AMRS 09302011 10Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2011
OR
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from              to             
Commission File Number: 001-34885
 
AMYRIS, INC.
(Exact name of registrant as specified in its charter) 
Delaware
 
55-0856151
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
Amyris, Inc.
5885 Hollis Street, Suite 100
Emeryville, CA 94608
(510) 450-0761
(Address and telephone number of principal executive offices)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer.
Large accelerated filer
¨
Accelerated filer
¨
 
 
 
 
Non-accelerated filer
x
Smaller reporting company
¨

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

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class
Outstanding at October 28, 2011
Common Stock, $0.0001 par value per share
45,554,640 shares

AMYRIS, INC.
QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2011

INDEX
 
 
 
Page No.
PART I: FINANCIAL INFORMATION
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
PART II: OTHER INFORMATION
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 



PART I: FINANCIAL INFORMATION


Amyris, Inc.
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 
September 30,
2011
 
December 31,
2010
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
106,142

 
$
143,060

Short-term investments
17,652

 
114,873

Accounts receivable
4,982

 
5,215

Inventories
8,492

 
4,006

Prepaid expenses and other current assets
9,432

 
2,905

Total current assets
146,700

 
270,059

Property and equipment, net
115,850

 
54,847

Other assets
38,752

 
32,547

Total assets
$
301,302

 
$
357,453

Liabilities and Equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
25,246

 
$
7,116

Deferred revenue
2,044

 
565

Accrued and other current liabilities
30,333

 
14,795

Capital lease obligation, current portion
2,931

 
2,854

Debt, current portion
2,336

 
1,911

Total current liabilities
62,890

 
27,241

Capital lease obligation, net of current portion
905

 
3,091

Long-term debt, net of current portion
9,970

 
4,734

Deferred rent, net of current portion
10,290

 
11,186

Deferred revenue, net of current portion
4,238

 
1,130

Other liabilities
9,434

 
2,523

Total liabilities
97,727

 
49,905

Commitments and contingencies (Note 5)

 

Stockholders’ equity:
 
 
 
Preferred stock - $0.0001 par value, 5,000,000 shares authorized, none issued and outstanding.
—

 
—

Common stock - $0.0001 par value, 100,000,000 shares authorized as of September 30, 2011 and December 31, 2010; 45,160,247 shares and 43,847,425 shares issued and outstanding as of September 30, 2011 and December 31, 2010, respectively.
5

 
4

Additional paid-in capital
530,847

 
506,988

Accumulated other comprehensive income (loss)
(5,451
)
 
2,872

Accumulated deficit
(321,760
)
 
(202,318
)
Total Amyris, Inc. stockholders’ equity
203,641

 
307,546

Noncontrolling interest
(66
)
 
2

Total equity
203,575

 
307,548

Total liabilities and equity
$
301,302

 
$
357,453

See the accompanying notes to the unaudited condensed consolidated financial statements.

3


Amyris, Inc.
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Amounts)
(Unaudited)
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
Revenues
 
 
 
 
 
 
 
Product sales
$
31,162

 
$
22,055

 
$
92,998

 
$
42,037

Grants and collaborations revenue
5,114

 
2,170

 
12,454

 
8,545

Total revenues
36,276

 
24,225

 
105,452

 
50,582

Cost and operating expenses
 
 
 
 
 
 
 
Cost of product sales
35,729

 
22,900

 
99,247

 
43,032

Research and development
23,441

 
14,701

 
66,622

 
38,293

Sales, general and administrative
21,174

 
10,484

 
59,401

 
29,385

Restructuring income
—

 
(2,061
)
 
—

 
(2,061
)
Total cost and operating expenses
80,344

 
46,024

 
225,270

 
108,649

Loss from operations
(44,068
)
 
(21,799
)
 
(119,818
)
 
(58,067
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
609

 
702

 
1,250

 
1,264

Interest expense
(291
)
 
(524
)
 
(1,172
)
 
(1,284
)
Other income, net
310

 
1,013

 
160

 
953

Total other income
628

 
1,191

 
238

 
933

Loss before income taxes
$
(43,440
)
 
$
(20,608
)
 
$
(119,580
)
 
$
(57,134
)
Provision for income taxes
(474
)
 
—

 
(299
)
 
—

Net loss
$
(43,914
)
 
$
(20,608
)
 
$
(119,879
)
 
$
(57,134
)
Net loss attributable to noncontrolling interest
224

 
477

 
437

 
907

Net loss attributable to Amyris, Inc.
$
(43,690
)
 
$
(20,131
)
 
$
(119,442
)
 
$
(56,227
)
Deemed dividend related to the beneficial conversion feature of Series D convertible preferred stock and conversion of Amyris Brasil S.A. shares held by third parties
—

 
(42,009
)
 
—

 
(42,009
)
Net loss attributable to Amyris, Inc. common stockholders
$
(43,690
)
 
$
(62,140
)
 
$
(119,442
)
 
$
(98,236
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.97
)
 
$
(11.89
)
 
$
(2.68
)
 
$
(19.26
)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted
45,031,613

 
5,227,689

 
44,507,686

 
5,099,635

See the accompanying notes to the unaudited condensed consolidated financial statements.

4


Amyris, Inc.
Condensed Consolidated Statement of Stockholders’ Equity
(Unaudited)
 
 
Common Stock
 
Additional
Paid-in
Capital
 
Accumulated
Deficit
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Noncontrolling
Interest
 
Total
Equity
(In Thousands, Except Share Amounts)
Shares
 
Amount
 
 
 
 
 
December 31, 2010
43,847,425

 
$
4

 
$
506,988

 
$
(202,318
)
 
$
2,872

 
$
2

 
$
307,548

Issuance of common stock upon exercise of stock options, net of restricted stock
1,230,867

 
1

 
5,023

 
—

 
—

 
—

 
5,024

Issuance of common stock upon net exercise of warrants
77,087

 
—

 
—

 
—

 
—

 
—

 
—

Shares issued from restricted stock unit settlement
6,005

 
—

 
—

 
—

 
—

 
—

 
—

Repurchase of common stock
(1,137
)
 
—

 
—

 
—

 
—

 
—

 
—

Stock-based compensation
—

 
—

 
18,836

 
—

 
—

 
—

 
18,836

Fair value of assets and liabilities assigned to noncontrolling interest
—

 
—

 
—

 
—

 
—

 
369

 
369

Components of comprehensive income (loss)
 
 
 
 
 
 
 
 
 
 
 
 
 
Change in unrealized loss on investments
—

 
—

 
—

 
—

 
(5
)
 
—

 
(5
)
Foreign currency translation adjustment, net of tax
—

 
—

 
—

 
—

 
(8,318
)
 
—

 
(8,318
)
Net loss
—

 
—

 
—

 
(119,442
)
 
—

 
(437
)
 
(119,879
)
Total comprehensive loss
 
 
 
 
 
 
 
 
 
 
 
 
(128,202
)
September 30, 2011
45,160,247

 
$
5

 
$
530,847

 
$
(321,760
)
 
$
(5,451
)
 
$
(66
)
 
$
203,575

See the accompanying notes to the unaudited condensed consolidated financial statements.


