NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
UNAUDITED
(All dollar amounts, except share and per share amounts, are stated in thousands)
1. NATURE OF BUSINESS AND BASIS OF PRESENTATION
Yield10 Bioscience, Inc. ("Yield10 Bioscience," "Yield10," or the "Company") is an agricultural bioscience company focusing on the development of new technologies to enable step-change increases in crop yield to enhance global food security. The Company considers
10
-
20
percent increases in crop yield to be step-change increases. According to a United Nations report, food production must be increased by over
70 percent
in the next
35
years to feed the growing global population, which is expected to increase from
7 billion
to more than
9.6 billion
by 2050. During that time period, there will be a reduction in available arable land as a result of infrastructure growth and increased pressure on scarce water resources. Harvestable food production per acre and per growing season must be increased to meet this demand. At the same time, in light of the increasing focus on health and wellness, food safety and sustainability in developed countries, the Company anticipates a rise in demand for new varieties of food and food ingredients with improved nutritional properties. Further, concerns about food safety have led to the concept of “seed to plate,” or "farm to fork," with a focus on stringent quality control along the entire value chain. If this concept takes hold with consumers, it is likely to require identity preservation from seed to harvest and involve contract farming. This concept has been initially implemented in agricultural biotechnology, in products such as high oleic canola and soybean. Consumer demand for identity preserved specialty ingredients is also expected to rise, and the Company believes that Yield10's crop yield technologies and crop genome-editing platform could be useful in this emerging field.
The foundation technology of Yield10 is based on using
two
proprietary advanced biotechnology trait gene discovery platforms to improve fundamental crop yield through enhanced photosynthetic carbon capture and increased carbon utilization efficiency to increase seed yield. These platforms are based on the principle that plants which capture and utilize carbon more efficiently will enable more robust crops capable of increased seed yield. Yield10 is working to develop, translate and demonstrate the commercial value of a number of novel yield trait genes from these discovery platforms in major crops. The Company's “Smart Carbon Grid for Crops” metabolic engineering platform has already proven useful in identifying a number of its C3000 series of traits, including the novel yield trait gene C3003 which is being field tested in Camelina and canola in the 2018 growing season. The Company's “T3 Platform,” is based on mining transcription factor network data sets and led to the identification of its C4001, C4002 and C4003 global transcription factor gene traits. These gene traits enabled the Company to engineer switchgrass plants with high rates of photosynthesis and increased biomass yield. The Company is currently repeating its work with C4001 and C4003 in rice and wheat and plans to do so in corn.
Yield10 is currently combining the
two
trait gene discovery platforms to create an integrated system for identifying key plant gene combinations for modification using genome editing to improve crop performance. Advanced metabolic flux analysis forms the foundation of the GRAIN platform the Company is developing based on Yield10 scientists unique
20
-plus years of experience successfully deploying advanced metabolic flux analysis to address critical bottlenecks in carbon metabolism. Based on elements of the GRAIN platform that the Company is already working on, it has identified the C4004 through C4027 series of transcription factor genes that are down-regulated in the Company's high-photosynthesis engineered switchgrass plants as well as a number of new gene targets related to the Company's lead C3003 yield trait. New tools for genome-editing continue to develop at a fast pace and be deployed against known targets which for the most part are focused on changing seed or seed oil composition. However, identifying gene combinations remains an unmet need.
The Company is currently progressing the development of its lead yield trait genes in canola, soybean, rice and wheat to provide step-change yield solutions for enhancing global food security. Yield10 Bioscience is headquartered in Woburn, Massachusetts and has an additional agricultural science facility with greenhouses in Saskatoon, Saskatchewan, Canada.
On May 17, 2018, the Company entered into an exclusive worldwide license from the University of Missouri to two novel gene technologies to boost oil content in crops. Both technologies are based on significant new discoveries around the function and regulation of ACCase, a key rate-limiting enzyme involved in oil production. The first technology, named C3007, is a gene for a negative controller that inhibits the enzyme activity of Acetyl-CoA carboxylase, or ACCase. The second technology, named C3010, is a gene which, if over-expressed, results in increased activity of ACCase. The Company is required to use reasonable efforts to develop licensed products throughout the licensed field and to introduce licensed products into the commercial market. In that regard, the Company is obligated to fulfill certain research, development and regulatory milestones relating to C3007 and C3010, including completion of multi-site field demonstrations of a crop species in which C3007 and C3010 have been introduced, and filing for regulatory approval of a crop species in which C3007 and C3010 have been introduced within a specified period.
During July 2018, the Company also entered into a non-exclusive research license agreement jointly with the Broad Institute of MIT and Harvard and Pioneer, part of Corteva Agriscience™ Agriculture Division of DowDupont, for the use of CRISPR-Cas9 genome-editing technology for crops. The joint license covers intellectual property consisting of approximately 48 patents and patent applications on CRISPR-Cas9 technology controlled by the Broad Institute and Corteva Agriscience. Under the agreement, the Company has the option to renew the license on an annual basis and the right to convert the research license to a commercial license in the future, subject to conditions specified in the agreement. CRISPR technology is uniquely suited to agricultural applications as it enables precise changes to plant DNA without the use of foreign DNA to incorporate new traits. Plants developed using CRISPR genome-editing technology have the potential to be designated as "non-regulated" by the U.S. Department of Agriculture - Animal and Plant Health Inspection Service ("USDA-APHIS") for development and commercialization in the U.S., which could result in shorter developmental timelines and lower costs associated with commercialization of new traits in the U.S. as compared to regulated crops.
