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As filed with the
Securities and Exchange Commission on August 23,
2011
Registration No. 333-174405
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Amendment No. 4
to
Form S-1
REGISTRATION
STATEMENT
UNDER
THE SECURITIES ACT OF
1933
CERES, INC.
(Exact name of registrant as
specified in its charter)
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Delaware
(State or other jurisdiction
of
incorporation or organization)
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100
(Primary Standard
Industrial
Classification Code Number)
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33-0727287
(I.R.S. Employer
Identification Number)
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1535 Rancho Conejo Boulevard
Thousand Oaks, CA 91320
(805) 376-6500
(Address, including
zip code, and telephone number, including area code, of
Registrants principal executive offices)
Richard Hamilton
President and Chief Executive Officer
Ceres, Inc.
1535 Rancho Conejo Boulevard
Thousand Oaks, CA 91320
Telephone:
(805) 376-6500
Facsimile:
(805) 498-1002
(Name, address,
including zip code, and telephone number, including area code,
of agent for service)
Copies to:
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Danielle Carbone, Esq.
Shearman & Sterling LLP
599 Lexington Avenue
New York, New York 10022
Telephone:
(212) 848-4000
Facsimile:
(212) 848-7179
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Kevin P. Kennedy, Esq.
Simpson Thacher & Bartlett LLP
2550 Hanover Street
Palo Alto, California 94304
Telephone: (650) 251-5130
Facsimile: (650) 251-5002
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this Form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. These securities may not be sold until the
registration statement filed with the Securities and Exchange
Commission is effective. This preliminary prospectus is not an
offer to sell nor does it seek an offer to buy these securities
in any jurisdiction where the offer or sale is not permitted.
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Subject to Completion. Dated
August 23, 2011.
Shares
Common Stock
This is an initial public offering of shares of common stock of
Ceres, Inc. All of
the shares of common
stock are being sold by the Company.
Prior to this offering, there has been no public market for the
common stock. It is currently estimated that the initial public
offering price per share will be between
$ and
$ . We have applied to list our
common stock on the Nasdaq Global Market under the symbol
CERE.
See Risk Factors on page 13 to read about
factors you should consider before buying shares of the common
stock.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discount
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$
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$
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Proceeds, before expenses, to Ceres
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$
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$
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To the extent that the underwriters sell more
than shares
of common stock, the underwriters have the option to purchase up
to an
additional shares
from Ceres at the initial public offering price less the
underwriting discount.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2011.
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Goldman,
Sachs & Co. |
Barclays Capital |
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Piper Jaffray
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Raymond James
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Simmons & Company
International
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Prospectus
dated ,
2011.
Ceres staff walk among sorghum plants near College Station, Texas.
Ceres, Inc. |
TABLE OF
CONTENTS
Through and
including ,
2011 (the 25th day after the date of this prospectus), all
dealers effecting transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealers obligation to
deliver a prospectus when acting as an underwriter and with
respect to an unsold allotment or subscription.
We have not, and the underwriters and their affiliates have not,
authorized anyone to provide you with any information or to make
any representation not contained in this prospectus. We do not,
and the underwriters and their affiliates do not, take any
responsibility for, and can provide no assurance as to the
reliability of, any information that others may provide to you.
This prospectus is not an offer to sell or an offer to buy
shares of our common stock in any jurisdiction where offers and
sales are not permitted. The information in this prospectus is
accurate only as of the date of this prospectus, regardless of
the time of delivery of this prospectus or any sale of shares of
our common stock.
Neither we nor any of the underwriters have done anything that
would permit a public offering of the shares of our common stock
or possession or distribution of this prospectus in any
jurisdiction where action for that purpose is required, other
than in the United States. Persons outside the United States who
come into possession of this prospectus must inform themselves
about, and observe any restrictions relating to, the offering of
the shares of common stock and the distribution of this
prospectus outside of the United States.
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PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus and does not contain all of the information you
should consider in making your investment decision. You should
read this summary together with the more detailed information,
including our financial statements and the related notes,
contained in this prospectus. You should carefully consider,
among other things, the matters discussed in Risk
Factors, before making an investment decision. Unless
otherwise indicated in this prospectus, Ceres,
our company, the Company,
we, us and our refer to
Ceres, Inc. and our subsidiary, Ceres Sementes do Brasil
Ltda.
Business
Overview
Our
Company
We are an agricultural biotechnology company selling seeds to
produce renewable biomass feedstocks that can enable the
large-scale replacement of petroleum and other fossil fuels. We
use a combination of advanced plant breeding and biotechnology
to develop new crops, known as dedicated energy crops, that we
believe address the limitations of first-generation bioenergy
feedstocks, such as corn and sugarcane, increase biomass
productivity, reduce crop inputs and improve cultivation on
marginal land.
Our first large-scale commercial products are proprietary sweet
sorghum varieties that can be used as a drop-in
feedstock to extend the operating season of Brazilian
sugarcane-to-ethanol
mills, the operating days of which are currently limited due to
the inherent limitations of sugarcane physiology and growth
patterns. Our dedicated energy crops can also be used for the
production of second-generation biofuels and bio-based
chemicals, including cellulosic ethanol, butanol, jet fuel,
diesel-like molecules and gasoline-like molecules, from non-food
biomass. Finally, baseload utility-scale electric power can also
be generated from the biomass feedstocks grown from our seeds.
The seed industry has historically required very little capital
to manufacture seeds, and seeds have typically been sold at
prices that generate high gross margins. As a producer of
proprietary seeds, we believe we are in the most attractive
segment of the bioenergy value chain upstream from
the capital intensive refining and conversion of biomass. For
example, in 2009 corn seed providers maintained high margins
when volatile commodity prices significantly impacted corn
ethanol refining margins. Therefore, we believe our success is
tied to adoption of our products rather than the relative
profitability of downstream participants. Our upstream position
in the value chain also allows us to be largely independent of
the success of any particular conversion technology or end use.
Our
Technology
We develop low input dedicated energy crops capable of producing
high yields of biomass per acre using innovative plant breeding
and trait biotechnology. By developing these types of crops, we
enable the scalable, sustainable and economic production of
bioenergy, or the energy derived from biomass. Our proprietary
collection of energy crop parent lines, known as germplasm, in
combination with our pipeline of biotechnology traits allows us
to develop bioenergy feedstocks to meet the needs of both
biomass refineries and growers of biomass, all while using less
water and less fertilizer than row crops like corn or soybean,
even if grown on marginal land. We believe that the strength of
our technology has been validated by the receipt of multiple
competitive grants and collaborations, including a United States
Agency for International Development, or USAID, grant and one of
the U.S. Department of Energys first Advanced
Research Project Agency for Energy, or ARPA-E, grants in 2009,
as well as a $137 million multi-year collaboration with
Monsanto Company signed in 2002. We also have significant
intellectual property rights to our technology.
Our
Products
We recently began marketing sweet sorghum seeds in Brazil and
have sold switchgrass and high biomass sorghum seeds in the
United States under our brand, Blade Energy Crops, or Blade.
Our
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largest immediate commercial opportunity is the Brazilian
ethanol market, which currently uses sugarcane as its
predominant feedstock. Due to the inherent limitations of
sugarcane physiology and growth patterns, Brazilian mill
operators typically obtain sugarcane that makes mill operation
economically feasible approximately 200 days per year,
based on a report issued by the Brazilian Ministry of
Agricultures crop forecasting agency, Companhia Nacional
de Abastecimento (Conab), dated May 2010. This results in an
estimated 3.4 million metric tons per day of crushing
capacity, according to our estimate, which we derive from a 2011
Brazil Agrianual report. Boa Vista / Nova Fronteira, a
joint venture of Grupo São Martinho S.A. and Petrobras
Biofuels, recently planted, harvested and processed a
commercial-scale planting of our sweet sorghum products and
produced both ethanol and power using the existing agricultural
equipment and processing infrastructure. Similar activities have
been completed with two other Brazilian ethanol producers, ADM
do Brasil Ltda. and Usina Rio Pardo S.A. Ceres sweet
sorghum harvested from the agronomy trial at ADM do Brasil Ltda.
was used to produce table sugar at a neighboring mill using a
blend of 14 parts sugarcane and one part sweet sorghum. We
believe the success of our first commercial-scale planting at
the mill owned by Boa Vista/Nova Fronteira, a joint venture of
Grupo São Martinho S.A. and Petrobras Biofuels,
demonstrates the drop-in nature of our sweet sorghum
products, and along with the seed-based propagation, shorter
growing cycle and lower water and fertilizer requirements of
sweet sorghum relative to sugarcane, will serve as the basis for
expanded adoption of this product line as a feedstock for
ethanol and power production in Brazil and other markets. Based
on our trial results to date and pipeline of products under
development, we believe the adoption of our sweet sorghum
hybrids could extend a mills operations by approximately
60 days.
We also work with refining technology companies in the emerging
cellulosic biofuels and bio-based chemicals markets. We believe
that dedicated energy crops will enable both individual
renewable energy projects and the industry as a whole to reach
greater scale and sustainability, at lower costs, than other
potential sources of biomass because of their yields, hardiness
and relatively low input requirements. We believe our dedicated
energy crop portfolio is compatible with a number of developing
cellulosic biofuels conversion technologies and we are working
with a number of companies to test our energy crops in their
respective production processes.
Our dedicated energy crops also can be used to generate
electricity in existing solid-fuel power facilities, such as
coal-fired generating plants. We believe we will see a material
increase in demand for biopower in the event that additional
renewable energy legislation is passed in the United States,
Europe or other countries that requires a higher percentage of
generation from low-carbon sources or provides equal production
incentives for the co-firing of biomass with coal, as are
currently available for wind and solar power.
Finally, due to the nature of biotechnology, we believe other
crops can benefit from many of the traits we are developing for
dedicated energy crops, such as traits that improve water use
efficiency and salt tolerance. By combining genes into a series
of stacks, we believe, and our initial results indicate, that we
can achieve step-change improvements to the productivity of many
row crops, including corn, soybean rice and wheat.
Market
Opportunity
The world continues to seek economic and environmentally sound
alternatives to fossil fuel-based transportation fuels and
power. We believe bioenergy is one of the few viable
replacements for fossil fuels. Unlike other renewable
technologies, biofuels are intended to utilize existing vehicles
and transportation fuel infrastructure. Similarly, biopower,
unlike wind and solar power, can provide baseload and
dispatchable generation of renewable electricity. Despite the
potential of biofuels, first-generation biofuel feedstocks have
demonstrated their limitations in terms of scale, perceived
competition with food production, net energy balance, and
dependence on government subsidies. Similarly, current sources
of biomass, such as forestry residues and agricultural wastes,
are limited in scale and are not optimized for use in bioenergy.
They are also by-products derived from other processes and
therefore subject to supply disruptions. Our dedicated energy
crops provide an attractive combination of high yield density,
high net energy balances, low input requirements, the
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ability to grow on marginal land and, as a dedicated source of
feedstock, the potential to be tailored for specific production
and refining processes. As a result, we believe that dedicated
energy crops will become a critical component for growth of the
biofuel, bio-based chemicals and biopower markets.
Biofuels and
Bio-Based Chemicals
Modern lifestyles and economies are highly reliant on petroleum
and its by-products across a wide variety of industries,
including light-duty transportation, aviation, diesel, shipping,
lubricants, polymers, resins and cosmetics. According to the
Energy Outlook Report published in April 2011 by the
U.S. Energy Information Administration, or EIA, global oil
production averaged 87.9 million barrels per day in the first
quarter of 2011. The transportation fuel component of petroleum
is valued at over $2 trillion per year, according to EIA. The
vast majority of bio-based replacements for petroleum and
petroleum-based chemicals are currently produced by fermentation
of starch sources and free sugars primarily derived from corn
and sugarcane, respectively. Commonly referred to as
first-generation biofuels and bio-based chemicals, the
production and conversion processes for these feedstocks are
well-established. However, as the world looks to increase its
consumption of biofuels and their derivatives, these
first-generation feedstocks face challenges to meet increased
demand.
In Brazil, where the country has recently been importing corn
ethanol to meet its demand, we believe that mill operators will
seek alternatives that will allow them to increase production
utilization of their existing mills beyond the average
200 days per year schedule in order to maximize their
market opportunity. On a global basis, we expect petroleum
consumption will be further replaced by products made from the
conversion of non-food biomass into biofuels and bio-based
chemicals. Today, there are multiple companies, including large
multinational companies, such as BP p.l.c., Royal Dutch Shell
plc, Total S.A. and Valero Energy Corporation, and independent
companies, such as KiOR, Inc. and Coskata, Inc., focused on
improving non-food biomass conversion technologies. According to
a 2011 report published by International Energy Agency, or IEA,
biofuel production could reach approximately 112 billion
gallons per year by 2030, up from 26 billion gallons in
2010. To meet these targets, the IEA believes feedstock
production would need to increase to 150 million acres in
2030, up from 75 million acres in 2010. We believe
quadrupling the volume of biofuels while only doubling the
feedstock production acres will require higher yielding
second-generation feedstocks.
Biopower
Globally, 7.92 trillion
kilowatt-hours
of electricity were generated from coal in 2007, or 42% of total
global power generation, according to the EIA, which we estimate
required 3.6 billion tons of coal. By comparison, a report
released in May 2010 by EIA states that globally,
approximately 235 billion
kilowatt-hours
of electricity were generated from biomass and wastes, or 57% of
all renewable energy generation, excluding hydropower, which we
estimate required 200 million dry tons of biomass. The
conversion of biomass to power has traditionally been fueled by
bio-based waste products and residues from the paper and timber
industries. As is the case for biofuels, we believe this
practice has limited the size, location, efficiency and scale of
biomass power generation because power producers can not
reliably secure long-term supplies and consistent quality
feedstock. We believe we will see a material increase in demand
for biopower in the event that additional renewable energy
legislation is passed in the United States, Europe or other
countries that requires a higher percentage of generation from
low-carbon sources, or that incentivizes the co-firing of
biomass.
Food and Feed
Crops
According to a 2010 report published by the International
Service for the Acquisition of Agri-Biotech Applications, or
ISAAA, approximately 366 million acres of biotechnology
crops were planted globally in 2010. The global market value of
biotechnology crop seeds was $11.2 billion, as reported in
the same report by ISAAA. In order to continue the productivity
gains made in many crops over the past 75 years, and to do
so in a more sustainable manner, we believe that advanced
breeding methods, and biotech traits, in particular, will be
required to produce higher performance crops that make more
productive use
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of cultivated land, as well as to develop more robust,
stress-tolerant crops that can grow under more difficult
conditions and on marginal land. Our belief is consistent with
historical yield improvements achieved via plant breeding and
the adoption of agricultural biotechnology.
Our
Solutions
We believe that nearly all bioenergy and bio-based chemical
applications will ultimately depend on high yielding, low-cost,
low-carbon, scalable, reliable and sustainable sources of
feedstock. We believe biomass from our dedicated energy crops
and traits have the potential to become the common denominator
in a broad array of bio-based products, including ethanol,
butanol, jet fuel, diesel-like molecules and gasoline-like
molecules, as well as electric power and heat, and can enable
the development of larger-scale processing facilities given the
high yield density and conversion efficiency of dedicated energy
crops. Specifically, our dedicated energy crops have the
following characteristics, which we believe will make them a
critical component in the large-scale production of these
bio-based products:
Drop-in
Products
Our products are drop-in solutions because they can
be planted, harvested and processed using existing agricultural
equipment with little or no modification and are being developed
to be drop-in for all conversion technologies using
sugarcane or biomass feedstocks, facilitating their rapid
adoption.
High Yield
Density
Our dedicated energy crops are developed to produce high biomass
or sugar yields per acre. For cellulosic biofuels, bio-based
chemicals and biopower, energy grasses can yield significantly
more dry tons per acre per year compared to agricultural
residues and woody biomass. This maximizes the productivity of
available land and shortens the collection radius for a
conversion facility of a particular size.
Dedicated to
Bioenergy
Unlike many other bioenergy feedstocks, our dedicated energy
crops are currently not intended for other uses and are
typically grown exclusively to be harvested as part of the
bioenergy value chain, creating a stable supply that will appeal
to owners of conversion technologies who will have invested
significant capital in their infrastructure and will therefore
require reliable and cost-effective feedstocks.
Suited to
Marginal Land
Our dedicated energy crops can grow in a broad range of
environments, including those not well-suited for most food
crops. We are developing biotech traits that provide salt
tolerance, drought tolerance and greater nitrogen use efficiency.
Scalable to Meet
Demand
Our energy crops are highly scalable, allowing us to match our
production with growing demand for our seeds on relatively short
notice compared to sugarcane, which can take several years to
scale up commercially.
Competitive
Strengths
We believe that we possess a number of competitive strengths
that position us to become a leading provider of dedicated
energy crop seeds and traits, including:
Commercial
Products Available Today
We currently have a number of commercially available seed
products, including sweet sorghum, switchgrass and high biomass
sorghum. Our sweet sorghum hybrids have recently been
successfully planted, harvested and processed into ethanol and
power in Brazil in our first commercial-scale project.
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We have received the necessary governmental variety
registrations for the sweet sorghum varieties we are marketing
in Brazil for planting in the 2011-2012 growing season. We are
in active discussions with a number of Brazilian ethanol
producers for use of our sweet sorghum seeds for the
2011-2012
growing season. Since other
sugarcane-to-ethanol
mills face the same limits on production, we believe our
demonstrated success in the 2010-2011 growing season will
facilitate the rapid development of this market and enable the
expansion of our market share in Brazil and in other geographies.
Attractive
Business Model
Seed businesses traditionally incur significant research and
development expenditures and have long product development time
lines, but benefit from a combination of high gross margins, low
capital expenditure requirements and intellectual property
protection. We believe we can position our business to take
advantage of low production costs relative to the high value of
our products to our customers.
Innovative
R&D Technology Platforms
In order to maintain the strong position we have established
with our combined strengths in germplasm and field-validated
traits, we use our research and development expertise to
continually improve our product offerings. We believe that our
innovative integrated breeding and biotechnology approach allows
us to efficiently identify traits, effectively express these
traits in crops, and more quickly commercialize new and improved
seeds and traits for the market. We have both biotech traits and
non-biotech
traits and some of our biotech traits have been successfully
evaluated in the field; however, they are still several years
away from commercialization.
Extensive
Proprietary Portfolios of Germplasm and Traits
While many companies have developed portfolios of germplasm or
traits, we believe we are one of the only companies focused on
dedicated energy crops with large portfolios of both germplasm
and field-validated traits. We believe new market entrants would
need to cultivate several generations of germplasm to achieve
performance equivalent to our current product portfolio by which
time we believe we will have further evolved our germplasm.
Therefore, we believe our proprietary position would be
difficult and time-consuming to replicate. We also believe that
we have established a strong intellectual property position in
plant genes, traits and energy crop germplasm.
Management Team
with Significant Industry Experience
Our experienced management team possesses a deep understanding
of a variety of agricultural, chemical and industrial
biotechnology businesses, including the seed industry, as well
as our regional markets of Brazil, the United States and Europe.
Our management team also includes top scientists and industry
experts, some of whom have served in leadership roles at large,
multinational corporations, served on advisory committees for
the U.S. Department of Energy, led ground-breaking research
studies and published numerous scientific articles.
For a list of the challenges and risks we face, see
Summary of Risk Factors.
Our
Strategy
Our objective is to be the leading provider of dedicated energy
crop seeds and traits to the renewable energy industry,
including first-generation biofuels such as ethanol as well as
cellulosic biofuels, biopower and bio-based chemicals by
employing the following strategies:
Expand Our
Presence in Brazil
We intend to use our recent success with leading ethanol
producers, including Boa Vista / Nova Fronteira, a
joint venture of Grupo São Martinho S.A. and Petrobras
Biofuels, to promote brand awareness and expand our presence in
Brazil.
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Expand Strategic
Collaborations to Develop and Market Cellulosic
Biofuels
We plan to play a significant role in developing the
second-generation biofuels and bio-based chemicals market, which
we believe represents a significant opportunity. We intend to
establish new collaborations and expand our current
collaborations with leading cellulosic biorefining companies,
technology providers and project developers to further validate
our products across various downstream technologies and to
produce optimized feedstocks that are tailored to meet the
specifications of existing and new refining technologies.
Expand Our
Business into New Markets
We intend to market our Blade Energy Crops brand as a symbol of
quality, innovation and value across multiple biofuel, bio-based
chemicals and biopower markets in a broad range of climates and
geographies. We intend to use our large portfolios of
field-validated traits and germplasm, combined with our advanced
technology platforms, to develop products for a wide variety of
niches and seize upon future market opportunities, regardless of
the fuel or chemical molecule or engine choice.
Build New
Relationships and Enhance Established Collaborations in the
Global Biopower Market
We intend to cultivate collaborations with new parties,
particularly those in Europe where we believe the market
opportunity for biopower is more established today and the
market need is more immediate in light of existing government
regulations.
Continue
Innovation and New Product Development
We are continuing to develop innovative solutions using a broad
range of technological tools, including genomics, biotechnology
and proprietary bioinformatics in order to produce crop
varieties with improved yields and other performance
characteristics. For example, we have identified traits that
will help optimize results for growers located in geographies
with varying day lengths, rainfall, temperatures and soil
composition (e.g., salt, aluminum and nitrogen).
Continue to Build
Our Intellectual Property Portfolio
We believe we have established a strong intellectual property
position in plant genes, traits and energy crop germplasm, based
on the nature, size and filing dates of our patent portfolio and
plant variety protection certificates. We believe we are one of
the few companies focused on dedicated energy crops that have
this combination of intellectual property assets. We use our
integrated technology platforms to continually improve our
products and develop innovations that will further strengthen
our intellectual property position.
Summary of Risk
Factors
Our business is subject to a number of risks and uncertainties
that you should understand before making an investment decision.
These risks are discussed more fully in the section entitled
Risk Factors following this prospectus summary.
These risks include, but are not limited to, the following:
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We have a history of net losses; we expect to continue to incur
net losses and we may not achieve or maintain profitability.
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Our products are in the early stages of commercialization.
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The markets for some of our dedicated energy crops are not well
established and may take years to develop or may never develop
and our growth depends on customer adoption of our dedicated
energy crops.
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Our crops are new and most growers will require substantial
instruction to successfully establish, grow and harvest crops
grown from our seeds.
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Our largest immediate commercial opportunity is the Brazilian
ethanol market and we only recently completed our first
commercial-scale plantings of our sweet sorghum products in
Brazil.
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We have not yet finalized pricing for our products, including
our sweet sorghum products, for the Brazilian market.
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Our business will be adversely affected if the field trials
being conducted by our collaborators or potential customers fail
to perform as expected.
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We face significant competition in all areas of our business,
and if we do not compete effectively, our business will be
harmed.
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Our inability to adequately protect our proprietary technologies
and products could harm our competitive position.
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Litigation or other proceedings or third party claims of
infringement could require us to spend time and money and could
severely disrupt our business.
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Corporate
Information
We were incorporated in the State of Delaware in March 1996
under the name Ceres, Inc. Our corporate headquarters are
located at 1535 Rancho Conejo Boulevard, Thousand Oaks,
California 91320, and our telephone number is
+1(805) 376-6500.
Our website address is www.ceres.net. The information
contained on our website or that can be accessed through our
website is not part of this prospectus, and investors should not
rely on any such information in deciding whether to purchase our
common stock.
Our logos,
Ceres®,
The Energy Crop
Company®,
Blade Energy
Crops®,
Blade®
and
Skyscraper®
and other trademarks or service marks of Ceres, Inc. appearing
in this prospectus are the property of Ceres, Inc. This
prospectus contains additional trade names, trademarks and
service marks of other companies. We do not intend our use or
display of other companies trade names, trademarks or
service marks to imply relationships with, or endorsement or
sponsorship of us by, these other companies.
Conversion
Metrics
This prospectus contains references to acres, hectares, gallons,
liters, wet tons, dry tons and kilograms. In the United States,
blendstock fuels are typically measured and sold in gallons. In
other parts of the world, the standard unit is liters. The
following table sets forth the conversion factor between metrics.
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1 Hectare
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=
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2.471 Acres
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1 Gallon
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=
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3.785 Liters
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1 Wet Ton
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=
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1,000 Kilograms
|
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(Measurement commonly used to measure feedstock yields)
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1 Dry Ton
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=
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907 Kilograms
|
|
(Measurement commonly used to measure dry biomass for
cellulosic biofuels and biopower)
|
7
THE
OFFERING
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Common stock offered |
|
shares. |
|
Common stock to be outstanding after this offering |
|
shares,
or shares
if the underwriters exercise their option to purchase additional
shares in full. |
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Use of proceeds |
|
We intend to use the net proceeds from this offering for
research and development, capital expenditures, commercial
activities, working capital and other general corporate
purposes, which may include acquisitions of other companies,
assets or technologies. See Use of Proceeds. |
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|
|
Proposed Nasdaq Global Market trading symbol |
|
CERE |
The number of shares of common stock that will be outstanding
after this offering is based on 6,042,792 shares
outstanding as of August 15, 2011, and excludes:
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|
|
7,792,219 shares of common stock issuable upon exercise of
options to purchase our common stock outstanding as of
August 15, 2011, at a weighted average exercise price of
$2.02 per share;
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|
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5,296,845 shares of common stock issuable upon exercise of
warrants to purchase our common stock outstanding as of
August 15, 2011, at a weighted average exercise price of
$6.90 per share;
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|
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61,537 shares of common stock issuable upon exercise of
warrants to purchase our preferred stock outstanding as of
August 15, 2011, at a weighted average exercise price of
$6.50 per share; these preferred stock warrants will
automatically convert to common stock warrants upon the
completion of this offering;
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32,251 shares of common stock reserved as of
August 15, 2011, for future issuance under our 2010 Stock
Option/Stock Issuance Plan as more fully described in
Compensation Discussion and Analysis Executive
Compensation Equity Compensation
Plans; and
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shares
of common stock reserved for future issuance under our 2011
Equity Incentive Plan, which will become effective on the day
prior to the day upon which we become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act.
|
Except as otherwise indicated, all information in this
prospectus assumes:
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|
|
the automatic conversion of all outstanding shares of our
convertible preferred stock into an aggregate of
46,059,819 shares of common stock effective immediately
prior to the completion of this offering;
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The issuance
of
shares of common stock pursuant to the automatic conversion of
our convertible subordinated notes, or the Convertible Notes,
upon the consummation of this offering, as described in
Certain Relationships and Related Party
Transactions, assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus;
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|
the issuance
of shares
of common stock immediately prior to the completion of this
offering upon the net exercise of warrants outstanding to
purchase shares of common stock, which would otherwise expire
upon the completion of this offering, assuming an
|
8
initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus;
|
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|
|
the filing of our amended and restated certificate of
incorporation immediately prior to the completion of this
offering; and
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|
|
no exercise by the underwriters of their right to purchase up to
an
additional shares
of common stock at the initial public offering price.
|
9
SUMMARY
CONSOLIDATED FINANCIAL DATA
The following table summarizes our consolidated financial data.
In 2009, we changed our fiscal year end from December 31 to
August 31. The change was effective for the eight-month
period ended August 31, 2009. We have derived the following
summary consolidated statement of operations data for the fiscal
years ended December 31, 2007 and 2008, the eight months
ended August 31, 2009, and the fiscal year ended
August 31, 2010, from our audited consolidated financial
statements appearing elsewhere in this prospectus. The summary
consolidated financial data for the nine month periods ended
May 31, 2010 and 2011 have been derived from our unaudited
consolidated financial statements included elsewhere in this
prospectus. The unaudited consolidated financial statements have
been prepared on a basis consistent with our audited
consolidated financial statements and include, in the opinion of
management, all adjustments, consisting only of normal and
recurring adjustments, necessary for a fair presentation of such
consolidated financial data. Results for interim periods are not
necessarily indicative of results for a full fiscal year.
Historical results are not necessarily indicative of results for
future periods. You should read the summary of our consolidated
financial data set forth below together with the more detailed
information contained in Managements Discussion and
Analysis of Financial Condition and Results of Operations
and our consolidated financial statements and the related notes
appearing elsewhere in this prospectus.
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight
|
|
|
|
|
|
|
|
|
|
|
|
|
Months
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
64
|
|
|
$
|
98
|
|
|
$
|
288
|
|
|
$
|
236
|
|
|
$
|
97
|
|
Collaborative research and government grants
|
|
|
7,180
|
|
|
|
3,880
|
|
|
|
2,328
|
|
|
|
6,326
|
|
|
|
4,095
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
7,180
|
|
|
|
3,944
|
|
|
|
2,426
|
|
|
|
6,614
|
|
|
|
4,331
|
|
|
|
4,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
|
|
|
|
3,777
|
|
|
|
2,690
|
|
|
|
2,946
|
|
|
|
2,217
|
|
|
|
1,940
|
|
Research and development
|
|
|
19,220
|
|
|
|
20,309
|
|
|
|
12,397
|
|
|
|
16,697
|
|
|
|
12,639
|
|
|
|
13,837
|
|
Selling, general and administrative
|
|
|
9,811
|
|
|
|
8,784
|
|
|
|
6,645
|
|
|
|
9,207
|
|
|
|
6,844
|
|
|
|
6,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
|
29,031
|
|
|
|
32,870
|
|
|
|
21,732
|
|
|
|
28,850
|
|
|
|
21,700
|
|
|
|
22,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(21,851
|
)
|
|
|
(28,926
|
)
|
|
|
(19,306
|
)
|
|
|
(22,236
|
)
|
|
|
(17,369
|
)
|
|
|
(17,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(123
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(153
|
)
|
|
|
(91
|
)
|
|
|
(365
|
)
|
Interest income
|
|
|
1,521
|
|
|
|
2,001
|
|
|
|
243
|
|
|
|
23
|
|
|
|
21
|
|
|
|
6
|
|
Other income (expense)
|
|
|
5
|
|
|
|
|
|
|
|
161
|
|
|
|
(152
|
)
|
|
|
(167
|
)
|
|
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(20,448
|
)
|
|
|
(26,925
|
)
|
|
|
(18,907
|
)
|
|
|
(22,518
|
)
|
|
|
(17,606
|
)
|
|
|
(19,590
|
)
|
Income tax benefit (expense)
|
|
|
(7
|
)
|
|
|
148
|
|
|
|
211
|
|
|
|
(65
|
)
|
|
|
14
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,455
|
)
|
|
$
|
(26,777
|
)
|
|
$
|
(18,696
|
)
|
|
$
|
(22,583
|
)
|
|
$
|
(17,592
|
)
|
|
$
|
(19,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share attributable to common
stockholders(1)
|
|
$
|
(3.84
|
)
|
|
$
|
(4.89
|
)
|
|
$
|
(3.33
|
)
|
|
$
|
(3.90
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(3.31
|
)
|
Weighted average outstanding common shares used for net loss per
share attributable to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted(1)
|
|
|
5,323,259
|
|
|
|
5,473,090
|
|
|
|
5,621,671
|
|
|
|
5,791,443
|
|
|
|
5,775,322
|
|
|
|
5,917,179
|
|
Pro forma net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding common shares used in computing pro
forma net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (unaudited)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
The basic and diluted loss per
share are computed by dividing the net loss attributable to
common stockholders by the weighted average number of common
shares outstanding during the period. For the periods where we
presented losses, all potentially dilutive common shares
comprising of stock options, warrants and convertible preferred
stock are anti-dilutive.
|
|
|
|
(2)
|
|
The unaudited pro forma basic and
diluted loss per common share have been computed as though the
conversion had occurred as of September 1, 2009 to give
effect to: (i) the automatic conversion of all outstanding
shares of our convertible preferred stock into an aggregate of
46,059,819 shares of common stock immediately prior to the
completion of this offering using the if-converted method,
(ii) the issuance
of
shares of common stock pursuant to the automatic conversion of
the Convertible Notes upon the consummation of this offering, as
described in Certain Relationships and Related Party
Transactions, assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus and
(iii) the issuance
of shares
of common stock immediately prior to the completion of this
offering upon the net exercise of warrants outstanding to
purchase shares of common stock, which would otherwise expire
upon the completion of this offering, based upon an assumed
initial public offering price of
$
per share, the midpoint of the price range set forth on the
cover of this prospectus, using the treasury stock method.
|
11
Our consolidated balance sheet data as of May 31, 2011 is
presented:
|
|
|
|
|
on a pro forma basis to give effect to (i) the conversion
of all outstanding shares of our convertible preferred stock
into 46,059,819 shares of our common stock, (ii) the sale
of $11.4 million aggregate principal amount of Convertible
Notes and the application of the proceeds therefrom; (iii) the
issuance
of
shares of common stock pursuant to the automatic conversion of
the Convertible Notes upon the consummation of this offering, as
described in Certain Relationships and Related Party
Transactions, assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus and
(iv) the issuance
of shares
of our common stock upon the assumed net exercise of warrants
outstanding to purchase shares of common stock, which would
otherwise expire upon the completion of this offering, assuming
an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus; and
|
|
|
|
|
|
on a pro forma as adjusted basis to give effect to the pro forma
adjustments and the sale
of shares
of common stock by us in this offering at an assumed public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2011
|
|
|
|
|
|
|
Pro Forma as
|
|
|
Actual
|
|
Pro Forma
|
|
Adjusted(1)
|
|
|
(In thousands)
|
|
|
(Unaudited)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
17,717
|
|
|
$
|
|
|
|
$
|
|
|
Total assets
|
|
|
31,594
|
|
|
|
|
|
|
|
|
|
Total indebtedness (including short-term indebtedness)
|
|
|
4,723
|
|
|
|
|
|
|
|
|
|
Common and preferred stock warrant liabilities
|
|
|
10,361
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock
|
|
|
197,502
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(188,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Each $1.00 increase or decrease in
the assumed public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus, would
increase or decrease, as applicable, our cash and cash
equivalents, total assets and total stockholders equity
(deficit) by approximately
$ million, assuming that the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same and after deducting the
estimated underwriting discounts and commissions and estimated
offering expenses payable by us.
|
12
RISK
FACTORS
Investing in our common stock involves a high degree of risk.