5


Amyris, Inc.
Condensed Consolidated Statements of Cash Flows
(In Thousands)
(Unaudited)
 
 
Nine Months Ended September 30,
 
2011
 
2010
Operating activities
 
 
 
Net loss
$
(119,879
)
 
$
(57,134
)
Adjustments to reconcile net loss to net cash used in operating activities:
 
 
 
Convertible preferred stock warrants
—

 
33

Depreciation and amortization
7,728

 
5,300

Inventory write-down to net realizable value
2,468

 
—

Loss on the sale of investments
—

 
(4
)
Stock-based compensation
18,836

 
6,908

Amortization of premium on investments
630

 
895

Change in fair value of convertible preferred stock warrant liability
—

 
(929
)
Restructuring income
—

 
(2,061
)
Other noncash (income) expenses
(79
)
 
67

Changes in assets and liabilities:

 

Accounts receivable
234

 
(2,989
)
Inventories
(7,091
)
 
(1,243
)
Prepaid expenses and other assets
(1,134
)
 
1,449

Accounts payable
10,993

 
4,412

Restructuring
—

 
(511
)
Accrued and other long-term liabilities
17,700

 
2,015

Deferred revenue
4,587

 
1,458

Deferred rent
(761
)
 
(480
)
Net cash used in operating activities
(65,768
)
 
(42,814
)
Investing activities
 
 
 
Purchase of short-term investments
(55,286
)
 
(190,408
)
Maturities of short-term investments
105,000

 
53,561

Sales of short-term investments
44,826

 
28,374

Purchase of long-term investments
—

 
(7,998
)
Change in restricted cash
—

 
(18
)
Acquisition of cash in noncontrolling interest
344

 
—

Purchase of property and equipment, net of disposals
(54,416
)
 
(8,249
)
Deposits on property and equipment
(16,832
)
 
(2,159
)
Net cash provided by (used in) investing activities
23,636

 
(126,897
)
Financing activities
 
 
 
Proceeds from issuance of convertible preferred stock, net of issuance costs
—

 
184,369

Proceeds from issuance of common stock, net of repurchases
4,987

 
75

Proceeds from equipment financing
—

 
1,445

Principal payments on capital leases
(2,109
)
 
(2,064
)
Proceeds from debt
7,622

 
—

Principal payments on debt
(3,962
)
 
(9,325
)
Proceeds from issuance of common stock in initial public offering, net of underwriting discounts and commission
(497
)
 
75,359

Proceeds from sale of noncontrolling interest
—

 
7,069

Net cash provided by financing activities
6,041

 
256,928

Effect of exchange rate changes on cash and cash equivalents
(827
)
 
973

Net increase (decrease) in cash and cash equivalents
(36,918
)
 
88,190

Cash and cash equivalents at beginning of period
143,060

 
19,188

Cash and cash equivalents at end of period
$
106,142

 
$
107,378

See the accompanying notes to the unaudited condensed consolidated financial statements.

6



Condensed Consolidated Statements of Cash Flows—(Continued)
(In Thousands)
(Unaudited)
 
 
Nine Months Ended September 30,
 
2011
 
2010
Supplemental disclosures of cash flow information:
 
 
 
Cash paid for interest
$
1,131

 
$
1,077

Supplemental disclosures of noncash investing and financing activities:
 
 
 
Additions to property and equipment under notes payable
$
—

 
$
958

Acquisitions of assets under accounts payable and accrued liabilities
$
7,166

 
$
1,901

Capitalization of manufacturing equipment under ASC 840 (see Note 9)
$
7,272

 
$
—

Financing of insurance premium under notes payable
$
—

 
$
101

Change in unrealized gain (loss) on investments
$
(5
)
 
$
21

Change in unrealized gain (loss) on foreign currency
$
(7,265
)
 
$
383

Asset retirement obligation
$
—

 
$
175

Warrants issued in connection with the issuance of convertible preferred stock
$
—

 
$
507

Accrued deferred offering costs
$
—

 
$
1,653

Accrued Series D preferred stock issuance costs
$
—

 
$
9

Financing of rent payments under notes payable
$
—

 
$
239

Deferred charge asset related to issuance of Series D preferred stock
$
—

 
$
27,909

Receivable from stock option exercises
$
4

 
$
—

Issuance of common stock upon exercise of warrants
$
3,554

 
$
—

Unpaid investment in joint venture
$
108

 
$
—

Conversion of convertible preferred stock to common stock
$
—

 
$
391,411

Conversion of preferred stock warrants to common stock warrants
$
—

 
$
2,318

Conversion of shares of Amyris Brasil S.A. held by third parties into Amyris, Inc. common stock
$
—

 
$
11,653

Deemed dividend related to the beneficial conversion feature of Series D convertible preferred stock and Amyris Brasil S.A. shares
$
—

 
$
42,009

Transfer of fixed assets to current assets
$
886

 
$
—

Acquisition of net assets in noncontrolling interest
$
25

 
$
—

See the accompanying notes to the unaudited condensed consolidated financial statements.

7


Amyris, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

1. The Company

Amyris, Inc. (the “Company”) was incorporated in California on July 17, 2003 and reincorporated in Delaware on June 10, 2010 for the purpose of leveraging breakthroughs in synthetic biology to develop and provide renewable compounds for a variety of markets. The Company is currently building and applying its industrial synthetic biology platform to provide alternatives to select petroleum-sourced products used in specialty chemical and transportation fuel markets worldwide. The Company’s first commercialization efforts have been focused on a molecule called farnesene, which forms the basis for a wide range of products varying from specialty chemical applications to transportation fuels, such as diesel. While the Company’s platform is able to use a wide variety of feedstocks, the Company has focused initially on Brazilian sugarcane. The Company intends to secure access to this feedstock and to expand its production capacity by working with existing sugar and ethanol mill owners to build new, adjacent bolt-on facilities at their existing mills in return for a share of the higher gross margin the Company believes it will realize from the sale of its renewable products. In addition, the Company has entered into various contract manufacturing agreements to support commercial production. The Company has established two principal operating subsidiaries, Amyris Brasil Ltda. (formerly Amyris Brasil S.A., “Amyris Brasil”) for production in Brazil, and Amyris Fuels, LLC for fuel distribution capabilities in the U.S.

On June 21, 2010, the name of the Company was changed from Amyris Biotechnologies, Inc. to Amyris, Inc.