The accompanying condensed consolidated financial statements are unaudited and have been prepared by Yield10 in accordance with accounting principles generally accepted in the United States of America ("GAAP") and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC"). Certain information and footnote disclosures normally included in the Company’s annual consolidated financial statements have been condensed or omitted. The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all disclosures required by GAAP. The condensed consolidated financial statements, in the opinion of management, reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the financial position and results of operations for the interim periods ended
June 30, 2018
and
June 30, 2017
.
The results of operations for the interim periods are not necessarily indicative of the results of operations to be expected for any future period or the entire fiscal year. These interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements for the year ended
December 31, 2017
, which are contained in the Company’s Annual Report on Form 10-K filed with the SEC on March 12, 2018.
As of
June 30, 2018
, the Company held unrestricted cash, cash equivalents and short-term investments of
$9,654
. The Company follows the guidance of ASC Topic 205-40,
Presentation of Financial Statements-Going Concern,
in order to determine whether there is substantial doubt about its ability to continue as a going concern for one year after the date its financial statements are issued. Based on its current cash forecast, management expects that the Company's present capital resources will be sufficient to fund its planned operations and meet its obligations into the third quarter of 2019. This forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of expenses could vary materially and adversely as a result of a number of factors. The Company has evaluated the guidance of ASC Topic 205-40 in order to determine whether there is substantial doubt about its ability to continue as a going concern for one year after the date its financial statements are issued. The Company's ability to continue operations after its current cash resources are exhausted depends on its ability to obtain additional financing through, among other sources, public or private equity financing, secured or unsecured debt financing, equity or debt bridge financing, warrant holders' ability and willingness to exercise the Company's outstanding warrants, additional government grant or collaborative arrangements with third parties, as to which no assurance can be given. Management does not know whether additional financing will be available on terms favorable or acceptable to the Company when needed, if at all. If adequate additional funds are not available when required or if the Company is unsuccessful in entering into collaborative arrangements for further research, management may be forced to curtail the Company's research efforts, explore strategic alternatives and/or wind down its operations and pursue options for liquidating its remaining assets, including intellectual property and equipment. Based on its cash forecast, management has determined that the Company's present capital resources are unlikely to be sufficient to fund its planned operations for the twelve months from the date that the financial statements are issued, which raises substantial doubt about the Company's ability to continue as a going concern.
If the Company issues equity or debt securities to raise additional funds, (i) the Company may incur fees associated with such issuance, (ii) its existing stockholders may experience dilution from the issuance of new equity securities, (iii) the
Company may incur ongoing interest expense and be required to grant a security interest in Company assets in connection with any debt issuance, and (iv) the new equity or debt securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders. In addition, utilization of the Company’s net operating loss and research and development credit carryforwards may be subject to significant annual limitations under Section 382 of the Internal Revenue Code of 1986 due to ownership changes resulting from equity financing transactions. If the Company raises additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to its potential products or proprietary technologies, or grant licenses on terms that are not favorable to the Company.
2. ACCOUNTING POLICIES
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies that the Company adopts as of the specified effective date. During the six months ended
June 30, 2018
, the Company adopted the following new accounting guidance.
In May 2014, the FASB issued ASU No. 2014-09,
Revenue from Contracts with Customers (Topic 606).
The ASU is the result of a joint project by the FASB and the International Accounting Standards Board ("IASB") to clarify the principles for recognizing revenue and to develop a common revenue standard for GAAP and International Financial Reporting Standards ("IFRS") that would: remove inconsistencies and weaknesses in the treatment of this area between GAAP and IFRS, provide a more robust framework for addressing revenue issues, improve comparability of revenue recognition practices across entities, jurisdictions, industries, and capital markets, improve disclosure requirements and resulting financial statements, and simplify the presentation of financial statements. The core principle of the new guidance is that an entity should recognize revenue to depict the transfer of promised goods or services in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the new standard effective January 1, 2018 using the modified retrospective method and determined that its grant revenue, which is its sole source of revenue, does not fall within the guidance of the new standard. The Company will review future customer revenue agreements against the guidance provided by ASU No. 2014-09 to ensure that revenue is recorded appropriately.
In January 2016 the FASB issued ASU No. 2016-01,
Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities
. This new standard amended certain aspects of accounting and disclosure requirements for financial instruments, including the requirement that equity investments with readily determinable fair values are to be measured at fair value with any changes in fair value recognized in a company's statements of operations. Prior to adoption of ASU 2016-01, companies recognized changes in fair value in accumulated other comprehensive income (loss), net. Equity investments that do not have readily determinable fair values may be measured at fair value or at cost minus impairment adjusted for changes in observable prices. In addition, a valuation allowance should be evaluated on deferred tax assets related to available-for-sale debt securities in combination with other deferred tax assets. The Company adopted this new standard on January 1, 2018, using the modified retrospective method, and determined that it did not have a material impact on the Company's financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments
. The new standard clarifies certain aspects of the statement of cash flows, including the classification of debt prepayment or debt extinguishment costs, settlement of zero-coupon debt instruments or other debt instruments with coupon interest rates that are insignificant in relation to the effective interest rate of the borrowing, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of corporate-owned life insurance policies, distributions received from equity method investees and beneficial interests in securitization transactions. The new standard also clarifies that an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item. The Company adopted this new standard on January 1, 2018 and determined that it did not have a material impact on the Company's financial statements.