You should carefully consider the risks and uncertainties
described below, together with all of the other information in
this prospectus, including the consolidated financial statements
and the related notes appearing elsewhere in this prospectus,
before making an investment decision. If any of the following
risks actually occurs, our business, financial condition,
results of operations and future prospects could be materially
and adversely affected. The trading price of our common stock
could decline due to any of these risks, and, as a result, you
may lose all or part of your investment in our common stock.
Risks Related to
Our Business
We have a history
of net losses; we expect to continue to incur net losses and we
may not achieve or maintain profitability.
With the exception of the fiscal years ended December 31,
2003, 2005 and 2006, we have incurred net losses each fiscal
year since our inception, as well as for the nine months ended
May 31, 2011. From our inception to May 31, 2011, we
had an accumulated deficit of $195.9 million. We expect to
incur additional losses for at least the next several years as
we continue to invest in our research and development programs,
to develop new products and to move forward with our
commercialization activities. The extent of our future net
losses will depend, in part, on our product sales growth and
revenue from collaborations and government grants, and on the
level of our operating expenses. To date, substantially all of
our revenue has been derived from collaboration agreements and
government grants, and we have had very limited revenue from
seed sales. Over the next several years, we expect our revenue
will shift from being derived primarily from collaborations and
government grants to product sales. Our ability to generate
future revenue will depend upon our ability to meet our
obligations under our collaborations and government grants, to
enter into new collaborations or out-licensing agreements and to
successfully commercialize our products. The market for seeds
for dedicated energy crops is relatively new and still
developing and our success in generating revenue from product
sales depends in the near term in large part on the success of
our sweet sorghum products in Brazil and in the future on the
adoption of other dedicated energy crops as a biomass feedstock.
Even if we do achieve profitability, we may not be able to
sustain or increase our profitability on a quarterly or annual
basis.
Our products are
in the early stages of commercialization.
Our existing products are in the early stages of
commercialization and our efforts to commercialize our products
may not be successful. Our product sales for the year ended
August 31, 2010 and the nine months ended May 31, 2011
were minimal and were derived mainly from sales to third parties
that were field testing our products. To date, we have not sold
any sweet sorghum seeds in the Brazilian market. Although we are
in discussions with various
sugarcane-to-ethanol
mill owners in Brazil for the purchase of our sweet sorghum
products as a drop-in feedstock, we do not know the
quantity they will ultimately purchase for the 2011-2012 growing
season or what the final price will be.
The markets for our other products, mainly switchgrass and high
biomass sorghum, are not fully developed. We completed our first
sale of switchgrass seeds in 2009 and high biomass sorghum seeds
in 2010 and to date have sold less than $0.5 million of
these products in the aggregate. In addition, our
seed-propagated miscanthus product is still under development
and is not yet available for commercial sale.
Our business strategy going forward heavily relies on our
ability to introduce crops with genetically engineered, or
biotech traits. The commercial development of biotech traits in
commercial crops is a multi-year process. Following
transformation, when the optimized gene is inserted in a target
crop, the resulting plants are evaluated in the greenhouse for
one to two years, and then in the field to confirm results for
two to four years. Following field trials, specific gene-trait
combinations are
13
selected and submitted for regulatory approval, or deregulation,
a process that has historically taken one to three years in the
United States and Brazil. Assuming these averages, we believe
that we could introduce our first biotech trait or traits to the
market in 2016 at the earliest. By contrast, our existing sweet
sorghum, switchgrass and high biomass sorghum products have all
been created through the use of conventional breeding. As a
result, even if these products are successfully sold and adopted
by customers, they do not necessarily demonstrate our ability to
successfully develop, market and sell biotechnology products. If
we are not able to bring our existing products or new products
with significant commercial potential to market in a timely
manner, we will not be successful in building a sustainable or
profitable business.
The markets for
some of our dedicated energy crops are not well established and
may take years to develop or may never develop and our growth
depends on customer adoption of our dedicated energy
crops.
We sell proprietary seeds to produce dedicated energy crops for
the renewable energy market, which is not well established and
is evolving. Although our sweet sorghum products are targeted
for use as a feedstock to produce ethanol, ethanol has
historically been produced from corn in the United States
and sugarcane in Brazil and we will need to demonstrate on a
commercial scale that sweet sorghum can reliably be used as a
cost-efficient feedstock for ethanol production. Cellulosic
biofuels have been produced on a limited scale from woody
biomass, such as wood chips, or agricultural residues, and we
will need to demonstrate on a commercial scale that biomass
grown from our seed products, including switchgrass and high
biomass sorghum, can be used as cost-efficient feedstocks for
the production of biofuels, biopower and other bio-based
products.
Currently the market for dedicated energy crops is not well
established, primarily because of the lack of infrastructure to
support the development of this market, including the lack of
commercial-scale production facilities capable of converting
cellulosic feedstocks, referred to as cellulosic biorefineries.
Existing first-generation ethanol biorefineries are not capable
of using cellulosic feedstocks to produce ethanol. The
development of this industry is also dependent, in large part,
upon the efforts of many companies to improve conversion
technologies which will play a significant role in enabling more
cost-effective means of converting biomass into energy. A delay
in the construction of cellulosic biorefineries or a failure to
meaningfully improve conversion technologies could curtail one
of our most significant market opportunities. Even if cellulosic
biorefineries are established in the future, they may elect to
use agricultural residues, waste material or woody biomass as
feedstocks rather than dedicated energy crops, resulting in the
lack of a robust market for our products.
Traditionally the market for biopower, which is the generation
of electric power from combusting biomass, has been fueled
mainly by bio-based waste products from the paper and timber
industries. We believe that expansion of this market will be
driven by governmental policies such as additional state and new
federal mandates that require a certain percentage or absolute
amount of electricity be generated from renewable sources by
specified dates or production tax credits for co-firing biomass.
We cannot predict the effect that existing legislation or the
lack of legislation will have on the development of the biopower
market in the United States or the European Union. To the extent
that the market does not develop or biopower producers elect to
continue to rely on bio-based waste products from the paper and
timber industries, rather than dedicated energy crops, our
market opportunity will be limited.
Our crops are new
and most growers will require substantial instruction to
successfully establish, grow and harvest crops grown from our
seeds.
As part of our product development activities and customer
support, we provide agricultural producers and biomass procurers
with information and protocols regarding the establishment,
management, harvest, transportation and storage of our energy
crops for use in bioenergy. In addition to seed selections, such
crop management recommendations may include equipment selection,
planting and harvest timing, application of crop protection
chemicals or herbicides and storage
14
systems. While some of our crops, such as sorghum and
switchgrass, have been grown for other uses, the crop management
practices required for energy crop production are still new and
are still evolving. Our general or specific protocols may not
apply to all circumstances, may not be sufficient, or may be
incorrect, leading to reduced yields, crop failures or other
production problems or losses by our customers or collaborators.
Such failures may harm our customer or collaborator
relationships, our reputation and our ability to successfully
market our products, and may lead to liability claims against
us. Further, the use of our seeds may require a change in
current planting, rotation or agronomic practices.
Our largest
immediate commercial opportunity is the Brazilian ethanol market
and we only recently completed our first commercial-scale
plantings of our sweet sorghum products in Brazil.
We recently concluded our first commercial-scale plantings of
sweet sorghum in Brazil. In general, the results from these
plantings indicate the plantings were successful. To the extent
that these results wholly or in part did not meet our
collaborators expectations, we may experience a
significant delay in commercializing our sweet sorghum products
in Brazil. We also worked with a number of other mill owners in
Brazil that have tested our sweet sorghum products. Certain of
these plantings deliberately occurred on marginal land and the
harvest has been delayed beyond the ideal time in order to
stress test the results and determine the level to which adverse
conditions will affect the yield and other performance
characteristics of our products. The results of these trials
were therefore less than optimal and could create the perception
that the planting was a failure. This could in turn discourage
other mill owners from trying our sweet sorghum products. The
future success of our drop-in sweet sorghum products
in Brazil will depend on mill owners ability or
willingness to devote proper resources, including land, to our
products and the timing of planting and harvesting of our sweet
sorghum products. The decision to devote land and resources to a
particular crop is dependent on many factors, some of which are
outside of our control. To the extent that our sweet sorghum
field trials do not result in expected yields or are not
replicable on a larger scale, we may have difficulty convincing
sugarcane-to-ethanol
mill owners to field test our products or purchase our sweet
sorghum products.
We have not yet
finalized pricing for our products, including our sweet sorghum
products, for the Brazilian market.
Our products are in the early stages of commercialization and
there is no established market for them. We intend to base the
pricing of our products on our assessment of the value that our
products provide to the customer, rather than on the cost of
production. We may include trait fees in our seed prices, but
our potential customers may be unwilling to pay such fees. If
our customers attribute a lower value to our products than we
do, they may not be willing to pay the premium prices we expect
to charge. Pricing levels may also be negatively affected if our
products are unsuccessful in producing the yields we expect. In
addition, if our competitors are able to develop competitive
products and offer them at lower prices, we may be forced to
lower our prices.
While we have established an initial price range for our sweet
sorghum products in the Brazilian market, we have not set a
final price. Although we are in active discussions with several
mill owners in Brazil, we have not entered into a purchase order
with any potential customer. To date, we have not charged for
our sweet sorghum seeds used in our commercial-scale plantings
in Brazil as our products were being field tested by the mills.
Because we have not sold any of our sweet sorghum seeds in
Brazil and there is no established market price for sweet
sorghum, we will need to negotiate final pricing with our
potential customers. The customers we intend to target in Brazil
are generally large mill owners with long operating histories in
the
sugarcane-to-ethanol
market that will have significant leverage in negotiating
commercial relationships with us. As a result, we do not know
whether these pricing negotiations will result in adequate
margins or accurately reflect our pricing strategies, which
could have a material adverse effect on our results of
operations.
15
Our business will
be adversely affected if the field trials being conducted by our
collaborators or potential customers fail to perform as
expected.
We and our collaborators and potential customers are currently
conducting field trials of our products in various geographies
around the world. We have limited control over field trials that
are conducted by third parties and are dependent on their
ability to follow our suggested protocols. There are various
reasons these trials may fail to succeed, including planting our
seeds too late in the growing seasons or the incorrect use of
fertilizers, and we have in the past conducted trials that we
believe failed to fully meet the expectations of our
collaborators. For example, in September 2009 NRG Energy, Inc.
and Ceres began a pilot project at the Big Cajun II
electrical generating station near New Roads, Louisiana to
evaluate local conditions for growing our switchgrass and high
biomass sorghum as renewable fuels for co-firing in this plant.
In connection with this project, about 20 acres of energy
crops were planted and managed for us by a local grower. NRG has
publicly stated that this trial did not result in a usable crop
and otherwise failed to produce biomass of sufficient quantity
and quality for its purposes. Our investigations determined that
this trial was adversely impacted by undisclosed herbicide
residue in the soil and not by the quality of our products and
that the portions of the field unaffected by these residues
showed acceptable performance in line with our expectations. We
also believe that this particular trial was ultimately cancelled
more because of the lack of attractive U.S. government
incentives than because of any failure of the crops.
Nevertheless, these or other similar statements by our
collaborators or potential customers could harm our reputation
and the decision by these parties not to proceed with
large-scale trials or seed purchases based on these results
could harm our business, revenue and profitability.
Environmental
factors, including weather, moisture, and plant infestations,
may negatively affect the crops grown from our seeds or our seed
inventories.
The plants grown from our seeds are subject to the vagaries of
the weather and the environment, either of which can reduce crop
yields. Weather conditions and natural disasters, such as heavy
rains, hurricanes, hail, floods, tornados, freezing conditions,
drought, fire or other natural disasters, can affect the timing
of planting or harvesting and the acreage planted, as well as
yields. The effects of disease, pests, fungi, bacteria and
insect infestations can also be unpredictable and devastating to
crops, potentially rendering all or a substantial portion of the
affected harvests unsuitable for use. In addition, our crops and
harvests may be adversely affected by climate change resulting
from global warming, including changes in precipitation patterns
and the increased frequency of extreme weather events. Each of
these weather and environmental factors affects geographic
regions differently. Should these or other environmental factors
adversely affect the crops grown from our products, growers may
be unable or unwilling to purchase our seeds or they may choose
to purchase other seeds deemed better adapted to the particular
climatic or environmental conditions they are facing.
The quality of our seed inventory could deteriorate due to a
variety of factors, including the passage of time, temperature
variations, moisture, insects, fungi, bacteria, disease or
pests. If the quality of our seed inventory were to deteriorate
below an acceptable level, the value of our seed inventory would
decrease significantly and we might not be able to meet product
demand. Should a substantial portion of our seed inventory be
damaged by moisture, insects, fungi, bacteria, disease or pests,
our business and financial condition could be materially and
adversely harmed.
Our seed business
is highly seasonal and subject to weather conditions and other
factors beyond our control, which may cause our sales and
operating results to fluctuate significantly.
The sale of seeds is dependent upon planting and growing
seasons, which vary from year to year, and are expected to
result in both highly seasonal patterns and substantial
fluctuations in quarterly sales and profitability. Our product
sales for the year ended August 31, 2010 and the nine
months ended May 31, 2011 were minimal and, accordingly, we
have not yet experienced the full nature or extent to which our
business may be seasonal. We expect that sales of our seeds in
Brazil
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will typically be higher in our first and fourth fiscal
quarters, due to the timing of the planting decisions made by
our customers. As we increase our sales in our current markets,
and as we expand into new markets in different geographies, it
is possible that we may experience different seasonality
patterns in our business. Weather conditions and natural
disasters, such as heavy rains, hurricanes, hail, floods,
tornadoes, freezing conditions, drought or fire, also affect
decisions by our customers about the types and amounts of seeds
to plant and the timing of harvesting and planting such seeds.
Disruptions that cause delays by our customers in harvesting or
planting can result in the movement of orders to a future
quarter, which would negatively affect the quarter and cause
fluctuations in our operating results.
A decline in the
price of petroleum-based products may reduce the demand for many
of our products and adversely affect our business.
We believe that some of the projected demand for renewable
alternatives to fossil fuels is a result of the recent increase
and volatility of oil prices that has occurred over the past few
years. Oil and petroleum prices are currently at historically
high levels. We anticipate that most of our product sales will
be driven by the demand for alternatives to petroleum-based
products. If the price of oil falls, and periods of lower oil
prices are sustained, demand for biofuels or other bio-based
products could also decline. Declining oil prices, or forecasts
of a future decline in oil prices, may adversely affect the
prices for renewable energy products and the prices we can
obtain from our potential customers or cause potential customers
to not buy our products, which could materially and adversely
affect our operating results. We believe that our market
opportunity to sell sweet sorghum seeds in Brazil is based, at
least in part, on the recent shortages Brazil has encountered in
producing sufficient quantities of sugarcane-based ethanol to
satisfy local demand. We cannot predict whether these shortages
will be sustained or whether the Brazilian market will
experience periods of ethanol shortages in the future.
A significant
increase in the price of sugar relative to the price of ethanol
may reduce demand for our sweet sorghum and may otherwise
adversely affect our business.
We intend to market our sweet sorghum varieties in Brazil as a
drop-in feedstock to extend the operating season of
Brazilian
sugarcane-to-ethanol
mills, the operating days of which are currently limited due to
the inherent limitations of sugarcane physiology and growth
patterns. For example, our proprietary varieties of sweet
sorghum can be harvested from February to May while sugarcane,
which is grown year-round, is typically harvested from April to
December, depending on weather and market conditions. In
addition, we may market our sweet sorghum seeds for planting on
marginal land which would not otherwise be well suited for
sugarcane. However, if the price of sugar, which is produced
from sugarcane and which cannot be produced from sweet sorghum
today, rises significantly relative to the price of ethanol, it
may become more profitable for ethanol mill operators to grow
sugarcane even in adverse conditions, such as through the
expansion of sugarcane fields to marginal land or the extension
of the sugarcane harvesting season. During sustained periods of
significantly higher sugar prices, demand for our seeds may
decrease, which could materially and adversely affect our
operating results.
Our failure to
accurately forecast demand for our seeds could result in an
unexpected shortfall or surplus that could negatively affect our
results of operations or our brand.
Because of the length of time it takes to produce commercial
quantities of seeds, we must make seed production decisions well
in advance of product bookings. For example, we must determine
our expected demand for our sweet sorghum varieties
approximately six months in advance of delivery, on average,
while growers or mill operators make seed purchase decisions
sometimes as late as 30 days in advance of planting. Our
ability to accurately forecast demand can be adversely affected
by a number of factors outside of our control, including changes
in market conditions, environmental factors, such as pests and
diseases, and adverse weather conditions. A shortfall in the
supply of our
17
products may reduce product sales revenue, damage our reputation
in the market and adversely affect customer relationships. Any
surplus in the amount of seed we have on hand, may negatively
impact cash flows, reduce the quality of our inventory and
ultimately result in write-offs of inventory. For example, in
2009, we produced an excess of switchgrass seeds because market
demand for this product developed more slowly than anticipated.
Any failure on our part to produce sufficient inventory or
overproduction of a particular product could harm our business,
results of operations and financial condition. Additionally, our
customers may generally cancel an order or request a decrease in
quantity at any time prior to delivery of the seed, which may
lead to a surplus of our products. Even after delivery, a
customer may occasionally return our seeds.
The performance
of our sweet sorghum products in Brazil may be adversely
affected by delays to the start of the Brazilian ethanol
production season.
Once a mill owner begins to crush sugarcane or other feedstock
in its mill, it generally seeks a continuous supply of the
feedstock to run its mill without interruption until the
feedstock is depleted. Our sweet sorghum is intended to be used
as a season-extending crop. Should the sugarcane harvest season
be delayed due to weather or other factors, a mill may choose to
delay the harvest of sweet sorghum to avoid the downtime caused
by a supply gap between a season-extending crop like sweet
sorghum and sugarcane. Since our sweet sorghum grows quickly and
maintains its peak sugars for one to two weeks, depending on
growing conditions, delays in harvesting beyond this time period
may result in lower sugar volumes per acre as well as other
potential production issues as mature plants begin to decline
and may lodge. Such issues could impact growers perception
of the quality or usefulness of our products and, as a result,
their willingness to purchase these products from us in the
future.
Our product
development efforts use complex integrated technology platforms
and require substantial time and resources to develop and our
efforts may not be successful or the rate of product improvement
may be slower than expected.
The development of successful agricultural products using
complex technology discovery platforms such as ours requires
significant levels of investment in research and development,
including field testing, to demonstrate their effectiveness and
can take several years or more. For the fiscal year ended
December 31, 2008, the eight months ended August 31,
2009, the fiscal year ended August 31, 2010 and the nine
months ended May 31, 2011, we spent $20.3 million,
$12.4 million, $16.7 million and $13.8 million,
respectively, on research and development. We intend to continue
to spend significant amounts on research and development in the
future to continue to improve the performance of our products.
Our substantial investment in research and development may not
result in significant product revenues, particularly over the
next several years. To date, companies have developed and
commercialized relatively few dedicated energy crops, and no
genetically engineered dedicated energy crops.
Development of new or improved agricultural products involves
risks of failure inherent in the development of products based
on innovative and complex technologies. These risks include the
possibility that:
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our products will fail to perform as expected in the field;
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our products will not receive necessary regulatory permits and
governmental clearances in the markets in which we intend to
sell them;
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our products will be viewed as too expensive by our potential
customers compared to competitive products;
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our products will be difficult to produce on a large scale or
will not be economical to grow;
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proprietary rights of third parties will prevent us, our
collaborators, or our licensees from marketing our
products; and
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third parties may develop superior or equivalent products.
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Loss of or damage
to our germplasm collection would significantly slow our product
development efforts.
We have access to a comprehensive collection of germplasm for
sweet sorghum, high biomass sorghum, switchgrass and miscanthus
through strategic collaborations with leading institutions.
Germplasm comprises collections of genetic resources covering
the diversity of a crop, the attributes of which are inherited
from generation to generation. Germplasm is a key strategic
asset since it forms the basis of plant breeding programs. To
the extent that we lose access to these germplasm collections
because of the termination or breach of our collaboration
agreements, our product development capabilities would be
severely limited. In addition, loss of or damage to these
germplasm collections would significantly impair our research
and development activities. Although we restrict access to our
germplasm at our research facilities to protect this valuable
resource, we cannot guarantee that our efforts to protect our
germplasm collection will be successful. The destruction or
theft of a significant portion of our germplasm collection would
adversely affect our business and results of operations.
The successful
commercialization of our products depends on our ability to
produce
high-quality
seeds cost-effectively on a large scale.
The production of commercial-scale quantities of seeds requires
the multiplication of the seeds through a succession of
plantings and seed harvests, and if the product is a hybrid, it
must be produced from parental lines, which are mated under
controlled conditions. The cost-effective production of
high-quality high-volume quantities of some of our products
depends on our ability to scale our production processes to
produce seeds in sufficient quantity to meet demand. We cannot
assure you that our existing or future seed production
techniques will enable us to meet our large-scale production
goals cost-effectively for the products in our pipeline. Even if
we are successful in developing ways to increase seed yields and
enhance seed quality, we may not be able to do so
cost-effectively or on a timely basis, which could adversely
affect our ability to achieve profitability. If we are unable to
maintain or enhance the quality of our seeds as we increase our
production capacity, including through the expected use of third
parties, we may experience reductions in customer demand, higher
costs and increased inventory write-offs.
We depend, in
part, on third parties to produce our seeds.
We produce commercial seed either on leased land managed by us
or with contract seed producers. Our current production sites
are located in the United States and Puerto Rico as well as
Argentina, Bolivia and Brazil. In order to meet increased demand
for our seeds, we will need to enter into additional land leases
or arrangements with contract seed producers. If we need to
engage contract seed producers, we may not be able to identify
suitable producers in a specific region and if we do, we do not
know whether they will have available capacity when we need
their production services, that they will be willing to dedicate
a portion of their production capacity to our products or that
we will be able to enter into an agreement with them on
acceptable terms. If any contract seed producer that we engage
fails to perform its obligations as expected or breaches or
terminates their agreements with us, or if we are unable to
secure the services of such third parties when and as needed, we
may lose opportunities to generate revenue from product sales.
19
We are at the
beginning stages of developing our Blade brand and we have
limited experience in marketing and selling our products and
will need to expand our sales and marketing
infrastructure.
We are in the beginning phases of building brand awareness for
our dedicated energy crops. To date, we have had very little
experience selling our products. We currently have limited
resources to market and sell our products on a commercial-scale
across various geographic regions. As of May 31, 2011, our
sales and marketing and business development departments
together had six full-time employees. Developing our sales and
marketing infrastructure and gaining the necessary expertise
will require that we hire additional sales and marketing
personnel, which could take longer than we expect and may
require significant resources. We may be unable to grow our
sales and marketing or business development infrastructure to
adequately cover the geographic regions where we see the most
opportunity, which could slow the adoption of our products and
the growth of product revenue.
We face
significant competition in all areas of our business, and if we
do not compete effectively, our business will be
harmed.
The renewable energy industry is rapidly evolving and new
competitors with competing technologies are regularly entering
the market. We believe the primary competitive factors in the
energy crop seed industry are yield, performance, scale, price,
reliable supply and sustainability. We expect to face
competitors on multiple fronts. First, we expect to compete with
other providers of seed and vegetative propagation materials in
the market for sweet sorghum, high biomass sorghum, switchgrass
and miscanthus. While the competitive landscape in these crops
is limited at this time, we anticipate that as our products gain
market acceptance, other competitors will be attracted to this
opportunity and produce their own seed varieties. Second, we
believe that new as yet unannounced crops will be introduced
into the renewable energy market and that existing energy crops
will attempt to gain even greater market share. Existing crops,
such as corn, sugarcane and oil palm trees, currently dominate
the biofuels market. As new products enter the market, our
products may become obsolete or our competitors products
may be more effective, or more effectively marketed and sold,
than our products. Changes in technology and customer
preferences may result in short product life cycles. To remain
competitive, we will need to develop new products and enhance
and improve our existing products in a timely manner. Our
failure to maintain our competitive position could have a
material adverse effect on our business and results of
operations.
Our principal competitors may include major international
agrochemical and agricultural biotechnology corporations, such
as Advanta India Limited, The Dow Chemical Company, Monsanto
Company, Pioneer Hi Bred (DuPont), KWS and Syngenta, all of
which have substantially greater resources to dedicate to
research and development, production, and marketing than we
have. We also face direct competition from other seed companies
and biotechnology companies, and from academic and government
research institutions. New competitors may emerge, including
through consolidation within the seed or renewable energy
industry. We are unable to predict what effect evolution of the
industry may have on price, selling strategies, intellectual
property or our competitive position.
In the broader market for renewable energy, we expect to face
competition from other potential feedstocks, such as biomass
residues from food crops, forestry trimmings and municipal waste
materials, other renewable alternatives, such as algae, solar
and wind-generated electricity, and other energy crops. There
are multiple technologies that process biomass into biofuels and
we have yet to determine compatibility of our feedstocks with
all of these processes. Our failure to develop new or enhanced
products that are compatible with these alternative
technologies, or a lack of market acceptance of our products as
the common denominator in a broad array of bio-based products
that are alternatives to petroleum based products, could have an
adverse effect on our business. Significant developments in
alternative technologies, such as the inexpensive and
large-scale storage of solar or wind-generated energy, may
materially and adversely affect our business in ways that we do
not currently anticipate.
20
A significant
portion of our revenue to date is generated from our
collaboration agreements and we must meet our obligations under
these agreements in order to be entitled to the revenue streams
from these agreements.
Historically, a significant portion of our revenue has been
generated from payments to us under collaborative research
agreements with third parties and we continue to
opportunistically pursue new strategic collaborations. We are
obligated under these agreements to perform research activities
over a particular period of time. Certain of our agreements
entitle us to milestone payments in the event the specified
milestone is met. If we fail to perform our obligations under
these agreements or any new collaborative research agreements we
may enter into in the future, our revenues may decrease, or our
collaborative partners may terminate or fail to renew the
agreements. In addition, any of our collaborators may fail to
perform their obligations as expected, which may hinder our
research and development efforts. We and our collaborators may
disagree as to which party had rights to intellectual property
developed under the agreements. Disagreements with our
collaborators could develop and any conflict with a collaborator
may negatively affect our relationship with one or more existing
collaborators or our ability to enter into future collaboration
agreements.
Our results of
operations will be affected by the level of royalty payments
that we are required to pay to third parties.
We are a party to license agreements with third party
collaborators, including The Texas A&M University System
and The Samuel Roberts Noble Foundation, Inc., that require us
to remit royalty payments to these third parties if we
incorporate their licensed intellectual property into our
products. While we are currently working on developing numerous
products that incorporate aspects of this intellectual property,
we have to date only sold small amounts of such products. The
amount of royalties that we could owe under these license
agreements is a function of our sales and the applicable royalty
rates depend on a number of factors, including the portion of
our third-party collaborators intellectual property that
is present in our products. For additional details regarding
potential future royalty payments, see
Business Our Technology Platform.
Because of our historically limited volume of sales, we have
little experience in calculating royalties under these license
agreements and it is unclear exactly how much of this licensed
intellectual property will be included in any final products we
offer for commercial sale. As a result we cannot precisely
predict the amount, if any, of royalties we will owe in the
future. If, once we commence sales of these products, we
determine that the products include more intellectual property
of our third party collaborators than we had previously
determined, or if our calculations of royalty payments are
incorrect, we may owe more royalties, which could negatively
affect our results of operations. As our product sales increase,
we may, from
time-to-time,
disagree with our third party collaborators as to the
appropriate royalty rate and the resolution of such disputes may
be costly and may consume managements time. Furthermore,
we may enter into additional license agreements in the future,
which may also include royalty payments.
We are also a party to license agreements pursuant to which we
have received licenses on certain intellectual property related
to biotechnology products. When we commence sales of our
biotechnology products in the future, or grant licenses to third
parties to commercialize such products, we will be required to
remit royalty payments to the parties from whom we have licensed
intellectual property that covers such products.
A significant
portion of our revenue to date is generated from government
grants and continued availability of government grant funding is
uncertain and contingent on compliance with the requirements of
the grant.
Historically, a significant portion of our revenue has been
generated from payments to us from government entities in the
form of government grants whereby we are reimbursed for certain
expenses incurred in connection with our research and
development activities, subject to our compliance with the
21
specific requirements of the applicable grant, including
rigorous documentation requirements. To the extent that we do
not comply with these requirements, our expenses incurred may
not be reimbursed. Any of our existing grants or new grants that
we may obtain in the future may be terminated or modified.
Our ability to obtain grants or incentives from government
entities in the future is subject to the availability of funds
under applicable government programs and approval of our
applications to participate in such programs. The application
process for these grants and other incentives is highly
competitive. We may not be successful in obtaining any
additional grants, loans or other incentives. The recent
political focus on reducing spending at the U.S. federal
and state levels may reduce the scope and amount of funds
dedicated to renewable energy products, if such funds will
continue to be available at all. To the extent that we are
unsuccessful in being awarded any additional government grants
in the future, we would lose a potential source of revenue.
Our government
grants may subject us to government audits, which could expose
us to penalties.
We may be subject to audits by United States government agencies
as part of routine audits of our activities funded by our
government grants. As part of an audit, these agencies may
review our performance, cost structures and compliance with
applicable laws, regulations and standards and the terms and
conditions of the grant. If any of our costs are found to be
allocated improperly, the costs may not be reimbursed and any
costs already reimbursed for such contract may have to be
refunded. Accordingly, an audit could result in a material
adjustment to our results of operations and financial condition.
Moreover, if an audit uncovers improper or illegal activities,
we may be subject to civil and criminal penalties and
administrative sanctions. In addition, we devote substantial
resources to our systems used to track expenditures funded by
our government grants.
The biofuel and
biopower industries are highly dependent upon government
subsidies and economic incentives, and any changes in such
subsidies or incentives could materially and adversely affect
the growth of the industry and our ability to sell dedicated
energy crops.
The market for renewable energy in the United States is heavily
influenced by government subsidies, economic incentives and tax
credits and other regulatory initiatives that impact the
production, distribution and adoption of renewable energy
products. For example, the United States Renewable Fuel Standard
program, or RFS, currently calls for 14 billion gallons of
the liquid transportation fuels sold in 2011 to come from
renewable biofuels, with proposed volumes of renewable fuel for
2012 to rise to 15 billion gallons. The U.S. Energy
Independence and Security Act of 2007 increases the volume of
renewable fuel required to be blended into transportation fuel
to 36 billion gallons per year by 2022. Of this amount, the
RFS currently states that 16 billion gallons of renewable
biofuels used annually by 2022 must be cellulosic biofuel, such
as could be created by our switchgrass product. The RFS has been
modified in the past and may be modified again in the future. In
the United States, the administrator of the Environmental
Protection Agency, or EPA, in consultation with the Secretary of
Energy and the Secretary of Agriculture may waive certain
renewable fuel standards to avert economic harm or in response
to inadequate supply. The administrator of the EPA is also
required to reduce the mandate for cellulosic biofuel use if
projected supply for a given year falls below a minimum
threshold for that year. For example, because the supply of
cellulosic biofuel was projected to be very limited in 2011, the
EPA determined that the final volume standard for cellulosic
biofuel for 2011 would be six million gallons and the projected
volume for cellulosic biofuel for 2012 is between three and
13 million gallons, well below the 250 million gallon
volume requirement target specified in the Energy Independence
and Security Act. Any reduction in, or waiver of, mandated
requirements for fuel alternatives may cause demand for
renewable biofuels to grow more slowly or decline. Our business
strategy in the United States is based, in part, on these
standards remaining in place. Waivers of, or reduction in, the
RFS or similar mandates, could have a material adverse affect on
our ability to successfully grow demand for our cellulosic
feedstock products in the United States.
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In biopower, the reduction of, or failure to implement, certain
government mandates, such as Renewable Electricity Standards in
the U.S. or taxes on carbon emissions, as well as incentives,
subsidies and tax credits to generate electric power from
low-carbon sources, may adversely affect the viability of the
field trials we conduct with our collaborators. These
collaborators may terminate existing field trials or elect not
to progress with planned field trials absent the implementation
of such incentives.
