months. Additionally, our debt agreements contain various covenants, including restrictions on business that could cause us to be at risk of defaults.

In addition to cash contributions from product sales and debt and equity financings, we also depend on collaboration funding to support our operating expenses. While part of this funding is committed based on existing collaboration agreements, we will need to identify and obtain funding under additional collaborations that are not yet subject to any definitive agreement or are not yet identified. In addition, some of our existing anticipated collaboration funding is subject to our achievement of milestones or other funding conditions.

Comparison of Three Months Ended September 30, 2013 and 2012

Revenues
                                        Three Months Ended September 30,     Year-to-Year       Percentage
                                              2013              2012            Change            Change
                                                      (Dollars in thousands)
Revenues
Ethanol and ethanol-blended gasoline   $              -     $     1,657     $      (1,657 )         (100 )%
Renewable products                                4,144           3,071             1,073             35  %
Product sales                                     4,144           4,728              (584 )          (12 )%
Grants and collaborations revenue                 2,860          14,380           (11,520 )          (80 )%
Total revenues                         $          7,004     $    19,108     $     (12,104 )          (63 )%

Our total revenues decreased by $12.1 million to $7.0 million for the three months ended September 30, 2013 as compared to the same period in the prior year due to decreased revenues from product sales, grants and collaborations.

Product sales decreased by $0.6 million to $4.1 million with such reductions resulting primarily from the transition out of the ethanol and ethanol-blended gasoline business during the third quarter of 2012. We do not expect to be able to replace prior year revenue levels in the near term as a result of this transition, particularly in 2013, while we focus our efforts to establish our renewable products business. Product sales of our farnesene-derived products increased by $1.1 million in the third quarter of 2013 compared to the prior year. The increase in the third quarter of 2013 is primarily a result of sales to new distributors, increased diesel sales along with related party sales of renewable product to Novvi.

Grants and collaborations revenue decreased in the third quarter of 2013 by $11.5 million to $2.9 million compared to the same period in the prior year. This was primarily due to the revenue recognized from the collaboration agreement with Total in the third quarter of 2012 of $9.8 million and the absence of approximately $1.5 million of revenue from the "Integrated Bio-Refinery" grant from the U.S. Department of Energy as the project was completed in the first quarter of 2013.


Cost and Operating Expenses

                                      Three Months September 30,       Year-to-Year      Percentage
                                         2013             2012            Change           Change
                                                (Dollars in thousands)
Cost of products sold              $        8,328     $     4,444     $      3,884             87  %
Loss on purchase commitments and
write off of production assets                  -           1,438           (1,438 )           nm
Research and development                   13,370          15,736           (2,366 )          (15 )%
Sales, general and
administrative                             13,057          17,355           (4,298 )          (25 )%
Total cost and operating
expenses                           $       34,755     $    38,973     $     (4,218 )          (11 )%



nm= not meaningful

Cost of Products Sold

Our cost of products sold increased by $3.9 million to $8.3 million for the three months ended September 30, 2013 compared to the same period in the prior year. Our cost of products sold includes production costs of farnesene-derived products, which includes cost of raw materials, labor and overhead, amounts paid to contract manufacturers and period costs, which include inventory write-downs resulting from applying lower-of-cost-or-market inventory valuations. Cost of farnesene-derived products sold also includes certain costs related to the scale-up in production of such products. As of December 2012, we began operating our own large-scale Biofene production plant located at Brotas, in the state of São Paulo, Brazil.

We transitioned out of the ethanol and ethanol-blended business during the third quarter of 2012 to focus our efforts on establishing our renewable products business and, as a result, the cost of products sold for ethanol and ethanol-blended products declined by $1.4 million for the three months ended September 30, 2013 compared to the same period in the prior year. Production costs of farnesene-derived products sold increased by $5.3 million compared to the prior year mainly due to higher production levels and applying lower of cost or market adjustments against higher production volumes for farnesene-derived products.

Cost of Products Sold Associated with Loss on Purchase Commitments and Write Off of Production Assets

Beginning in March 2012, we initiated a plan to shift a portion of our production capacity from contract manufacturing facilities to Amyris-owned plants that were then under construction. We computed the loss on facility modification costs and fixed purchase commitments using the same approach that is used to value inventory the lower of cost or market value. The computation of the loss on firm purchase commitments is subject to several estimates, including the ultimate selling price of any of our products manufactured at the relevant production facilities, and is therefore inherently uncertain.

Research and Development Expenses

Our research and development expenses decreased by $2.4 million for the three months ended September 30, 2013 compared to the same period in the prior year, primarily as a result of our overall cost reduction efforts and lower spending. The decrease is attributable to a $1.8 million reduction in personnel-related expenses and lower stock-based compensation expense due to lower headcount and, a $0.6 million reduction in other related overhead expenses. Research and development expenses included stock-based compensation expense of $1.1 million and $1.5 million during the three months ended September 30, 2013 and 2012, respectively.

Sales, General and Administrative Expenses

Our sales, general and administrative expenses decreased by $4.3 million for the three months ended September 30, 2013 compared to the same period of the prior year, primarily as a result of our overall cost reduction efforts and lower spending. The decrease is attributed largely to a $2.7 million reduction in personnel-related expenses and lower stock-based compensation expense due to lower headcount, a $0.8 million reduction in consulting and professional service fees, and a $0.8 million reduction in other related overhead expenses. Sales, general and administrative expenses included stock-based compensation expense of $3.3 million and $4.5 million during the three months ended September 30, 2013 and 2012, respectively.


Other Income (Expense)

                                       Three Months Ended September 30,         Year-to-Year      Percentage
                                           2013                   2012             Change           Change
                                                     (Dollars in thousands)
Other income (expense):
Interest income                    $             21         $          297     $       (276 )          (93 )%
Interest expense                             (2,110 )               (1,224 )           (886 )           72  %
Other income (expense), net                   4,177                    664            3,513            529  %
Total other income (expense)       $          2,088         $         (263 )   $      2,351           (894 )%

Total other income (expense) increased by approximately $2.4 million to $2.1 million for the three months ended September 30, 2013 compared to the same period of the prior year. The increase in total other income (expense) is attributable to an increase in other income (expense), net of $3.5 million, offset by a $0.3 million decrease in interest income due to lower cash balances compared to the same period in the prior year and an increase in interest expense of $0.9 million associated with increased borrowings to fund our operations. The increase in other income (expense), net of $3.5 million is primarily due to the gain recognized from the change in the fair value of the compound derivative liability associated with our senior unsecured convertible promissory notes issued to Total during the period.

Comparison of Nine Months Ended September 30, 2013 and 2012

Revenues
                                                Nine Months Ended September 30,              Year-to-Year     Percentage
                                                      2013                      2012            Change          Change
                                                              (Dollars in thousands)
Revenues
Ethanol and ethanol-blended gasoline   $               -                    $    38,836     $     (38,836 )    (100.00 )%
. . .
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