On September 30, 2010, the Company closed its initial public offering (“IPO”) of 5,300,000 shares of common stock at an offering price of $16.00 per share, resulting in net proceeds to the Company of approximately $73.7 million, after deducting underwriting discounts of $5.9 million and offering costs of $5.2 million and in October 2010, the Company subsequently sold an additional 795,000 shares to the underwriters pursuant to the over-allotment option raising an additional $11.8 million of net proceeds. Upon the closing of the IPO, the Company’s outstanding shares of convertible preferred stock were automatically converted into 31,550,277 shares of common stock and the outstanding convertible preferred stock warrants were automatically converted into common stock warrants to purchase a total of 195,604 shares of common stock and shares of Amyris Brasil held by third party investors were automatically converted into 861,155 shares of the Company’s common stock.

The Company has incurred significant losses from operations since its inception and its accumulated deficit as of September 30, 2011 was $321.8 million. The Company expects to finance its operations for the foreseeable future with cash and investments currently on hand, with cash inflows from collaboration and grant funding, potential cash contributions from product sales, and with new debt to provide additional working capital and to cover portions of its capital expenditures. As currently contemplated, the Company's operating expenditures, capital expenditures and other strategic plans for the remainder of 2011 and for 2012 require significant inflows of cash from credit facilities and similar sources of indebtedness, as well as funding from collaboration partners, that are not yet subject to definitive agreements or commitments from such parties. In addition, some of the Company's anticipated capital expenditures depend on the Company finding additional sources of funding beyond those the Company has currently identified. If the Company fails to secure any such debt or collaboration cash, it will be required to seek other types of funding (such as corporate debt or equity funding) or to curtail its operations, including through reductions and delays of planned capital expenditures and scaling back operations. If the Company is forced to curtail its operations, it may be unable to proceed with construction of certain planned production facilities, enter into definitive agreements for supply of feedstock and associated milling and production arrangements that are currently subject to letters of intent, commercialize its products within the timeline it expects, or otherwise continue its business as currently contemplated.


2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements have been prepared in accordance with the accounting principles generally accepted in the United States of America (“GAAP”) and with the instructions for Form 10-Q and Regulations S-X statements. Accordingly, they do not include all of the information and notes required for complete financial statements. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company’s Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 14, 2011. The unaudited condensed consolidated financial statements include the accounts of the Company and its consolidated subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.


8
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Principles of Consolidations

The Company has interests in joint venture entities that are variable interest entities (“VIEs”). Determining whether to consolidate a variable interest entity may require judgment in assessing (i) whether an entity is a VIE and (ii) if the Company is the entity’s primary beneficiary and thus required to consolidate the entity. To determine if the Company is the primary beneficiary of a VIE, the Company evaluates whether it has (i) the power to direct the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. The Company’s evaluation includes identification of significant activities and an assessment of its ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding and financing and other applicable agreements and circumstances. The Company’s assessment of whether it is the primary beneficiary of its VIEs requires significant assumptions and judgment.

The unaudited condensed consolidated financial statements of the Company include the accounts of Amyris, Inc., its subsidiaries and two consolidated VIEs with respect to which the Company is considered the primary beneficiary, after elimination of intercompany accounts and transactions. Disclosure regarding the Company’s participation in the VIE is included in Note 8.

Use of Estimates

In preparing the unaudited condensed consolidated financial statements, management must make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Unaudited Interim Financial Information

The accompanying interim condensed consolidated financial statements and related disclosures are unaudited, have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary for a fair statement of the results of operations for the periods presented. The condensed consolidated results of operations for any interim period are not necessarily indicative of the results to be expected for the full year or for any other future year or interim period.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to a concentration of credit risk consist primarily of cash and cash equivalents, short-term investments, accounts receivable and derivatives commodity financial instruments. The Company places its cash equivalents and investments with high credit quality financial institutions and, by policy, limits the amount of credit exposure with any one financial institution. Deposits held with banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of cash and cash equivalents and short-term investments.

The Company’s accounts receivable are primarily derived from customers located in the United States. The Company performs ongoing credit evaluation of its customers, does not require collateral, and maintains allowances for potential credit losses on customer accounts when deemed necessary. To date, there have been no such losses and the Company has not recorded an allowance for doubtful accounts.

Customers representing greater than 10% of accounts receivable were as follows:
Customers
September 30,
2011

 
December 31,
2010

Customer A
19
%
 
36
%
Customer B
17
%
 
*

Customer C
15
%
 
**

Customer D
**

 
28
%
 _____________________
*
No outstanding balance
**
Less than 10%


9
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Customers representing greater than 10% of revenues were as follows:
 
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
Customers
2011
 
2010
 
2011
 
2010
Customer A
**
  
33%
 
17%
 
16%
Customer B
17%
 
**
 
**
 
**
Customer C
12%
  
*
 
**
 
**
Customer D
*
  
*
 
*
 
16%
Customer E
**
 
11%
 
**
 
**
Customer F
**
 
**
 
**
 
13%
 ___________________
*    Not a customer
* *    Less than 10%


The Company is exposed to counterparty credit risk on all of its derivative commodity instruments. The Company has established and maintains strict counterparty credit guidelines and enters into agreements only with counterparties that are investment grade or better. The Company does not require collateral under these agreements.
 
Fair Value of Financial Instrument

The Company measures certain financial assets and liabilities at fair value based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants. Financial instruments are primarily comprised of money market funds, certificates of deposit, commercial paper, and U.S. government agency securities. Where available, fair value is based on or derived from observable market prices or other observable inputs. Where observable prices or inputs are not available, valuation models are applied. These valuation techniques involve some level of management estimation and judgment, the degree of which is dependent on the price transparency for the instruments or market and the instruments’ complexity.

The carrying amounts of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities, approximate fair value due to their relatively short maturities, and low market interest rates if applicable. Based on the borrowing rates currently available to the Company for debt with similar terms, and after considering nonperformance and credit risk, the carrying value of the notes payable and credit facility approximates its fair value.

Cash and Cash Equivalents

All highly liquid investments purchased with an original maturity date of 90 days or less at the date of purchase are considered to be cash equivalents. Cash and cash equivalents consist of money market funds, commercial paper, U.S. Government agency securities and various deposit accounts.