In October 2016, the FASB issued ASU No. 2016-16,
Income Taxes (Topic 740): Intra-Entity Transfer of Assets Other Than Inventory
. This new standard eliminates the deferral of the tax effects of intra-entity asset transfers other than inventory. As a result, the income tax consequences from the intra-entity transfer of an asset other than inventory and associated changes to deferred taxes will be recognized when the transfer occurs. The Company adopted this new standard on January 1, 2018 and determined that it did not have a material impact on the Company's financial statements.
In November 2016, the FASB issued ASU 2016-18,
Statement of Cash Flows (Topic 230): Restricted Cash
("ASU 2016-18"). The new standard provides uniform guidance for the classification and presentation of changes in restricted cash on the statement of cash flows under Topic 230,
Statement of Cash Flows
. ASU 2016-18 requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash. Therefore, amounts included in restricted cash should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 was effective for the Company for its fiscal year beginning January 1, 2018, including interim periods, and requires a retrospective presentation of each period presented. As a result, the Company's Condensed Consolidated Statement of Cash Flows for the six months ended
June 30, 2018
and
June 30, 2017
have been prepared in accordance with the new requirements of ASU 2016-18.
Other than the new standards described above, there have been no material changes in accounting policies since the Company’s fiscal year ended
December 31, 2017
, as described in Note 2 to the consolidated financial statements included in its Annual Report on Form 10-K for the year then ended.
New pronouncements that are not yet effective but may impact the Company's financial statements in the future are described below.
In February 2016, the FASB issued ASU 2016-02,
Leases (Topic 842).
The new standard requires that all lessees recognize the assets and liabilities that arise from leases on the balance sheet and disclose qualitative and quantitative information about its leasing arrangements. The new standard will be effective for Yield10 Bioscience on January 1, 2019. The Company is in the process of evaluating the impact of this new guidance.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments
. The new standard changes the impairment model for most financial assets and certain other instruments. Under the new standard, entities holding financial assets and net investment in leases that are not accounted for at fair value through net income are to be presented at the net amount expected to be collected. An allowance for credit losses will be a valuation account that will be deducted from the amortized cost basis of the financial asset to present the net carrying value at the amount expected to be collected on the financial asset. The new standard will be effective for the Company on January 1, 2020. The Company is in the process of evaluating the impact of this new guidance.
Principles of Consolidation
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions were eliminated, including transactions with its Canadian subsidiary, Metabolix Oilseeds, Inc.
Cash, Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments purchased with an original maturity date of ninety days or less at the date of purchase to be cash equivalents.
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Company's Condensed Consolidated Balance Sheets included herein:
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Cash and cash equivalents
|
$
|
3,168
|
|
|
$
|
14,487
|
|
Restricted cash
|
332
|
|
|
317
|
|
Total cash, cash equivalents and restricted cash shown in the condensed consolidated statements of cash flows
|
$
|
3,500
|
|
|
$
|
14,804
|
|
Amounts included in restricted cash represent those required to be set aside by contractual agreement. Restricted cash of
$332
at
June 30, 2018
and
$317
at
December 31, 2017
primarily consists of funds held in connection with the Company's lease agreement for its Woburn, Massachusetts facility.
Investments
The Company considers all investments purchased with an original maturity date of more than ninety days at the date of purchase and a maturity date of one year or less at the balance sheet date to be short-term investments. All other investments are classified as long-term. The Company held no long-term investments at
June 30, 2018
and no short or long-term investments at
December 31, 2017
.
Other-than-temporary impairments of equity investments are recognized in the Company's statements of operations if the Company has experienced a credit loss and has the intent to sell the investment or if it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Realized gains and losses, dividends, interest income and declines in value judged to be other-than-temporary credit losses are included in other income (expense). Any premium or discount arising at purchase is amortized and/or accreted to interest income.
Restructuring
In 2016, the Company announced a strategic restructuring under which Yield10 Bioscience became its core business and its biopolymer operations were discontinued. The Company records estimated restructuring charges for employee severance and contract termination costs as a current period expense as those costs become contractually fixed, probable and estimable. Obligations associated with these charges are reduced or adjusted as payments are made or the Company's estimates are revised.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of grant revenue and expenses during the reporting periods. Actual results could differ from those estimates.
Foreign Currency Translation
Foreign denominated assets and liabilities of the Company's wholly owned foreign subsidiaries are translated into U.S. dollars at the prevailing exchange rates in effect on the balance sheet date. Revenues and expenses are translated at average exchange rates prevailing during the period. Any resulting translation gains or losses are recorded in accumulated other comprehensive income (loss) in the consolidated balance sheet. When the Company dissolves, sells or substantially sells all of the assets of a consolidated foreign subsidiary, the cumulative translation gain or loss of that subsidiary is released from comprehensive income (loss) and included within its consolidated statement of operations during the fiscal period when the dissolution or sale occurs.
Income Taxes
The Company accounts for income taxes using the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the consolidated financial statements or in the Company's tax returns. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. A valuation allowance is provided to reduce the deferred tax asset to a level which, more likely than not, will be realized.