In addition, the United States Congress has passed legislation
that extends tax credits or other economic incentives for, among
other things, the production of certain renewable fuel products.
For example, the United States adopted the Renewable Energy
Production Tax Credit that provides federal tax incentives for
renewable energy projects, and the Biomass Crop Assistance
Program, or BCAP, which provides risk mitigation and production
incentives to encourage growers to produce dedicated energy
crops. We believe that BCAP will influence the growth of the
switchgrass and miscanthus markets; however, unless extended,
BCAP expires in 2012. We cannot provide assurances that these
tax credits or other economic incentives will remain in place.
Any reduction in or phasing out or elimination of existing tax
credits, subsidies and other incentives in the United States and
foreign markets for renewable biofuels, or any inability of us
or our prospective customers to access such credits, subsidies
and other incentives, may adversely affect demand for, and
increase the overall cost of our renewable transportation fuels,
which would adversely the prospects for our business.
We believe that government incentives and economic initiatives
in Europe and other countries will also affect demand for our
dedicated energy crops. For example, in the United Kingdom,
which is a potential export market for
U.S.-grown
biomass, independent power providers are required to obtain a
certain portion of their power from renewable resources. Any
reduction or termination of government incentives or economic
initiatives outside the United States could also have a material
adverse effect on our business.
Compliance with
applicable government regulations, particularly with respect to
biotechnology products, is time-consuming and costly.
There are certain regulatory requirements affecting the field
testing and commercialization of our biotechnology products in
each of the markets in which we operate. In the United States,
the United States Department of Agriculture, or USDA, must
review and deregulate our biotechnology products prior to
commercial sale. The Biotechnology Regulatory Services, or BRS,
within the USDAs Animal and Plant Health Inspection
Service, or APHIS, has direct oversight of the field testing and
deregulation of our biotechnology products, The deregulation
process for biotechnology products is a costly, multi-year
process, with no guarantee of success. The length of the
deregulation process varies based on a number of factors,
including the extent of the supporting information required, the
nature and extent of review by the USDA, including the type and
scope of the environmental review conducted, and the number and
types of public comments received. For example, after the
initial filing of a petition for deregulation, the USDA may ask
for additional data, including data on new areas of inquiry that
might require us to conduct additional field tests or analyses,
which may cause delays in the deregulation process. Deregulation
of a product is not a guaranteed outcome. The USDA or other
regulators may also impose costly monitoring requirements on the
planting of our biotechnology products.
In Brazil, the commercialization of biotechnology products is
regulated by the National Technical Commission of Biosafety,
Comissão Técnica Nacional de Biossegurança, or
CTNBio under the Ministry of Science and Technology. The
approval process involves data collection and analysis,
environmental impact assessments and public hearings on certain
products. We are not currently subject to CTNBio oversight as
our current product offerings in Brazil do not include
biotechnology products. However, we do anticipate introducing
biotechnology products in Brazil in the future. At such time, we
will be subject to the approval processes dictated by CTNBio.
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We have not yet applied for deregulation for any of our biotech
traits. Any delays in obtaining or failure to obtain
deregulation or regulatory approval, as the case may be, for any
of the biotechnology products in our pipeline could delay or
prevent the commercialization of our products. Regulatory
authorities can block the sale or import of our products or can
impose conditions that delay production and sale of our
products, or that make the sale of our products technically or
commercially unfeasible.
Before the USDA will review and deregulate our products, the
USDA requires us to obtain permits to plant and test our
biotechnology products, and there are similar permitting
requirements in Brazil. In determining whether to grant a field
test permit and what conditions to impose, regulators consider
any significant impacts that field tests may have on the
environment and on endangered or threatened species. In the
United States, the permitting process for the initial field
tests typically ranges from two to four months, but this time
period can be significantly longer for novel products or
circumstances. While to date our permits for our field trial
locations have been obtained with minimal delays, there can be
no assurance that we will not encounter material delays in the
future as we test new biotechnology products. If we are not able
to obtain the necessary field test permits or if there are
significant delays in the permitting process, the
commercialization of our products may be delayed or prevented
and our business and results of operations may be adversely
affected. A prolonged delay in the regulatory process could
adversely affect our ability to generate product revenues.
Ethical, legal
and social concerns about biotechnology products could limit or
prevent the use of our products and technologies, which could
negatively affect our ability to generate revenue.
Some of our products in development contain biotech traits. The
commercial success of our products that contain biotech traits
may be adversely affected by claims that biotechnology plant
products are unsafe for consumption or use, pose risks of damage
to the environment and create legal, social and ethical
dilemmas. For example, some countries, primarily in the European
Union, have instituted a de facto moratorium on the planting of
some genetically engineered seeds. The import of biomass grown
from genetically engineered seeds may also be regulated by the
European Union. While we are not currently selling seeds
containing biotech traits into the European Union, we plan to do
so in the future. In addition, Brazils biosafety law
prohibits the use, sale, registration, patenting and licensing
of genetic use restriction technologies, which are a class of
genetic engineering technologies that allow companies to
introduce seeds whose sterile offspring cannot reproduce,
preventing farmers from re-planting seeds from their harvest.
While our current sweet sorghum products are not subject to this
restriction, we may in the future introduce biotech traits that
may be subject to such regulation. If we are not able to
overcome these concerns and comply with these regulations, our
products may not achieve market acceptance. Any of the risks
discussed below could result in expenses, delays or other
impediments to our development programs or the market acceptance
and commercialization of our products that contain biotech
traits. Our ability to develop and commercialize one or more of
our technologies and products could be limited or prevented by
the following factors:
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Public attitudes about the safety and environmental hazards of,
and ethical concerns over, genetic research and biotechnology
products, which could influence public acceptance of our
technologies and products;
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Public attitudes regarding, and potential changes to laws
governing, ownership of genetic material, which could weaken our
intellectual property rights with respect to our genetic
material and discourage collaborators from supporting,
developing or commercializing our products and technologies;
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Governmental reaction to negative publicity concerning
genetically engineered plants, which could result in greater
government regulation of genetic research and derivative
products; and
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Failure to maintain or secure consumer confidence in, or to
maintain or receive governmental approvals for, our products.
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We cannot predict whether or when any jurisdiction will change
its regulations with respect to biotechnology products. Problems
with any product could lead to increased scrutiny or regulation
for our products. Limitations on the development of
biotechnology products could be imposed that could delay,
prevent or make more costly the development of such products,
which would negatively affect our ability to commercialize
products using our traits.
Advocacy groups have engaged in publicity campaigns and filed
lawsuits in various countries against companies and regulatory
authorities, seeking to halt biotechnology approval activities
or influence public opinion against genetically engineered
products. On occasion, there has been vandalism and destruction
of property of companies in the biotechnology industry.
Our
non-biotechnology products, the products of third parties or the
environment may be negatively affected by the unintended
appearance of our transgenes.
The development and commercial success of our non-biotechnology
products may be delayed or negatively affected because of
adverse public perception or regulatory concerns about the
safety of our products and the potential effects of these
products on other plants, animals, human health and the
environment. The potential for unintended but unavoidable trace
amounts, sometimes called adventitious presence, of
transgenes in conventional seed, or in the grain or products
produced from conventional or organic crops, is another factor
that could affect general public acceptance of these traits. For
example, our current sweet sorghum, high biomass sorghum and
switchgrass products have been produced exclusively through
conventional breeding and have not been genetically engineered
by us. It is possible, however, that trace amounts of our
transgenes are nevertheless in our conventional products. In
addition, trace amounts of transgenes may unintentionally be
found outside our containment area in the products of third
parties, which may result in negative publicity and claims of
liability brought by such third parties against us. Furthermore,
in the event of an unintended dissemination of our genetically
engineered materials to the environment, we could be subject to
claims by multiple parties, including environmental advocacy
groups, as well as governmental actions such as mandated crop
destruction, product recalls or additional stewardship practices
and environmental cleanup or monitoring.
Ethical, legal
and social concerns about land use could limit or prevent the
widespread adoption of our products, which could negatively
affect our ability to generate revenue.
The commercial success of our products also may be adversely
affected by claims that the production of bioenergy displaces
land that would otherwise be used for food and feed production,
leading to shortages and higher prices for food and feed
commodities. These claims are based, in part, on the assumption
that there is a scarcity of available land for crop production,
productivity is uniform across the globe and that productivity
will remain flat over time. While these assumptions are not
universally accepted, their acceptance by legislatures or
advocacy groups could harm our ability to sell our products. The
increased use of land for bioenergy production may also lead to
claims that the increased planting of other crops in other
regions may cause land clearing, such as in the Brazilian
rainforest, and subsequent greenhouse gas releases a
theory known as indirect land use change. This theory proposes
that such indirect effects, and their related greenhouse gas
emissions should be applied to the emissions life cycle of
bioenergy feedstocks, including dedicated energy crops. The
perception that our products are resulting in higher greenhouse
gas emissions could disadvantage our products related to other
potential energy sources, or make it more difficult for our
products to meet regulatory requirements for reduced emissions.
Development and
commercialization, if any, of our products may incur scrutiny
under the Convention on Biological Diversity Treaty.
The Convention on Biological Diversity, or the Convention, is an
international treaty that was adopted at the Earth Summit in Rio
de Janeiro, Brazil in 1992. The treaty provides that if a
company uses genetic resources, such as an indigenous plant,
from a participating country to develop a
25
product, then such company must obtain the prior informed
consent of the participating country and owes fair and equitable
compensation to such country. Although the United States is not
a participating country, most countries where we currently
obtain or may obtain germplasm in the future, have ratified the
treaty and are currently participants in the Convention. We may
fall under scrutiny of the Convention with respect to the
development or commercialization of any of our products derived
from the germplasm originating from any of the countries that
are participants in the Convention. There can be no assurances
that the government of a participating country will not assert
that it is entitled to fair and equitable compensation from us.
Such compensation, if demanded, may make commercialization of
our products not feasible.
Our business is
affected by changes in general economic conditions and a
prolonged downturn could affect the demand for our products and
our ability to fund our working capital.
Economic conditions in the United States, Brazil and Europe
could adversely affect our efforts to achieve profitability. The
purchasing decisions of utilities, mill operators, growers and
other potential customers, and their ability to timely pay for
our products, are impacted by their economic health. We may have
to regularly extend credit to our customers to enable them to
acquire seeds at the beginning of the growing season on terms
that permit payment following the sales of their products. These
credit practices may expose us to credit risk of utilities, mill
operators and growers and other potential customers, and
combined with the seasonality of our sales, make us dependent on
our ability to fund our working capital requirements through
other means. If the current difficult economic conditions
continue or worsen, the economic health of our customers and
potential customers could further deteriorate.
Our activities
are currently conducted at limited number of locations, which
makes us susceptible to damage or business disruptions caused by
natural disasters.
Our headquarters and certain research and development operations
are located at a single facility in Thousand Oaks, California.
Our main breeding station is located at our College Station
Research Center near College Station, Texas, with additional
breeding and agronomy trials situated in select locations across
the world, including the Americas, Europe and Asia. Our seed
production takes place primarily in the United States and Puerto
Rico, as well as Argentina, Bolivia and Brazil. Warehousing for
seed storage is located primarily in Texas and the state of
São Paulo, Brazil. We take precautions to safeguard our
facilities, including insurance, health and safety protocols,
and off-site storage of critical research results and computer
data. However, a natural disaster, such as a hurricane, fire,
flood, tornado or earthquake, could cause substantial delays in
our operations, damage or destroy our equipment, inventory or
development projects, and cause us to incur additional expenses.
The insurance we maintain against natural disasters may not be
adequate to cover our losses in any particular case.
We rely on the
experience and expertise of our senior management team and other
key personnel.
We depend on the experience and expertise of our senior
management team and other key personnel, many of whom have been
with our company for more than a decade. Our senior management
team and key personnel bring extensive experience in the seed
industry, agricultural biotechnology and plant genetics. The
loss or unavailability of key members of our senior management
team or other key personnel could impact the execution of our
business strategy and make it more difficult to maintain and
expand our important relationships in the bioenergy industry.
The replacement of key members of our senior management team or
other key personnel likely would involve significant time and
costs.
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If we are unable
to recruit or retain qualified personnel, particularly in
Brazil, our development and commercialization efforts may be
significantly delayed.
Competition for qualified personnel is intense among
agricultural biotechnology and other technology-based
businesses, particularly for personnel with the appropriate
level of education, experience and training. We may not be able
to recruit and retain such personnel at compensation levels
consistent with our existing compensation structure. The
continued appreciation of the Brazilian Real against the
U.S. dollar will make it more difficult for us to meet
compensation expectations of Brazilian personnel. In addition,
in making employment decisions, job candidates often consider
the value of equity they may receive in connection with their
employment. Therefore, significant volatility in the price of
our stock after this offering may adversely affect our ability
to attract or retain personnel. Competition for qualified
personnel in Brazil is particularly intense due to the
importance of the agricultural industry in Brazil and the recent
increased activity levels of U.S. agricultural or renewable
energy companies in Brazil, including Amyris Biotechnologies,
Inc. and Monsanto Company.
If we lose qualified personnel or are unable to attract, retain
and integrate additional highly trained and motivated personnel,
particularly for our research and development activities, our
ability to advance our product development and continue our
commercialization efforts may be delayed or unsuccessful.
Unexpected
fluctuations in our quarterly operating results may cause our
stock price to fluctuate widely.
A large proportion of our costs are fixed, due in part to our
significant research and development and production costs and
general and administrative expenses. Thus, even a small decline
in revenue could disproportionately affect our quarterly
operating results and could cause such results to differ
materially from expectations. If this occurs, we may fail to
meet analyst and investor expectations, which could cause our
stock price to decline. Other factors that could affect our
quarterly operating results or cause them to differ materially
from expectations include:
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demand for and acceptance of our products;
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weather conditions or the occurrence of natural disasters;
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changes in government regulations and incentives;
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competitive pressures resulting in lower selling prices; and
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unanticipated delays or problems in the introduction of new
products.
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We may require
additional financing in the future and may not be able to obtain
such financing on favorable terms, if at all, which could force
us to delay, reduce or eliminate our research and development
activities.
We will continue to need capital to fund our research and
development projects and to provide working capital to fund
other aspects of our business. If our capital resources are
insufficient to meet our capital requirements, we will have to
raise additional funds. If future financings involve the
issuance of equity securities, our existing stockholders would
suffer dilution. If we are able to raise additional debt
financing, we may be subject to restrictive covenants that limit
our operating flexibility. We may not be able to raise
sufficient additional funds on terms that are favorable to us,
if at all. If we fail to raise sufficient funds and continue to
incur losses, our ability to fund our operations, take advantage
of strategic opportunities, develop and commercialize products
or technologies, or otherwise respond to competitive pressures
could be significantly limited. If this happens, we may be
forced to delay or terminate research and development programs
or the commercialization of products, curtail operations or
obtain funds through collaborative and licensing arrangements
that may require us to relinquish commercial rights, or grant
licenses to our technology on terms that are not
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favorable to us. If adequate funds are not available, we will
not be able to successfully execute on our business strategy or
continue our business.
We expect to
derive a portion of our revenues from markets outside the United
States, including Brazil, which will subject us to additional
business risks.
Changes in exchange rates between the U.S. dollar and other
currencies will result in increases or decreases in our costs
and earnings, and also may affect the book value of our assets
outside the United States. To date, most of our contracts have
been entered into in the United States and accordingly have been
denominated in U.S. dollars. Going forward we anticipate
that our sales will be denominated in the local currency of the
country in which the sale occurs. In addition, most of our
operating expenses to date have been denominated in the
currencies of the countries in which our operations are located,
primarily the United States and Brazil. As a result, while our
revenue and operating expenses are mostly hedged on a
transactional basis, the translation of our operating results
into U.S. dollars may be adversely impacted by
strengthening U.S. currency.
In addition, international operations are subject to a number of
other risks and uncertainties, including:
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changes in political, social or economic conditions;
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tariffs, trade protection measures and trade agreements;
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import or export licensing requirements;
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changes in regulatory requirements;
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reduced protection for intellectual property rights in some
countries;
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economic downturns, civil disturbances or political instability;
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difficulties and costs of staffing and managing international
operations;
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fluctuations in currency exchange rights;
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land reform movements;
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price controls;
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nationalization; and
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potentially burdensome taxation.
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In the past, the Brazilian economy was characterized by frequent
and occasionally extensive intervention by the Brazilian
government and unstable economic cycles. The Brazilian
government has changed in the past, and may change in the
future, monetary, taxation, credit, tariff and other policies to
influence the course of Brazils economy. For example, the
governments actions to control inflation have at times
involved setting wage and price controls, adjusting interest
rates, imposing taxes and exchange controls and limiting imports
into Brazil. The Brazilian government has also in the past
placed significant restrictions on the ability of foreign
persons and companies to acquire property in Brazil. We have no
control over, and cannot predict, what policies or actions the
Brazilian government may take in the future. Any of these
actions could adversely affect our international operations and,
consequently, our results of operations.
Our ability to
use our net operating loss carry forwards to offset future
taxable income may be subject to certain limitations.
As of August 31, 2010, we had approximately
$154.2 million of federal and $133.4 million of state
operating loss carry-forwards available to offset future taxable
income, which expire in varying amounts beginning in 2018 for
federal and 2016 for state purposes if unused. It is possible
that we will not generate taxable income in time to use these
loss carry-forwards before their expiration. In
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addition, under Section 382 of the Internal Revenue Code,
or Code, a corporation that undergoes an ownership
change is subject to limitations on its ability to utilize
its pre-change net operating loss carry forwards, or NOLs, to
offset future taxable income. We have not completed a
Section 382 analysis to determine if an ownership change
has occurred. Until such analysis is completed, we cannot be
sure that the full amount of the existing NOLs will be available
to us, even if we do generate taxable income before their
expiration.
We use hazardous
materials in our business. Any claims relating to improper
handling, storage or disposal of these materials could be time
consuming and costly.
Our research and development processes involve the controlled
use of hazardous materials, including chemical and biological
materials. Federal, state and local laws and regulations govern
the use, manufacture, storage, handling and disposal of these
materials. Our operations also produce hazardous waste. We
cannot eliminate entirely the risk of accidental contamination
or discharge and any resultant injury from these materials. We
may face liability for any injury or contamination that results
from our use or the use by third parties of these materials,
which depending on the severity of the injury or contamination
could be significant. In addition, compliance with applicable
environmental laws and regulations may be expensive, and current
or future environmental regulations may impair our research,
development or production efforts.
We may suffer
liabilities relating soil and/or groundwater contamination at
current and former properties and at third-party sites to which
we sent hazardous wastes for disposal.
We are exposed to environmental risks associated with the
ownership and operation of real property and the disposal of
hazardous wastes. Environmental laws can require current owners
and operators of real property to remediate soil and groundwater
contamination even if such contamination was caused by another
party, such as a former owner or operator. These laws can also
require companies to clean up real property that they formerly
owned or operated if releases of hazardous materials or wastes
occurred during the period of their ownership or operation.
Moreover, in certain circumstances these laws require companies
to clean up third-party sites to which hazardous wastes were
sent for disposal, notwithstanding that the original disposal
activity accorded with all regulatory requirements. The
discovery of previously unknown contamination at our current or
former facilities, or at third-party sites to which we sent
hazardous wastes for disposal, could require us to conduct or
fund expensive cleanup efforts, which could materially and
adversely affect our operating results.
We may be sued
for product liability and if such lawsuits were determined
adversely, we could be subject to substantial damages.
We may be held liable if any product we develop, or any product
that uses or incorporates, any of our technologies, causes
injury or is found otherwise unsuitable during product testing,
production, marketing or sale. For example, the detection of
unintended biotechnology material in pre-commercial seed,
commercial seed varieties or the crops and products produced may
result in the inability to market the crops grown, resulting in
potential liability for us as the seed producer or technology
provider. In the event this was to occur, we could be subject to
claims by multiple parties based not only on the cost of our
products but also on their lost profits and business
opportunities. In addition, the detection of unintended
biotechnology material in our seeds or in the environment could
result in governmental actions such as mandated crop
destruction, product recalls or environmental cleanup or
monitoring. Concerns about seed quality related to biotechnology
could also lead to additional regulations being imposed on our
business, such as regulations related to testing procedures,
mandatory governmental reviews of biotechnology advances, or the
integrity of the food supply chain from the farm to the finished
product.
We currently have limited product liability insurance coverage
and additional insurance may be prohibitively expensive, or may
not fully cover potential liabilities. If we are unable to
obtain sufficient
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insurance coverage at an acceptable cost or otherwise or if the
amount of any claim against us exceeds the coverage under our
policy, we may face significant expenses.
Risks Related to
our Intellectual Property
Our inability to
adequately protect our proprietary technologies and products
could harm our competitive position.
Our success depends in part on our ability to obtain patents and
maintain adequate protection of our other intellectual property
for our technologies and products in the United States and other
countries. The laws of some foreign countries do not protect
proprietary rights to the same extent as the laws of the United
States, and many companies have encountered significant problems
in protecting their proprietary rights in these foreign
countries. These problems can be caused by, for example, a lack
of rules and methods for defending intellectual property rights.
Many countries, including Brazil, do not allow patenting of
plants, whether genetically engineered or traditionally bred.
Accordingly, our proprietary position for our products in
countries such as Brazil relies to a large extent on Plant
Variety Protection certificates. This type of protection is more
limited than patents in the United States. As a result, Plant
Variety Protection certificates may provide only a limited
competitive advantage in the marketplace. In many countries,
including Brazil, patentability criteria are generally more
restrictive and our filings more limited than in the United
States, weakening our prospects of obtaining an equal scope of
corresponding patent protection. Because Brazil is our initial
target market, the lack of more robust patent protection for
plant varieties in that country could expose us to the risk of
misappropriation of our intellectual property. In addition, the
legal systems of certain other countries do not favor the
enforcement of patents and other intellectual property
protection, particularly those relating to biotechnology. This
could make it difficult for us to stop the infringement of our
patents or misappropriation of our other intellectual property
rights. Proceedings to enforce our patents and other proprietary
rights in foreign jurisdictions could result in substantial
costs and divert our efforts and attention from other aspects of
our business. Accordingly, our efforts to enforce our
intellectual property rights in such countries may be inadequate
to obtain a significant commercial advantage from the
intellectual property that we develop. Even if we enforce our
rights aggressively, injunctions, fines and other penalties may
be insufficient to deter violations of our intellectual property
rights. Changes in either the patent laws or in interpretations
of patent laws in the United States and other countries may
diminish the value of our intellectual property.
The patent positions of biotechnology companies, including our
patent position, are generally uncertain and involve complex
legal and factual questions. We will be able to protect our
proprietary rights from unauthorized use by third parties only
to the extent that our proprietary technologies are covered by
valid and enforceable patents. We will apply for patents
covering both our technologies and products as we deem
appropriate. However, we cannot assure you that any pending or
future patent applications held by us will result in an issued
patent, or that if patents are issued to us, such patents will
provide meaningful protection against competitors or against
competitive technologies. Our existing patents and any future
patents we obtain may not be sufficiently broad to prevent
others from practicing our technologies or from developing
competing products. Furthermore, others may independently
develop similar or alternative technologies or design around our
patented technologies. In addition, our patents may be
challenged, invalidated or fail to provide us with any
competitive advantages.
The value of our
intellectual property could diminish due to technological
developments or challenges by competitors, making our products
less competitive.
Our intellectual property rights are important to the operation
of our business and to our early mover advantage in crop
biotechnology. We rely on a combination of patents, plant
variety protection, plant breeders rights, copyrights,
trademarks, trade secret laws, confidentiality provisions, and
licensing arrangements to establish and protect our intellectual
property. However, the importance of
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technology development and intellectual property protection in
the agricultural industry increases the risk that technological
advances by others could render our products less competitive.
Our business could be negatively affected by any of the
following:
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our issued patents, Plant Variety Protection certificates, plant
breeders rights and trademark registrations may be
successfully challenged by our competitors;
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our pending patent, Plant Variety Protection certificates, plant
breeders rights and trademark registration applications
may not be allowed or may be challenged successfully by our
competitors;
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our products may inadvertently use the technology of others and,
therefore, require us to obtain intellectual property licenses
from other parties in order for us to sell our products;
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we may be unable to obtain intellectual property licenses that
are necessary or useful to our business on favorable terms, or
at all;
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new technology that is independently developed by others may
supersede our technology and make our products less desirable or
more costly in the marketplace;
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competitors may design around our patented technologies or may
reverse engineer our trade secret technologies;
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the scope of our plant variety protection certificates in Brazil
is narrow and subject to a breeders exemption, which
allows breeders to use our varieties in a breeding program; as a
result, these certificates may not provide a sustained
competitive advantage in the marketplace; and
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the eventual scope of our patents in Brazil is uncertain due to
restrictions on plant claims under Brazilian patent laws and our
limited filings in Brazil, and may not be sufficient to deter
competition.
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While we have exclusive rights to certain proprietary lines of
switchgrass, miscanthus, high biomass sorghum and sweet sorghum
through our collaborations with leading institutions, other
parties may have access to certain lines of switchgrass,
miscanthus, high biomass sorghum or sweet sorghum developed or
released by such institutions, proprietary lines of such crops
from other sources, and publicly available lines of such crops,
from which they may develop products that compete with our
products.
Litigation or
other proceedings or third party claims of infringement could
require us to spend time and money and could severely disrupt
our business.
Our commercial success depends on not infringing patents or
proprietary rights of third parties, nor breaching any licenses
or other agreements that we have entered into with regard to our
technologies, products and business. The patent positions of
biotechnology and seed companies involve complex legal and
factual questions and, therefore, enforceability cannot be
predicted with certainty. Patents, if issued, may be challenged,
invalidated or circumvented. We cannot be sure that relevant
patents have not been issued that could block our ability to
obtain patents or to operate as we would like without infringing
patents or proprietary rights of other parties.
The biotechnology and seed industries have a history of
litigation regarding patents and other intellectual property
rights. Many biotechnology companies have employed intellectual
property litigation as a way to gain a competitive advantage. We
cannot assure you that we will not be sued by third parties for
infringement of patents they may have relating to
biotechnological traits or technologies in various crops.
Should any of our competitors have filed patent applications or
obtain patents that claim inventions also claimed by us, we may
have to participate in an interference proceeding declared by
the U.S. Patent and Trademark Office to determine priority
of invention and, thus, the right to a patent
31
for these inventions in the United States. Such a proceeding
could result in substantial cost to us even if the outcome is
favorable. Even if successful on priority grounds, an
interference proceeding may result in loss of claims based on
patentability grounds raised in the proceeding. If we become
involved in litigation or interference proceedings declared by
the U.S. Patent and Trademark Office to defend our
intellectual property rights or as a result of alleged
infringement of the rights of others, or oppositions or other
intellectual property proceedings outside of the United States,
we might have to spend significant amounts of money to resolve
such matters. We are aware of a significant number of pending
patent applications relating to biotechnological traits or
technologies in various crops filed by third parties.
Even if we prevail, litigation, interference proceedings or
opposition proceedings could result in significant legal fees
and other expenses, could divert our management time and efforts
and could severely disrupt our business. Uncertainties resulting
from initiation and continuation of any patent or related
litigation could harm our ability to compete.
An adverse ruling arising out of any intellectual property
dispute could undercut or minimize our intellectual property
position. An adverse ruling that our operations violate a third
partys intellectual property rights could also subject us
to significant liability for damages, prevent us from using
processes or products, or require us to license disputed rights
from third parties. Claims of intellectual property infringement
against us may require us to enter into costly royalty or
license agreements, subject us to substantial damage claims or
cause us to stop using such technology absent a license
agreement. Although patent and intellectual property disputes in
the biotechnology area are often settled through licensing or
similar arrangements, costs associated with these arrangements
may be substantial and could include ongoing royalties.
Furthermore, necessary licenses may not be available to us on
satisfactory terms, if at all.
Third parties may
infringe on our intellectual property rights, and we may expend
significant resources enforcing our rights or be competitively
disadvantaged.
If we fail to protect our intellectual property rights from
infringement by third parties, our competitive position could
suffer, which could make it more difficult to grow our business.
We may not be able to detect or prevent infringement of our
intellectual property or may lose our competitive position in
the market before we do so.
Confidentiality
agreements with employees and others may not adequately prevent
disclosure of trade secrets and other proprietary
information.
In order to protect our proprietary technology and processes, we
also rely in part on trade secret protection for our
confidential and proprietary information. For example, we
consider our genetic transformation methods, markers for
marker-assisted breeding and sequence databases as trade
secrets. We have taken security measures to protect our trade
secrets and proprietary information. These measures may not
provide adequate protection for our trade secrets or other
proprietary information. We also seek to protect our proprietary
information by entering into confidentiality agreements with
employees, with potential and actual collaborators and licensees
and with consultants and other advisors. These agreements may
not effectively prevent disclosure of confidential information
and may not provide an adequate remedy in the event of
unauthorized disclosure of confidential information. In
addition, others may independently develop substantially
equivalent proprietary information or techniques and trade
secret laws do not allow us to protect against such independent
development. Costly and time-consuming litigation could be
necessary to enforce and determine the scope of our proprietary
rights, and failure to obtain or maintain trade secret
protection could adversely affect our competitive business
position.
32
We have received
funding from U.S. government agencies, which could negatively
affect our intellectual property rights.
Some of our research and development activities have been funded
by grants from U.S. government agencies. For example, a
portion of our research and development used to develop our
nitrogen use efficiency trait was funded by a
U.S. Department of Energy ARPA-E grant. When new
technologies are developed with U.S. government funding,
the government obtains certain rights in any resulting patents
and technical data, generally including, at a minimum, a
non-exclusive, nontransferable license authorizing the
government to use the invention or technical data for
non-commercial purposes. U.S. government funding must be
disclosed in any resulting patent applications, and our rights
in such inventions will normally be subject to government
license rights, periodic progress reporting, foreign
manufacturing restrictions and march-in rights.
March-in rights refer to the right of the U.S. government,
under certain limited circumstances, to require us to grant a
license to technology developed under a government grant to a
responsible applicant, or, if we refuse, to grant such a license
itself. March-in rights can be triggered if the government
determines that we have failed, within a reasonable time, to
take effective steps to achieve practical application of a
technology or, if action is necessary to alleviate health or
safety needs, to meet requirements for public use specified by
federal regulations or to give preference to U.S. industry.
We may also enter into collaborations with entities outside the
United States that receive government funding or, in the future,
we may apply for government funding from other countries.
Regulations in these countries may provide for similar march-in
rights. Any governments rights in our intellectual
property may lessen its commercial value, which could adversely
affect our business.
Risks Related to
this Offering and Ownership of our Common Stock
No public market
for our common stock currently exists and an active trading
market may not develop or be sustained following this
offering.
Prior to this offering, there has not been a public market for
our common stock. An active and liquid trading market for our
common stock may not develop following this offering or if it
does develop, it may not be sustained. The lack of a liquid
trading market may make it more difficult for you to sell your
shares when you wish to sell them or at a price that you
consider attractive. The lack of a liquid trading market may
also reduce the fair market value of your shares. Also, an
inactive trading market for our shares may negatively affect our
ability to raise equity capital in the future by selling shares
in a public offering or make it more difficult to acquire other
companies by using our common stock as consideration.
The price of our
common stock may be volatile and you may not be able to sell
your shares at or above the initial public offering
price.
The initial public offering price for our shares will be
determined by negotiations between us and representatives of the
underwriters and may not be indicative of prices that will
prevail in the stock market following this offering. The market
price for our common stock may decline below the initial public
offering price and you may not be able to sell your shares at or
above the initial public offering price. Our stock price may be
subject to wide fluctuations in response to the factors listed
in this section and others beyond our control, including:
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actual or projected fluctuations in our financial condition and
operating results;
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our cash and cash equivalents position;
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actual or projected changes in our growth rate relative to our
competitors;
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actual or projected fluctuations in our competitors
financial condition or operating results;
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announcements of technological innovations by us, our
collaborators or our competitors;
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announcements by us, our collaborators or competitors of
significant acquisitions, strategic partnerships, joint ventures
or capital commitments;
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the entry into, modification or termination of collaborative
arrangements;
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changes in our customer base;
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additions or departures of key management or other key personnel;
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competition from existing products or new products that may
emerge;
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issuances of new or updated research reports by securities or
industry analysts;
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fluctuations in the share prices of companies perceived by
investors to be comparable to us;
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disputes or other developments related to proprietary rights,
including patents, litigation matters, the countries in which we
source our germplasm, and our ability to obtain patent
protection for our technologies;
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disputes or other developments relating to genetically
engineered products, including claims of adventitious presence
or environmental harm;
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changes in existing laws, regulations and policies applicable to
our business and products, including the United States Renewable
Fuel Standard program, and the adoption or failure to adopt
additional carbon emissions regulations;
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announcements or the expectation of raising additional financing;
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sales of our common stock by us, our insiders or other
stockholders;
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general market conditions in our industry; and
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general economic conditions, including the impact of the recent
financial crisis.