Investments
Investments with original maturities greater than 90 days that mature less than one year from the consolidated balance sheet date are classified as short-term investments. The Company classifies investments as short-term or long-term based upon whether such assets are reasonably expected to be realized in cash or sold or consumed during the normal cycle of business. The Company invests its excess cash balances primarily in short-term investment grade commercial paper and corporate bonds, U.S. Government agency securities and notes, and auction rate securities (“ARS”). The Company classifies all of its investments, other than ARS, as available-for-sale and records such assets at estimated fair value in the consolidated balance sheets, with unrealized gains and losses, if any, reported as a component of accumulated other comprehensive income (loss) in stockholders' equity (deficit). Debt securities are adjusted for amortization of premiums and accretion of discounts and such amortization and accretion are reported as a component of interest income. Realized gains and losses and declines in value that are considered to be other than temporary are recognized in the statements of operations. The cost of securities sold is determined on the specific identification method. There were no significant realized gains or losses from sales of debt securities during the three and nine months ended September 30, 2011 and 2010. As of September 30, 2011 and December 31, 2010, the Company did not have any other-than-temporary declines in the fair value of its debt securities.
The Company classified the ARS as trading securities and recorded all changes in fair value as component of other income (expense), net. The underlying securities had stated or contractual maturities that were generally greater than one year. The Company

10
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

estimated the fair value of the ARS using a discounted cash flow model incorporating assumptions that market participants would use in their estimates of fair value. The Company had a put option to sell its ARS at par value. The Company accounted for the put option as a freestanding financial instrument and elected to record it at fair value with changes in fair value recorded as a component of other income (expense), net. As of September 30, 2011 and December 31, 2010, the Company did not hold any ARS due to the liquidation of ARS during the second and third quarters of 2010.

Inventories

Inventories, which consist of ethanol and reformulated ethanol-blended gasoline and farnesene-derived products, are stated at the lower of cost or market and categorized as finished goods, work-in-process or raw material inventories. Cost is computed on a first-in, first-out basis. Inventory costs include transportation costs incurred in bringing the inventory to its existing location.

Derivative Instruments
The Company is exposed to market risks related to price volatility of ethanol and reformulated ethanol-blended gasoline. The Company makes limited use of derivative instruments, which include futures positions on the New York Mercantile Exchange and the CME/Chicago Board of Trade. The Company does not engage in speculative derivative activities, and the purpose for its activity in derivative commodity instruments is to manage the financial risk posed by physical transactions and inventory. Changes in the fair value of the derivative contracts are recognized currently in the consolidated statements of operations as specific hedge accounting criteria are not met.
 
Asset Retirement Obligations
The fair value of an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. In addition, asset retirement cost is added to the carrying amount of the associated asset and this additional carrying amount is amortized over the life of the asset. The Company’s asset retirement obligations are associated with its commitment to return property subject to an operating lease in Brazil to its original condition upon lease termination.

As of September 30, 2011 and December 31, 2010, the Company recorded asset retirement obligations of $957,000 and $984,000, respectively. The related leasehold improvements are being amortized to depreciation expense over the term of the lease or the useful life of the assets, whichever is shorter. Related amortization expense was $4,000 and $31,000 for the three months ended September 30, 2011 and 2010, respectively, and $136,000 and $93,000 for nine months ended September 30, 2011 and 2010, respectively.

The change in the asset retirement obligation is summarized below (in thousands):
Balance at December 31, 2010
$
984

Foreign currency impact
(110
)
Accretion expenses recorded during the period
83

Balance at September 30, 2011
$
957


Property and Equipment, net

Property and equipment, net are stated at cost less accumulated depreciation and amortization. Depreciation and amortization is computed using the straight-line method over the estimated useful lives of the related assets. Maintenance and repairs are charged to expense as incurred, and improvements and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet and any resulting gain or loss is reflected in operations in the period realized.

Depreciation and amortization periods for the Company’s property and equipment are as follows:
Machinery and equipment
7 -15 years
Computers and software
3-5 years
Furniture and office equipment
5 years
Vehicles
5 years
Leasehold improvements are amortized on a straight-line basis over the terms of the lease, or the useful life of the assets,

11
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

whichever is shorter.
Computers and software includes internal-use software that is acquired, internally developed or modified to meet the Company's internal needs. Amortization commences when the software is ready for its intended use and the amortization period is the estimated useful life of the software, generally three to five years. Capitalized costs primarily include contract labor and payroll costs of the individuals dedicated to the development of internal-use software. Capitalized software additions totaled approximately $1.2 million and $0.7 million for the nine months ended September 30, 2011 and 2010, respectively, related to software development costs pertaining to the installation of a new financial reporting system. For the nine months ended September 30, 2011 and 2010, $308,000 and $181,000, respectively, of amortization expense was recorded and the total unamortized cost of capitalized software was $2.9 million and $2.1 million, respectively, as of September 30, 2011 and December 31, 2010.

Impairment of Long-Lived Assets

Long-lived assets to be held and used are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable, or the estimated useful life is no longer appropriate. If indicators of impairment exist and the undiscounted projected cash flows associated with such assets are less than the carrying amount of the asset, an impairment loss is recorded to write the asset down to their estimated fair values. Fair value is estimated based on discounted future cash flows. There were zero impairment charges recorded during the nine months ended September 30, 2011 and 2010.

Noncontrolling Interest and Redeemable Noncontrolling Interest

As of January 1, 2009, the Company adopted the new accounting standard which establishes accounting and reporting standards for noncontrolling interests in consolidated financial statements. These provisions require that the carrying value of noncontrolling interests to be removed from the mezzanine equity section of the consolidated balance sheets and reclassified as equity, and that consolidated net income be recast to include net income attributable to the noncontrolling interests. The standard requires retrospective presentation and disclosure of existing noncontrolling interests. Accordingly, the Company presented noncontrolling interests as a separate component of equity (deficit) and has also presented net loss attributable to the noncontrolling interest in the consolidated statements of operations. Upon adoption, the noncontrolling interest of $1.1 million was reclassified to a component of total equity (deficit) in the consolidated balance sheets from the mezzanine equity section.

In accordance with accounting and reporting standards for redeemable equity instruments, a noncontrolling interest with redemption features (“redeemable noncontrolling interest”), such as a put option, that is not solely within the control of the Company, is required to be reported in the mezzanine equity section of the consolidated balance sheets.

Changes in noncontrolling interest ownership that do not result in a change of control and where there is a difference between fair value and carrying value are accounted for as equity transactions.

On April 14, 2010, the Company entered into a joint venture with Usina São Martinho. The carrying value of the noncontrolling interest from this joint venture is recorded in the equity section of the consolidated balance sheets (see Note 8).

On January 3, 2011, the Company entered into a production service agreement with Glycotech, Inc. ("Glycotech"). The Company has determined that the arrangement with Glycotech qualifies as a VIE. The Company determined that it is the primary beneficiary. The carrying value of the noncontrolling interest from this VIE is recorded in the equity section of the consolidated balance sheets (see Note 8).

Revenue Recognition
The Company recognizes revenue from the sale of ethanol and reformulated ethanol-blended gasoline, farnesene-derived products, delivery of research and development services, and governmental grants. Revenue is recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable, and collectability is reasonably assured.