In December 2017, the Tax Cuts and Jobs Act, or the Tax Act ("TCJA"), was signed into law. Among other things, the Tax Act permanently lowers the corporate federal income tax rate to 21% effective for tax years including or commencing January 1, 2018. As a result of the reduction of the corporate federal income tax rate, GAAP requires companies to revalue their deferred tax assets and deferred tax liabilities as of the date of enactment, with the resulting tax effects accounted for in the reporting period of enactment. The Company's preliminary estimate of the TCJA and the remeasurement of its deferred tax assets and liabilities is subject to change as additional information becomes available, but no later than one year from the enactment of the TCJA.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents and investments. The Company has historically invested its cash equivalents in highly rated money market funds, corporate debt, federal agency notes and U.S. treasury notes. Investments, when purchased, are acquired in accordance with the Company’s investment policy which establishes a concentration limit per issuer.
At
June 30, 2018
,
89%
of the Company's total accounts and unbilled receivables of
$72
are due from the Company's government grant with the Department of Energy ("DOE") or from its DOE sub-award contract with Michigan State University ("MSU").
3. BASIC AND DILUTED NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of common shares outstanding. Diluted net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of dilutive common shares outstanding during the period. Diluted shares outstanding is calculated by adding to the weighted shares outstanding any potential (unissued) shares of common stock from outstanding stock options and warrants based on the treasury stock method, as well as weighted shares outstanding of any potential (unissued) shares of common stock from restricted stock units. In periods when a net loss is reported, all common stock equivalents are excluded from the calculation because they would have an anti-dilutive effect, meaning the loss per share would be reduced. Therefore, in periods when a loss is reported, there is no difference in basic and dilutive loss per share. Common stock equivalents include stock options, restricted stock awards and warrants.
On May 26, 2017, the Company effected a 1-for-
10
reverse stock split of its common stock. The calculation of basic and diluted net loss per share, as presented in the accompanying condensed consolidated statement of operations, have been determined based on a retroactive adjustment of weighted average shares outstanding for all periods presented.
The number of shares of potentially dilutive common stock presented on a weighted average basis, related to options, restricted stock units and warrants (prior to consideration of the treasury stock method) that were excluded from the calculation of dilutive shares since the inclusion of such shares would be anti-dilutive for the
three and six
months ended
June 30, 2018
and
June 30, 2017
, respectively, are shown below. Issued and outstanding warrants shown in the table below are described in greater detail in Note 10, contained herein.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
June 30,
|
|
Six Months Ended June 30,
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Options
|
1,117,827
|
|
|
544,276
|
|
|
910,427
|
|
|
617,741
|
|
Restricted stock units
|
7,101
|
|
|
14,382
|
|
|
10,660
|
|
|
17,992
|
|
Warrants
|
10,597,486
|
|
|
393,300
|
|
|
10,597,486
|
|
|
393,300
|
|
Total
|
11,722,414
|
|
|
951,958
|
|
|
11,518,573
|
|
|
1,029,033
|
|
4. INVESTMENTS
The Company's investments consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Cost
|
|
Unrealized
|
|
Market Value
|
June 30, 2018
|
|
Gain
|
|
(Loss)
|
|
Short-term investments
|
|
|
|
|
|
|
|
Government securities
|
$
|
6,486
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,486
|
|
Total
|
$
|
6,486
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,486
|
|
The Company considers all highly liquid investments purchased with an original maturity date of ninety days or less at the date of purchase to be cash equivalents, and investments purchased with an original maturity date of more than ninety days at the date of purchase and a maturity date of one year or less at the balance sheet date to be short-term investments. All other investments are classified as long-term. There were
no
long-term investments as of
June 30, 2018
or
December 31, 2017
, and no short-term investments at
December 31, 2017
.
The Company reviews investments for other-than-temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. Other-than-temporary impairments of investments are recognized in the Company's condensed consolidated statements of operations if the Company has experienced a credit loss and has the intent to sell the investment or if it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and the duration of the impairment and changes in value subsequent to the end of the period. Realized gains and losses, dividends, interest income and declines in value judged to be other-than-temporary credit losses are included in other income (expense). Any premium or discount arising at purchase is amortized and/or accreted to interest income.
5. FAIR VALUE MEASUREMENTS
The Company has certain financial assets recorded at fair value which have been classified as either Level 1 or 2 within the fair value hierarchy as described in the accounting standards for fair value measurements. Fair value is the price that would be received from the sale of an asset or the price paid to transfer a liability in an orderly transaction between independent market participants at the measurement date. Fair values determined by Level 1 inputs utilize observable data such as quoted prices in active markets. Fair values determined by Level 2 inputs utilize data points other than quoted prices in active markets that are observable either directly or indirectly. Fair values determined by Level 3 inputs utilize unobservable data points in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy level is determined by the lowest level of significant input. At
June 30, 2018
and
December 31, 2017
, the Company did not own any Level 3 financial assets.
The Company’s financial assets classified as Level 2 at
June 30, 2018
, were initially valued at the transaction price and subsequently valued utilizing third party pricing services. Because the Company’s investment portfolio may include securities that do not always trade on a daily basis, the pricing services use many observable market inputs to determine value including reportable trades, benchmark yields and benchmarking of like securities. The Company validates the prices provided by the third party pricing services by reviewing their pricing methods and obtaining market values from other pricing sources. After completing the validation procedures, the Company did not adjust or override any fair value measurements provided by these pricing services as of
June 30, 2018
.