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The stock markets in general, and the market for renewable
energy stocks in particular, have experienced extreme volatility
that have affected and continue to affect the trading prices of
equity securities of many companies. These market fluctuations
often have been unrelated or disproportionate to the operating
performance of those companies. These fluctuations, as well as
general economic, political and market conditions such as
recessions, interest rate changes or international currency
fluctuations, may negatively impact the market price of our
common stock. In the past, companies that have experienced
volatility in the market price of their stock have been subject
to securities class action litigation. We may be the target of
this type of litigation in the future. Securities litigation
against us could result in substantial costs and divert our
managements attention from other business concerns.
A significant
portion of our total outstanding shares of common stock is
restricted from immediate resale, but may be sold into the
public market in the near future. If there are substantial sales
of our common stock, or the perception that these sales could
occur in the future, the trading price of our common stock could
decline.
The trading price of our common stock could decline as a result
of sales of a large number of shares of our common stock in the
public market after this offering. The perception that these
sales could occur may also depress the trading price of our
common stock. Based on the number of shares outstanding as
of ,
2011, we will
have shares
of common stock outstanding after the completion of this
offering. Of these shares, the common stock sold in this
offering will be freely tradable in the United States, except
for any shares purchased by our affiliates as
defined in Rule 144 under the Securities Act of 1933, as
amended, or the Securities Act.
34
The holders
of shares
of common stock have agreed with the underwriters, subject to
certain exceptions, not to offer, sell, pledge or otherwise
dispose of any of their common stock during the period beginning
on the date of this prospectus and continuing through the date
180 days after the date of this prospectus (subject to
extension under certain circumstances), except with the prior
written consent of Goldman, Sachs & Co.
However, Goldman, Sachs & Co. can waive the provisions
of these
lock-up
agreements and allow these stockholders to sell their shares at
any time. After the expiration of the
180-day
restricted period (subject to extension under certain
circumstances), these shares may be sold in the public market in
the United States, subject to prior registration in the United
States, if required, or reliance upon an exemption from
U.S. registration under Rule 144 or Rule 701
under the Securities Act. See Shares Eligible for
Future Sale.
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Number of Shares and
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% of Total Outstanding
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Date Available for Sale into Public Market
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or %
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Immediately after this offering.
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or %
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90 days after the date of this prospectus.
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or %
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180 days after the date of this prospectus.
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or %
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From time to time after the date 180 days after the date of
this prospectus.
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In addition, as
of ,
2011, there
were shares
of common stock issuable upon the exercise of outstanding
options or warrants that will become eligible for sale in the
public market to the extent permitted by applicable vesting
requirements, the
lock-up
agreements discussed in Underwriting and
Rules 144 and 701 of the Securities Act.
Holders owning an aggregate
of shares
of common stock will be entitled, under contracts providing for
registration rights, to require us to register shares of our
common stock owned by them for public sale in the United States,
subject to the restrictions of Rule 144. See
Description of Capital Stock Registration
Rights. In addition, we intend to file a registration
statement to register
approximately shares
previously issued or reserved for future issuance under our
equity compensation plans and agreements. Upon effectiveness of
such registration statement, subject to the satisfaction of
applicable exercise periods and, in certain cases, the
lock-up
agreements discussed in Underwriting, the shares of
common stock issued upon exercise of outstanding options will be
available for immediate resale in the United States in the open
market.
If securities or
industry analysts do not publish research or reports about our
business or our industry, or publish negative reports about our
business or our industry, our stock price and trading volume
could decline.
The trading market for our common stock will be influenced by
the research and reports that securities or industry analysts
publish about us, our business, our industry or our competitors.
If one or more of the analysts who cover us change their
recommendation regarding our stock adversely, change their
opinion of the prospects for our company in a negative manner,
or provide more favorable relative recommendations about our
competitors, our stock price would likely decline. If one or
more of these analysts cease coverage of our company or fail to
regularly publish reports on us, we could lose visibility in the
financial markets, which could cause our stock price or trading
volume to decline.
Purchasers in
this offering will experience immediate and substantial dilution
in the book value of their investment.
The initial public offering price will be substantially higher
than the net tangible book value per share of our outstanding
common stock immediately after this offering. Therefore, if you
purchase shares of our common stock in this offering, you will
experience immediate and substantial dilution of approximately
$ per share in the price you pay
for shares of our common stock as compared to
35
its net tangible book value, assuming an initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover page of this
prospectus. If outstanding options and the outstanding warrants
that do not expire upon completion of this offering are
exercised or if more shares are issued upon conversion of the
Convertible Notes than we have assumed, you will experience
further dilution. In addition, following this offering,
purchasers in this offering will have
contributed % of the total
consideration paid by our stockholders to purchase shares of
common stock, in exchange for acquiring
approximately % of our total
outstanding shares as
of ,
2011, assuming an initial public offering price
of per share, the midpoint of
the price range set forth on the cover of this prospectus. To
the extent that outstanding options and warrants to purchase
shares of common stock are exercised or if more shares are
issued upon conversion of the Convertible Notes than we have
assumed, there will be further dilution. For further information
on this calculation, see the Dilution section of
this prospectus.
We will incur
significant increased costs as a result of operating as a public
company, and our management will be required to devote
substantial time to comply with the laws and regulations
affecting public companies.
We have never operated as a public company. As a public company,
we will incur significant legal, accounting and other expenses
that we did not incur as a private company, including costs
associated with public company reporting and corporate
governance requirements, in order to comply with the rules and
regulations imposed by the Sarbanes-Oxley Act, as well as rules
implemented by the SEC and the Nasdaq Global Market. Our
management and other personnel will need to devote a substantial
amount of time to these compliance initiatives and our legal and
accounting compliance costs will increase.
The Sarbanes-Oxley Act requires, among other things, that we
maintain effective internal controls over financial reporting
and disclosure controls and procedures. In particular,
commencing in 2012, we must perform system and process
evaluations and testing of our internal control over financial
reporting to allow management and our independent registered
public accounting firm to report on the effectiveness of our
internal controls over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act. Our testing, or the
subsequent testing by our independent registered public
accounting firm, may reveal deficiencies in our internal control
over financial reporting that are deemed to be material
weaknesses. Our compliance with Section 404 will require
that we incur substantial accounting expense and management time
on compliance-related issues. Moreover, if we are not able to
comply with the requirements of Section 404 in a timely
manner, or if we or our independent registered public accounting
firm identify deficiencies in our internal control over
financial reporting that are deemed to be material weaknesses,
we could lose investor confidence in the accuracy and
completeness of our financial reports, which could cause our
stock price to decline.
Anti-takeover
provisions in our certificate of incorporation and bylaws and
under Delaware law could delay or prevent an acquisition of our
company, even if the acquisition may be beneficial to our
stockholders.
Provisions in our amended and restated certificate of
incorporation and our bylaws, both of which will become
effective upon the completion of this offering, may delay or
prevent an acquisition of our company deemed undesirable by our
board of directors. Among other things, our amended and restated
certificate of incorporation and bylaws will (i) provide
for a board of directors that is divided into three classes,
with staggered three-year terms, (ii) provide that all
stockholder action must be effected at a duly called meeting of
the stockholders and not by a consent in writing,
(iii) provide that only our board of directors, the
chairman of the board of directors, our chief executive officer
(or president in the absence of a chief executive officer) may
call a special meeting of the stockholders, (iv) provide
for the ability of our board of directors to issue undesignated
preferred stock, (v) require that any amendment to the
amended and restated certificate of incorporation be approved by
a
662/3
stockholder vote, and (vi) establish advance notice
requirements for nominations for election to our
36
board of directors and for proposing matters that can be acted
upon at stockholders meetings. These provisions may also
frustrate or prevent any attempt by our stockholders to replace
or remove our current management by making it more difficult for
stockholders to replace members of our board of directors who
are responsible for appointing the members of our management
team. As a Delaware corporation, we are subject to the
provisions of Section 203 of the Delaware General
Corporation Law, which prohibits, with some exceptions,
stockholders owning in excess of 15% of our outstanding stock
from merging or combining with us without board of directors or
stockholder approval. Although we believe these provisions
together provide for an opportunity to receive higher bids by
requiring potential acquirers to negotiate with our board of
directors, they would apply even if an offer to acquire our
company may be considered beneficial by some stockholders and
could limit the opportunity for our stockholders to receive a
premium for their shares.
Concentration of
ownership among our existing officers, directors and principal
stockholders may prevent other stockholders from influencing
significant corporate decisions.
Based on the number of shares outstanding as of May 31,
2011, when this offering is completed, our officers, directors
and existing stockholders who hold at least 5% of our stock will
together beneficially own
approximately % of our outstanding
common stock, assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus, and if
the underwriters option to purchase additional shares is
exercised in full, such persons will beneficially own, in the
aggregate, approximately % of our
outstanding common stock. If these officers, directors and
principal stockholders or a group of our principal stockholder
act together, they will be able to exert a significant degree of
influence over our management and affairs and exercise a
significant level of control over all matters requiring
stockholder approval, including the election of directors and
approval of mergers or other business combination transactions.
This concentration of ownership may have the effect of delaying
or preventing a change in control of our company or changes in
management and will make the approval of certain transactions
difficult or impossible without the support of these
stockholders.
After the
completion of this offering, we do not expect to declare any
dividends in the foreseeable future.
After the completion of this offering, we do not anticipate
declaring any cash dividends to holders of our common stock in
the foreseeable future. Our existing loan agreement prohibits us
from paying dividends on our capital stock. Consequently,
investors may need to rely on sales of their common stock after
price appreciation, which may never occur, as the only way to
realize any future gains on their investment. Investors seeking
cash dividends should not purchase our common stock.
Our management
may not apply the net proceeds from this offering in ways that
increase the value of your investment.
We currently intend to use the net proceeds from this offering
as described in the Use of Proceeds section of this
prospectus. However, our management may not apply the net
proceeds in ways that ultimately increase the value of your
investment. You will not have the opportunity to influence our
decisions on how to use the net proceeds from this offering.
37
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus, including the sections entitled
Prospectus Summary, Risk Factors,
Use of Proceeds, Managements Discussion
and Analysis of Financial Condition and Results of
Operations, and Business, contains
forward-looking statements. All statements, other than
statements of historical facts contained in this prospectus,
including statements regarding our efforts to develop and
commercialize our products, our short-term and long-term
business strategies, market and industry expectations and future
results of operations and financial position, are
forward-looking statements. In many cases, you can identify
forward-looking statements by terms such as may,
will, should, expect,
plan, anticipate, could,
intend, target, project,
contemplate, believe,
estimate, potential,
continue or other similar words.
We based these forward-looking statements largely on our current
expectations and projections about future events or trends that
we believe may affect our business and financial performance.
These forward-looking statements involve known and unknown risks
and uncertainties that may cause our actual results, performance
or achievements to materially differ from any future results,
performance or achievements expressed or implied by these
forward-looking statements. We have described in the Risk
Factors section and elsewhere in this prospectus the
material risks and uncertainties that we believe could cause
actual results to differ from these forward-looking statements.
Because forward-looking statements are inherently subject to
risks and uncertainties, some of which we cannot predict or
quantify, you should not rely on these forward-looking
statements as guarantees of future results, performance or
achievements.
The forward looking statements in this prospectus represent our
views as of the date of this prospectus. We undertake no
obligation to update publicly, except to the extent required by
law, any forward-looking statements for any reason after the
date of this prospectus to conform these statements to actual
results or to changes in our expectations.
MARKET AND
INDUSTRY DATA
Market data and certain industry data and forecasts included in
this prospectus were obtained from internal company surveys,
market research, consultant surveys, publicly available
information, governmental agency reports and industry
publications and surveys, including reports by the following
authorities:
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The U.S. Energy Information Administration;
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The International Energy Agency;
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The Renewable Fuels Association; and
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Brazilian Sugarcane Industry Association.
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This information involves a number of assumptions and
limitations. These industry and government publications, surveys
and forecasts generally indicate that the information has been
obtained from sources believed to be reliable, but that the
accuracy and completeness of such information is not guaranteed.
Although we believe the third party market and industry data and
forecasts included in the prospectus are generally reliable, we
have not independently verified any of the data from third party
sources nor have we ascertained the underlying economic
assumptions relied upon therein. Similarly, internally generated
industry forecasts, which we believe to be reliable based on our
managements knowledge of the industry, have not been
independently verified by a third party. We are responsible for
all of the disclosure in this prospectus.
38
USE OF
PROCEEDS
We estimate that the net proceeds from this offering will be
approximately $ million,
assuming an initial public offering price of
$ per share, the midpoint of the
price range set forth on the cover of this prospectus, and after
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us.
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share
would increase or decrease the net proceeds from this offering
by approximately $ million,
assuming that the number of shares offered by us, as set forth
on the cover of this prospectus, remains the same and after
deducting estimated underwriting discounts and commissions and
estimated offering expenses payable by us. If the underwriters
exercise their option to purchase additional shares in full, we
estimate that our net proceeds will be approximately
$ million, assuming an
initial public offering price of $
per share and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
We intend to use the net proceeds from this offering for the
following:
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Research and development
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$
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Capital expenditures primarily relating to breeding stations,
production facilities, systems and agricultural equipment
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$
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Commercial activities, including increasing the number of sales
and marketing personnel, expanding our advertising and branding
efforts and pursuing government approvals
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$
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Working capital and other general corporate purposes, including
seed production efforts and operating as a public company
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$
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In addition, we may also use a portion of the net proceeds to
expand our business through acquisitions of other companies,
assets or technologies, which we expect would reduce the amount
of net proceeds available for working capital and other general
corporate purposes. However, we do not have any present
understandings, commitments or agreements to enter into any
potential agreements for any acquisitions. Pending the uses of
the net proceeds of this offering, as described above, we intend
to invest the net proceeds in short-term investment-grade,
interest-bearing securities.
Some of the other principal purposes of this offering are to
create a public market for our common stock, increase our
visibility in the marketplace and provide liquidity to existing
stockholders. Creating a public market for our common stock will
facilitate our ability to raise additional equity in the future
and to use our common stock as a means of attracting and
retaining key employees and as consideration for acquisitions.
39
DIVIDEND
POLICY
We have never declared or paid cash dividends on our common or
convertible preferred stock. We currently intend to retain any
future earnings and do not expect to declare or pay any cash
dividends in the foreseeable future. Any future determination to
pay dividends will be at the discretion of our board of
directors, subject to applicable laws, and will depend on our
financial condition, results of operations, capital
requirements, general business conditions and other factors that
our board of directors considers relevant. Our existing loan
agreement prohibits us from paying dividends on our capital
stock.
40
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
our capitalization as of May 31, 2011:
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on an actual basis;
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on a pro forma basis to give effect to:
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(1) the filing of our amended and restated certificate of
incorporation immediately prior to the completion of this
offering;
(2) the automatic conversion of all outstanding shares of
our convertible preferred stock into an aggregate of
46,059,819 shares of common stock immediately prior to the
completion of this offering;
(3) the sale of $11.4 million aggregate principal
amount of Convertible Notes and the application of the net
proceeds therefrom;
(4) the issuance
of
additional shares of common stock pursuant to the automatic
conversion of the Convertible Notes upon the consummation of
this offering, as described in Certain Relationships and
Related Party Transactions, assuming an initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus;
(5) the issuance
of shares
of common stock immediately prior to the completion of this
offering upon the net exercise of warrants outstanding to
purchase shares of common stock, which would otherwise expire
upon the completion of this offering, assuming an initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus; and
(6) the reclassification of the convertible preferred stock
warrant liability to stockholders (deficit) equity upon
the completion of this offering; and
(7) the reclassification of the common stock warrant
liability for warrants which do not expire upon completion of
this offering to stockholders (deficit) equity upon
completion of this offering.
|
|
|
|
|
on a pro forma as adjusted basis to give effect to the pro forma
adjustments and the sale
of shares
of common stock by us in this offering at an assumed public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus, and after deducting estimated underwriting discounts
and commissions and estimated offering expenses payable by us.
|
The pro forma and pro forma as adjusted information below is
illustrative only and our capitalization following the
completion of this offering will be adjusted based on the actual
initial public offering price and other terms of this offering
determined at pricing. You should read this table together with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and our consolidated
financial statements and the accompanying notes appearing
elsewhere in this prospectus.
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 31, 2011
|
|
|
|
|
|
|
|
|
|
Pro Forma as
|
|
|
|
Actual
|
|
|
Pro Forma
|
|
|
Adjusted(1)
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands, except per share data)
|
|
|
Cash and cash equivalents
|
|
$
|
17,717
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-term debt, less current portion
|
|
$
|
2,552
|
|
|
$
|
|
|
|
$
|
|
|
Preferred stock warrant liability
|
|
|
312
|
|
|
|
|
|
|
|
|
|
Common stock warrant liability
|
|
|
10,049
|
|
|
|
|
|
|
|
|
|
Convertible preferred stock, $0.01 par value; 50,854,383
authorized, 46,059,819 shares issued and outstanding,
actual; no shares authorized, issued or outstanding, pro forma
and pro forma as adjusted
|
|
|
197,502
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders (deficit) equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock, $0.01 par value; no shares authorized, issued
and outstanding,
actual; shares
authorized, pro forma and pro forma as adjusted; no shares
issued and outstanding, pro forma and pro forma as adjusted
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock, $0.01 par value; 75,000,000 shares
authorized; 5,980,417 shares issued and outstanding,
actual; shares
authorized, pro forma and pro forma as
adjusted; shares
issued and outstanding, pro
forma; shares
issued and outstanding pro forma as adjusted(2)
|
|
|
59
|
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
7,304
|
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
|
(195,889
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders (deficit) equity
|
|
|
(188,526
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization
|
|
$
|
21,889
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A $1.00 increase or decrease in the assumed initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus, would increase or decrease each of cash and cash
equivalents, and total stockholders (deficit) equity by
$ , assuming that the number of
shares offered by us, as set forth on the cover of this
prospectus, remains the same, and after deducting estimated
underwriting discounts and commissions and estimated offering
expenses payable by us. Each increase of 1.0 million shares
in the number of shares of common stock offered by us would
increase each of cash and cash equivalents, and total
stockholders (deficit) equity by
$ , assuming an initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus. Similarly, each decrease of 1.0 million shares
in the number of shares offered by us would decrease each of
cash and cash equivalents, and total stockholders equity
(deficit) by $ . If the
underwriters option to purchase additional shares was
exercised in full, pro forma as adjusted cash, cash equivalents,
common stock and additional paid-in capital, stockholders
equity (deficit), and shares issued and outstanding as of
May 31, 2011, would be $ ,
$ ,
$
and ,
respectively. |
The table above does not include:
|
|
|
|
|
7,792,219 shares of common stock issuable upon exercise of
options to purchase our common stock outstanding as of
August 15, 2011 at a weighted average exercise price of
$2.02 per share;
|
42
|
|
|
|
|
5,296,845 shares of common stock issuable upon the exercise
of warrants to purchase our common stock outstanding as of
August 15, 2011 at a weighted average exercise price of
$6.90 per share that do not expire on the completion of this
offering;
|
|
|
|
|
|
61,537 shares of common stock issuable upon exercise of
warrants to purchase our preferred stock outstanding as of
August 15, 2011 at a weighted average exercise price of
$6.50 per share that do not expire on the completion of this
offering; these preferred stock warrants will automatically
convert to common stock warrants upon the completion of this
offering;
|
|
|
|
|
|
32,251 shares of common stock reserved as of
August 15, 2011 for future issuance under our 2010 Stock
Option/Stock Issuance Plan as more fully described in
Compensation Discussion and Analysis Executive
Compensation Equity Compensation
Plans; and
|
|
|
|
|
|
shares
of common stock reserved for future issuance under our 2011
Equity Incentive Plan, which will become effective on the day
prior to the day upon which we become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act.
|
|
|
|
(2) |
|
The number of shares of our common stock to be issued upon the
conversion of our Convertible Notes depends on the initial
offering price of our public offering. This is because, as
further described in Certain Relationships and Related
Party Transactions, the terms of the Convertible Notes
provide that the Convertible Notes automatically convert into
shares of our common stock in connection with a qualified
initial public offering at a price per share equal to a 20%
discount from the public offering price. |
|
|
|
|
|
The pro forma and pro forma as adjusted share information in the
table above includes the issuance
of
additional shares of common stock in connection with an initial
public offering price of $ per
share, which is the midpoint of the price range set forth on the
cover of this prospectus. In addition: |
|
|
|
|
|
A $1.00 increase in the assumed initial public offering price
would decrease the total number of shares issued in connection
with the conversion of the Convertible Notes upon the closing of
this offering
by shares;
|
|
|
|
|
|
A $1.00 decrease in the assumed initial public offering price
would increase the total number of shares issued in connection
with the conversion of the Convertible Notes upon the closing of
this offering
by shares; and
|
|
|
|
|
|
More than a $1.00 decrease in the assumed initial public
offering price would further increase the total number of shares
issued in connection with the conversion of the Convertible
Notes and more than a $1.00 increase in the assumed initial
public offering price would further decrease the total number of
shares issued in connection with the conversion of the
Convertible Notes.
|
43
DILUTION
If you invest in our common stock in this offering, your
ownership interest will be immediately diluted to the extent of
the difference between the initial public offering price per
share of our common stock and the net tangible book value per
share of our common stock immediately after this offering. As of
May 31, 2011, our pro forma net tangible book value was
$ million, or
$ per share of our common
stock. Pro forma net tangible book value per share represents
the amount of our total tangible assets less our total
liabilities, divided by the total number of shares of our common
stock outstanding, after giving effect to (i) the automatic
conversion of all of our outstanding convertible preferred stock
into shares of common stock upon the completion of this
offering, (ii) the reclassification of preferred stock
warrant liabilities to stockholders (deficit) equity
immediately prior to the completion of this offering, (iii) the
issuance
of additional
shares of common stock pursuant to the automatic conversion of
the Convertible Notes upon the consummation of this offering, as
described in greater detail in Certain Relationships and
Related Party Transactions, assuming an initial public
offering price of
$
per share, the midpoint of the price range set forth on the
cover of this prospectus and (iv) the issuance
of shares
of common stock immediately prior to the completion of this
offering upon the net exercise of warrants outstanding to
purchase shares of common stock, which would otherwise expire
upon completion of this offering, assuming an initial offering
price of $ per share, the midpoint
of the price range set forth on the cover of this prospectus.
After giving effect to the above referenced adjustment and the
sale by us
of shares
of our common stock in this offering at an assumed initial
public offering price of $ per
share, the midpoint of the price range set forth on the cover of
this prospectus, and after deducting estimated underwriting
discounts and commissions and estimated offering expenses
payable by us, our pro forma as adjusted net tangible book value
as of May 31, 2011, would have been approximately
$ million, or
$ per share of our common stock.
This amount represents an immediate increase in our pro forma as
adjusted net tangible book value of
$ per share to our existing
stockholders and an immediate dilution of
$ per share to new investors
purchasing shares of our common stock in this offering at the
initial public offering price.
The following table illustrates this dilution on a per share
basis:
|
|
|
|
|
Assumed initial public offering price per share
|
|
$
|
|
|
Pro forma net tangible book value per share as of May 31,
2011, before giving effect to this offering
|
|
$
|
|
|
Increase in pro forma net tangible book value per share
attributable to new investors purchasing shares in this offering
|
|
|
|
|
|
|
|
|
|
Pro forma as adjusted net tangible book value per share after
giving effect to this offering
|
|
|
|
|
|
|
|
|
|
Dilution per share to investors in this offering
|
|
$
|
|
|
|
|
|
|
|
A $1.00 increase or decrease in the initial public offering
price of $ per share, the midpoint
of the price range set forth on the cover of this prospectus,
would increase or decrease our pro forma as adjusted net
tangible book value per share after this offering by
approximately $ and would increase
or decrease dilution per share to new investors by approximately
$ , assuming that the number of
shares offered by us, as set forth on the cover of this
prospectus, remains the same. In addition, to the extent any
outstanding options or warrants are exercised, new investors
will experience further dilution.
If the underwriters exercise their option to purchase additional
shares in full, assuming an initial public offering price
of
per share, the midpoint of the price range set forth on the
cover of this prospectus, the pro forma as adjusted net tangible
book value will increase to $ per
share, representing an immediate increase to existing
stockholders of $ per share and an
immediate dilution of $ per share
to new investors.
44
The number of shares of our common stock to be issued upon the
conversion of the Convertible Notes, depends on the initial
offering price of our public offering. This is because, as
further described in Certain Relationships and Related
Party Transactions, the terms of the Convertible Notes
provide that the Convertible Notes automatically convert into
shares of our common stock in connection with a qualified
initial public offering at a price per share equal to a 20%
discount from the public offering price. In addition:
|
|
|
|
|
A $1.00 increase in the assumed public offering price would
increase our pro forma as adjusted net tangible book value by
$ per share, and increase the
dilution to new investors by $ per
share, assuming the number of shares offered by us, as set forth
on the cover of this prospectus, remains the same, after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us;
|
|
|
|
|
|
A $1.00 decrease in the assumed public offering price would
decrease our pro forma as adjusted net tangible book value by
$ per share, and decrease the
dilution to new investors by $ per
share, assuming the number of shares offered by us, as set forth
on the cover of this prospectus, remains the same, after
deducting the estimated underwriting discounts and commissions
and estimated offering expenses payable by us;
|
|
|
|
|
|
More than a $1.00 increase in the assumed public offering price
would further increase our pro forma as adjusted net tangible
book value, and further increase the dilution to new
investors; and
|
|
|
|
|
|
More than a $1.00 decrease in the assumed public offering price
would further decrease our pro forma as adjusted net tangible
book value, and further decrease the dilution to new investors.
|
The following table summarizes, as of May 31, 2011, on a
pro forma as adjusted basis, the number of shares purchased or
to be purchased from us, the total consideration paid or to be
paid to us, and the average price per share paid or to be paid
to us by existing stockholders and new investors purchasing
shares of our common stock in this offering at an assumed
initial public offering price of $
per share, before deducting estimated underwriting discounts and
commissions and estimated offering expenses payable by us. As
the table below shows, new investors purchasing shares of our
common stock in this offering will pay an average price per
share substantially higher than our existing stockholders paid.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
Share Purchased
|
|
|
Total Consideration
|
|
|
Price per
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
Share
|
|
|
Existing stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A $1.00 increase or decrease or in the assumed initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus, would increase or decrease the total consideration
paid to us by new investors by
$ million and increase or
decrease or the percent of total consideration paid to us by new
investors by %, assuming that the
number of shares offered by us, as set forth on the cover of
this prospectus, remains the same.
As discussed above, the number of shares of our common stock to
be issued upon the conversion of the Convertible Notes depends
on the initial public offering price of this offering.
Accordingly, upon completion of this offering:
|
|
|
|
|
A $1.00 increase in the assumed public offering price would
increase total consideration paid by new investors and total
consideration paid by all stockholders by approximately
$ million, and result in our
existing stockholders owning % and
new investors owning % of the total
number of shares of common stock outstanding;
|
45
|
|
|
|
|
A $1.00 decrease in the assumed public offering price would
decrease total consideration paid by new investors and total
consideration paid by all stockholders by approximately
$ million, and result in our
existing stockholders owning % and
new investors owning % of the total
number of shares of common stock outstanding;
|
|
|
|
|
|
More than a $1.00 increase in the assumed public offering price
would further increase total consideration paid by new investors
and total consideration paid by all stockholders; and
|
|
|
|
|
|
More than a $1.00 decrease in the assumed public offering price
would further decrease total consideration paid by new investors
and total consideration paid by all stockholders, and result in
our existing stockholders owning a larger percentage and new
investors owning a smaller percentage of the total number of
shares of common stock outstanding.
|
The above discussion and tables are based on our common stock
outstanding as of May 31, 2011, after giving effect to
(i) the automatic conversion of all outstanding shares of
our convertible preferred stock into an aggregate of
46,059,819 shares of common stock immediately prior to the
completion of this offering; (ii) the issuance
of additional
shares of common stock pursuant to the automatic conversion of
the Convertible Notes upon the consummation of this offering, as
described in greater detail in Certain Relationships and
Related Party Transactions, assuming an initial public
offering price of
$
per share, the midpoint of the price range set forth on the
cover of this prospectus and (iii) the issuance
of shares
of common stock immediately prior to the completion of this
offering upon the net exercise of warrants outstanding to
purchase shares of common stock which would otherwise expire
upon completion of this offering, assuming an initial public
offering price of $ per share, the
midpoint range set forth on the cover of this prospectus.
This number excludes:
|
|
|
|
|
7,792,219 shares of common stock issuable upon exercise of
options to purchase our common stock outstanding as of
August 15, 2011 at a weighted average exercise price of
$2.02 per share;
|
|
|
|
|
|
5,296,845 shares of common stock issuable upon exercise of
warrants to purchase our common stock outstanding as of
August 15, 2011 at a weighted average exercise price of
$6.90 per share that do not expire on the completion of this
offering;
|
|
|
|
|
|
61,537 shares of common stock issuable upon exercise of
warrants to purchase our preferred stock outstanding as of
August 15, 2011 at a weighted average exercise price of
$6.50 per share that do not expire on the completion of this
offering; these preferred stock warrants will automatically
convert to common stock warrants upon the completion of this
offering;
|
|
|
|
|
|
32,251 shares of common stock reserved as of
August 15, 2011 for future issuance under our 2010 Stock
Option/Stock Issuance Plan as more fully described in
Compensation Discussion and Analysis Executive
Compensation Equity Compensation
Plans; and
|
|
|
|
|
|
shares
of common stock reserved for future issuance under our 2011
Equity Incentive Plan, which will become effective on the day
prior to the day upon which we become subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended,
or the Exchange Act.
|
If all our outstanding stock options and warrants outstanding
had been exercised as of May 31, 2011, our pro forma net
tangible book value as of May 31, 2011, would have been
approximately $ million or
$ per share of our common stock,
and the pro forma net tangible book value after giving effect to
this offering would have been $
per share, representing dilution in our pro forma net tangible
book value per share to new investors of
$ .
46
SELECTED
CONSOLIDATED FINANCIAL DATA
In 2009, we changed our fiscal year end from December 31 to
August 31. The change was effective for the eight-month
period ended August 31, 2009. The selected consolidated
statement of operations data for fiscal years ended
December 31, 2007 and 2008, the eight months ended
August 31, 2009 and the fiscal year ended August 31,
2010 and the selected consolidated balance sheet data at
December 31, 2008, August 31, 2009 and 2010 are
derived from our audited Consolidated Financial Statements,
appearing elsewhere in this prospectus. The consolidated
financial data for the nine-month periods ended May 31,
2010 and 2011 have been derived from our unaudited consolidated
financial statements included elsewhere in this prospectus. The
unaudited consolidated financial statements have been prepared
on a basis consistent with our audited consolidated financial
statements and include, in the opinion of management, all
adjustments, consisting only of normal and recurring
adjustments, necessary for a fair presentation of such
consolidated financial data. Results for interim periods are not
necessarily indicative of results for a full fiscal year. The
selected consolidated statement of operations data for the
fiscal year ended December 31, 2006 and the selected
consolidated balance sheet data as of December 31, 2006
have been derived from our audited consolidated financial
statements, which are not included in this prospectus.
Historical results are not necessarily indicative of results for
future periods.