If sales arrangements contain multiple elements, the Company evaluates whether the components of each arrangement represent separate units of accounting. To date the Company has determined that all revenue arrangements should be accounted for as a single unit of accounting.


12
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Product Sales
The Company sells ethanol and reformulated ethanol-blended gasoline under short-term agreements at prevailing market prices. Ethanol and reformulated ethanol-blended gasoline sales consists of sales to customers through purchases from third-party suppliers in which the Company takes physical control of the ethanol and reformulated ethanol-blended gasoline and accepts risk of loss. Starting in the second quarter of 2011, the Company began to sell farnesene-derived products, which are procured from contracted third parties. Revenues are recognized, net of discounts and allowances, once passage of title and risk of loss has occurred and contractually specified acceptance criteria have been met, provided all other revenue recognition criteria have also been met.

Grants and Collaborative Revenue

Revenue from collaborative research services is recognized as the services are performed consistent with the performance requirements of the contract. In cases where the planned levels of research services fluctuate over the research term, the Company recognizes revenue using the proportionate performance method based upon actual efforts to date relative to the amount of expected effort to be incurred by the Company. When up-front payments are received and the planned levels of research services do not fluctuate over the research term, revenue is recorded on a ratable basis over the arrangement term, up to the amount of cash received. When up-front payments are received and the planned levels of research services fluctuate over the research term, revenue is recorded using the proportionate performance method, up to the amount of cash received. Where arrangements include milestones that are determined to be substantive and at risk at the inception of the arrangement, revenue is recognized upon achievement of the milestone and is limited to those amounts whereby collectability is reasonably assured.

Government grants are agreements that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. Revenues from government grants are recognized in the period during which the related costs are incurred, provided that the conditions under which the government grants were provided have been met and only perfunctory obligations are outstanding.
 
Cost of Product Sales

Cost of product sales consists primarily of cost of purchased ethanol and reformulated ethanol-blended gasoline, terminal fees paid for storage and handling, transportation costs between terminals and changes in the fair value of the derivative commodity instruments. Starting in the second quarter of 2011, cost of product sales also includes production costs of farnesene-derived products.

Shipping and handling costs charged to customers are recorded as revenues. Shipping costs are included in cost of product revenues. Such charges were not significant in any of the periods presented.

Costs of Start-Up Activities

Start-up activities are defined as those one-time activities related to opening a new facility, introducing a new product or service, conducting business in a new territory, conducting business with a new class of customer or beneficiary, initiating a new process in an existing facility, commencing some new operation or activities related to organizing a new entity. All the costs associated with a potential site are expensed and recorded within the selling, general and administrative expenses until the site is considered viable by management, at which time costs would be considered for capitalization based on authoritative accounting literature.

Research and Development

Research and development costs are expensed as incurred and include costs associated with research performed pursuant to collaborative agreements and government grants. Research and development costs consist of direct and indirect internal costs related to specific projects as well as fees paid to other entities that conduct certain research activities on the Company’s behalf.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires, among other things, that deferred income taxes be provided for temporary differences between the tax basis of the Company’s assets and liabilities and their financial statement reported amounts. In addition, deferred tax assets are recorded for the future benefit of utilizing net

13
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

operating losses and research and development credit carryforwards. A valuation allowance is provided against deferred tax assets unless it is more likely than not that they will be realized.

The Company recognizes and measures uncertain tax positions in accordance with the Income Taxes subtopic 05-6 of ASC 740, which prescribes a recognition threshold and measurement process for recording uncertain tax positions taken, or expected to be taken in a tax return, in the consolidated financial statements. Additionally, the guidance also prescribes new treatment for the derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions. The Company accrues for the estimated amount of taxes for uncertain tax positions if it is more likely than not that the Company would be required to pay such additional taxes. An uncertain tax position will not be recognized if it has a less than 50% likelihood of being sustained.

Currency Translation

The Brazilian real is the functional currency of the Company’s wholly-owned subsidiary in Brazil and also of the Company’s joint venture with Usina São Martinho. Accordingly, asset and liability accounts of those operations are translated into United States dollars using the current exchange rate in effect at the balance sheet date and equity accounts are translated into United States dollars using historical rates. The revenues and expenses are translated using the exchange rates in effect when the transactions occur. Gains and losses from foreign currency translation adjustments are included as a component of accumulated other comprehensive income (loss) in the consolidated balance sheets.

Stock-Based Compensation

The Company accounts for stock-based compensation arrangements with employees using a fair value method which requires the recognition of compensation expense for costs related to all stock-based payments including stock options. The fair value method requires the Company to estimate the fair value of stock-based payment awards on the date of grant using an option pricing model. The Company uses the Black-Scholes pricing model to estimate the fair value of options granted that are expensed on a straight-line basis over the vesting period. The Company accounts for restricted stock units issued to employees based on the fair market value of the Company’s common stock.
 
The Company accounts for stock options issued to nonemployees based on the estimated fair value of the awards using the Black-Scholes option pricing model. The Company accounts for restricted stock units issued to nonemployees based on the fair market value of the Company’s common stock. The measurement of stock-based compensation is subject to periodic adjustments with the resulting change in value, if any, is recognized in the Company’s consolidated statements of operations during the period the related services are rendered.

Comprehensive Income (Loss)

Comprehensive income (loss) represents all changes in stockholders’ equity (deficit) except those resulting from investments or contributions by stockholders. The Company’s unrealized gains and losses on available-for-sale securities and foreign currency translation adjustments represent the components of comprehensive income (loss) excluded from the Company’s net loss and have been disclosed in the consolidated statements of convertible preferred stock, redeemable noncontrolling interest and equity (deficit) for all periods presented.

The components of accumulated other comprehensive income are as follows (in thousands):
 
 
September 30, 2011
 
December 31,
2010

Foreign currency translation adjustment, net of tax
$
(5,451
)
 
$
2,867

Accumulated unrealized gain on investment
—

 
5

Total accumulated other comprehensive income (loss)
$
(5,451
)
 
$
2,872


Net Loss Attributable to Common Stockholders and Net Loss per Share

The Company computes net loss per share in accordance with ASC 260, “Earnings per Share.” Basic net loss per share of common stock is computed by dividing the Company’s net loss attributable to Amyris, Inc. common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net loss per share of common stock is computed by giving effect to all potentially dilutive securities, including stock options, restricted stock units, common stock warrants,

14
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

convertible preferred stock and convertible preferred stock warrants using the treasury stock method or the as converted method, as applicable. Basic and diluted net loss per share of common stock attributable to Amyris, Inc. stockholders was the same for all periods presented as the inclusion of all potentially dilutive securities outstanding was anti-dilutive. As such, the numerator and the denominator used in computing both basic and diluted net loss are the same for each period presented.
 