The tables below present information about the Company’s assets that are measured at fair value on a recurring basis as of
June 30, 2018
and
December 31, 2017
and indicate the fair value hierarchy of the valuation techniques utilized to determine such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
|
Quoted prices in active markets for identical
assets
|
|
Significant other
observable inputs
|
|
Significant
unobservable inputs
|
|
Balance as of
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
June 30, 2018
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
2,594
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,594
|
|
Short-term investments:
|
|
|
|
|
|
|
|
U.S. government and agency securities
|
—
|
|
|
6,486
|
|
|
—
|
|
|
6,486
|
|
Total
|
$
|
2,594
|
|
|
$
|
6,486
|
|
|
$
|
—
|
|
|
$
|
9,080
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measurements at reporting date using
|
|
|
|
Quoted prices in active markets for identical
assets
|
|
Significant other
observable inputs
|
|
Significant
unobservable inputs
|
|
Balance as of
|
Description
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
December 31, 2017
|
Cash equivalents:
|
|
|
|
|
|
|
|
Money market funds
|
$
|
11,025
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,025
|
|
Total
|
$
|
11,025
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,025
|
|
6. ACCRUED EXPENSES
Accrued expenses consisted of the following at:
|
|
|
|
|
|
|
|
|
|
|
|
June 30,
2018
|
|
December 31,
2017
|
Employee compensation and benefits
|
|
$
|
407
|
|
|
$
|
646
|
|
Leased facilities
|
|
627
|
|
|
585
|
|
Commercial manufacturing
|
|
—
|
|
|
489
|
|
Professional services
|
|
213
|
|
|
335
|
|
Other
|
|
208
|
|
|
244
|
|
Total accrued expenses
|
|
$
|
1,455
|
|
|
$
|
2,299
|
|
Accrued commercial manufacturing expense at
December 31, 2017
, is related to the Company's terminated biopolymer manufacturing contract obligation. See Note 11.
7. STOCK-BASED COMPENSATION
2018 Stock Option and Incentive Plan
On May 23, 2018, the Company held its 2018 annual meeting of stockholders (the "Annual Meeting"), at which the stockholders approved the adoption of the Company's 2018 Stock Option and Incentive Plan ("2018 Stock Plan"). The 2018 Stock Plan reserves for issuance
1,300,000
shares of the Company's common stock for grants of incentive stock options, nonqualified stock options, stock grants and stock-based awards. Shares available under the 2018 Stock Plan will be increased on the first day of January 2019 and 2020 in an amount equal to
5%
of the outstanding shares of common stock on the day prior to the increase in each respective year or such smaller number of shares of common stock as determined by the Board of Directors.
Expense Information for Employee and Non-Employee Stock Awards
The Company recognized stock-based compensation expense related to stock awards, including awards to non-employees and members of the Board of Directors of
$315
and
$596
for the
three and six
months ended
June 30, 2018
, respectively. The Company recognized stock-based compensation expense related to stock awards of
$399
and
$663
for the three and six months ended
June 30, 2017
, respectively. At
June 30, 2018
, there was approximately
$1,695
of pre-tax stock-based compensation expense related to unvested awards not yet recognized.
The compensation expense related to unvested stock options is expected to be recognized over a remaining weighted average period of
3.27
years.
Stock Options
A summary of option activity for the
six
months ended
June 30, 2018
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Weighted Average
Exercise Price
|
Outstanding at December 31, 2017
|
|
702,033
|
|
|
$
|
16.21
|
|
Granted
|
|
976,175
|
|
|
$
|
1.65
|
|
Exercised
|
|
—
|
|
|
—
|
|
Forfeited
|
|
(791
|
)
|
|
$
|
12.64
|
|
Expired
|
|
(3,310
|
)
|
|
$
|
465.70
|
|
Outstanding at June 30, 2018
|
|
1,674,107
|
|
|
$
|
6.84
|
|
|
|
|
|
|
Options vested and expected to vest at June 30, 2018
|
|
1,674,107
|
|
|
$
|
—
|
|
Options exercisable at June 30, 2018
|
|
596,656
|
|
|
$
|
—
|
|
Restricted Stock Units
Restricted Stock Units ("RSUs") awarded to employees generally vest in
four
equal annual installments beginning
one
year after the date of grant, subject to service conditions. RSUs awarded to non-employee directors generally vest one year after the date of grant, with the exception of RSUs granted in lieu of cash compensation, which vest immediately. The Company records stock compensation expense for RSUs on a straight line basis over their vesting period based on each RSU's award date market value.
The Company pays minimum required income tax withholding associated with RSUs for its employees. As the RSUs vest, the Company withholds a number of shares with an aggregate fair market value equal to the minimum tax withholding amount (unless the employee makes other arrangements for payment of the tax withholding) from the common stock issuable at the vest date. During the six months ended
June 30, 2018
and
June 30, 2017
, the Company paid
$6
and
$12
, respectively, for income tax withholdings associated with RSUs that vested during these periods.