You should read the following selected consolidated financial
data in conjunction with Managements Discussion
Analysis of Financial Condition and Results of Operations
and our Consolidated Financial Statements appearing elsewhere in
this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands except share and per share data)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
|
|
|
$
|
64
|
|
|
$
|
98
|
|
|
$
|
288
|
|
|
$
|
236
|
|
|
$
|
97
|
|
Collaborative research and government grants
|
|
|
26,643
|
|
|
|
7,180
|
|
|
|
3,880
|
|
|
|
2,328
|
|
|
|
6,326
|
|
|
|
4,095
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
26,643
|
|
|
|
7,180
|
|
|
|
3,944
|
|
|
|
2,426
|
|
|
|
6,614
|
|
|
|
4,331
|
|
|
|
4,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
|
|
|
|
|
|
|
|
3,777
|
|
|
|
2,690
|
|
|
|
2,946
|
|
|
|
2,217
|
|
|
|
1,940
|
|
Research and development
|
|
|
18,101
|
|
|
|
19,220
|
|
|
|
20,309
|
|
|
|
12,397
|
|
|
|
16,697
|
|
|
|
12,639
|
|
|
|
13,837
|
|
Selling, general and administrative
|
|
|
8,079
|
|
|
|
9,811
|
|
|
|
8,784
|
|
|
|
6,645
|
|
|
|
9,207
|
|
|
|
6,844
|
|
|
|
6,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
|
26,180
|
|
|
|
29,031
|
|
|
|
32,870
|
|
|
|
21,732
|
|
|
|
28,850
|
|
|
|
21,700
|
|
|
|
22,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
463
|
|
|
|
(21,851
|
)
|
|
|
(28,926
|
)
|
|
|
(19,306
|
)
|
|
|
(22,236
|
)
|
|
|
(17,369
|
)
|
|
|
(17,781
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(204
|
)
|
|
|
(123
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(153
|
)
|
|
|
(91
|
)
|
|
|
(365
|
)
|
Interest income
|
|
|
760
|
|
|
|
1,521
|
|
|
|
2,001
|
|
|
|
243
|
|
|
|
23
|
|
|
|
21
|
|
|
|
6
|
|
Other income (expense)
|
|
|
34
|
|
|
|
5
|
|
|
|
|
|
|
|
161
|
|
|
|
(152
|
)
|
|
|
(167
|
)
|
|
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
1,053
|
|
|
|
(20,448
|
)
|
|
|
(26,925
|
)
|
|
|
(18,907
|
)
|
|
|
(22,518
|
)
|
|
|
(17,606
|
)
|
|
|
(19,590
|
)
|
Income tax benefit (expense)
|
|
|
(1
|
)
|
|
|
(7
|
)
|
|
|
148
|
|
|
|
211
|
|
|
|
(65
|
)
|
|
|
14
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) before cumulative effect of a change in
accounting principle
|
|
|
1,052
|
|
|
|
(20,445
|
)
|
|
|
(26,777
|
)
|
|
|
(18,696
|
)
|
|
|
(22,583
|
)
|
|
|
(17,592
|
)
|
|
|
(19,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative effect of a change in accounting principle(1)
|
|
|
649
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
1,701
|
|
|
|
(20,445
|
)
|
|
|
(26,777
|
)
|
|
|
(18,696
|
)
|
|
|
(22,583
|
)
|
|
|
(17,592
|
)
|
|
|
(19,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) allocable to preferred stockholders
|
|
|
(1,701
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to common stockholders
|
|
|
|
|
|
$
|
(20,455
|
)
|
|
$
|
(26,777
|
)
|
|
$
|
(18,696
|
)
|
|
$
|
(22,583
|
)
|
|
$
|
(17,592
|
)
|
|
$
|
(19,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
Year Ended December 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
(In thousands except share and per share data)
|
|
|
Basic and diluted net loss per share attributable to common
stockholders(2)
|
|
|
|
|
|
$
|
(3.84
|
)
|
|
$
|
(4.89
|
)
|
|
$
|
(3.33
|
)
|
|
$
|
(3.90
|
)
|
|
$
|
(3.05
|
)
|
|
$
|
(3.31
|
)
|
Weighted average outstanding common shares used for net loss per
share attributable to common stockholders(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
5,112,258
|
|
|
|
5,323,259
|
|
|
|
5,473,090
|
|
|
|
5,621,671
|
|
|
|
5,791,443
|
|
|
|
5,775,322
|
|
|
|
5,917,179
|
|
Pro forma net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (unaudited)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average outstanding common shares used in computing pro
forma net loss per share(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted (unaudited)(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Effective January 1, 2006 the
Company changed the manner in which it accounted for certain
warrants that were contingently redeemable.
|
(2)
|
|
The basic and diluted loss per
share are computed by dividing the net loss attributable to
common stockholders by the weighted average number of common
shares outstanding during the period. For the periods where we
presented losses, all potentially dilutive common shares
comprising of stock options, warrants and convertible preferred
stock are anti-dilutive.
|
|
|
|
(3)
|
|
The unaudited pro forma basic and
diluted loss per common share have been computed as though the
conversion had occurred as of September 1, 2009 to give
effect to: (i) the automatic conversion of all outstanding
shares of our convertible preferred stock into an aggregate of
46,059,819 shares of common stock effective immediately
prior to the completion of this offering using the if-converted
method, (ii) the issuance
of
additional shares of common stock pursuant to the automatic
conversion of the Convertible Notes upon the consummation of
this offering, as described in Certain Relationships and
Related Party Transactions, assuming an initial public
offering price of $ per share, the
midpoint of the price range set forth on the cover of this
prospectus and (iii) the issuance
of shares
of common stock immediately prior to the completion of this
offering upon the net exercise of warrants outstanding to
purchase shares of common stock, which would otherwise expire
upon the completion of this offering, assuming an initial public
offering price of
$
per share, the midpoint of the price range set forth on the
cover of this prospectus using the treasury stock method.
|
Our stock-based compensation expense is as follows (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Nine Months Ended
|
|
|
|
Year Ended December 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Research and development
|
|
|
177
|
|
|
|
389
|
|
|
|
467
|
|
|
|
345
|
|
|
|
409
|
|
|
|
314
|
|
|
|
1,223
|
|
Selling, general and administrative
|
|
|
154
|
|
|
|
338
|
|
|
|
705
|
|
|
|
737
|
|
|
|
891
|
|
|
|
627
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
331
|
|
|
$
|
727
|
|
|
$
|
1,172
|
|
|
$
|
1,082
|
|
|
$
|
1,300
|
|
|
$
|
941
|
|
|
$
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
|
As of December 31,
|
|
As of August 31,
|
|
May 31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
4,661
|
|
|
$
|
13,863
|
|
|
$
|
12,145
|
|
|
$
|
14,960
|
|
|
$
|
33,055
|
|
|
$
|
17,717
|
|
Working capital
|
|
|
15,773
|
|
|
|
70,029
|
|
|
|
41,297
|
|
|
|
27,543
|
|
|
|
28,325
|
|
|
|
11,738
|
|
Total assets
|
|
|
30,683
|
|
|
|
84,500
|
|
|
|
57,718
|
|
|
|
41,094
|
|
|
|
46,648
|
|
|
|
31,594
|
|
Common and preferred stock warrant liabilities
|
|
|
27
|
|
|
|
13
|
|
|
|
13
|
|
|
|
2,944
|
|
|
|
8,911
|
|
|
|
10,361
|
|
Total long-term liabilities
|
|
|
546
|
|
|
|
358
|
|
|
|
290
|
|
|
|
3,197
|
|
|
|
13,310
|
|
|
|
13,075
|
|
Convertible preferred stock
|
|
|
112,106
|
|
|
|
183,079
|
|
|
|
183,079
|
|
|
|
183,079
|
|
|
|
197,502
|
|
|
|
197,502
|
|
Total stockholders deficit
|
|
$
|
(87,181
|
)
|
|
$
|
(103,358
|
)
|
|
$
|
(128,905
|
)
|
|
$
|
(149,577
|
)
|
|
$
|
(170,829
|
)
|
|
$
|
(188,526
|
)
|
48
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read together with
our consolidated financial statements and the other financial
information appearing elsewhere in this prospectus. This
discussion contains forward-looking statements that involve
risks and uncertainties. Our actual results could differ
materially from those anticipated in the forward-looking
statements as a result of various factors, including those
discussed below and those discussed in the section entitled
Risk Factors included elsewhere in this
prospectus.
Overview
We are an agricultural biotechnology company selling seeds to
produce renewable biomass feedstocks that can enable the
large-scale replacement of petroleum and other fossil fuels. We
use a combination of advanced plant breeding and biotechnology
to develop new crops, known as dedicated energy crops, that we
believe address the limitations of first-generation bioenergy
feedstocks, such as corn and sugarcane, increase biomass
productivity, reduce crop inputs and improve cultivation on
marginal land.
Our first large-scale commercial products are proprietary sweet
sorghum varieties that can be used as a drop-in
feedstock to extend the operating season of Brazilian
sugarcane-to-ethanol
mills, the operating days of which are currently limited due to
the inherent limitations of sugarcane physiology and growth
patterns. Our dedicated energy crops can also be used for the
production of second-generation biofuels and bio-based
chemicals, including cellulosic ethanol, butanol, jet fuel,
diesel-like molecules and gasoline-like molecules, from non-food
biomass. Finally, baseload utility-scale electric power can also
be generated from the biomass feedstocks grown from our seeds.
We operate in one segment, and accordingly, our results of
operations are presented on a consolidated basis. During 2009,
we changed our fiscal year-end to August 31 from December 31 to
better match the seasonality of the production and selling
cycles related to the seeds and traits business. Therefore our
results of operations for the period ended August 31, 2009
reflect an eight-month period and are not comparable to the
prior twelve-month period.
To date the majority of our revenue and expense has been
denominated in U.S. dollars and foreign currency
fluctuations have not had a significant impact on our historical
results of operations. As we pursue and enter markets outside
the United States, we expect our product sales will be made in
local currencies and accordingly, that foreign currency
fluctuations will have a greater impact on our operating results.
We generate our revenues from government grants, research and
development collaboration agreements and from product sales. We
began selling products in 2008 and, while our product sales have
been minimal to date, we expect product sales to eventually
become the primary source of our revenues. We expect product
revenues to include a combination of seed sales and technology
fees, similar to current business models used for food crops
incorporating biotech traits. As we continue to develop traits
for our products, we expect that a significant portion of our
product revenues will be generated from the sale of seeds that
include our traits. We believe our largest immediate market
opportunity is selling sweet sorghum into the Brazilian biofuel
market. Our longer term strategies involve capitalizing on the
development of the emerging cellulosic biofuel and biopower
markets in the United States and Europe.
The sale of seeds is dependent upon planting and growing
seasons, which vary from year to year, and are expected to
result in both highly seasonal patterns and substantial
fluctuations in our quarterly sales and profitability. Our
product sales for the year ended August 31, 2010 and the
nine months ended May 31, 2011 were minimal and,
accordingly, we have not yet experienced the full nature or
extent to which our business may be seasonal. We expect that the
sale of our seeds in Brazil will typically be higher in our
first and fourth fiscal quarters, due to the timing of the
planting
49
decisions made by our customers. As we increase our sales in our
current markets, and as we expand into new markets in different
geographies, it is possible we may experience different
seasonality patterns in our business. Weather conditions and
natural disasters, such as heavy rains, hurricanes, hail,
floods, tornadoes, freezing conditions, drought or fire, also
affect decisions by our customers about the types and amounts of
seeds to plant and the timing of harvesting and planting such
seeds. Disruptions that cause delays by our customers in
harvesting or planting can result in the movement of orders to a
future quarter, which would negatively affect any given quarter
and cause fluctuations in our operating results.
We have formed collaborations with major participants in the
bioenergy value chain to evaluate yields and other performance
or conversion characteristics of our products and the logistics
related to the use of our products. Our collaborators include
ethanol mills, utilities, independent power producers,
cellulosic biofuel companies, growers, grower cooperatives,
equipment manufacturers, enzyme or fermentation technology
companies and other support technology providers.
In row crops, like corn, cotton and soybean, we have
out-licensed a portion of our traits and gene technology and we
continue to pursue opportunities to out-license these
technologies in other crops. We have chosen to be a technology
provider or trait provider in these markets and our
collaborators and customers in this area consist primarily of
multi-national seed companies.
We will market our seeds and traits directly to ethanol mills,
utilities, independent power producers, cellulosic biofuel
companies, individual growers and grower cooperatives and to
date we have sold our seeds mainly to customers who are testing
them in various technologies and environments. We also work with
technology providers and other market participants such as
equipment manufacturers and enzyme or fermentation technology
companies, to encourage the use of our proprietary products. We
market our products to biorefineries and biopower facilities,
regardless of conversion technology, end-molecule or end-use. In
Brazil, where we have completed commercial-scale trials with
leading ethanol mills, we are marketing our sweet sorghum hybrid
seeds for the
2011-2012
growing season. In the United States and Europe, we have
launched the first energy crops seed brand, Blade Energy Crops,
under which we market proprietary switchgrass varieties and high
biomass sorghum hybrids to the emerging biomass market.
We have invested significantly in research, development and
technology and applied our proprietary technology platforms to
energy crops. To develop high performing seeds and traits, we
have integrated a suite of advanced research and development
methods, which include conventional breeding, marker-assisted
breeding, genomics and biotechnology, along with large,
proprietary collections of germplasm (the collections of genetic
resources covering the diversity of a crop, the attributes of
which are inherited from generation to generation). We have
utilized our existing germplasm assets along with our research
and development methods to create improved seeds and traits. As
a result, we believe that we have one of the leading pipelines
of proprietary crop traits, based on the number and nature of
our traits as well as the two-species approach we employ to
validate and successfully select gene-trait combinations. Our
research and development investments have been significant,
amounting to $19.2 million, $20.3 million,
$12.4 million and $16.7 million in the years ended
December 31, 2007 and December 31, 2008, the eight
months ended August 31, 2009 and the year ended
August 31, 2010, respectively, and $12.6 million and
$13.8 million for the nine months ended May 31, 2010
and 2011, respectively.
The remainder of our operating expenses are related to selling,
general and administrative expenses incurred to establish and
build our market presence and business infrastructure as well as
seed production costs. For the periods prior to the commencement
of sales of our seeds, we expensed our seed production costs as
research and development. We began selling seeds in the United
States in 2008, and since then, seed production costs have been
computed on a
first-in,
first-out basis and valued at the lower of cost or market and
are included as cost of product sales. Due to the early stage of
commercialization of our seed products and lack of pricing data,
a full valuation reserve has been recorded against our inventory
value. Our sales and marketing expenses have not
50
been significant to date but we expect such expenses to increase
as we pursue, enter and expand our market opportunities.
Historically, we have funded our operations from the proceeds
from equity sales, debt financing, payments from collaborators
and government grants. We have experienced significant losses as
we invested heavily in research and development, and those costs
have exceeded revenues earned through collaboration agreements
and government grants and were incurred prior to generating
significant revenues through product sales. As of May 31,
2011, we had an accumulated deficit of $195.9 million. We
incurred net losses of $20.5 million, $26.8 million,
$18.7 million and $22.6 million in the years ended
December 31, 2007 and December 31, 2008, the eight
months ended August 31, 2009 and the year ended
August 31, 2010, respectively, and $17.6 million and
$19.6 million for the nine months ended May 31, 2010
and 2011, respectively. We expect to incur additional losses
related to the continued development and expansion of our
business including research and development, seed production and
operations, and sales and marketing. There is no assurance that
profitable operations will be achieved, or if achieved, can be
sustained on a continued basis.
Key Components of
Our Results of Operations
Revenues
To date, our revenues have related to our product sales,
collaborative research and government grants.
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Product Sales. Product sales are primarily
composed of sales of seeds. Going forward, we may include trait
fees in our seed prices. We began selling products in 2008 and
our product sales have been minimal to date.
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Collaborative Research. Collaborative research
revenues generally consist of payments for research and
development activities for specific projects. These arrangements
may include a combination of non-refundable technology license
fees, research and development fees,
and/or fees
for the achievement of contractually defined milestone events
and royalties.
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Government Grants. Government grant revenues
consist of payments from government entities. The terms of these
grants generally provide us with reimbursement for research and
development services and certain types of capital expenditures
over a contractually defined period.
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Cost of Product
Sales
Cost of product sales consists principally of the cost of labor,
raw materials and third-party services related to growing,
harvesting, packaging and shipping our seeds. These costs are
comprised of the direct costs of our seed production employees,
as well as the temporary seasonal labor costs during planting
and harvesting times. Third-party services include contract
labor, grower payments, and other professional services related
to the cost of product sales. Cost of product sales also
consists of input costs such as chemicals and seed production
costs. Costs associated with collaboration, research and
government grants are not included in cost of product sales but
instead are included as research and development expenses.
Although historically not significant, future royalty expenses
associated with collaboration and license agreements with third
parties will be included in cost of product sales. The amount of
royalties we owe under these agreements is a function of our
sales and the applicable royalty rates depend on a number of
factors, including the portion of our third-party
collaborators intellectual property that is present in our
products. We believe that as we develop our agronomic production
operations, we will be able to achieve lower cost of product
sales. To date, we have relied principally on third parties for
the production of our sweet sorghum seed for use in Brazil. We
believe that as we increase seed production volumes, we will be
able to achieve better economies of scale from these third
parties. In addition, we intend to produce more of our own seeds
in Brazil, which will allow us to further decrease our costs.
For our switchgrass and high biomass sorghum products, we are
currently
51
producing seeds at our own facility in Texas and believe that we
will be able to decrease our costs over time by taking advantage
of greater economies of scale.
Research and
Development
Research and development expenses principally consist of
personnel costs related to our research and development staff in
support of exploratory research, breeding, agronomy and
technology development and protection. Research and development
expenses also include costs incurred for laboratory supplies,
reimbursable costs associated with government grants and our
collaborative agreements, third-party contract payments,
consultants and facility and related overhead costs. We expect
to increase our investments in research and development by
hiring additional research and development staff. As such, we
expect that our research and development expenses will increase
in absolute dollars. As a percentage of revenue, we expect our
research and development expenses to increase in the near-term
and eventually stabilize. Also included in research and
development expenses are expenses in connection with warrants
granted to The Texas A&M University System and The Samuel
Roberts Noble Foundation, Inc. The warrants vest based on the
achievement of certain research and commercialization milestones
or the passage of time. The warrants are accounted for at fair
value at each quarter end until the vesting targets are met
using the Black Scholes option pricing model. Once our common
stock is publicly traded, the volatility of our stock price
could cause an increase in the warrant fair value and resulting
expense charges to research and development.
We do not track our research and development expenditures by
project. Our ongoing research and development activities are
dedicated to expanding our integrated platforms which consist of
a combination of genetic assets, specifically germplasm and
traits, and competencies in genomics and biotechnology. Our
research and development expenses consist principally of
personnel costs and at August 15, 2011, we had 59 full-time
employees primarily engaged in our research and development
activities. Our employees work time is spread across
multiple research and development methods continuously focused
on our technology platforms and to a much lesser extent areas
for which we have received government grant awards and
collaboration funding. We do not intend to provide
forward-looking estimates of costs and time relating to our
research and development activities due to the many
uncertainties associated with genomics, conventional and
marker-assisted breeding, agronomy and other genomics-based
technologies. As we obtain data from our efforts, we may elect
to reprioritize, delay or discontinue activities in order to
focus our resources on more promising research and development
methods. As a result of the nature of our activities and these
uncertainties, we are unable to determine with any significant
degree of certainty the duration and completion costs of our
research and development activities. Additionally, when, and to
what extent, we will generate future cash flows from products
resulting from our research and development activities is
dependent on market opportunities, the most immediate of which
is the Brazilian biofuel market.
Selling, General
and Administrative
Selling, general and administrative expenses consist primarily
of personnel costs related to our executive, sales, legal,
finance, and human resources staff and professional fees
including legal and accounting. Selling costs relate to business
development and our sales and marketing programs to build brand
awareness. We improve our brand awareness through programs
including publication of crop management guides, speaking roles
at industry events, trade show displays and local-level grower
meetings. Costs related to these activities, including travel,
are included in selling expenses. While we expect our selling
expenses to increase in the near term, we believe that our focus
on a relatively small number of customers, particularly in
Brazil, where we plan to primarily market our products to mill
operators, should allow us to operate with relatively modest
overall selling expenses. We expect selling, general and
administrative expenses to increase in absolute dollars in order
to drive product sales and as we commence operations as a public
company. Such increases may include increased insurance
premiums, investor relations expenses, legal and accounting fees
52
associated with the expansion of our business and corporate
governance, financial reporting expenses, and expenses related
to Sarbanes-Oxley and other regulatory compliance obligations.
We expect to hire additional personnel, particularly in the area
of general and administrative activities to support the growth
of our business. As a percentage of revenue, we expect our
selling, general and administrative expenses to increase in the
near-term but to eventually decline.
Interest
Expense
We recognize interest expense on notes payable and other debt
obligations. We expect interest expense to fluctuate in the
future with changes in our debt obligations.
Interest
Income
Interest income consists primarily of interest earned on
investments and cash balances. Our interest income will vary
each reporting period depending on our average investment and
cash balances during the period and market interest rates. We
expect interest income to fluctuate in the future with changes
in average investment and cash balances and market interest
rates.
Other Income
(Expense)
Other income (expense) consists primarily of the change in the
fair value of our convertible preferred warrants and certain of
our common stock warrants. Our preferred stock warrants and
certain of our common stock warrants that expire upon the
consummation of this offering are classified as liabilities. Our
preferred stock warrants convert to equity classified common
stock warrants upon the consummation of this offering. We expect
the impact to our results of operations from our preferred stock
and certain of our common stock warrant liabilities to be
eliminated from other income (expense) following our initial
public offering.
Provision for
Income Tax Benefits
Since our inception, we have been subject to income taxes
principally in the United States, and Brazil where we recently
established a legal presence. We anticipate that as we expand
our operations outside the United States, we will become subject
to taxation based on the foreign statutory rates and our
effective tax rate could fluctuate accordingly.
Income taxes are computed using the asset and liability method,
under which deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax
bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to
affect taxable income. Valuation allowances are established when
necessary to reduce deferred tax assets to the amount expected
to be realized.
As of August 31, 2010 and May 31, 2011, based on the
available information, it is more likely than not that our
deferred tax assets will not be realized, and accordingly we
have taken a full valuation allowance against all of our United
States deferred tax assets. As of August 31, 2010, we had
approximately $154.2 million of federal and
$133.4 million of state operating loss carry-forwards
available to offset future taxable income, which expire in
varying amounts beginning in 2018 for federal and 2016 for state
purposes if unused. Federal and state laws impose substantial
restrictions on the utilization of net operating loss and tax
credit carry-forwards in the event of an ownership
change, as defined in Section 382 of the U.S.
Internal Revenue Code of 1986, as amended, or the Internal
Revenue Code. We have not completed a 382 analysis to determine
if a change in ownership has occurred. Until an analysis is
completed, there can be no assurance that the existing net
operating loss carryforwards or credits are not subject to
significant limitation.
53
Critical
Accounting Policies and Estimates
Our discussion and analysis of our financial condition and
results of operations is based upon our consolidated financial
statements, which have been prepared in accordance with
accounting principles generally accepted in the United States.
The preparation of these consolidated financial statements
requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues, expenses and
related disclosures. We base our estimates and assumptions on
historical experience and on various other factors that we
believe to be reasonable under the circumstances. We evaluate
our estimates and assumptions on an ongoing basis. The results
of our analysis form the basis for making assumptions about the
carrying values of assets and liabilities that are not readily
apparent from other sources. Our actual results may differ from
these estimates under different assumptions or conditions.
We believe the following critical accounting policies involve
significant areas of managements judgments and estimates
in the preparation of our financial statements.
Revenue
Recognition
Revenues are recognized when the following criteria are met:
(1) persuasive evidence of an arrangement exists;
(2) transfer of product or technology has been completed or
services have been rendered; (3) the fee is fixed or
determinable; and (4) collectability is reasonably assured.
To date, our primary source of revenues is derived from research
collaborations and government grants. As our business continues
to grow, we expect product sales will be our primary source of
revenue.
Product
Sales
Product sales are derived from sales of seeds and trait fees.
Going forward, we may include trait fees in our seed prices.
Product sales are recognized, net of discounts and allowances,
once passage of title and risk of loss have occurred and
contractually specified acceptance criteria have been met,
provided all other revenue recognition criteria have also been
met.
Collaborative
Research and Government Grants
From time to time, we have entered into research and development
collaboration agreements with third parties including a large
agriculture supplier, consumer goods conglomerate and several
biofuel producers. In addition, we have received grants from
government agencies such as the Department of Energy and the
United States Department of Agriculture. The research and
development collaboration agreements typically provide us with
multiple revenue streams, which may include upfront,
non-refundable fees for licensing certain of our technologies,
fees for research and development activities, and contingent
milestone payments upon achievement of contractual criteria.
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Technology License Fees. For collaboration
agreements in which we have continuing involvement, license fees
are recognized on a straight-line basis over the term of the
arrangement. Licensing fees are non-refundable and not subject
to future performance.
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Government Grants. We receive payments from
government entities in the form of government grants. Government
grants generally provide us with cost reimbursement for certain
types of expenditures in return for research and development
activities over a contractually defined period, as well as an
allocated portion of our overhead expenses. Revenues from
government grants are recognized in the period during which the
related costs are incurred, provided that substantially all
conditions under which the government grants were provided have
been met and we only have perfunctory obligations outstanding.
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Research and Development Fees. Generally, fees
for research and development activities are recognized as the
services are performed over the performance period, as specified
in the respective agreements. Certain of our collaboration
agreements require us to deliver research data by specific dates
and that the collective program plan will result in reaching
specific crop
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characteristics by certain dates. For such arrangements, we
recognize revenues based on the approximate percentage of
completion of services under the agreement, but the revenue
recognized cannot exceed the payments that have accrued to us to
date under the agreement. The research and development period is
estimated at the inception of each agreement and is periodically
evaluated.
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Milestone Payments. Fees that are contingent
upon achievement of substantive performance milestones at
inception of the agreement are recognized based on the
achievement of the milestone, as defined in the respective
agreements.
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We recognize deferred revenue to the extent that cash received
under the collaboration agreement is in excess of the revenues
recognized related to the agreement since the work under the
agreement has not yet been performed at the time of cash receipt.
In April 2002, we entered into a multi-year discovery and
development collaboration with Monsanto Company, focused on
applying genomics technologies to identify genes that provide
improvements in corn, soybean and certain row crops. Pursuant to
this agreement, Monsanto licensed rights to a portion of our
trait discovery pipeline in certain other row crops in exchange
for license payments over several years. Monsanto also funded a
research program with us. Substantially all of our revenues
through December 31, 2007 were earned through this
agreement. The research and collaboration portion of the
agreement expired in April 2007. However, the license portion of
the agreement entitles us to royalties for any products that
Monsanto commercializes using our technology licensed under the
agreement. In 2010, we and Monsanto agreed to amend the
agreement. The amendment included an additional license fee
pertaining to an expansion of the license grant. In connection
with the collaboration agreement, Monsanto also purchased
3,333,333 shares of our Series E Preferred Stock.
In December 2007, we and a major consumer products company
entered into a development and license agreement. The agreement
provided that we would receive $7.5 million in payments
from this company over a five-year period provided milestones
were met. In addition, the agreement provided that we would be
entitled to receive a royalty based on the gross sales of crop
varieties created under the agreement. We recognized revenue of
zero, $1.0 million, $1.2 million and $1.9 million
under this agreement in the years ended December 31, 2007
and December 31, 2008, the eight months ended
August 31, 2009 and the year ended August 31, 2010,
respectively. Revenue recognized under this agreement for the
nine months ended May 31, 2010 and 2011, was
$1.4 million and $1.3 million, respectively.
We earn research funding revenues from several agreements with
the Department of Energy, or the DOE, the USDA, and several
leading biofuel producers whereby we perform research activities
and receive revenues that partially reimburse our expenses
incurred. Under such grants and agreements, we retain a
proprietary interest in the products and technology we develop.
These expense reimbursements primarily consist of direct expense
sharing arrangements. We recorded revenue related to these
grants of approximately $0.8 million, $2.0 million,
$0.9 million and $2.8 million in the years ended
December 31, 2007 and December 31, 2008, the eight
months ended August 31, 2009 and the year ended
August 31, 2010, respectively, and $2.2 million and
$2.3 million for the nine months ended May 31, 2010
and 2011, respectively. The cumulative remaining amount to be
claimed through September 2012 for all grants outstanding as of
May 31, 2011 is approximately $5.0 million.
On December 16, 2008, we and a major agro-chemical company
entered into a software license and collaboration agreement
pursuant to which we provide software, software development and
customer support for certain research application-based
software. The agreement was structured into three phases and
under the agreement, we are entitled to receive
$1.5 million in payments over an approximate 4.5 year
period. The software delivered is comprised of multiple
elements, which include software, installation, training,
customization of software, and software support. Software
support is considered post-contract customer support, or PCS. We
recognize revenues equal to the amount of
55
expense recognized as services are rendered until the date that
the PCS is the only undelivered element. Beginning on such date,
the unrecognized revenue under the agreement will be recognized
over the remaining PCS period. We recognized revenue and an
equal amount of expenses totaling zero, $0.2 million and
$0.3 million under this agreement in the year ended
December 31, 2008, the eight months ended August 31,
2009 and the year ended August 31, 2010, respectively.
Revenue and related costs recognized for the nine months ended
May 31, 2010 and 2011, were $0.2 million and
$0.2 million, respectively.
For the fiscal year ended August 31, 2010, Campbell Soup
Company, USAID and ARPA-E represented 28.5%, 13.5% and 12.7% of
our revenues, respectively. For the nine months ended
May 31, 2011, Campbell Soup Company, Amyris
Biotechnologies, Inc., USAID and ARPA-E represented 25.9%,
18.2%, 16.4% and 19.9% of our revenues, respectively.
Stock-based
Compensation
We account for stock-based awards granted to employees and
directors by recording compensation expense based on the
awards grant date estimated fair values. Stock options or
warrants granted to our non-employees are re-measured as they
vest. The fair value and the resulting change in value, if any,
is recognized in our consolidated statements of operations
during the period the related services are rendered. We expect
that our expense related to stock-based compensation will
increase over time.
We estimate the fair value of our stock-based awards as of the
date of grant using Black-Scholes option-pricing model.
Determining the fair value of stock-based awards under this
model requires judgment, including estimating the value per
share of our common stock adjusted for our status as a private
company, estimated volatility, expected term of the awards,
estimated dividend yield and the risk-free interest rate. The
assumptions used in calculating the fair value of stock-based
awards represent our best estimates, based on managements
judgment and subjective future expectations. These estimates
involve inherent uncertainties. If any of the assumptions used
in the model change significantly, stock-based compensation
recorded for future awards may differ materially from that
recorded for awards granted previously.
The determination of the estimated value per share of our common
stock is discussed below. We use the historical volatility of a
group of comparative companies as an estimate for our estimated
volatility. For purposes of determining the expected term of the
awards in the absence of sufficient historical data relating to
stock-option exercises for our company, we apply a simplified
approach in which the expected term of an award is presumed to
be the midpoint between the vesting date and the expiration date
of the award. We base the risk-free rate used in the model on
the United States Treasury zero coupon issues with remaining
terms similar to the expected term of the stock options. Our
estimated dividend yield is zero, as we have not and do not
currently intend to declare dividends in the foreseeable future.
Once we have determined the estimated fair value of our employee
stock-based awards, we recognize the portion of that value that
corresponds to the portion of the award that is ultimately
expected to vest, taking estimated forfeitures into account.
This amount is recognized as an expense over the vesting period
of the award using the straight-line method. We estimate
forfeitures based upon our historical experience and, at each
period, review the estimated forfeiture rate and make changes as
factors affecting the forfeiture rate calculations and
assumptions change.
56
Information related to our stock-based compensation activity,
including weighted average grant date fair values and associated
Black-Scholes option-pricing model assumptions related to
employee stock options, is as follows:
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Eight Months
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Year Ended,
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Year Ended,
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Ended
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Year Ended
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Nine Months Ended
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December 31,
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December 31,
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August 31,
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August 31,
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May 31,
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2007
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2008
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2009
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2010
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2010
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2011
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(Unaudited)
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Stock options granted (in thousands)
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1,471
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996
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94
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972
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251
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876
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Weighted average exercise price
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$2.19
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$2.25
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$2.25
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$2.25
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$2.25
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$2.43
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Weighted average grant date fair value per share of stock
options granted
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$1.32
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$1.59
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$1.57
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$1.51
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$1.40
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$1.61
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Weighted average Black-Scholes model assumptions:
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Weighted average grant date fair value of common stock
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$2.11
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$2.17
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$2.16
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$2.32
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$2.17
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$2.49
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Estimated volatility
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85
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%
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85
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%
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85
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%
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70
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%
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70
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%
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78
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%
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Estimated dividend yield
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0
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%
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0
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%
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0
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%
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0
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%
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0
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%
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0
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%
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Expected term (years)
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6.25
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6.25
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6.25
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6.25
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6.25
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6.25
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Risk-free rates
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3.41%-5.15
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%
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1.92%-3.41
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%
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2.10%-3.18
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%
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2.29%-2.69
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%
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2.56%-2.69
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%
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1.48%-2.44
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%
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In 2006, we granted a warrant to purchase 400,000 shares of
our common stock at an exercise price of $10 per share to The
Samuel Roberts Noble Foundation, Inc. The warrant vests in four
equal installments on each of May 2009, May 2011, May 2013 and
May 2015 and will remain exercisable for a period of two years
from the respective vesting date. These warrants are accounted
for at fair value and re-measured until vested. The fair value,
including the resulting change in value as a result of
re-measurement is recognized as research and development expense.
In 2007, we granted a warrant to purchase 200,000 shares of
our common stock at an exercise price of $10 per share to The
Texas A&M University System. The warrant vests in various
installments based on achievement of certain research and
commercialization milestones and expires in August 2017. These
warrants are accounted for at fair value and remeasured until
the vesting targets are met. The fair value, including the
resulting change in value as a result of re-measurement is
recognized as research and development expense. No warrants had
vested under this arrangement as of May 31, 2011.