The following table presents the calculation of basic and diluted net loss per share of common stock attributable to Amyris, Inc. common stockholders (in thousands, except share and per share amounts):
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Numerator:
 
 
 
 
 
 
 
Net loss attributable to Amyris, Inc. common stockholders
$
(43,690
)
 
$
(62,140
)
 
$
(119,442
)
 
$
(98,236
)
Denominator:
 
 
 
 
 
 
 
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted
45,031,613

 
5,227,689

 
44,507,686

 
5,099,635

Net loss per share attributable to common stockholders, basic and diluted
$
(0.97
)
 
$
(11.89
)
 
$
(2.68
)
 
$
(19.26
)

The following outstanding shares of potentially dilutive securities were excluded from the computation of diluted net loss per share of common stock for the periods presented because including them would have been antidilutive:
 
 
Nine Months Ended
September 30,
 
2011
 
2010
Period-end stock options to purchase common stock
8,353,279

 
6,833,698

Period-end common stock subject to repurchase
10,335

 
39,872

Period-end common stock warrants
5,136

 
195,604

Period-end restricted stock units
375,189

 
—

Total
8,743,939

 
7,069,174


Recent Accounting Pronouncements

In October 2009, the FASB issued a new accounting standard that changes the accounting for arrangements with multiple deliverables. Specifically, the new accounting standard requires an entity to allocate arrangement consideration at the inception of an arrangement to all of its deliverables based on their relative selling prices. In addition, the new standard eliminates the use of the residual method of allocation and requires the relative-selling-price method in all circumstances in which an entity recognizes revenue for an arrangement with multiple deliverables. The standard became effective for the Company on January 1, 2011. The adoption of the updated guidance did not have an impact on the Company's consolidated financial position, results of operations or cash flows for the three and nine months ended September 30, 2011 and does not change the units of accounting for its revenue transactions. The new accounting standard, if applied to the year ended December 31, 2010, would not have an impact on revenue for that year.
 
In January 2010, the FASB issued an amendment to an accounting standard which requires new disclosures for fair value measures and provides clarification for existing disclosure requirements. Specifically, this amendment requires an entity to disclose separately the amounts of significant transfers in and out of Level 1 and Level 2 fair value measurements and to describe the reasons for the transfers; and to disclose separately information about purchases, sales, issuances and settlements in the reconciliation for fair value measurements using significant unobservable inputs, or Level 3 inputs. The amendment also clarifies existing disclosure requirements for the level of disaggregation used for classes of assets and liabilities measured at fair value and requires disclosure about the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring fair value measurements using Level 2 and Level 3 inputs. The updated guidance is effective for interim or annual reporting periods beginning after December 15, 2009, except for the disclosures regarding the reconciliation of Level 3 fair value measurements, which are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In April 2010, the FASB issued an accounting standard update related to revenue recognition under the milestone method. The standard provides guidance on defining a milestone and determining when it may be appropriate to apply the milestone method

15
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

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. The adoption of this guidance did not have a material impact on the Company’s consolidated financial statements.

In May 2011, the FASB issued an amendment to an accounting standard related to fair value measurement. This amendment is intended to result in convergence between U.S. GAAP and International Financial Reporting Standards (“IFRS”) requirements for measurement of and disclosures about fair value. This guidance clarifies the application of existing fair value measurements and disclosures, and changes certain principles or requirements for fair value measurements and disclosures. The amended guidance is effective for interim and annual periods beginning after December 15, 2011. The Company is currently assessing the potential impact, if any, this amendment may have on its consolidated financial position, results of operations and cash flows.

In June 2011, the FASB issued an amendment to an accounting standard related to the presentation of the Statement of Comprehensive Income. This amendment will require companies to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements. It eliminates the option to present components of other comprehensive income as part of the statement of changes in stockholders' equity. The amended guidance is effective for interim and annual periods beginning after December 15, 2011 with full retrospective application required. Early adoption is permitted. The adoption of this amendment concerns disclosure only and the Company is currently assessing the impact it will have on its consolidated financial position, results of operations or cash flows.

3. Fair Value of Financial Instruments

The following tables set forth the Company’s financial instruments that were measured at fair value on a recurring basis by level within the fair value hierarchy. Assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires management to make judgments and consider factors specific to the asset or liability. As of September 30, 2011, the Company’s fair value hierarchy for its financial assets and financial liabilities that are carried at fair value was as follows (in thousands):
 
 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Balance as of
September 30, 2011
Financial Assets
 
 
 
 
 
 
 
Money market funds
$
78,237

 
$
—

 
$
—

 
$
78,237

Certificates of Deposit
17,652

 
—

 
—

 
17,652

U.S. Government agency securities
—

 
—

 
—

 
—

Derivative assets
130

 
—

 
—

 
130

Total financial assets
$
96,019

 
$
—

 
$
—

 
$
96,019

Financial Liabilities
 
 
 
 
 
 
 
Derivative liabilities
$
—

 
$
—

 
$
—

 
$
—

Total financial liabilities
$
—

 
$
—

 
$
—

 
$
—

 
As of December 31, 2010, the Company’s fair value hierarchy for its financial assets and financial liabilities that are carried at fair value was as follows (in thousands):
 

16
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

 
Quoted Prices in Active
Markets for Identical Assets
(Level 1)
 
Other Observable
Inputs
(Level 2)
 
Significant
Unobservable Inputs
(Level 3)
 
Balance as of
December 31,
2010
Financial Assets
 
 
 
 
 
 
 
Money market funds
$
124,228

 
$
—

 
$
—

 
$
124,228

Certificates of Deposit(1)
9,238

 
—

 
—

 
9,238

U.S. Government agency securities
—

 
105,635

 
—

 
105,635

Total financial assets
$
133,466

 
$
105,635

 
$
—

 
$
239,101

Financial Liabilities
 
 
 
 
 
 
 
Derivative liabilities
$
324

 
$
—

 
$
—

 
$
324

Total financial liabilities
$
324

 
$
—

 
$
—

 
$
324

______________ 
(1) Prior year fair value hierarchy now includes certificates of deposits to conform with current period presentation. Such reclassification did not change previously reported consolidated financial statements.

Derivative Instruments

The Company utilizes derivative financial instruments to mitigate its exposure to certain market risks associated with its ongoing operations. The primary objective for holding derivative financial instruments is to manage commodity price risk. The Company’s derivative instruments principally include Chicago Board of Trade (CBOT) ethanol futures and Reformulated Blendstock for Oxygenate Blending (RBOB) gasoline futures. All derivative commodity instruments are recorded at fair value on the consolidated balance sheets. None of the Company’s derivative instruments are designated as a hedging instrument. Changes in the fair value of these non-designated hedging instruments are recognized in cost of product sales in the consolidated statements of operations.