A summary of RSU activity for the
six
months ended
June 30, 2018
is as follows:
|
|
|
|
|
|
Number of RSUs
|
Weighted Average Remaining Contractual Life (years)
|
Outstanding at December 31, 2017
|
14,367
|
|
|
Awarded
|
—
|
|
|
Common stock issued upon vesting
|
(7,104
|
)
|
|
Forfeited
|
(162
|
)
|
|
Outstanding at June 30, 2018
|
7,101
|
|
0.75
|
|
|
|
Weighted average remaining recognition period
|
0.75
|
|
|
8. COMMITMENTS AND CONTINGENCIES
Leases
The Company rents its facilities under operating leases, which expire at various dates through December 2026. Rent expense for the three months and six months ended
June 30, 2018
was
$272
and
$512
, respectively. Rent expense for the three and six months ended
June 30, 2017
, was
$268
and
$448
, respectively.
At
June 30, 2018
, the Company's future minimum payments required under operating leases are as follows:
|
|
|
|
|
Year ended December 31,
|
Minimum lease payments
|
2018 (July to December)
|
$
|
496
|
|
2019
|
968
|
|
2020
|
778
|
|
2021
|
654
|
|
2022
|
676
|
|
Thereafter
|
2,832
|
|
Total
|
$
|
6,404
|
|
Lease Commitments
During 2016, the Company entered into a lease agreement, pursuant to which the Company leases approximately
29,622
square feet of office and research and development space located at 19 Presidential Way, Woburn, Massachusetts. The lease began on June 1, 2016 and will end on November 30, 2026. The Company provided the landlord with a security deposit in the form of a letter of credit in the amount of
$307
which is included within restricted cash in the Company's condensed consolidated balance sheet included herein. Pursuant to the lease, the Company will also pay certain taxes and operating costs associated with the premises during the term of the lease. During the buildout of the rented space, the landlord paid
$889
for tenant improvements to the facility and an additional
$444
for tenant improvements that result in increased rental payments by the Company. The current and non-current portions of the lease incentive obligations related to the landlord’s contributions toward the cost of tenant improvements are recorded within accrued expenses and long-term lease incentive obligation, respectively, in the Company's condensed consolidated balance sheet contained herein.
In October 2016, the Company entered into a sublease agreement with a subsidiary of CJ CheilJedang Corporation ("CJ") with respect to CJ's sublease of approximately
9,874
square feet of its leased facility located in Woburn, Massachusetts. The sublease space was determined to be in excess of the Company's needs as a result of its strategic shift to Yield10 Bioscience and the related restructuring of its operations. The sublease term is coterminous with the Company's master lease. CJ pays rent and operating expenses equal to approximately one-third of the amounts payable to the landlord by the Company, as adjusted from time-to-time in accordance with the terms of the master lease. Total future minimum operating lease payments of
$6,404
shown above are net of the CJ sublease payments. CJ has provided the Company with a security deposit of
$103
in the form of an irrevocable letter of credit.
The Company also leases approximately
13,702
square feet of office and laboratory space at 650 Suffolk Street, Lowell, Massachusetts. The lease for this facility expires in May 2020. During July 2018, the Company discontinued further use of the Lowell space as a result of decommissioning its computer data and systems backup and disaster recovery operations located within the facility. As a consequence, the Company will record a lease exit charge of approximately $249 during its third quarter for its remaining lease payments in accordance with ASC Topic 420-10,
Exit or Disposal Obligations
. The Company will continue to make monthly rental payments for the Lowell facility through its expiration in May 2020.
The Company's wholly owned subsidiary, Metabolix Oilseeds, Inc. ("MOI"), located in Saskatoon, Saskatchewan, Canada, leases approximately
4,100
square feet of office, laboratory and greenhouse space. MOI's leases for its various leased facilities expire between September 30, 2018 and May 31, 2020.
Contractual Commitments
In connection with the discontinuation of biopolymer operations, the Company ceased pilot production of biopolymer material and reached agreements with the owner-operators of its biopolymer pilot production facilities regarding the termination of their services. The Company recorded contract termination costs related to these manufacturing agreements of
$2,641
during 2016 and as of
June 30, 2018
, no further amounts remain outstanding related to these terminated contracts.
Litigation
From time-to-time, the Company may be subject to legal proceedings and claims in the ordinary course of business. The Company is not currently aware of any such proceedings or claims that it believes will have, individually or in the aggregate, a material adverse effect on its business, financial condition or results of operations.
Guarantees
As of
June 30, 2018
and
December 31, 2017
, the Company did not have significant liabilities recorded for guarantees.
The Company enters into indemnification provisions under various agreements with other companies in the ordinary course of business, typically with business partners, contractors, and customers. Under these provisions, the Company generally indemnifies and holds harmless the indemnified party for losses suffered or incurred by the indemnified party as a result of its activities. These indemnification provisions generally survive termination of the underlying agreement. The maximum potential amount of future payments the Company could be required to make under these indemnification provisions is unlimited. However, to date Yield10 Bioscience has not incurred material costs to defend lawsuits or settle claims related to these indemnification provisions. As a result, the estimated fair value of the indemnifications under these agreements is believed to be minimal. Accordingly, the Company has no liabilities recorded for these agreements as of
June 30, 2018
and
December 31, 2017
.