Our stock-based compensation expense, including employee awards
and non-employee stock options and equity classified warrants,
is as follows (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
Nine Months
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
December 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
May 31,
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Research and development
|
|
|
389
|
|
|
|
467
|
|
|
|
345
|
|
|
|
409
|
|
|
|
314
|
|
|
|
1,223
|
|
Selling, general and administrative
|
|
|
338
|
|
|
|
705
|
|
|
|
737
|
|
|
|
891
|
|
|
|
627
|
|
|
|
566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stock-based compensation expense
|
|
$
|
727
|
|
|
$
|
1,172
|
|
|
$
|
1,082
|
|
|
$
|
1,300
|
|
|
$
|
941
|
|
|
$
|
1,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Significant
Factors, Assumptions and Methodologies Used in Determining Fair
Value of Common Stock
We estimated the fair value of our common stock utilizing
methodologies, approaches and assumptions consistent with the
American Institute of Certified Public Accountants Practice Aid,
57
Valuation of Privately-Held-Company Equity Securities
Issued as Compensation, or the AICPA Practice Aid.
Given the absence of public market for our common stock, the
fair values of our common stock underlying stock option grants
were estimated by our board of directors, which intended all
stock options granted to be exercisable at a price per share not
less than the per share fair market value of our common stock
underlying those options on the date of grant. To assist our
board of directors in this determination and in order to set the
exercise price of each stock option grant, our management
informed them of the most recent available valuation analysis
prior to the dates of grant.
In these valuations, we first estimated enterprise value and
then allocated this value to the underlying classes of equity.
In estimating the enterprise value, we used a combination of an
income approach, which incorporated a discounted cash flow
valuation, and a market approach. To allocate the enterprise
value to the underlying classes of equity for all valuations
through February 28, 2011, we used the option-pricing
method as an initial public offering was not anticipated in the
near term. The allocation was performed because the convertible
preferred stockholders are entitled to certain preferences over
common stockholders, including noncumulative dividends and
liquidation preferences, which resulted in more of the
enterprise value being allocated to the convertible preferred
stockholders than common stockholders. The allocation model also
considered time until liquidity event, risk-free rate, expected
volatility and adjustment for the lack of marketability of our
common stock.
In April 2011, our board of directors approved plans to move
forward with an initial public offering of our common stock.
Accordingly, beginning with the May 31, 2011 common stock
valuation, we have used a probability-weighted expected return
method to allocate our enterprise value to the underlying
classes of equity. This probability-weighted expected return
method included the following steps:
|
|
|
|
|
We estimated the timing and likelihood of an IPO liquidity event
and continuing as a private company.
|
|
|
|
For the IPO scenario, we estimated our common stock value based
in part on information provided by our underwriters as to their
view of the possible estimated initial public offering price
range for a potential near term IPO offering.
|
|
|
|
For the continuing as a private company scenario, we determined
our enterprise value using a combination of an income approach
and a market approach. We determined the appropriate allocation
of value to the common stockholders based on the rights and
preferences of each class and series of our stock at that time.
|
|
|
|
We then multiplied the value of our common stock under each
scenario by an estimated relative probability of each scenario
occurring determined by our management and board of directors;
and
|
|
|
|
We then calculated the probability-weighted value per share of
our common stock.
|
In order to determine the fair value of our common stock, we
then applied a discount for lack of marketability of our common
stock to the value derived from the probability-weighted
expected return method.
The most recent valuations were performed as of
December 31, 2008, August 31, 2009, August 31,
2010, February 28, 2011 and May 31, 2011. The
valuations as of August 31, 2010, February 28, 2011
and May 31, 2011 were performed with the assistance of a
third-party valuation firm. Prior to each grant date, the board
of directors considered the most recent valuation along with
other relevant objective and subjective factors it deemed
important in each valuation, exercising significant judgment and
reflecting the board of directors best estimates at the
time. These factors included:
|
|
|
|
|
the nature and history of our business;
|
|
|
|
our operating and financial performance;
|
58
|
|
|
|
|
general economic conditions and the specific outlook for our
industry;
|
|
|
|
the lack of liquidity for our common stock;
|
|
|
|
the market price of companies engaged in the same or similar
businesses with equity securities that are publicly traded;
|
|
|
|
the differences between the terms of our preferred and common
stock related to liquidation preferences, conversion rights,
dividend rights, voting rights and other features; and
|
|
|
|
the likelihood of achieving different liquidity events or
remaining a private company.
|
We believe that we have used reasonable methodologies,
approaches and assumptions in determining the fair value of our
common stock. If we had made different assumptions and
estimates, the amount of our recognized and to be recognized
stock-based compensation expense could have been materially
different.
The table below sets forth information regarding stock options
for grants between January 1, 2009 and July 20, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Intrinsic
|
|
|
Number of
|
|
Exercise
|
|
Fair Value of
|
|
Value
|
Grants by month
|
|
Shares
|
|
Price
|
|
Common Stock
|
|
per Share
|
|
March 2009
|
|
|
82,000
|
|
|
$
|
2.25
|
|
|
$
|
2.17
|
|
|
|
|
|
June 2009
|
|
|
12,000
|
|
|
$
|
2.25
|
|
|
$
|
2.17
|
|
|
|
|
|
September 2009
|
|
|
234,000
|
|
|
$
|
2.25
|
|
|
$
|
2.16
|
|
|
|
|
|
December 2009
|
|
|
17,000
|
|
|
$
|
2.25
|
|
|
$
|
2.24
|
|
|
|
|
|
June 2010
|
|
|
721,000
|
|
|
$
|
2.25
|
|
|
$
|
2.37
|
|
|
$
|
0.12
|
|
October 2010
|
|
|
41,000
|
|
|
$
|
2.25
|
|
|
$
|
2.46
|
|
|
$
|
0.21
|
|
December 2010
|
|
|
554,500
|
|
|
$
|
2.44
|
|
|
$
|
2.48
|
|
|
$
|
0.04
|
|
January 2011
|
|
|
280,000
|
|
|
$
|
2.44
|
|
|
$
|
2.50
|
|
|
$
|
0.06
|
|
June 2011
|
|
|
500,000
|
|
|
$
|
5.59
|
|
|
$
|
5.72
|
|
|
$
|
0.13
|
|
July 2011
|
|
|
259,599
|
|
|
$
|
5.72
|
|
|
$
|
5.72
|
|
|
|
|
|
The table below sets forth the estimated fair value of our
common stock at each valuation date since December 31, 2008:
|
|
|
|
|
|
|
Estimated
|
|
|
Fair Value of
|
Date
|
|
Common Stock
|
|
December 31, 2008
|
|
$
|
2.17
|
|
August 31, 2009
|
|
$
|
2.16
|
|
August 31, 2010
|
|
$
|
2.44
|
|
February 28, 2011
|
|
$
|
2.52
|
|
May 31, 2011
|
|
$
|
5.72
|
|
Valuation as of
December 31, 2008
We estimated the fair market value of $2.17 per share of our
common stock as of December 31, 2008 using an
option-pricing method. We first estimated our enterprise value
of $210 million and then allocated this value to the
underlying classes of equity using the option-pricing method as
outlined in the AICPA Practice Aid. In estimating the enterprise
value, we used a combination of an income approach which
incorporated a discounted cash flow valuation, and a market
approach. To allocate the enterprise value to the underlying
classes of equity, we used the option-pricing method. Within the
allocation model, we estimated a time until liquidity event of
3 years, a risk-free rate of 1.34%, a volatility input of
85% and a 25% adjustment for the lack of marketability of our
common stock.
59
Valuation as of
August 31, 2009
We estimated the fair market value of $2.16 per share of our
common stock as of August 31, 2009 using an option-pricing
method. We first estimated our enterprise value of
$209 million and then allocated this value to the
underlying classes of equity. In estimating the enterprise
value, we used a combination of an income approach, which
incorporated a discounted cash flow valuation and a market
approach. To allocate the enterprise value to the underlying
classes of equity, we used the option-pricing method. Within the
allocation model, we estimated a time until liquidity event of
3 years, a risk-free rate of 1.49% a volatility input of
85% and a 25% adjustment for the lack of marketability of our
common stock.
Valuation as of
August 31, 2010
We obtained the assistance of a third-party valuation firm in
estimating the fair market value of our common stock as of
August 31, 2010 using an option-pricing method. We first
estimated our enterprise value of $264 million and then
used the option-pricing method to allocate the estimated
enterprise value between common and preferred stockholders. In
estimating the enterprise value, we used a combination of an
income approach, which incorporated a discounted cash flow
valuation and a market approach. Within the allocation model, we
used a volatility input of 70% based on the historically
observed volatilities of selected public guideline companies and
estimated a time until liquidity event of 3 years. Applying
an appropriate risk free interest rate of 0.72% and a 25%
adjustment for the lack of marketability of our common stock, we
estimated a fair market value at August 31, 2010 of $2.44
per share of our common stock.
Valuation as of
February 28, 2011
We obtained the assistance of a third-party valuation firm in
estimating the fair market value of $2.52 per share of our
common stock as of February 28, 2011 using an
option-pricing method. We first estimated our enterprise value
of $270 million and then allocated this value between
common and preferred stockholders using the option-pricing
method. In estimating the enterprise value, we used a
combination of an income approach, which incorporated a
discounted cash flow valuation and a market approach. Within the
allocation model, we estimated a time until liquidity event of
2.5 years, a risk-free rate of 0.94% a volatility input of
70% based on the historically observed volatilities of selected
public guideline companies, and a 25% adjustment for the lack of
marketability of our common stock.
As of February 28, 2011, we were considering a variety of
financing alternatives, including financing from existing
investors, debt financing and an initial public offering. As of
February 28, 2011, an initial public offering was not
anticipated in the near term.
Valuation as of
May 31, 2011
In April 2011, our board of directors approved plans to move
forward with an initial public offering of our common stock.
This determination was based in part on macroeconomic events and
the anticipated success of our Brazilian sweet sorghum
cultivation. Our Brazilian sweet sorghum trials consisted of
planting sweet sorghum in November and December and, after
waiting for 90 to 120 days until the crop matured, harvesting
the crop, transporting it to the mill, crushing the biomass and
fermenting the resulting juice into ethanol, with the remaining
bagasse or stalks being burned for production of electricity. By
April 2011 we had reasonable evidence to conclude that the crop
would mature into healthy biomass. The only steps remaining at
that point involved industrial processing. We had previously
achieved positive fermentation results with sweet sorghum at a
laboratory scale. Consequently, we had reason to assume that the
larger scale industrial processing and fermentation of the crop
would be successful. In addition to the large scale industrial
processing, we also needed to obtain the necessary governmental
variety registrations before we could make commercial deliveries
of our sweet sorghum seeds that we are marketing to potential
customers in Brazil for planting in the 2011-2012 growing
season, which we had not received as of May 31, 2011. We
have since received such necessary governmental variety
registrations. Because our sweet sorghum seeds
60
do not contain biotech traits, they are not subject to a
lengthy government regulatory process that can take up to three
years. Accordingly, for purposes of the May 31, 2011 common
stock valuation, we have used a probability-weighted expected
return method to allocate our enterprise value to the underlying
classes of equity. This probability-weighted expected return
method considered a 70% probability of an IPO scenario and a 30%
probability of continuing as a private company scenario. For the
IPO scenario, we estimated our common stock value based in part
on initial price indications provided by the investment banking
firms we were considering as underwriters of a potential initial
public offering as to their view of an estimated price range for
a near term initial public offering. This initial price
indication was received prior to engaging the underwriters for
this offering. For the private company scenario, we first
estimated our enterprise equity value to be $446 million
and then allocated this value to the underlying classes of
equity. In estimating the enterprise value, we used a
combination of an income approach, which incorporated a
discounted cash flow valuation, and a market approach. We then
applied a 20% discount for lack of marketability to the value
derived from the probability-weighted expected return method to
arrive at an estimated fair market value of $5.72 per share of
our common stock as of May 31, 2011. The increase in our
enterprise equity value from $270 million as of
February 28, 2011 to $446 million as of May 31,
2011 was primarily driven by increased long-term revenue and
cash flow projections as compared to our prior forecasts. The
higher projections were primarily driven by increasing our
long-term growth plan following a more favorable macroeconomic
environment for biofuels and anticipated higher demand for
alternatives to petroleum-based products due to higher oil
prices, as evidenced by a favorable IPO market for renewable
fuel offerings. Additionally, we recently concluded our first
commercial-scale trials of sweet sorghum in Brazil near the end
of May and had received results indicating that the trials were
successful. We view the successful completion of our sweet
sorghum cultivation in Brazil in May 2011 as a significant
driver of near term value. In addition, the filing of our
registration statement with the SEC on May 23, 2011
increased the likelihood of a near term liquidity event,
resulting in an increase in our common stock value due to a
lower lack of marketability discount as compared to the
February 28, 2011 valuation.
Option Grants in
June and July 2011
On June 23, 2011, our board of directors approved the grant
of 500,000 stock options at an exercise price of $5.59 per
share. On July 20, 2011, our board of directors approved
the grant of 259,599 stock options at an exercise price of $5.72
per share. In order to estimate the fair value of our common
stock for the purposes of establishing the exercise price, our
board of directors considered an initial draft of the
May 31, 2011 third-party valuation report that indicated an
estimated fair value of our common stock of $5.59 as of
May 31, 2011. Subsequent to the grant date, the
May 31, 2011 third-party valuation report was finalized,
resulting in an estimated fair value of our common stock of
$5.72 as of May 31, 2011. As a result, for the financial
reporting purpose of determining the estimated fair value of the
options granted, we will use this $5.72 estimated fair value of
our common stock as an input to the Black-Scholes option-pricing
model.
Fair Value of
Warrants
Liability
Classified Warrants to Purchase Common Stock
We issued warrants to purchase our common stock in connection
with the issuances of our Series F and Series G
preferred stock. We have accounted for these warrants as
liabilities as the warrants are not considered indexed to our
common stock. We estimate the fair value of our liability
classified warrants to purchase common stock using an
option-pricing model, which incorporates several estimates and
assumptions that are subject to significant management judgment.
Changes in fair value at each period-end are recorded in other
income (expense) in our consolidated statement of operations
until the earlier of the exercise or expiration of the warrants,
or the completion of this offering.
61
Warrants to purchase the following shares of common stock were
outstanding as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|
As of
|
|
|
|
|
December 31,
|
|
August 31,
|
|
August 31,
|
|
May 31,
|
|
May 31,
|
|
Exercise
|
Series
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
Price
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
Series F
|
|
|
2,307,697
|
|
|
|
2,307,697
|
|
|
|
2,307,697
|
|
|
|
2,307,697
|
|
|
|
2,307,697
|
|
|
$
|
6.50
|
|
Series G
|
|
|
|
|
|
|
|
|
|
|
3,076,923
|
|
|
|
|
|
|
|
3,076,923
|
|
|
$
|
6.50
|
|
The fair value of the Series F warrants was calculated
using the following assumptions:
|
|
|
|
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
August 31,
|
|
May 31,
|
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
|
|
|
|
(Unaudited)
|
|
Expected term (in years)
|
|
6.0
|
|
5.0
|
|
5.26
|
|
1.6
|
Expected volatility
|
|
85%
|
|
90%
|
|
90%
|
|
84%
|
Risk free interest rate
|
|
3.21%
|
|
1.47%
|
|
2.18%
|
|
0.57%
|
Expected dividend yield
|
|
0%
|
|
0%
|
|
0%
|
|
0%
|
Estimated fair value (in thousands)
|
|
$2,931
|
|
$2,994
|
|
$3,012
|
|
$4,211
|
The fair value of the Series G warrants was calculated
using the following assumptions:
|
|
|
|
|
|
|
As of
|
|
As of
|
|
|
August 31,
|
|
May 31,
|
|
|
2010
|
|
2011
|
|
|
|
|
(Unaudited)
|
|
Expected term (in years)
|
|
9.8
|
|
3.1
|
Expected volatility
|
|
85%
|
|
76%
|
Risk free interest rate
|
|
2.70%
|
|
0.98%
|
Expected dividend yield
|
|
0%
|
|
0%
|
Estimated fair value (in thousands)
|
|
$5,584
|
|
$5,838
|
In connection with the offering of the Convertible Notes,
1,619,922 of the warrants issued in connection with the
Series F Preferred Stock offering and all of the warrants
issued in connection with the Series G Preferred Stock
offering were amended such that they no longer expire upon the
completion of a qualified initial public offering.
Upon the completion of a qualified initial public offering, the
687,775 of the warrants to purchase common stock issued in
connection with the Series F Preferred Stock offering that were
not amended will either expire or be exercised for shares of
common stock, and at that time, we will no longer record any
changes in the fair value for those warrants in our consolidated
statement of operations.
Liability
Classified Warrants to Purchase Convertible Preferred
Stock
We have issued warrants to purchase our convertible preferred
stock in connection with certain financing arrangements. We have
accounted for these warrants as liabilities because the
underlying shares of convertible preferred stock are redeemable
in the case of a deemed liquidation. We estimate the fair value
of our convertible preferred stock warrants using an
option-pricing model, which incorporates several estimates and
assumptions that are subject to significant management judgment.
Changes in fair value at each period end are recorded in other
income (expense) in our consolidated statement of operations
until the earlier of the exercise or expiration of the warrants,
or the completion of this offering.
62
Upon the completion of this offering, our warrants to purchase
convertible preferred stock will convert to warrants to purchase
common stock, and at that time, we will no longer record any
changes in the fair value of these liabilities in our statement
of operations.
Seed
Inventory
Seed inventory costs are computed on a
first-in,
first-out basis and valued at the lower of cost or market and
are included as cost of product sales. Due to the early stage of
commercialization of our seed products and with no established
market for our seed products, a full valuation reserve has been
recorded against our inventory.
Income
Taxes
Income taxes are accounted for under the asset and liability
method. Deferred tax assets and liabilities are recognized for
the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss
and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the
enactment date. We record a valuation allowance when it is more
likely than not that some of our net deferred tax assets will
not be realized. In determining the need for valuation
allowances, we consider our projected future taxable income and
the availability of tax planning strategies. We have recorded a
full valuation allowance to reduce our net deferred tax assets
to zero except to the extent of federal credits refundable in
2009 because we have determined that it is not more likely than
not that any of our net deferred tax assets will be realized. If
in the future we determine that we will be able to realize any
of our net deferred tax assets, we will make an adjustment to
the allowance, which would increase our income in the period
that the determination is made.
We operate in various tax jurisdictions and are subject to audit
by various tax authorities. We recognize the effect of income
tax positions only if those positions are more likely than not
of being sustained. Recognized income tax positions are measured
at the largest amount that is greater than 50% likely of being
realized. Changes in recognition or measurement are reflected in
the period in which the change in judgment occurs.
Impairment of
Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. Our long-lived assets comprise a single asset group
for evaluation purposes. We evaluate whether an impairment
indicator occurs primarily based on progress achieved against
our business plans. To the extent that an impairment indicator
has occurred, recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to
estimated undiscounted future cash flows expected to be
generated by the asset. If the carrying amount of an asset
exceeds its estimated undiscounted future cash flows, an
impairment charge is recognized in the amount by which the
carrying amount of the asset exceeds the fair value of the
asset. For all periods presented herein, no impairment
indicators have occurred and therefore no impairment charges
have been recognized.
63
Results of
Operations
The following table sets forth our consolidated results of
operations for the periods shown:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
Ended
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
Year Ended
|
|
|
May 31,
|
|
|
|
December 31,
|
|
|
August 31,
|
|
|
August 31,
|
|
|
(Unaudited)
|
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2011
|
|
|
|
(In thousands)
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
64
|
|
|
$
|
98
|
|
|
$
|
288
|
|
|
$
|
236
|
|
|
$
|
97
|
|
Collaborative research and government grants
|
|
|
7,180
|
|
|
|
3,880
|
|
|
|
2,328
|
|
|
|
6,326
|
|
|
|
4,095
|
|
|
|
4,799
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
7,180
|
|
|
|
3,944
|
|
|
|
2,426
|
|
|
|
6,614
|
|
|
|
4,331
|
|
|
|
4,896
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost and operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of product sales
|
|
|
|
|
|
|
3,777
|
|
|
|
2,690
|
|
|
|
2,946
|
|
|
|
2,217
|
|
|
|
1,940
|
|
Research and development
|
|
|
19,220
|
|
|
|
20,309
|
|
|
|
12,397
|
|
|
|
16,697
|
|
|
|
12,639
|
|
|
|
13,837
|
|
Selling, general and administrative
|
|
|
9,811
|
|
|
|
8,784
|
|
|
|
6,645
|
|
|
|
9,207
|
|
|
|
6,844
|
|
|
|
6,900
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
|
29,031
|
|
|
|
32,870
|
|
|
|
21,732
|
|
|
|
28,850
|
|
|
|
21,700
|
|
|
|
22,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(21,851
|
)
|
|
|
(28,926
|
)
|
|
|
(19,306
|
)
|
|
|
(22,236
|
)
|
|
|
(17,369
|
)
|
|
|
(17,781
|
)
|
Interest expense
|
|
|
(123
|
)
|
|
|
|
|
|
|
(5
|
)
|
|
|
(153
|
)
|
|
|
(91
|
)
|
|
|
(365
|
)
|
Interest income
|
|
|
1,521
|
|
|
|
2,001
|
|
|
|
243
|
|
|
|
23
|
|
|
|
21
|
|
|
|
6
|
|
Other income (expense)
|
|
|
5
|
|
|
|
|
|
|
|
161
|
|
|
|
(152
|
)
|
|
|
(167
|
)
|
|
|
(1,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes
|
|
|
(20,448
|
)
|
|
|
(26,925
|
)
|
|
|
(18,907
|
)
|
|
|
(22,518
|
)
|
|
|
(17,606
|
)
|
|
|
(19,590
|
)
|
Income tax benefit (expense)
|
|
|
(7
|
)
|
|
|
148
|
|
|
|
211
|
|
|
|
(65
|
)
|
|
|
14
|
|
|
|
28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(20,455
|
)
|
|
$
|
(26,777
|
)
|
|
$
|
(18,696
|
)
|
|
$
|
(22,583
|
)
|
|
$
|
(17,592
|
)
|
|
$
|
(19,562
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comparison of
Nine Months Ended May 31, 2010 and 2011
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Product sales
|
|
$
|
236
|
|
|
$
|
97
|
|
|
$
|
(139
|
)
|
Collaborative research and government grants
|
|
|
4,095
|
|
|
|
4,799
|
|
|
|
704
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
4,331
|
|
|
$
|
4,896
|
|
|
$
|
565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total revenues increased by $0.6 million to
$4.9 million in the nine months ended May 31, 2011
compared to the same period in the prior year. The increase was
primarily the result of an increase of $0.7 million and
$0.5 million in billings related to our collaboration
agreement with Amyris and one of our new government grants with
ARPA-E, which was partially offset by a decrease in billings of
$0.5 million under two of our grants with the USDA, along
with a $0.1 million decrease in product sales.
64
Cost and
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months
|
|
|
|
|
|
|
Ended
|
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Cost of product sales
|
|
$
|
2,217
|
|
|
$
|
1,940
|
|
|
$
|
(277
|
)
|
Research and development
|
|
|
12,639
|
|
|
|
13,837
|
|
|
|
1,198
|
|
Selling, general and administrative
|
|
|
6,844
|
|
|
|
6,900
|
|
|
|
56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
$
|
21,700
|
|
|
$
|
22,677
|
|
|
$
|
977
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Product
Sales
Our cost of product sales decreased by $0.3 million to
$1.9 million in the nine months ended May 31, 2011
compared to the nine months ended May 31, 2010. Cost of
grower contracts and associated agricultural supplies decreased
by $0.4 million as we reduced our production and related
costs of production for our switchgrass product, which was
partially offset by a $0.1 million increase in personnel
costs.
Research and
Development Expenses
Our research and development expense increased by
$1.2 million for the nine months ended May 31, 2011
compared to the nine months ended May 31, 2010. Of the
$1.2 million increase, $0.9 million was related to the
mark to market valuation of our warrants and stock option
expense which resulted from an increase value of common stock
for the comparative periods. Additionally, our licensing fees
increased by $0.1 million and our consulting and travel
expense increased by $0.2 million.
Selling, General
and Administrative Expenses
Our selling, general and administrative expenses remained
relatively flat, increasing by $0.1 million to
$6.9 million in the nine months ended May 31, 2011
compared to the same period in the prior year. Legal and
accounting fees increased by $0.1 million in support of our
operations in Brazil.
Interest Expense,
Interest Income and Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
May 31,
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
2010
|
|
|
2011
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Interest expense
|
|
$
|
(91
|
)
|
|
$
|
(365
|
)
|
|
$
|
(274
|
)
|
Interest income
|
|
|
21
|
|
|
|
6
|
|
|
|
(15
|
)
|
Other income (expense)
|
|
|
(167
|
)
|
|
|
(1,450
|
)
|
|
|
(1,283
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
(237
|
)
|
|
$
|
(1,809
|
)
|
|
$
|
(1,572
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, interest income and other income (expense)
increased by $1.6 million in the nine months ended
May 31, 2011 compared to the same period in the prior year.
The increase was primarily the result of the fair value changes
associated with our liability classified warrants of
$1.3 million, and higher interest expense of
$0.3 million.
65
Interest
Expense
Interest expense increased by $0.3 million in the nine
months ended May 31, 2011 compared to the same period in
the prior year. The increase was primarily related to borrowings
in February and August 2010 under our new Loan and Security
Agreement with a commercial bank.
Interest
Income
Interest income decreased by $15,000 in the nine months ended
May 31, 2011 compared to the same period in the prior year.
The decrease was primarily the result of lower average cash
invested balances.
Other Income
(Expense)
Other income (expense) increased by $1.3 million to
$1.5 million for the nine months ended May 31, 2011
compared to $0.2 million for the nine months ended
May 31, 2010. The increase is the result of the fair value
changes associated with our warrant valuations.
Comparison of
Eight Months Ended August 31, 2009 and Year Ended
August 31, 2010
During 2009 we changed our fiscal year-end from December 31 to
August 31 for financial reporting purposes. The change was
effective for the eight-month period ended August 31, 2009.
The discussion below compares the eight months ended
August 31, 2009 to the twelve months ended August 31,
2010.
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Product sales
|
|
$
|
98
|
|
|
$
|
288
|
|
|
$
|
190
|
|
Collaborative research and government grants
|
|
|
2,328
|
|
|
|
6,326
|
|
|
|
3,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
2,426
|
|
|
$
|
6,614
|
|
|
$
|
4,188
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total revenues increased by $4.2 million in the year
ended August 31, 2010 compared to the eight months ended
August 31, 2009. Although the increase was largely due to
non-comparable periods (twelve months in 2010 as compared to
eight months in 2009), the
period-to-period
increase was also due to higher billings related to our
collaborative research agreements of $2.3 million and an
increase in revenue for our grants including the two new
government grants from USAID and ARPA-E, which in the aggregate
contributed $1.7 million to the 2010 period, and an
increase of product sales of $0.2 million.
Cost and
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Cost of product sales
|
|
$
|
2,690
|
|
|
$
|
2,946
|
|
|
$
|
256
|
|
Research and development
|
|
|
12,397
|
|
|
|
16,697
|
|
|
|
4,300
|
|
Selling, general and administrative
|
|
|
6,645
|
|
|
|
9,207
|
|
|
|
2,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
$
|
21,732
|
|
|
$
|
28,850
|
|
|
$
|
7,118
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
66
Cost of Product
Sales
Our cost of product sales increased by $0.3 million to
$2.9 million in the year ended August 31, 2010
compared to the eight months ended August 31, 2009. The
increase was due to non-comparable periods (twelve months in
2010 as compared to eight months in 2009). On a comparable
period basis, our cost of product sales decreased because we
decreased our production and related costs for our switchgrass
products during 2010 as we determined we had produced adequate
supply to meet existing demand at that time. This cost reduction
was partially offset by higher production costs associated with
our high biomass sorghum products in the United States during
2010.
Research and
Development Expenses
Our research and development expenses increased by
$4.3 million to $16.7 million in the year ended
August 31, 2010 compared to the eight months ended
August 31, 2009. Personnel and related expense increased by
$2.2 million, external research and development expense
increased by $1.4 million, and depreciation expense
increased by $0.7 million for the full year ended
August 31, 2010 as compared to the eight month period ended
August 31, 2009. These increases were due to non-comparable
periods (twelve months in 2010 as compared to eight months in
2009). On a comparable period basis, our research and
development expenses decreased primarily as a result of a
reduction of personnel in 2010 as compared to 2009 along with a
reduction in associated external research and development
activities, and reduced office expenses associate with less full
time employees. There were 54 fulltime research and development
employees at the end of fiscal year 2010 versus 63 at the end of
fiscal year 2009.
Selling, General
and Administrative Expenses
Our selling, general and administrative expenses increased by
$2.6 million to $9.2 million in the year ended
August 31, 2010 compared to the eight months ended
August 31, 2009. Personnel and related expenses including
travel, office expense and depreciation increased by
$2.2 million and professional fees for legal, accounting
and marketing increased by $0.4 million for the full year
ended August 31, 2010 as compared to the eight month period
ended August 31, 2009. Although the increase was largely
due to non-comparable periods (twelve months in 2010 as compared
to eight months in 2009), the
period-to-period
increase was partially due to increased spending related to the
start up of our operations in Brazil, and also higher
administrative costs in support of our research and operations
in Texas. On a comparable period basis, our selling, general and
administrative expenses decreased as a result of a reduction of
personnel in 2010 to 25 full time administrative employees as
compared to 27 full time employees in 2009.
Interest Expense,
Interest Income and Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
|
|
|
Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
August 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Interest expense
|
|
$
|
(5
|
)
|
|
$
|
(153
|
)
|
|
$
|
(148
|
)
|
Interest income
|
|
|
243
|
|
|
|
23
|
|
|
|
(220
|
)
|
Other income (expense)
|
|
|
161
|
|
|
|
(152
|
)
|
|
|
(313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
399
|
|
|
$
|
(282
|
)
|
|
$
|
(681
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Interest Income and Other Income (Expense)
increased by $0.7 million to $(0.3) million in the
year ended August 31, 2010 compared to the eight months
ended August 31, 2009. The increase in other (expense) was
largely due to non-comparable periods (twelve months in 2010 as
compared to eight months in 2009) and an increase in fair
value of our warrants, by
67
$0.3 million, a decrease in interest income from cash
investments $0.2 million, and an increase in interest
expense related to our debt financing during 2010 by
$0.1 million.
Interest
Expense
Interest expense increased by $0.1 million in the year
ended August 31, 2010 compared to the eight months ended
August 31, 2009. The increase was primarily due to higher
outstanding principal balances on our bank debt in 2010 as
compared to 2009 primarily because we entered into a loan
agreement with Silicon Valley Bank in 2010.
Interest
Income
Interest income decreased by $0.2 million in the year ended
August 31, 2010 compared to the eight months ended
August 31, 2009. The decrease in interest income was
primarily due to a more conservative investment of available
cash, which more than offset the impact of the non-comparable
periods.
Other Income
(Expense)
Other income (expense) increased by $0.3 million in the
year ended August 31, 2010 compared to the eight months
ended August 31, 2009. The increase was primarily due to
higher expense related to the increase in the fair value of our
warrants in fiscal 2010.
Comparison of
Year Ended December 31, 2008 and Eight Months Ended
August 31, 2009
During 2009 we changed our fiscal year-end from December 31 to
August 31 for financial reporting purposes. The change was
effective for the eight-month period ended August 31, 2009.
The discussion below compares the year ended December 31,
2008 to the eight months ended August 31, 2009.
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Product sales
|
|
$
|
64
|
|
|
$
|
98
|
|
|
$
|
34
|
|
Collaborative research and government grants
|
|
|
3,880
|
|
|
|
2,328
|
|
|
|
(1,552
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
3,944
|
|
|
$
|
2,426
|
|
|
$
|
(1,518
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total revenues decreased by $1.5 million to
$2.4 million in the eight months ended August 31, 2009
compared to the year ended December 31, 2008. Although the
decrease was largely due to non-comparable periods (eight months
in 2009 as compared to twelve months in 2008), the
period-to-period
decrease was also due to lower revenue from our grants and
collaborative agreements by $1.3 million and the completion
of one of our grants in August 2008, which resulted in
$0.2 million of reduced billings.
68
Cost and
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Cost of product sales
|
|
$
|
3,777
|
|
|
$
|
2,690
|
|
|
$
|
(1,087
|
)
|
Research and development
|
|
|
20,309
|
|
|
|
12,397
|
|
|
|
(7,912
|
)
|
Selling, general and administrative
|
|
|
8,784
|
|
|
|
6,645
|
|
|
|
(2,139
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
$
|
32,870
|
|
|
$
|
21,732
|
|
|
$
|
(11,138
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Product
Sales
Our cost of product sales decreased by $1.1 million to
$2.7 million in the eight months ended August 31, 2009
compared to the year ended December 31, 2008. The decrease
was due to non-comparable periods (eight months in 2009 as
compared to twelve months in 2008). On a comparable period
basis, expenses increased partially as a result of higher
expense related to the operations of our seed facility in
Amarillo, Texas, and increased capital expenditures which
increased depreciation expense by $0.1 million.
Research and
Development Expenses
Our research and development expenses decreased by
$7.9 million to $12.4 million in the eight months
ended August 31, 2009 compared to the year ended
December 31, 2008. The decrease was largely due to
non-comparable periods (eight months in 2009 as compared to
twelve months in 2008). Personnel and related expense decreased
by $5.3 million of which $1.1 million related to the
annual savings in personnel reductions that occurred in January
2009 as we transitioned our efforts from exploratory trait
research to agronomy, plant breeding, and field research in
support of our transition to a commercial seed business.