Derivative instruments measured at fair value as of September 30, 2011 and December 31, 2010, and their classification on the condensed consolidated balance sheets and condensed consolidated statements of operations, are presented in the following tables (in thousands) except contract amounts:
 
Asset/Liability as of
 
September 30, 2011
 
December 31, 2010
Type of Derivative Contract
Quantity of Net
Short Contracts
 
Fair Value
 
Quantity of Net
 Short Contracts
 
Fair Value
Regulated fixed price futures contracts, included as asset in prepaid expenses and other current assets
53

 
$
130

 
—

 
$
—

Regulated fixed price futures contracts, included as liability in accounts payable
—

 
$
—

 
92

 
$
324

 
Type of Derivative Contract
Income Statement Classification
 
Three Months Ended September 30,
 
Nine Months Ended September 30,
 
2011
 
2010
 
2011
 
2010
 
Gain (Losses) Recognized
 
Gain (Losses) Recognized
Regulated fixed price futures contracts
Cost of product sales
 
$
625

 
$
(1,224
)
 
$
(2,103
)
 
$
(379
)



17
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

4. Balance Sheet Components

Investments

The following table summarizes the Company’s investments as of September 30, 2011 (in thousands):
 
September 30, 2011
 
Amortized
Cost
 
Unrealized  Gain
(Loss)
 
Fair Value
Short-Term Investments
 
 
 
 
 
Certificates of Deposit
$
17,652

 
$
—

 
$
17,652

Total short-term investments
$
17,652

 
$
—

 
$
17,652


The following table summarizes the Company’s investments as of December 31, 2010 (in thousands):
 
December 31, 2010
 
Amortized
Cost
 
Unrealized  Gain
(Loss)
 
Fair Value
Short-Term Investments
 
 
 
 
 
U.S. Government agency securities
$
105,630

 
$
5

 
$
105,635

Certificates of Deposit
9,238

 
—

 
9,238

Total short-term investments
$
114,868

 
$
5

 
$
114,873


Inventories

Inventories, net is comprised of the following (in thousands):
 
September 30,
2011
 
December 31,
2010
Raw materials
$
1,312

 
$
—

Work-in-process
1,794

 
—

Finished goods
5,386

 
4,006

Inventories, net
$
8,492

 
$
4,006


Prepaid and Other Current Assets

Prepaid and other current assets is comprised of the following (in thousands):
 
September 30,
2011
 
December 31,
2010
Advances to contract manufacturers
$
3,108

 
$
—

Manufacturing catalysts
1,469

 
—

Advances on manufacturing catalysts
809

 
—

Interest receivable
—

 
744

Recoverable VAT and other taxes
752

 
24

Margin deposits on derivative instruments
523

 
373

Advances on collaboration services
442

 
—

Other
2,329

 
1,764

Prepaid and other current assets
$
9,432

 
$
2,905



18
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Property and Equipment, net

Property and equipment, net is comprised of the following (in thousands):
 
September 30,
2011
 
December 31,
2010
Leasehold improvements
$
39,180

 
$
29,445

Machinery and equipment
45,429

 
22,115

Computers and software
6,115

 
5,225

Furniture and office equipment
1,862

 
1,486

Vehicles
602

 
493

Construction in progress
46,032

 
12,431

 
139,220

 
71,195

Less: accumulated depreciation and amortization
(23,370
)
 
(16,348
)
Property and equipment, net
$
115,850

 
$
54,847


Property and equipment includes $9.4 million of machinery and equipment and furniture and office equipment under capital leases as of September 30, 2011 and December 31, 2010. Accumulated amortization of assets under capital leases totaled $4.2 million and $3.0 million as of September 30, 2011 and December 31, 2010, respectively.

Depreciation and amortization expense, including amortization of assets under capital leases, was $3.0 million and $1.9 million for the three months ended September 30, 2011 and 2010, respectively, and was $7.5 million and $5.3 million for the nine months ended September 30, 2011 and 2010, respectively.

Construction in progress as of September 30, 2011 includes $9.9 million of assets accounted for under ASC 840 "Leases" (see Note 9).

Other Assets

Other assets are comprised of the following (in thousands):
 
 
September 30,
2011
 
December 31,
2010
Deferred charge asset(1)
$
22,197

 
$
27,631

Deposits on property and equipment
15,243

 
4,556

Other
1,312

 
360

Total other assets
$
38,752

 
$
32,547

——————————————————————
(1)
The deferred charge asset relates to the collaboration agreement between the Company and Total (see Note 9).


19
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Accrued and Other Current Liabilities

Accrued and other current liabilities are comprised of the following (in thousands):
 
 
September 30,
2011
 
December 31,
2010
Professional services
$
4,200

 
$
3,552

Accrued vacation
2,611

 
1,996

Payroll and related expenses
11,144

 
2,729

Construction in progress
1,367

 
2,227

Tax-related liabilities
1,513

 
1,273

Deferred rent, current portion
1,233

 
1,099

Customer advances
6,121

 
—

Refundable exercise price on early exercise of stock options
37

 
70

Other
2,107

 
1,849

Total accrued and other current liabilities
$
30,333

 
$
14,795


5. Commitments and Contingencies

Capital Leases
In March 2008, the Company executed an equipment financing agreement intended to cover certain qualifying research and laboratory hardware and software. In January 2009, the agreement was amended to increase the financing amount. During the years ended December 31, 2010, 2009 and 2008, the Company financed certain purchases of hardware equipment and software of approximately $1.4 million, $4.8 million and $3.3 million, respectively. Pursuant to the equipment financing agreement, the Company financed the equipment with the transactions representing capital leases. Accordingly, fixed assets and capital lease liabilities were recorded at the present values of the future lease payments of $3.8 million and $5.9 million at September 30, 2011 and December 31, 2010, respectively. The incremental borrowing rates used to determine the present values of the future lease payments was 9.5%. The capital lease obligations expire at various dates, with the latest maturity in March 2013. In connection with the agreement entered into in 2008, the Company issued a warrant to purchase shares of the Company's convertible preferred stock (see Note 10).
The Company recorded interest expense in connection with its capital leases of $126,000 and $205,000 for the three months ended September 30, 2011 and 2010, respectively, and $437,000 and $636,000 for the nine months ended September 30, 2011 and 2010, respectively. Future minimum payments under capital leases as of September 30, 2011, are as follows (in thousands):

Years ending December 31:
Capital Leases
2011 (Three Months)
$
849

2012
2,910

2013
391

Thereafter
—

Total future minimum lease payments
4,150

Less: amount representing interest
(314
)
Present value of minimum lease payments
3,836