9. GEOGRAPHIC INFORMATION
The geographic distribution of the Company’s grant revenues and long-lived assets are summarized in the tables below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Canada
|
|
Eliminations
|
|
Total
|
Three Months Ended June 30, 2018:
|
|
|
|
|
|
|
|
Grant revenue from external customers
|
$
|
285
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
285
|
|
Inter-geographic revenues
|
—
|
|
|
372
|
|
|
(372
|
)
|
|
—
|
|
Revenues
|
$
|
285
|
|
|
$
|
372
|
|
|
$
|
(372
|
)
|
|
$
|
285
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30, 2017:
|
|
|
|
|
|
|
|
Grant revenue from external customers
|
$
|
293
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
293
|
|
Inter-geographic revenues
|
—
|
|
|
312
|
|
|
(312
|
)
|
|
—
|
|
Revenues
|
$
|
293
|
|
|
$
|
312
|
|
|
$
|
(312
|
)
|
|
$
|
293
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2018:
|
|
|
|
|
|
|
|
Grant revenue from external customers
|
$
|
345
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
345
|
|
Inter-geographic revenues
|
—
|
|
|
640
|
|
|
(640
|
)
|
|
—
|
|
Revenues
|
$
|
345
|
|
|
$
|
640
|
|
|
$
|
(640
|
)
|
|
$
|
345
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30, 2017:
|
|
|
|
|
|
|
|
Grant revenue from external customers
|
$
|
617
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
617
|
|
Inter-geographic revenues
|
—
|
|
|
533
|
|
|
(533
|
)
|
|
—
|
|
Revenues
|
$
|
617
|
|
|
$
|
533
|
|
|
$
|
(533
|
)
|
|
$
|
617
|
|
Foreign revenue is based on the country in which the Company’s subsidiary that earned the revenue is domiciled. During the
three and six
months ended
June 30, 2018
, revenue earned from the Company's Camelina grant with the U.S. Department of Energy totaled
$49
and
$109
, respectively, and represented
17%
and
32%
of total revenue. During the three and six months ended
June 30, 2017
, revenue earned from the Company’s Camelina grants totaled
$293
and
$586
, respectively, and represented
100%
and
95%
, respectively, of total grant revenue. During the three and six months ended
June 30, 2018
, revenue earned from the Company's new sub-award with MSU totaled
$236
and
$236
, respectively, and represented
83%
and
68%
, respectively, of total grant revenue.
The geographic distribution of the Company’s long-lived assets is summarized as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
|
|
Canada
|
|
Eliminations
|
|
Total
|
June 30, 2018
|
$
|
1,469
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
1,477
|
|
December 31, 2017
|
$
|
1,533
|
|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
1,539
|
|
10.
CAPITAL STOCK
Common Stock
On May 23, 2018, the Company held its Annual Meeting, at which stockholders approved an amendment to the Certificate of Incorporation to increase from
40,000,000
shares to
60,000,000
shares the aggregate number of shares of common stock that are authorized to be issued. As a result of this vote, on May 23, 2018, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware to increase the number of authorized shares. Also at the Annual Meeting, stockholders approved the adoption of the Company's 2018 Stock Plan. The 2018 Stock Plan reserves for issuance
1,300,000
shares of the Company's common stock for grants of incentive stock options, nonqualified stock options, stock grants and stock-based awards. Shares available under the 2018 Stock Plan will be increased on the first day of January 2019 and 2020 in an amount equal to
5%
of the outstanding shares of common stock on the day prior to the increase in each respective year or such smaller number of shares of common stock as determined by the Board of Directors.
On December 27, 2017, the Company held a special meeting of its stockholders, at which the stockholders approved an amendment to the Certificate of Incorporation to decrease from
250,000,000
shares to
40,000,000
shares the aggregate number of shares of common stock that are authorized to be issued. As a result of this vote, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of the State of Delaware on December 27, 2017 to decrease the number of authorized shares.
During December 2017, the Company closed on a public offering of its securities, receiving cash proceeds of
$13,097
, net of issuance costs of
$1,392
that were paid through January 31, 2018. The offering included
4,667,000
Class A Units, priced at a public offering price of
$2.25
per unit, with each unit consisting of
one
share of common stock, a Series A
five
-year warrant to purchase
one
share of common stock at an exercise price of
$2.25
per share, and a Series B
nine
-month warrant to purchase
0.5
share of common stock at an exercise price of
$2.25
per share, and
3,987
Class B Units, priced at a public offering price of
$1,000
per unit, with each unit consisting of
one
share of preferred stock, having a conversion price of
$2.25
, Series A
5
-year warrants to purchase
445
shares of common stock at an exercise price of
$2.25
per share, and Series B
nine
-month warrants to purchase
223
shares of common stock with an exercise price of
$2.25
per share. The Company determined that both the preferred stock and the warrants should be recorded within stockholders' equity.
Proceeds received from the offering were allocated to the various elements of the offering based on their relative fair values. The fair value of the common stock is its closing market price on December 21, 2017, the closing date of the offering. The Series A Convertible Preferred Stock was valued on an as-if-converted basis based on the underlying common stock and the Series A and Series B warrants were valued using the Black-Scholes model with the following weighted-average input at the time of issuance:
|
|
•
|
an expected term of
5.0
years and
0.75
years for the Series A and Series B warrants, respectively,
|
|
|
•
|
risk free rates of
2.2%
and
1.7%
for the Series A and Series B warrants, respectively, based on the published rates of U.S. treasury bills with similar terms, and
|
|
|
•
|
volatility of
125%
based on the Company’s historical volatility.
|
After allocation of the proceeds, the effective conversion price of the Series A Convertible Preferred Stock was determined to be beneficial and, as a result, the Company recorded a one-time non-cash deemed dividend of
$1,427
equal to the intrinsic value of the beneficial conversion feature during its three months ended December 31, 2017. The Series A Convertible Preferred Stock did not have a stated redemption date, and as a consequence, accounting guidance required immediate recognition of the beneficial conversion feature rather than amortization of the benefit over time. As of March 19, 2018, preferred shareholders have converted all
3,987
of the preferred shares into an aggregate of
1,772,000
shares of common stock.