Additionally, laboratory and agricultural supply expense
decreased by $1.5 million, and external research and
development and licensing expense decreased by $1.1 million.
On a comparable period basis, our research and development
expenses decreased primarily as a result of a reduction of
personnel in 2009 as compared to 2008, along with reductions in
expense for lab supplies and licensing fees. These reductions
were partially offset by increases in external research and
development and office expense in 2009 as compared to 2008.
There were 63 fulltime research and development employees
at the end of fiscal year 2009 versus 84 at the end of fiscal
year 2008.
Selling, General
and Administrative Expenses
Our selling, general and administrative expenses decreased by
$2.1 million to $6.6 million in the eight months ended
August 31, 2009 compared to the year ended
December 31, 2008. Personnel and related expenses including
travel, office expense and depreciation decreased by
$1.1 million and professional fees for legal, accounting
and marketing decreased by $1.0 million. The lower selling,
general and administrative expenses were primarily due to
non-comparable periods (eight months in 2009 as compared to
twelve months in 2008). On a comparable period basis, our
selling, general and administrative expenses increased primarily
as a result of an increase in personnel and related expense in
2009 as compared to 2008.
69
Interest Expense,
Interest Income and Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
|
|
|
Year Ended
|
|
|
Ended
|
|
|
|
|
|
|
December 31,
|
|
|
August 31,
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Interest expense
|
|
$
|
|
|
|
$
|
(5
|
)
|
|
$
|
(5
|
)
|
Interest income
|
|
|
2,001
|
|
|
|
243
|
|
|
|
(1,758
|
)
|
Other income
|
|
|
|
|
|
|
161
|
|
|
|
161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,001
|
|
|
$
|
399
|
|
|
$
|
(1,602
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest Expense, Interest Income and Other Income (Expense),
increased by $1.6 million to $0.4 million in the eight
months ended August 31, 2009 compared to the year ended
December 31, 2008. This was largely due to the
$1.8 million reduction of interest income earned on
investments, which was offset by the $0.2 million increase
in other income due to the change in fair value of our warrants.
Interest
Expense
Interest expense increased by $5,000 in the eight months ended
August 31, 2009 compared to the year ended
December 31, 2008.
Interest
Income
Interest income decreased by $1.8 million in the eight
months ended August 31, 2009 compared to the year ended
December 31, 2008. The decrease was primarily due to a more
conservative investment of available cash and the impact of
non-comparable periods (eight months in 2009 as compared to
twelve months in 2008).
Other
Income
Other income increased by $0.2 million in the eight months
ended August 31, 2009 compared to the year ended
December 31, 2008. The increase in other income was due to
the change in the fair value of our warrants.
Comparison of
Years Ended December 31, 2007 and 2008
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Product sales
|
|
$
|
|
|
|
$
|
64
|
|
|
$
|
64
|
|
Collaborative research and government grants
|
|
|
7,180
|
|
|
|
3,880
|
|
|
|
(3,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
7,180
|
|
|
$
|
3,944
|
|
|
$
|
(3,236
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our total revenues decreased by $3.2 million to
$3.9 million in the year ended December 31, 2008
compared to the year ended December 31, 2007. The decrease
was primarily the result of the completion of a discovery and
development collaboration agreement which represented
$6.3 million in revenue in 2007, which was offset by
$1.8 million of increased revenue from our collaborative
research agreements along with an increase of $1.2 million
in grant revenue, and $0.1 million in product sales.
70
Cost and
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Cost of product sales
|
|
$
|
|
|
|
$
|
3,777
|
|
|
$
|
3,777
|
|
Research and development
|
|
|
19,220
|
|
|
|
20,309
|
|
|
|
1,089
|
|
Selling, general and administrative
|
|
|
9,811
|
|
|
|
8,784
|
|
|
|
(1,027
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost and operating expenses
|
|
$
|
29,031
|
|
|
$
|
32,870
|
|
|
$
|
3,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Product
Sales
Our cost of product sales increased to $3.8 million in the
year ended December 31, 2008 compared to the same period in
the prior year. This increase was largely a result of commencing
commercial seed production activity, primarily in the United
States, for switchgrass in 2008. Prior to January 1, 2008,
we had not commenced commercial seed production.
Research and
Development Expenses
Our research and development expenses increased by
$1.1 million in the year ended December 31, 2008
compared to the same period in the prior year. This increase was
primarily the result of increased research payments to third
parties for field trials and related expenses in the
U.S. for switchgrass and high biomass sorghum.
Selling, General
and Administrative Expenses
Our selling, general and administrative expenses decreased by
$1.0 million to $8.8 million in the year ended
December 31, 2008 compared to the same period in the prior
year. The decrease was primarily the result of a reduction in
patent expenses and legal and professional fees of
$1.4 million, partially offset by an increase in personnel
costs of $0.3 million.
Interest Expense,
Interest Income and Other Income (Expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
|
2007
|
|
|
2008
|
|
|
Change
|
|
|
|
(In thousands)
|
|
|
Interest expense
|
|
$
|
(123
|
)
|
|
$
|
|
|
|
$
|
123
|
|
Interest income
|
|
|
1,521
|
|
|
|
2,001
|
|
|
|
480
|
|
Other income (expense)
|
|
|
5
|
|
|
|
|
|
|
|
(5
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,403
|
|
|
$
|
2,001
|
|
|
$
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, interest income and other income (expense),
increased by $0.6 million to $2.0 million in the year
ended December 31, 2008 compared to the same period in the
prior year. The increase was the result of an increase in
interest income of $0.5 million from higher invested cash
balances and a decrease in interest expense of $0.1 million
from the reduction in debt and associated interest cost.
Interest
Expense
Interest expense decreased by $0.1 million for the year
ended December 31, 2008 as all debt and related interest
expense obligations were repaid during the year ended
December 31, 2007.
Interest
Income
Interest income increased by $0.5 million to
$2.0 million in the year ended December 31, 2008
compared to the same period in the prior year. This increase was
a result of increased levels of invested cash for the year ended
December 31, 2008.
71
Other Income
(Expense)
Other income (expense) remained relatively flat, decreasing by
$5,000 in the year ended December 31, 2008 compared to the
same period in the prior year.
Liquidity and
Capital Resources
Since inception, we have funded our operations through the sale
of preferred stock and warrants, collaborative research and
government grant revenues, and borrowings under financing
arrangements. As of May 31, 2011, our cash and cash
equivalents totaled $17.7 million.
Since our inception, we have incurred significant net losses,
and, as of May 31, 2011, we had an accumulated deficit of
$195.9 million. We expect to incur additional losses
related to the continued development and expansion of our
business including research and development, seed production and
operations, and sales and marketing. There is also no assurance
that profitable operations will be achieved, or if achieved, can
be sustained on a continued basis.
In 2010, we entered into a Loan and Security Agreement, or the
Loan Agreement with Silicon Valley Bank. The Loan Agreement
provides financing for qualified equipment purchases. We
borrowed a total of $7.0 million in two tranches at
interest rates of Bank Prime plus 2.75% (6.75% as of
May 31, 2011). Monthly principal repayments on the first
tranche are $75,000 per month through the maturity date of June
2013. Monthly principal repayments on the second tranche total
$111,000 per month through the maturity date of August 2013.
Currently, we make monthly principal payments of approximately
$186,000 and interest payments of approximately $26,000 per
month based on the 6.75% borrowing rate. The Loan Agreement is
secured by all goods, accounts, equipment, inventory, contract
rights or rights to the payment of money, leases, license
agreements, franchise agreements, general intangibles (excluding
any intellectual property, other than related account
receivables and proceeds from intellectual property), commercial
tort claims, documents, instruments, chattel paper, cash,
deposit accounts, fixtures, letters of credit rights, securities
and all other investment property, supporting obligations and
financial assets. The Loan Agreement requires compliance with
covenants that require certain reporting obligations, the
maintenance of $3.0 million in restricted cash and a
minimum quick ratio, which is defined in the Loan Agreement as a
ratio of consolidated, unrestricted cash and cash equivalents,
net billed accounts receivable and investments with maturities
of fewer than 12 months determined according to GAAP
together with the aggregate balance of a cash collateral account
(with a minimum balance of $1.5 million) to current
liabilities of at least 1.50 to 1.0. At May 31, 2011, the
quick ratio was 2.27 and we were in compliance with all
covenants in the Loan Agreement.
In August 2011, we completed the sale of $11,425,232 aggregate
principal amount of non-interest bearing convertible
subordinated notes, or the Convertible Notes, to nine existing
investors in the Company in a private placement. Purchasers of
the Convertible Notes included holders of more than 5% of our
outstanding capital stock and affiliates of certain of our
directors. The Convertible Notes are convertible, subject to the
terms and conditions set forth therein, into shares of our
common stock upon the consummation of a qualified initial public
offering of our common stock at a price per share equal to a 20%
discount from the public offering price. In the event that we do
not consummate a qualified public offering on or prior to the
six month anniversary of the issuance date of the Convertible
Notes, (i) the Convertible Notes will automatically
convert, subject to the terms and conditions set forth therein,
into shares of our Series G Convertible Preferred Stock, at
a conversion price per share equal to $6.50 and (ii) the
holders will receive warrants exercisable for that number of
shares of our common stock, at an initial exercise price of
$6.50 per share, equal to the number of shares of Series G
Convertible Preferred Stock into which such holders
Convertible Notes convert. Additionally, so long as any
investors who held warrants to purchase shares of our common
stock issued in connection with the purchase of the our
Series F Preferred Stock or Series G Preferred Stock
purchased at least their respective full pro rata portion of the
Convertible Notes being offered, we agreed to amend the
termination provisions of such investors existing warrants such
that the warrants will no longer expire upon an initial public
offering.
72
We believe that our existing cash and cash equivalents, the net
proceeds of the Convertible Note offering, and the net proceeds
of this offering will provide adequate resources to fund our
operations, including research and development expenses, planned
capital expenditures and working capital requirements for at
least the next 18 months. In order to fund our operations
beyond that time, we may need to raise additional funds through
the issuance of equity, equity-related or debt securities or
through obtaining credit from government or financial
institutions. We cannot be certain that additional funds will be
available to us on favorable terms when required, or at all.
Capital
Expenditures
For the year ended December 31, 2007, the year ended
December 31, 2008, the eight months ended August 31,
2009 and the year ended August 31, 2010, we used
$2.3 million, $3.8 million, $1.6 million and
$2.1 million, respectively, in cash to fund capital
expenditures. For the nine months ended May 31, 2010 and
2011, we used $1.9 million and $0.4 million to fund
capital expenditures. We currently anticipate that our aggregate
capital expenditures will be between $0.3 million and
$0.5 million through the year ended August 31, 2011,
which will primarily relate to agronomy and breeding. We
currently anticipate making aggregate capital expenditures
between $1.1 million and $2.5 million for the year
ended August 31, 2012.
The following table sets forth a summary of our cash flows for
the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eight Months
|
|
|
|
Nine Months Ended
|
|
|
|
|
|
|
Ended
|
|
Year Ended
|
|
May 31,
|
|
|
Year Ended December 31,
|
|
August 31,
|
|
August 31,
|
|
(Unaudited)
|
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
2010
|
|
2011
|
|
|
|
|
|
|
(In thousands)
|
|
|
|
|
|
Net cash used in operating
activities
|
|
$
|
(10,032
|
)
|
|
$
|
(24,899
|
)
|
|
$
|
(13,508
|
)
|
|
$
|
(18,846
|
)
|
|
$
|
(14,838
|
)
|
|
$
|
(13,437
|
)
|
Net cash (used in) provided by investing activities
|
|
|
(53,817
|
)
|
|
|
23,433
|
|
|
|
16,329
|
|
|
|
10,372
|
|
|
|
12,070
|
|
|
|
(274
|
)
|
Net cash provided by (used in) financing activities
|
|
|
73,050
|
|
|
|
(252
|
)
|
|
|
(6
|
)
|
|
|
26,569
|
|
|
|
2,795
|
|
|
|
(1,627
|
)
|
Cash Flows from
Operating Activities
For all periods presented, we have incurred net losses and net
cash used in operating activities. The net cash used in
operating activities primarily resulted from significant
research and development expenses and seed production costs to
develop and produce our improved seeds and traits. Such expenses
and costs have exceeded our revenues, which have primarily been
generated from collaborative research and government grants and,
to a much lesser extent, product sales.
Net cash outflows of $13.4 million from operating
activities during the nine months ended May 31, 2011
primarily resulted from our net loss of $19.6 million,
which included non-cash items, including $1.6 million in
depreciation expense and $1.8 million in stock-based
compensation expense.
Net cash outflows of $14.8 million from operating
activities during the nine months ended May 31, 2010
primarily resulted from our net loss of $17.6 million, a
decrease of $0.5 million in accounts payable and accrued
expenses and increase of $0.5 million in deferred revenue.
The net loss of $17.6 million also included non-cash items,
including $1.8 million in depreciation expense and
$0.9 million in stock-based compensation expense.
Net cash outflows of $18.8 million from operating
activities during the year ended August 31, 2010 primarily
resulted from our net loss of $22.6 million, an increase in
accounts receivables of $0.7 million and a decrease in
accounts payable and accrued expenses of $0.3 million.
These uses of cash were partially offset by non-cash items,
including $2.4 million in depreciation expense and
$1.3 million in stock-based compensation expense, and a
$0.4 million increase in deferred revenue.
73
Net cash outflows of $13.5 million from operating
activities during the eight months ended August 31, 2009
primarily resulted from our net loss of $18.7 million which
included non-cash items of $1.5 million in depreciation
expense and $1.1 million in stock-based compensation
expense. These cash outflows were partially offset by a decrease
of $1.3 million in accounts receivable and an increase of
$0.9 million in accounts payable and accrued expenses.
Net cash outflows of $24.9 million from operating
activities during the year ended December 31, 2008
primarily resulted from our net loss of $26.8 million, an
increase in accounts receivables of $1.5 million, and a
decrease in accounts payable and accrued expenses of
$0.8 million. These uses of cash were partially offset by
non-cash items, including $2.2 million in depreciation
expense and $1.2 million in stock-based compensation
expense, and a decrease of $0.5 million in other assets.
Net cash outflows of $10.0 million from operating
activities during the year ended December 31, 2007
primarily resulted from our net loss of $20.5 million, a
decrease of $1.0 million in deferred revenue, and an
increase of $1.0 million in other assets. These uses of
cash were partially offset by a decrease of $8.8 million in
accounts receivables primarily due to the collection of
receivables from Monsanto, an increase of $1.2 million in
accounts payable and accrued expenses, and by non-cash items,
including $1.9 million in depreciation expense and
$0.7 million in stock-based compensation expense.
Cash Flows from
Investing Activities
Our investing activities consisted primarily of net investment
purchases, maturities of investments and capital expenditures.
Net cash used in investing activities of $0.3 million
during the nine months ended May 31, 2011 was due to
purchases of property and equipment.
Net cash provided by investing activities of $12.1 million
during the nine months ended May 31, 2010 was primarily due
to $15.4 million in maturities of investments, partially
offset by a $1.4 million increase in restricted cash and
investments and $1.9 million in purchases of property and
equipment.
Net cash provided by investing activities of $10.4 million
during the year ended August 31, 2010 primarily resulted
from $15.4 million in maturities of investments, partially
offset by a $2.9 million increase in restricted cash and
investments and $2.1 million in purchases of property and
equipment.
Net cash provided by investing activities of $16.3 million
during the eight months ended August 31, 2009 primarily
resulted from $48.2 million in maturities of investments,
partially offset by $30.3 million in purchases of
investments, and $1.6 million in purchases of property and
equipment.
Net cash provided by investing activities of $23.4 million
during the year ended December 31, 2008 primarily resulted
from $74.0 million in maturities of investments and a
$2.6 million decrease in restricted cash and investments,
partially offset by $49.4 million in purchases of
investments, and $3.8 million in purchases of property and
equipment.
Net cash used in investing activities of $53.8 million
during the year ended December 31, 2007 primarily resulted
from $58.1 million in purchases of investments and
$2.3 million in purchases of property and equipment,
partially offset by $6.4 million in maturities of
investments.
Cash Flows from
Financing Activities
Net cash used in financing activities of $1.6 million
during the nine months ended May 31, 2011 was primarily due
to loan repayments.
Net cash provided by financing activities of $2.8 million
during the nine months ended May 31, 2010 was primarily due
to amounts received under a loan agreement with a bank.
Net cash provided by financing activities of $26.6 million
during the year-ended August 31, 2010 was primarily due to
$20.0 million in proceeds from the issuance of
Series G Preferred stock and
74
common stock warrants and $7 million in amounts received
under a loan agreement with a bank, partially offset by loan
repayments totaling $0.5 million.
Net cash used in financing activities was $6,000 during the
eight months ended August 31, 2009.
Net cash used in financing activities of $0.3 million
during the year ended December 31, 2008 was primarily due
to repayments on borrowings.
Net cash provided by financing activities of $73.1 million
during the year-ended December 31, 2007 was primarily due
to $74.2 million in proceeds from the issuance of
Series F Preferred stock and common stock warrants
partially offset by loan repayments totaling $1.5 million.
Contractual
Obligations
The following is a summary of our contractual obligations as of
August 31, 2010 (unaudited):
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Year Ended
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August 31,
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Year Ended August 31,
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2015 and
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Contractual Obligations
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Total
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2011
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2012
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2013
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2014
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Beyond
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(In thousands)
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Operating Lease Obligations
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2,831
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905
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824
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620
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367
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|
115
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Interest Payments Relating to Long-Term Debt
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647
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361
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215
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70
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1
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Research Collaboration Agreements
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5,368
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2,889
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2,289
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180
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10
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Long-Term Debt
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6,380
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2,182
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2,174
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2,019
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5
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Total
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15,226
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6,337
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5,502
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2,889
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383
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115
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Off-Balance Sheet
Arrangements
We did not have during the periods presented, and we do not
currently have, any off-balance sheet arrangements, as defined
under SEC rules, such as relationships with unconsolidated
entities or financial partnerships, which are often referred to
as structured finance or special purpose entities, established
for the purpose of facilitating financing transactions that are
not required to be reflected on our consolidated balance sheets.
Seasonality
The sale of seeds is dependent upon planting and growing
seasons, which vary from year to year, and are expected to
result in both highly seasonal patterns and substantial
fluctuations in quarterly sales and profitability. Our product
sales for the year ended August 31, 2010 and the nine
months ended May 31, 2011 were minimal and, accordingly, we
have not yet experienced the full nature or extent to which our
business may be seasonal. We expect that the sale of our seeds
in Brazil will typically be higher in our first and fourth
fiscal quarters, due to the timing of the planting decisions
made by our customers. As we increase our sales in our current
markets, and as we expand into new markets in different
geographies, it is possible we may experience different
seasonality patterns in our business. Weather conditions and
natural disasters, such as heavy rains, hurricanes, hail,
floods, tornadoes, freezing conditions, drought or fire, also
affect decisions by our customers about the types and amounts of
seeds to plant and the timing of harvesting and planting such
seeds. Disruptions that cause delays by our customers in
harvesting or planting can result in the movement of orders to a
future quarter, which would negatively affect the quarter and
cause fluctuations in our operating results.
Inflation
We believe that inflation has not had a material impact on our
results of operations for the year ended December 31, 2007,
the year ended December 31, 2008, the eight months ended
August 31,
75
2009 and the year ended August 31, 2010, or for the nine
months ended May 31, 2010 and 2011. There can be no
assurance that future inflation will not have an adverse impact
on our operating results and financial condition.
Quantitative and
Qualitative Disclosures about Market Risk
We are exposed to the effect of interest rate changes, foreign
currency fluctuations and changes in commodity prices. We are
also exposed to changes in the general economic conditions in
the countries where we conduct business, which currently is
substantially all in the United States and Brazil. As of
August 31, 2010, we had only cash, cash equivalents and
restricted cash, and therefore we were not exposed to changes in
equity or debt prices. Our current investment strategy is to
invest in financial instruments that are highly liquid, readily
convertible into cash and which mature within three months from
the date of purchase. To date, we have not used derivative
financial instruments to manage any of our market risks or
entered into transactions using derivative financial instruments
for trading purposes. All of the potential changes noted below
are based on sensitivity analyses performed on our financial
position as of August 31, 2010. Actual changes may prove to
be greater or less than those hypothesized.
We do not believe our cash equivalents have significant risk of
default or illiquidity. While we believe our cash equivalents do
not contain excessive risk, we cannot provide absolute assurance
that in the future our investments will not be subject to
adverse changes in market value. In addition, we maintain
significant amounts of cash and cash equivalents at one or more
financial institutions that are in excess of federally insured
limits. We cannot be assured that we will not experience losses
on these deposits.
Interest Rate
Risk
Our exposure to market risk for changes in interest rates
primarily relates to our equipment loans, which are
variable-rate debt obligations. As of August 31, 2010, we
had two tranches of equipment loans outstanding amounting to
$6.6 million at an interest rate of 6.75% (Prime Rate plus
2.75%). If interest rates increase by 100 basis points
related to the outstanding amounts as of August 31, 2010,
our interest expense would change by approximately $66,000 on an
annual basis prior to considering monthly principal repayment.
Foreign Currency
Risk
We have foreign currency risks related to our operating expenses
denominated in currencies other than the U.S. Dollar.
Changes in exchange rates between the U.S. Dollar and other
currencies will result in increases or decreases in our costs
and earnings, and also may affect the book value of our assets
outside the United States. To date, most of our contracts have
been entered into in the United States and accordingly have been
denominated in U.S. Dollars. Going forward we anticipate
that our sales will be denominated in the local currency of the
country in which the sale occurs. In addition, our operating
expenses to date have been denominated in the currencies of the
countries in which our operations are located, primarily the
United States and Brazil. As a result, while our revenue and
operating expenses are mostly hedged on a transactional basis,
the translation of our operating results into U.S. Dollars
may be adversely impacted by strengthening U.S. currency.
Through May 31, 2011, our operations in Brazil have not
been significant and therefore fluctuations in the Brazil Real
have had a minimal impact on our results of operations. As our
international operations in Brazil grow, the risks associated
with fluctuations in the Brazil Real will become greater, and we
will continue to reassess our approach to managing this risk.
Commodity
Risk
Our exposure to market risk for changes in commodity prices
currently is minimal. As our commercial operations grow, our
exposure will relate mostly to the demand side as our customers
are highly exposed to fluctuations in prices of sugar and crude
oil and somewhat exposed to fluctuations
76
in agricultural commodities, especially soybean. For example, if
the price of sugar, which is produced from sugarcane and which
cannot be produced from sweet sorghum today, rises significantly
relative to the price of ethanol, it may become more profitable
for ethanol mill operators to grow sugarcane even in adverse
conditions, such as through the expansion of sugarcane fields to
marginal land or the extension of the sugarcane harvesting
season. During sustained periods of significantly higher sugar
prices, demand for our seeds may decrease, which could
materially and adversely affect our operating results. We are
also indirectly exposed to fluctuations in soft commodities
prices like soybean when we negotiate production contracts with
seed producers. We currently do not use derivative financial
instruments to hedge any price volatility of agricultural
commodities.
Recent Accounting
Pronouncements
In October 2009, the FASB issued Accounting Standards Update, or
ASU,
No. 2009-13,
Revenue Recognition (Topic 605): Multiple Deliverable Revenue
Arrangements. ASU
No. 2009-13
addresses how to determine whether an arrangement involving
multiple deliverables contains more than one unit of accounting
and how to allocate consideration to each unit of accounting in
the arrangement. This ASU replaces all references to fair value
as the measurement criteria with the term selling price and
establishes a hierarchy for determining the selling price of a
deliverable. ASU
2009-13 also
eliminates the use of the residual value method for determining
the allocation of arrangement consideration. This standard was
adopted by us on September 1, 2010 and the adoption of this
standard did not have a material impact on our consolidated
financial statements.
Effective September 1, 2010, we adopted ASU
No. 2010-06,
Fair Value Measurements and Disclosures, which requires
previous fair value hierarchy disclosures to be further
disaggregated by class of assets and liabilities. A class is
often a subset of assets or liabilities within a line item in
the balance sheet. In addition, significant reclassifications
between Levels 1 and 2 of the fair value hierarchy are
required to be disclosed. These additional requirements became
effective September 1, 2011 for quarterly and annual
reporting. Their adoption did not have any impact on our
financial statements. In addition, ASU
2010-06
requires more detailed disclosures regarding changes in
Level 3 instruments. This disclosure change will be
effective September 1, 2012 and is not expected to have an
impact on our consolidated financial statements.
In April 2010, the FASB issued an ASU
No. 2010-17,
Revenue Recognition Milestone Method (Topic 605):
Milestone Method of Revenue Recognition. The standard
provides guidance on defining a milestone and determining when
it may be appropriate to apply the milestone method of revenue
recognition for research or development transactions. Research
or development arrangements frequently include payment
provisions whereby a portion or all of the consideration is
contingent upon milestone events such as successful completion
of phases in a study or achieving a specific result from the
research or development efforts. The amendments in these
standards provide guidance on the criteria that should be met
for determining whether the milestone method of revenue
recognition is appropriate. The standard is effective for fiscal
years and interim periods within those years beginning on or
after June 15, 2010, with early adoption permitted, and
applies to milestones achieved on or after that time. This
standard was adopted by us on September 1, 2010 and the
adoption of this standard did not have a material impact on our
consolidated financial statements.
In May 2011, the FASB issued ASU
2011-04,
Amendments to Achieve Common Fair Value Measurements and
Disclosure Requirements in U.S. GAAP and IFRSs, to
provide largely identical guidance about fair value measurement
and disclosure requirements with the International Accounting
Standards Board (IASB) IFRS 13, Fair Value Measurement.
The new standard does not extend the use of fair value but,
rather, provides guidance about how fair value should be applied
where it already is required or permitted under U.S. GAAP.
ASU 2011-04
is effective prospectively for interim and annual periods
beginning after December 15, 2011. Early adoption is not
permitted. The Company is currently evaluating the impact of
adoption of this standard, if any, on its consolidated financial
statements.
77
BUSINESS
Our
Company
We are an agricultural biotechnology company selling seeds to
produce renewable biomass feedstocks that can enable the
large-scale replacement of petroleum and other fossil fuels. We
use a combination of advanced plant breeding and biotechnology
to develop new crops, known as dedicated energy crops, that we
believe address the limitations of first-generation bioenergy
feedstocks, such as corn and sugarcane, increase biomass
productivity, reduce crop inputs and improve cultivation on
marginal land.
Our first large-scale commercial products are proprietary sweet
sorghum varieties that can be used as a drop-in
feedstock to extend the operating season of Brazilian
sugarcane-to-ethanol
mills, the operating days of which are currently limited due to
the inherent limitations of sugarcane physiology and growth
patterns. Our dedicated energy crops can also be used for the
production of second-generation biofuels and bio-based
chemicals, including cellulosic ethanol, butanol, jet fuel,
diesel-like molecules and gasoline-like molecules, from non-food
biomass. Finally, baseload utility-scale electric power can also
be generated from the biomass feedstocks grown from our seeds.
The seed industry has historically required very little capital
to manufacture seeds, and seeds have typically been sold at
prices that generate high gross margins. As a producer of
proprietary seeds, we believe we are in the most attractive
segment of the bioenergy value chain upstream from
the capital intensive refining and conversion of biomass. For
example, in 2009 corn seed providers maintained high margins
when volatile commodity prices significantly impacted corn
ethanol refining margins. Therefore, we believe our success is
tied to adoption of our products rather than the relative
profitability of downstream participants. Our upstream position
in the value chain also allows us to be largely independent of
the success of any particular conversion technology or end use.
We develop low input dedicated energy crops capable of producing
high yields of biomass per acre using innovative plant breeding
and trait biotechnology. By developing these types of crops, we
enable the scalable, sustainable and economic production of
bioenergy, or the energy derived from biomass. Our proprietary
collection of energy crop parent lines, known as germplasm, in
combination with our pipeline of biotechnology traits allows us
to develop bioenergy feedstocks to meet the needs of both
biomass refineries and growers of biomass, all while using less
water and less fertilizer than row crops like corn or soybean,
even if grown on marginal land. We believe that the strength of
our technology has been validated by the receipt of multiple
competitive grants and collaborations, including a United States
Agency for International Development, or USAID, grant and one of
the U.S. Department of Energys first Advanced
Research Project Agency for Energy, or ARPA-E, grants in 2009,
as well as a $137 million multi-year collaboration with
Monsanto Company signed in 2002. We also have significant
intellectual property rights to our technology.
We recently began marketing sweet sorghum seeds in Brazil and
have sold switchgrass and high biomass sorghum seeds in the
United States under our brand, Blade Energy Crops, or Blade. Our
largest immediate commercial opportunity is the Brazilian
ethanol market, which currently uses sugarcane as its
predominant feedstock. Due to the inherent limitations of
sugarcane physiology and growth patterns, Brazilian mill
operators typically obtain sugarcane that makes mill operation
economically feasible approximately 200 days per year,
based on a report issued by the Brazilian Ministry of
Agricultures crop forecasting agency, Companhia Nacional
de Abastecimento (Conab), dated May 2010. This results in an
estimated 3.4 million metric tons per day of crushing
capacity, according to our estimate, which we derive from a 2011
Brazil Agrianual report. Boa Vista / Nova Fronteira, a
joint venture of Grupo São Martinho S.A. and Petrobras
Biofuels, recently planted, harvested and processed a
commercial-scale planting of our sweet sorghum products and
produced both ethanol and power using the existing agricultural
equipment and processing infrastructure. Similar activities have
been completed with two other Brazilian ethanol producers, ADM
do Brasil Ltda, and Usina Rio Pardo S.A. We believe the success
of our first commercial-scale planting at the
78
mill owned by Boa Vista/Nova Fronteira, a joint venture of Grupo
São Martinho S.A. and Petrobras Biofuels, demonstrates the
drop-in nature of our sweet sorghum products, and
along with seed-based propagation, shorter growing cycles and
lower water and fertilizer requirements of sweet sorghum
relative to sugarcane, will serve as the basis for expanded
adoption of this product line as a feedstock for ethanol and
power production in Brazil and other markets. Based on our trial
results to date and pipeline of products under development, we
believe the adoption of our sweet sorghum hybrids could extend a
mills operations by approximately 60 days.
We also work with refining technology companies in the emerging
cellulosic biofuels and bio-based chemicals markets. We believe
that dedicated energy crops will enable both individual
renewable energy projects and the industry as a whole to reach
greater scale and sustainability, at lower costs, than other
potential sources of biomass because of their yields, hardiness
and relatively low input requirements. We believe our dedicated
energy crop portfolio is compatible with a number of developing
cellulosic biofuels conversion technologies and we are working
with companies focusing on petroleum-refining technologies, such
as UOP, LLC, as well as chemical companies, such as Europe-based
Gruppo Mossi & Ghisolfi, or Gruppo M&G, to test
our energy crops in their respective production processes. We
have also conducted joint trials with, or sold seed to, AGCO
Corporation, EdeniQ, Inc. and Hawaii BioEnergy, LLC, among
others. We recently began a collaboration with Valero Services,
Inc. to further evaluate feedstock supply strategies with
dedicated energy crops.
Our dedicated energy crops also can be used to generate
electricity in existing solid-fuel power facilities, such as
coal-fired generating plants. We believe we will see a material
increase in demand for biopower in the event that additional
renewable energy legislation is passed in the United States,
Europe or other countries that requires a higher percentage of
generation from low-carbon sources or provides equal production
incentives for the co-firing of biomass with coal, as are
currently available for wind and solar power. Based on feedback
from customers, partners and industry participants, we believe
that our products can be used by existing growers, pellet mills
and utilities, and can be cost competitive with existing
biopower feedstocks, such as wood pellets.
Finally, due to the nature of biotechnology, we believe other
crops can benefit from many of the traits we are developing for
dedicated energy crops, such as traits that improve water use
efficiency and salt tolerance. By combining genes into a series
of stacks, we believe, and our initial results indicate, that we
can achieve step-change improvements to the productivity of many
row crops, including corn, soybean, rice and wheat. We have also
generated many biotech traits specifically for cereal crops,
such as rice, that increase grain yields and provide greater
yield stability across different environments. We are inserting
these and other traits into commercial rice varieties and plan
to trial them in multiple locations in Asia this year.
Market
Opportunity
The world continues to seek economic and environmentally sound
alternatives to fossil fuel-based transportation fuels and
power. We believe bioenergy is one of the few viable
replacements for fossil fuels. Unlike other renewable
technologies, biofuels are intended to utilize existing vehicles
and transportation fuel infrastructure. Similarly, biopower,
unlike wind and solar power, can provide baseload and
dispatchable generation of renewable electricity. Despite the
potential of biofuels, first-generation biofuel feedstocks have
demonstrated their limitations in terms of scale, perceived
competition with food production, net energy balance, and
dependence on government subsidies. Similarly, current sources
of biomass, such as forestry residues and agricultural wastes,
are limited in scale and are not optimized for use in bioenergy.