On September 12, 2017, the Company issued warrants to purchase up to
30,000
shares of common stock to the Company's investor relations consultant, in consideration for services rendered and to be rendered by the consultant. These warrants have an exercise price of
$2.90
per share and are exercisable in whole or part at any time during the period commencing on September 12, 2017 and ending on September 11, 2024. The Company reviewed the accounting guidance for warrants and determined that these warrants should be recorded as equity within additional paid-in capital.
On July 7, 2017, the Company completed an offering of its securities. Proceeds from the transaction were approximately
$1,966
, net of issuance costs of
$317
. Investors participating in the transaction purchased a total of
570,784
shares of common stock at a price of
$4.00
per share and an equal number of warrants with an exercise price of
$5.04
per share, exercisable beginning on January 7, 2018 and until their expiration on January 7, 2024. In accordance with accounting guidance, these warrants were also recorded as equity within additional paid-in capital.
On May 26, 2017, the Company effected a 1-for-
10
reverse stock split of its common stock. The ratio for the reverse stock split was determined by the Company's board of directors following approval by stockholders at the Company's annual meeting held on May 24, 2017. The reverse stock split reduced the number of shares of the Company's common stock outstanding at the time of the reverse stock split from approximately
28.7 million
shares to approximately
2.9 million
shares. Proportional adjustments were made to the Company's outstanding stock options and restricted stock units and to the number of shares issued and issuable under the Company's equity compensation plans.
Preferred Stock
The Company's Certificate of Incorporation authorizes it to issue up to
5,000,000
shares of $
0.01
par value preferred stock.
As discussed above, during December 2017 the Company closed on a public offering of its securities that included issuance of
3,987
shares of Series A Convertible Preferred Stock. Each preferred share was convertible, at the holder's option, into
445
shares of common stock at a conversion price of
$2.25
per share, subject to adjustments as a result of stock dividends and stock splits. The Company determined the Series A Convertible Preferred Stock should be classified as equity since it was not mandatorily redeemable, there were no unconditional obligations requiring the Company to settle in a variable number of common shares or settle through the transfer of assets and the monetary value of the preferred shares was fixed. As of March 19, 2018, all of the
3,987
preferred shares had been converted to an aggregate of
1,772,000
shares of common stock. When converted, the shares of converted Series A Convertible Preferred Stock were restored to the status of authorized but unissued shares of preferred stock, subject to reissuance by the Board of Directors.
Warrants
The following table summarizes information with regard to outstanding warrants to purchase common stock as of
June 30, 2018
:
|
|
|
|
|
|
|
|
|
|
|
Issuance
|
|
Number of Shares Issuable Upon Exercise of Outstanding Warrants
|
|
Exercise Price
|
|
Expiration Date
|
June 2015 Private Placement
|
|
393,300
|
|
|
$
|
39.80
|
|
|
June 15, 2019
|
July 2017 Registered Direct Offering
|
|
570,784
|
|
|
$
|
5.04
|
|
|
January 7, 2024
|
December 2017 Public Offering - Series A
|
|
6,439,000
|
|
|
$
|
2.25
|
|
|
December 21, 2022
|
December 2017 Public Offering - Series B
|
|
3,164,402
|
|
|
$
|
2.25
|
|
|
September 21, 2018
|
Consultant
|
|
30,000
|
|
|
$
|
2.90
|
|
|
September 11, 2024
|
Total
|
|
10,597,486
|
|
|
|
|
|
During the six months ended
June 30, 2018
, a total of
55,100
Series B warrants from the December 2017 public offering were exercised resulting in the issuance of
55,100
shares of common stock and the Company's receipt of
$124
in cash proceeds.
Reserved Shares
The following shares of common stock were reserved for future issuance upon exercise of stock options, release of RSUs, conversion of Series A Convertible Preferred Stock and conversion of warrants:
|
|
|
|
|
|
|
|
June 30, 2018
|
|
December 31, 2017
|
Stock Options
|
1,674,107
|
|
|
702,033
|
|
RSUs
|
7,101
|
|
|
14,367
|
|
Series A Convertible Preferred Stock
|
—
|
|
|
811,555
|
|
Warrants
|
10,597,486
|
|
|
10,652,586
|
|
Total number of common shares reserved for future issuance
|
12,278,694
|
|
|
12,180,541
|
|
11. RESTRUCTURING
During 2016, the Company initiated a strategic restructuring under which Yield10 Bioscience became its core business and its biopolymer operations were discontinued. As part of its strategic restructuring, the Company significantly reduced staffing levels and in January 2017, the Company formally changed its name to Yield10 Bioscience, Inc.
In connection with the wind down of its biopolymer operations, the Company ceased pilot production of biopolymer materials and reached agreements with the owner-operators of its biopolymer production facilities regarding the termination of these services. Through May 2018, the Company made cash payments of
$3,317
, issued
27,500
shares of common stock with a fair value of
$85
and transferred certain biopolymer-related production equipment with a net book value of
$111
to settle these agreements and other restructuring activities. At
June 30, 2018
, the Company has no further restructuring obligations outstanding.