They are also by-products derived from other processes and
therefore subject to supply disruptions. Our dedicated energy
crops provide an attractive combination of high yield density,
high net energy balances, low input requirements, the ability to
grow on marginal land and, as a dedicated source of feedstock,
the potential to be tailored for specific production and
refining processes. As a result, we believe that dedicated
energy crops will become a critical component for growth of the
biofuel, bio-based chemicals and biopower markets.
79
Biofuels and
Bio-Based Chemicals
Modern lifestyles and economies are highly reliant on petroleum
and its by-products across a wide variety of industries,
including light-duty transportation, aviation, diesel, shipping,
lubricants, polymers, resins and cosmetics. According to the
Energy Outlook Report published in April 2011 by the
U.S. Energy Information Administration, or EIA, global oil
production averaged 87.9 million barrels per day in the
first quarter of 2011. The transportation fuel component of
petroleum is valued at over $2 trillion per year, according to
EIA. The vast majority of bio-based replacements for petroleum
and petroleum-based chemicals are currently produced by
fermentation of starch sources and free sugars primarily derived
from corn and sugarcane, respectively. Commonly referred to as
first-generation biofuels and bio-based chemicals, the
production and conversion processes for these feedstocks are
well-established. However, as the world looks to increase its
consumption of biofuels and their derivatives, these
first-generation feedstocks face challenges to meet increased
demand.
In Brazil, where the country has recently been importing corn
ethanol to meet its demand, we believe that mill operators will
seek alternatives that will allow them to increase production
utilization of their existing mills beyond the average
200 days per year schedule in order to maximize their
market opportunity. On a global basis, we expect petroleum
consumption will be further replaced by products made from the
conversion of non-food biomass into biofuels and bio-based
chemicals. Today, there are multiple companies, including large
multinational companies, such as BP p.l.c., Royal Dutch Shell
plc, Total S.A. and Valero Energy Corporation, and independent
companies, such as KiOR, Inc. and Coskata, Inc., focused on
improving non-food biomass conversion technologies. According to
a 2011 report published by International Energy Agency, or IEA,
biofuel production could reach approximately 112 billion
gallons per year by 2030, up from 26 billion gallons in
2010. To meet these targets, the IEA believes feedstock
production would need to increase to 150 million acres in
2030, up from 75 million acres in 2010. We believe
quadrupling the volume of biofuels while only doubling the
feedstock production acres will require higher yielding
second-generation feedstocks.
Biopower
Globally, 7.92 trillion
kilowatt-hours
of electricity were generated from coal in 2007, or 42% of total
global power generation, according to the EIA, which we estimate
required 3.6 billion tons of coal. By comparison, a report
released in May 2010 by EIA states that globally, approximately
235 billion
kilowatt-hours
of electricity were generated from biomass and wastes, or 57% of
all renewable energy generation, excluding hydropower, which we
estimate required 200 million dry tons of biomass. The
conversion of biomass to power has traditionally been fueled by
bio-based waste products and residues from the paper and timber
industries. As is the case for biofuels, we believe this
practice has limited the size, location, efficiency and scale of
biomass power generation because power producers can not
reliably secure long-term supplies of consistent quality
feedstock. We believe we will see a material increase in demand
for biopower in the event that additional renewable energy
legislation is passed in the United States, Europe or other
countries that requires a higher percentage of generation from
low-carbon
sources, or that incentivizes the co-firing of biomass. In
comparison to other renewable energy sources, co-firing with
biomass is an economical alternative on a levelized cost of
energy, or LCOE, basis, taking into account capital cost,
operating and maintenance and fuel costs. A 2008 report from
Black & Veatch estimates co-fired biomass has a LCOE
of $(1) to $22 per megawatt hour, versus wind with a LCOE of $59
to 128 per megawatt hour and solar photovoltaic with a LCOE of
$201 to $276 per megawatt hour.
Food and Feed
Crops
According to a 2010 report published by the International
Service for the Acquisition of Agri-Biotech Applications, or
ISAAA, approximately 366 million acres of biotechnology
crops were planted globally in 2010. The global market value of
biotechnology crop seeds was $11.2 billion, as reported in
the same report by ISAAA. As people in many countries become
more affluent, they tend to consume more of their dietary
protein in the form of meat and dairy products, driving the
demand for animal feed
80
grains higher. Therefore, greater production of food, feed,
fiber and fuel will require higher crop productivity levels
among all crops over time. In order to continue the productivity
gains made in many crops over the past 75 years, and to do
so in a more sustainable manner, we believe that advanced
breeding methods, and biotech traits, in particular, will be
required to produce higher performance crops that make more
productive use of cultivated land, as well as to develop more
robust, stress-tolerant crops that can grow under more difficult
conditions and on marginal land. Our belief is consistent with
historical yield improvements achieved via plant breeding and
the adoption of agricultural biotechnology.
Our
Solutions
We believe that nearly all bioenergy and bio-based chemical
applications will ultimately depend on high yielding, low-cost,
low-carbon, scalable, reliable and sustainable sources of
feedstock. We believe biomass from our dedicated energy crops
and traits have the potential to become the common denominator
in a broad array of bio-based products, including ethanol,
butanol, jet fuel, diesel-like molecules and gasoline-like
molecules, as well as electric power and heat, and can enable
the development of larger-scale processing facilities given the
high yield density and conversion efficiency of dedicated energy
crops. Specifically, our dedicated energy crops have the
following characteristics, which we believe will make them a
critical component in the large-scale production of these
bio-based products:
Drop-in
Products
In Brazil, there is a well-established biomass-to-biofuel
industry. Our products are drop-in solutions because
they can be planted, harvested and processed using existing
agricultural equipment with little or no modification and are
being developed to be drop-in for all conversion
technologies using sugarcane or biomass feedstocks, facilitating
their rapid adoption. In collaboration with Boa Vista/Nova
Fronteira, a joint venture of leading ethanol producers Grupo
São Martinho S.A. and Petrobras Biofuels, we recently
completed a commercial-scale trial on approximately 250 hectares
of our sweet sorghum, which was planted and harvested using
existing planting and harvesting equipment, fermented into
ethanol without retrofitting or altering the existing mill and
the remaining biomass combusted for electricity production,
using existing boilers.
In other countries, there are a wide range of cellulosic to
biofuel conversion technologies currently being developed;
however none have any appreciable market share at this time. To
explore this opportunity, we have conducted smaller trials using
our other energy crops with numerous industry participants
involved in cellulosic biofuels and biopower production. For
example, our products have been tested in the respective
conversion processes of Amyris Biotechnologies, Inc., Choren USA
LLC, EdeniQ, Inc., Gruppo M&G, ICM, Inc., Novozymes North
America, Inc., ThermoChem Recovery International, Inc. and UOP,
LLC (a Honeywell company), among others. These tests have
confirmed that biomass from our energy grasses can be converted
and processed into various fuels or bio-based products, and have
provided data we have used to further enhance our energy crops
for use with these conversion technologies. For similar
purposes, DuPont Danisco Cellulosic Ethanol LLC, or DDCE, also
plans to validate our products in their conversion process in
2011 as part of a publicly announced project with the University
of Tennessee.
High Yield
Density
Our dedicated energy crops are developed to produce high biomass
or sugar yields per acre. For cellulosic biofuels, bio-based
chemicals and biopower, energy grasses can yield significantly
more dry tons per acre per year compared to agricultural
residues and woody biomass. This maximizes the productivity of
available land and shortens the collection radius for a
conversion facility of a particular size. As transportation
costs can be a significant element in the total cost of biomass,
we believe our high yield density crops will facilitate the
construction of larger processing facilities because more
biomass could be collected from a defined area of land around
the facility. In turn, these larger facilities will benefit from
economies of scale, resulting in lower production and capital
cost per gallon produced.
81
Dedicated to
Bioenergy
Unlike many other bioenergy feedstocks, our dedicated energy
crops are currently not intended for other uses and are
typically grown exclusively to be harvested as part of the
bioenergy value chain, creating a stable supply that will appeal
to owners of conversion technologies who will have invested
significant capital in their infrastructure and will therefore
require reliable and cost-effective feedstocks. Additionally, we
are working to tailor our products to improve the efficiency and
reduce the cost of certain conversion technologies. For example,
we are developing a trait that reduces enzyme requirements to
convert biomass into certain bio-based products. As high enzyme
costs continue to be an issue for some biochemical cellulosic
conversion technologies, this trait could be very valuable to
refineries employing those technologies. We believe that our
ability to deliver products such as these to our customers will
facilitate adoption of dedicated energy crops over other forms
of biomass.
Suited to
Marginal Land
Our dedicated energy crops can grow in a broad range of
environments, including those not well-suited for most food
crops. For example, our sweet sorghum hybrids need substantially
less water and fertilizer than sugarcane to grow to harvestable
maturity. We are developing biotech traits that provide salt
tolerance, drought tolerance and greater nitrogen use
efficiency. We believe that by facilitating the use of marginal
land, our crops will create opportunities for landowners who
previously could not use their land as productively.
Scalable to Meet
Demand
Our energy crops are highly scalable, allowing us to match our
production with growing demand for our seeds on relatively short
notice compared to sugarcane, which can take several years to
scale up commercially. Our products are generally
seed-propagated, similar to row crops such as corn and soybean,
which makes them cost-effective to plant on a large scale using
existing seed planting equipment. Several of our products also
have shorter growing cycles and can be rapidly cultivated as
compared to other feedstocks, such as trees or sugarcane. For
example, sweet sorghum has growth cycles ranging from 90 to
140 days, while sugarcane has a 12 to 18 month growth
cycle and a more laborious planting process because it is
vegetatively propagated.
Competitive
Strengths
We believe that we possess a number of competitive strengths
that position us to become a leading provider of dedicated
energy crop seeds and traits, including:
Commercial
Products Available Today
We currently have a number of commercially available seed
products, including sweet sorghum, switchgrass and high biomass
sorghum. Our sweet sorghum hybrids have recently been
successfully planted, harvested and processed into ethanol and
power in Brazil in our first commercial-scale project. We have
received the necessary governmental variety registrations for
the sweet sorghum varieties we are marketing in Brazil for
planting in the 2011-2012 growing season. We are in active
discussions with a number of Brazilian ethanol producers for use
of our sweet sorghum seeds for the
2011-2012
growing season. Since other sugarcane-to-ethanol mills face the
same limits on production, we believe our demonstrated success
in the 2010-2011 growing season will facilitate the rapid
development of this market and enable the expansion of our
market share in Brazil and in other geographies.
Attractive
Business Model
Seed businesses traditionally incur significant research and
development expenditures and have long product development time
lines, but benefit from a combination of high gross margins, low
capital expenditure requirements and intellectual property
protection. Once developed, seeds require little physical
infrastructure or production cost to be replicated for sale.
Seeds are typically priced, however, based on a
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share of the value created to the customer as opposed to their
cost of production. In general, seed costs to a grower are a
relatively small percentage of their total production cost, but
the performance of those seeds are critical to the growers
economics. We believe we can position our business to take
advantage of low production costs relative to the high value of
our products to our customers.
Innovative
R&D Technology Platforms
In order to maintain the strong position we have established
with our combined strengths in germplasm and field-validated
traits, we use our research and development expertise to
continually improve our product offerings. To develop higher
performing varieties and traits, we use several advanced
research and development methods, including biotechnology,
marker-assisted breeding and genomics. We believe that our
innovative integrated breeding and biotechnology approach allows
us to efficiently identify traits, effectively express these
traits in crops, and more quickly commercialize new and improved
seeds and traits for the market. We have both biotech traits and
non-biotech traits. Our biotech traits for high biomass yield,
nitrogen use efficiency, water use efficiency, drought tolerance
and altered flower development, among others, have been
successfully evaluated in the field; however, they are still
several years away from commercialization. We believe we were
one of the first companies to implement the practice of
developing biotech traits using two test species, rather than
just one, which allows us to more successfully select gene-trait
combinations that enhance commercial crops. In order to
capitalize upon our internal catalog of genetic
information as well as information in the public realm, we
developed our own proprietary software, including our Persephone
genome viewer software, which serves as an important tool for
locating, mapping and annotating genetic information in plants.
This software program was recently licensed by a major
agro-chemical company. We believe that our ability to continue
to apply our advanced research and development methods will
enable us to further enhance our proprietary germplasm and
traits portfolios going forward.
Extensive
Proprietary Portfolios of Germplasm and Traits
While many companies have developed portfolios of germplasm or
traits, we believe we are one of the only companies focused on
dedicated energy crops with large portfolios of both germplasm
and field-validated traits, which includes thousands of
specimens and breeding lines, as well as multiple pools of
regionally adapted germplasm spanning northern temperate to
tropical climates. From our field evaluations in rice of genes
selected for their ability to promote enhanced traits in
Arabidopsis, we have identified to date 35 genes and their
relatives that significantly enhance agriculturally relevant
traits. Having both germplasm and field-validated trait
portfolios allows us to leverage the synergies created by
combining the two and facilitates innovation in a way that would
not be possible with germplasm or traits alone. We have
leveraged our access to leading germplasm for sweet sorghum,
high biomass sorghum, switchgrass and miscanthus through
strategic collaborations with leading institutions and
established in-house programs. We believe new market entrants
would need to cultivate several generations of germplasm to
achieve performance equivalent to our current product portfolio,
by which time we believe we will have further evolved our
germplasm. Therefore, we believe our proprietary position would
be difficult and time-consuming to replicate. We also believe
that we have established a strong intellectual property position
in plant genes, traits and energy crop germplasm. As of
August 15, 2011, we owned or had exclusive licensed rights
to approximately 112 issued patents and approximately 209
pending patent applications in the United States and in various
foreign jurisdictions.
Management Team
with Significant Industry Experience
Our Chairman, Walter De Logi, is one of the founders of Ceres.
Dr. De Logi and Richard Hamilton, our Chief Executive
Officer, have been with Ceres for 15 and 13 years,
respectively, and have extensive experience in the field of
agricultural biotechnology. Our experienced management team
possesses a deep understanding of a variety of agricultural,
chemical and industrial biotechnology businesses, including the
seed industry, as well as our regional markets of Brazil, the
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United States and Europe. Our management team also includes
top scientists and industry experts, some of whom have served in
leadership roles at large, multinational corporations, served on
advisory committees for the U.S. Department of Energy, led
ground-breaking research studies and published numerous
scientific articles.
Our
Strategy
Our objective is to be the leading provider of dedicated energy
crop seeds and traits to the renewable energy industry,
including first-generation biofuels such as ethanol as well as
cellulosic biofuels, biopower and bio-based chemicals by
employing the following strategies:
Expand Our
Presence in Brazil
Boa Vista/Nova Fronteira, a joint venture of leading ethanol
producers Grupo São Martinho S.A. and Petrobras Biofuels,
recently planted, harvested and processed a commercial-scale
planting of our sweet sorghum products and produced both ethanol
and power using existing agricultural equipment and processing
infrastructure. We intend to use our recent success to promote
brand awareness and expand our presence in Brazil by partnering
with additional ethanol mills and other industry participants to
conduct field trials and larger-scale commercial plantings as
well as introduce new products into the Brazilian market. We
will continue to position our seeds in the Brazilian market as a
premium brand that incorporates the latest technology in energy
crops. We are in active discussions with a number of other
Brazilian ethanol producers for use of our sweet sorghum seeds
for the
2011-2012
growing season. We believe the adoption of sweet sorghum in
Brazil can follow similar rapid adoption curves seen for other
seed and agricultural innovations such as hybrid corn in the
United States and herbicide-tolerant soybean in the Americas.
Our belief is based on the drop-in nature of our sweet sorghum
products.
Expand Strategic
Collaborations to Develop and Market Cellulosic
Biofuels
We plan to play a significant role in developing the
second-generation biofuels and bio-based chemicals market, which
we believe represents a significant opportunity. Our switchgrass
and high biomass sorghum products are specifically targeted at
this market. We intend to establish new collaborations and
expand upon our current collaborations with leading cellulosic
biorefining companies, technology providers and project
developers to further validate our products across various
downstream technologies and to produce optimized feedstocks that
are tailored to meet the specifications of existing and new
refining technologies. Our products have been tested in the
respective conversion processes of several companies, including
Choren USA LLC, EdeniQ, Inc., Gruppo M&G, ICM, Inc.,
Novozymes North America, Inc., ThermoChem Recovery
International, Inc. and UOP, LLC. DDCE also plans to validate
our products in their conversion process. We have also conducted
joint trials, or sold seed to, AGCO Corporation, EdeniQ, Inc.
and Hawaii BioEnergy, LLC, among others. We recently began
collaborating with Valero Services, Inc. to further evaluate
feedstock supply strategies with dedicated energy crops.
Expand Our
Business into New Markets
We intend to market our Blade Energy Crops brand as a symbol of
quality, innovation and value across multiple biofuel, bio-based
chemicals and biopower markets in a broad range of climates and
geographies. We intend to use our large portfolios of
field-validated traits and germplasm, combined with our advanced
technology platforms, to develop products for a wide variety of
niches and seize upon future market opportunities, regardless of
the fuel or chemical molecule (e.g., ethanol, butanol,
farnesene, biogasoline, biodiesel, biocrude), biochemical (e.g.,
bioplastics, lubricants) or engine choice (e.g., all electric,
E85, E15, diesel, hybrid, plug-in hybrid).
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Build New
Relationships and Enhance Established Collaborations in the
Global Biopower Market
Our switchgrass, high biomass sorghum and miscanthus crops can
be used in power generation generally, and in particular, for
co-firing with coal using the existing power generation
infrastructure. To date, we have engaged in field trials of our
energy crops with utility companies and independent power
producers. We intend to cultivate collaborations with new
parties, particularly those in Europe where we believe the
market opportunity for biopower is more established today and
the market need is more immediate in light of existing
government regulations. We will work with utility companies and
independent power producers to drive demand for our dedicated
energy crops in the biopower market.
Continue
Innovation and New Product Development
We are continuing to develop innovative solutions using a broad
range of technological tools, including genomics, biotechnology
and proprietary bioinformatics in order to produce crop
varieties with improved yields and other performance
characteristics. We believe we can accomplish these goals by
finding innovative ways to utilize and combine traits and
germplasm to further enhance our products. In addition, we will
continue to develop varieties of seeds to meet the specific
needs of growers in different geographic regions. For example,
we have identified traits that will help optimize results for
growers located in geographies with varying day lengths,
rainfall, temperatures and soil composition (e.g., salt,
aluminum and nitrogen).
Continue to Build
Our Intellectual Property Portfolio
We believe we have established a strong intellectual property
position in plant genes, traits and energy crop germplasm, based
on the nature, size and filing dates of our patent portfolio and
plant variety protection certificates. We believe we are one of
the few companies focused on dedicated energy crops that have
this combination of intellectual property assets. We use our
integrated technology platforms to continually improve our
products and develop innovations that will further strengthen
our intellectual property position.
Our Technology
Platforms
Our integrated technology platforms are a combination of
existing genetic assets, specifically germplasm and traits, and
competences in genomics, biotechnology and bioinformatics.
Integration of these platforms allows us to improve our existing
genetic assets as well as develop and commercialize new products
from them. This combination of assets and research and
development capability has resulted in one of the largest
licensing transactions in the agricultural biotechnology
industry, multiple competitive grants and collaborations,
including a USAID grant to develop several traits in rice and
one of the U.S. Department of Energys first ARPA-E
grants in 2009. For the year ended December 31, 2008, the
eight months ended August 31, 2009, the year ended
August 31, 2010 and the nine months ended May 31,
2011, we spent $20.3 million, $12.4 million,
$16.7 million and $13.8 million, respectively, on
research and development, with the main emphasis on traits and
breeding.
Germplasm
We believe we have access to the most comprehensive germplasm
collections for our dedicated energy crops, and have assembled a
leading germplasm portfolio for dedicated energy crops. Our
belief is based on the diversity and nature of the entries we
have and how well they are characterized, which is the method by
which different characteristics are evaluated and measured, and
cataloged. Germplasm comprises collections of parental lines and
other genetic resources representing the diversity of a crop,
the attributes of which are inherited from generation to
generation. Germplasm is a key strategic asset since it forms
the basis of plant breeding programs.
Our early entry into the energy crop industry has allowed us to
acquire access to valuable germplasm through strategic
collaborations with leading institutions. We believe our
competitors would
85
need to cultivate several generations of germplasm to achieve
performance equivalent to our current product portfolio, by
which time we will have further evolved our germplasm.
Therefore, we believe that we have a strong proprietary position
that would be difficult and time-consuming to replicate. We are
currently involved in three major germplasm development
collaborations, each with a history of successful research and
germplasm development in an energy crop. When we sell varieties
developed during such collaborations, or based on the results of
such collaborations, we will typically pay our collaborators
royalties on net sales of such varieties.
Switchgrass The Samuel Roberts Noble Foundation,
Inc. In May 2006, we entered into an agreement
with The Samuel Roberts Noble Foundation, Inc., or the Noble
Foundation, a non-profit agricultural institute, for the
development and commercialization of switchgrass. This
relationship provides us access to extensive breeding
infrastructure and exclusive licenses to elite switchgrass
varieties, breeding lines and advanced cultivars. We have
entered into exclusive license agreements with the Noble
Foundation for three switchgrass varieties, which the Noble
Foundation has licensed on an exclusive basis from the
University of Georgia Research Foundation, or UGARF. Such
agreements provide that we will file for intellectual property
protection on such varieties at our expense in the joint names
of the Noble Foundation and UGARF. The term of each such
exclusive license agreement is, on a
jurisdiction-by-jurisdiction
basis, the longer of the duration of the intellectual property
rights covering the licensed variety or 15 years from the
first sale of the licensed variety in such jurisdiction.
Pursuant to one agreement, we pay the Noble Foundation a royalty
on sales that ranges from mid single digits to low double digits
as a percentage of sales and a royalty on license income in low
double digits as a percentage of license income if we grant
sublicenses and minimum royalties creditable against royalties
on sales and license income. Pursuant to the second agreement,
we pay the Noble Foundation a royalty on sales in mid single
digits as a percentage of sales, a royalty on license income in
the low double digits as a percentage of license income if we
grant sublicenses and minimum royalties creditable against
royalties on sales and license income. The minimum royalties
payable to the Noble Foundation under these agreements escalate
on a yearly basis and range from $2,500 to $20,000 per year, per
variety.
In addition, we have an outstanding exclusive option to enter
into an exclusive license to two switchgrass varieties, which
the Noble Foundation has the exclusive option to license, or to
the extent exercised, an exclusive license from UGARF. Such
option is exercisable at any time, by Ceres providing written
notice to Noble, but no later than twelve months from the
respective release date of the subject switchgrass variety. The
respective release dates have not been set yet. The royalty
rates on such varieties are not yet determined.
Further, pursuant to our Master Research Agreement, the Noble
Foundation has agreed to grant us an exclusive world-wide
license with the right to grant sublicenses to exploit
commercially the results of our joint collaboration program,
subject to paying the Noble Foundation a reasonable remuneration
to be negotiated in good faith. There are no upfront license
fees payable under any of our agreements with the Noble
Foundation.
Miscanthus Institute of Biological,
Environmental and Rural Sciences of Aberystwyth
University. In April 2007, we entered into an
agreement with the Institute of Biological, Environmental, and
Rural Sciences of Aberystwyth University in Wales, U.K., or
IBERS, for morphological characterization, genetic evaluation,
and the development and commercialization of miscanthus species
as an energy crop. This relationship provides us access to an
extensive scientific research infrastructure. Pursuant to our
Collaboration Agreement, IBERS has agreed to grant us an
exclusive world-wide license with the right to grant sublicenses
to exploit commercially the results of our joint collaboration
program, subject to paying IBERS a reasonable remuneration to be
negotiated in good faith, including exclusive licenses to
miscanthus germplasm, breeding lines and varieties produced by
IBERS, except that IBERS has a non-exclusive license in the
United Kingdom to varieties resulting from the joint program.
Unless otherwise agreed, license agreements for released
varieties will be based on a model license agreement, the
duration of which will be until the expiration of the
intellectual property rights covering the variety in a given
jurisdiction, or in those jurisdictions in
86
which the licensed variety is sold but no such intellectual
property rights are obtained, until the tenth anniversary of the
first sale of such variety in such jurisdiction. Pursuant to the
model license agreement, we have agreed to pay royalties based
on sales that range from low to mid single digits as a
percentage of sales and royalties on license income at rate to
be negotiated. To date, we have not entered into any specific
license agreements with IBERS. There are no upfront license fees
or minimum royalties payable under our agreement with IBERS.
Sorghum Texas A&M
University. In August 2007, we entered into an
agreement with The Texas A&M University System, or Texas
A&M, for the development and commercialization of high
biomass sorghum, sweet sorghum and selected related crops as
energy crops, together with the discovery of molecular markers
for certain traits. This relationship provides us with access to
a highly regarded sorghum breeding program and the extensive
sorghum genetics, breeding and genomics infrastructure of Texas
A&M. This agreement provides exclusive options and licenses
to elite sorghum breeding lines, parental lines, advanced
hybrids and genomic markers. We have entered into two exclusive
world-wide license agreement with Texas A&M for sorghum
lines. The terms of such exclusive license agreements provide
that the licenses expire on a
country-by-country
basis upon the expiration of all registered or patented
intellectual property rights of Texas A&M covering the
licensed line. Pursuant to such agreements, we pay Texas
A&M a royalty on sales of varieties developed using the
licensed line at a rate that decreases from low double digits to
low single digit rates as a percentage of sales when the
licensed line is combined with lines from other sources to
develop a variety. We also pay Texas A&M a royalty in the
low double digits as a percentage of license income if we grant
sublicenses and minimum royalties creditable against royalties
on sales. Royalty rates for our current commercial varieties
developed using lines licensed from Texas A&M are in the
mid single digits as a percentage of sales. Minimum royalties
payable to Texas A&M under these agreements escalate on a
yearly basis and range from zero to $5,000 per year. We also
bear reasonable expenses for intellectual property protection.
Further, pursuant to our Sponsored Research Agreement and
Intellectual Property Rights Agreement, we have an option to
obtain an exclusive world-wide commercial license with the right
to grant sublicenses to the inventions and sorghum lines
resulting from our sponsored program. To date, aggregate upfront
license fees that have been paid or have become due to Texas
A&M under these agreements have been less than $10,000.
Our
Traits
We are able to further improve the quality of our future product
offerings by adding our proprietary traits to our germplasm
collections. This can provide additional yield increases,
greater water use efficiency, increased nitrogen use efficiency,
salt tolerance, enhanced biomass-to-sugar conversion profiles
and other improved characteristics. We believe, and our results
have confirmed, that our integrated breeding and biotechnology
approach allows us to efficiently identify traits, effectively
express these traits in crops and more quickly commercialize new
and improved seeds and traits for the market. We target traits
with the greatest commercial potential in energy crops. We
believe these traits will enable the bioenergy industry to scale
more rapidly, by improving production and delivery economics,
making greater use of marginal land, providing greater yield
stability and increasing energy yield per acre.
We have both genetically engineered traits, or biotech traits,
and non-biotech traits. In some instances, a gene introduced
through biotechnology may confer more than one beneficial trait,
such as salt tolerance and drought tolerance, or increased
biomass yields through greater nitrogen use efficiency. Our
strategy is to focus on genes and gene stacks that have shown
large, step increases in performance, and whose benefits are
largely maintained across multiple species.
Biotechnology allows us to precisely add traits not readily
feasible through conventional breeding methods. In many cases,
the same trait can be added to multiple crops with similar
effect. For example, our genomics capabilities and proprietary
gene expression system have enabled us to expand from single
genes and traits to groups of genes and traits, or stacks. We
also have control over how, when and where genes are expressed
in plants. This system includes using recombinant DNA, cell
culture, and related technology as well as gene transfer systems
needed to create plants with biotech traits and optimized
gene-trait combinations identified by our trait pipeline.
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To develop biotech traits, we have utilized a novel research and
development methodology. Similar to other companies, we use test
or model plant systems to speed discoveries and reduce risk and
technical uncertainty in the development of biotech traits. This
includes evaluating gene function, regulation, interaction and
potential usefulness. However, we typically utilize two test
species, rather than just one, as is more customary in the
industry. Our test or model plants represent the two principal
evolutionary branches of flowering plants commonly known as
dicots and monocots. This two-species approach allows us to more
successfully select gene-trait combinations which enhance
commercial crops. The small, fast-growing test plant called
Arabidopsis is our model dicot, and rice is our model monocot.
Rice is a grass species and a close relative of energy grasses.
Our evaluations in Arabidopsis are completed at our headquarters
in Thousand Oaks, California. Our high-throughput field
evaluations of rice are conducted in China by the Institute of
Crop Sciences of the Chinese Academy of Agricultural Sciences,
or ICS. Pursuant to our Collaboration Agreement for rice, ICS
performs transformation of rice with our genes, evaluates the
transformed rice plants in the field according to detailed
protocols, and reports results and observations to us. We own
all results and intellectual property resulting from such
activities. We pay ICS for the services pursuant to an agreed
upon budget. The program is due to expire on November 14,
2012. We believe, and our results have confirmed, that by
selecting genes that perform similarly in both our model plant
species, we can readily identify superior genes among thousands
of candidates. We believe that, given the large evolutionary
distance between our model species, genes that function
similarly in both will likely have application in a broad range
of flowering crop plants. We have also identified superior genes
by utilizing rice and Arabidopsis alone.
We also intend to stack gene-trait combinations, such as those
conferring greater nitrogen or water use efficiency, together to
amplify the benefits. We describe the combination of such
complementary genes as synergistic trait stacks.
This differs from many current approaches which produce
incremental yield increases through the introduction of a single
novel gene.
The commercial development of biotech traits in commercial crops
is a multi-year process. Following transformation, when the
optimized gene is inserted in a target crop, the resulting
plants are evaluated in the greenhouse for one to two years, and
then in the field to confirm results for two to four years.
Following field trials, specific gene-trait combinations are
selected and submitted for regulatory approval, or deregulation,
a process that has historically taken one to three years in
the United States and Brazil. Assuming these averages, we
believe that we could introduce our first biotech trait or
traits to the market in 2016 at the earliest.
We intend to price our traits based on the added value they
create, which can vary by crop and geography. For our biotech
traits, we are considering various pricing models, including
separate annual trait fees per acre as well as blended seed and
trait prices. For our commercial Skyscraper trait, a per-bag
trait fee is included in the seed price. In row crops, we have
licensed and intend to license our traits to existing market
participants. These licensing agreements are expected to vary by
crop, geography, the nature and economic benefit of the trait,
and how well advanced the trait is within our pipeline. Future
payments to us may be based on a percentage of sales or other
performance metrics or milestones.
The following traits have been commercialized or are at various
stages of development in our trait development pipeline.
Individual commercialization timelines vary based on results of
evaluations and the de-regulation or approval process.
Skyscraper is a non-biotech trait and the remainder of the
traits discussed below are biotech traits.
Skyscraper
Skyscraper is a commercial trait that provides a significant
increase in biomass yields and is included in our proprietary
high biomass hybrids ES 5200 and ES 5201. Developed through our
collaboration with Texas A&M University, the Skyscraper
trait delays flowering and extends the growth phase of the
sorghum plants lifecycle. Plants with the Skyscraper trait
put more of their energy into growing rather than reproducing
(making seeds). Since Skyscraper was identified and developed
using molecular marker technology, we have been able to rapidly
incorporate it into our elite breeding lines.
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High
Biomass
We have a number of genes that have been shown to substantially
increase biomass growth per plant. We are currently
field-trialing four of these genes in switchgrass in four states
in the United States. Second-year results have shown significant
yield increases over experimental control plants. We plan to
field test these genes in miscanthus and sorghum and then breed
them into elite varieties. We are also creating synergistic
trait stacks with these genes with the goal of achieving even
greater biomass yields per plant. Yield per acre can also be
increased through higher plant populations per acre. We are
evaluating biotech traits that make plants grow more upright,
allowing greater light capture at higher densities. We
anticipate that this trait could allow growers to greatly
increase the number of plants they sow per acre.
Nitrogen Use
Efficiency
We have genes that increase biomass under normal and reduced
nitrogen fertilizer conditions. In field trials, we have
recorded steady yields on significantly less nitrogen fertilizer
than normally used. In addition to greater efficiency in terms
of tons of biomass per unit of nitrogen, reducing nitrogen
fertilizer inputs would reduce greenhouse gas emissions,
increase lifecycle energy ratios, reduce run-offs and water
pollution, and lower production costs. We are currently
field-testing four nitrogen use efficiency genes in switchgrass
in four states in the United States. We also plan to field test
these genes in miscanthus and sorghum. We are also developing
synergistic trait stacks with these genes with the goal of
increasing efficiency and yields.
Water Use
Efficiency and Drought Tolerance
We have several genes that allow plants to use water more
efficiently
and/or
recover from water deficits more readily. We are currently
field-testing water use efficiency and drought tolerance genes
in switchgrass that have resulted in the production of steady
yields on le