Less: current portion
(2,931
)
Long-term portion
$
905


Operating Leases
The Company has noncancelable operating lease agreements for office, research and development and manufacturing space in the United States that expire at various dates, with the latest expiration in May 2018 with an estimated annual rent payment of approximately $5.9 million. In addition, the Company leases facilities in Brazil pursuant to noncancelable operating leases that expires at various dates, with the latest expiration in November 2016 with an estimated annual rent payment of approximately

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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

$467,000.
In 2007, the Company entered into an operating lease for its headquarters in Emeryville, California, with a term of ten years commencing in May 2008. As part of the operating lease agreement, the Company received a tenant improvements allowance of $11.4 million. The Company recorded the allowance as deferred rent and associated expenditures as leasehold improvements that are being amortized over the shorter of their useful life or the term of the lease. In connection with the operating lease, the Company elected to defer a portion of the monthly base rent due under the lease and entered into notes payable agreements with the lessor for the purchase of certain tenant improvements. In October 2010, the Company amended its lease agreement with the lessor of its headquarters, to lease up to approximately 22,000 square feet of research and development and office space. In return for the removal of the early termination clause in its amended lease agreement, the Company received approximately $1.0 million from the lessor in December 2010.
The Company recognizes rent expense on a straight-line basis over the noncancelable lease term and records the difference between cash rent payments and the recognition of rent expense as a deferred rent liability. Where leases contain escalation clauses, rent abatements, and/or concession, such as rent holidays and landlord or tenant incentives or allowances, the Company applies them in the determination of straight-line rent expense over the lease term. Rent expense was $1.2 million and $0.8 million for the three months ended September 30, 2011 and 2010, respectively, and $3.5 million and $2.3 million for the nine months ended September 30, 2011 and 2010, respectively.
The Company has terminalling agreements with terminal storage facility vendors for the storage and handling of products. As of September 30, 2011 the Company had $0.9 million in outstanding commitments under these terminalling agreements of which $0.4 million and $0.5 million are expected to be paid in 2011 and 2012, respectively.
In January 2011, the Company entered into a right of first refusal agreement with respect to a facility and site in Leland, North Carolina leased by Glycotech covering a two year period commencing in January 2011. Under the right of first refusal agreement, the lessor agrees not to sell the facility and site leased by Glycotech during the term of the production service agreement. If the lessor is presented with an offer to sell, or decides to sell, an adjacent parcel, the Company has a right of first refusal to acquire the adjacent parcel or leased property.
In February 2011, the Company commenced payment of rent related to an operating lease on a real property owned by Usina São Martinho in Brazil. In conjunction with a joint venture agreement (see Note 7) with the same entity, the real property will be used by the joint venture entity, SMA Indústria Química S.A. (“SMA”), for the construction of a production facility. This lease has a term of 20 years commencing in February 2011 with an estimated annual rent payment of approximately $59,000.
In February 2011, the Company entered into an operating lease for certain equipment owned by GEA Engenharia de Processos e Sistemas Industriais Ltda (“GEA”) in Brazil. The equipment under this lease will be used by the Company in its production activities in Brazil. This lease has a term of one year commencing in March 2011 with an estimated annual rent payment of approximately $96,000 and is renewable for up to two years from the end of the initial term.
In March 2011, the Company entered into an operating lease on a real property owned by Paraíso Bioenergia S.A. (“Paraíso Bioenergia”) in Brazil. In conjunction with a supply agreement (see Note 9) with the same entity, the real property will be used by the Company for the construction of an industrial facility. This lease has a term of 15 years commencing in March 2011 with an estimated annual rent payment of approximately $147,000.
In August 2011, the Company notified the lessor of its leased office facilities in Brazil of the Company's termination of its existing lease effective November 30, 2011. At the same time, the Company entered into an operating lease for new office facilities in Campinas, Brazil. The new lease has a term of 5 years commencing in November 2011 with an estimated annual rent payment of approximately $467,000.

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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Future minimum payments under operating leases as of September 30, 2011, are as follows (in thousands):
 
Years ending December 31:
Operating
Leases -
Facilities
 
Operating
Leases -
Land
 
Operating
Leases -
Equipment
 
Total
Operating
Leases
2011 (Three Months)
$
1,623

 
$
15

 
$
24

 
$
1,662

2012
6,556

 
169

 
16

 
6,741

2013
6,330

 
206

 
—

 
6,536

2014
6,408

 
206

 
—

 
6,614

2015
6,586

 
206

 
—

 
6,792

Thereafter
15,950

 
2,389

 
—

 
18,339

Total future minimum lease payments
$
43,453

 
$
3,191

 
$
40

 
$
46,684


Guarantor Arrangements
The Company has agreements whereby it indemnifies its officers and directors for certain events or occurrences while the officer or director is, or was, serving at the Company's request in such capacity. The term of the indemnification period is for the officer or director's lifetime. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is unlimited; however, the Company has a director and officer insurance policy that limits its exposure and enables the Company to recover a portion of any future amounts paid. As a result of its insurance policy coverage, the Company believes the estimated fair value of these indemnification agreements is minimal. Accordingly, the Company had no liabilities recorded for these agreements as of September 30, 2011 and December 31, 2010.
The Company has an uncommitted facility letter (“Credit Agreement”) with a financial institution to finance the purchase and sale of fuel and for working capital requirements, as needed. The Company is a parent guarantor for the payment of the outstanding balance under the Credit Agreement. As of September 30, 2011 the Company had $5.4 million in outstanding letters of credit under the Credit Agreement which are guaranteed by the Company and payable on demand. The Credit Agreement is collateralized by a first priority security interest in certain of the Company's present and future assets.
The Company has a facility (“FINEP Credit Facility”) with a financial institution to finance a research and development project on sugarcane-based biodiesel (see Note 6). The FINEP Credit Facility provides for loans of up to an aggregate principal amount of R$6.4 million Brazilian reais (approximately $3.5 million based on the exchange rate at September 30, 2011) which is guaranteed by a chattel mortgage on certain equipment of the Company. The Company's total acquisition cost for the equipment under this guarantee is approximately R$6.0 million Brazilian reais (approximately $3.2 million based on the exchange rate at September 30, 2011). Subject to compliance with certain terms and conditions under the FINEP Credit Facility, four disbursements of the loan will become available to the Company for withdrawal, as described in more detail in Note 6. After the release of the first disbursement, prior to any subsequent drawdown from the FINEP Credit Facility, the Company also needs to provide bank letters of guarantee of up to R$3.3 million Brazilian reais (approximately $1.8 million based on the exchange rate at September 30, 2011).
The Company has a terminalling agreement with a terminal storage facility vendor for storing and handling of products. The Company is a parent guarantor for the payment of the outstanding balance under the Terminalling Agreement. As of September 30, 2011 the Company had $0.4 million in outstanding commitments under the Terminalling Agreement which are guaranteed by the Company and payable on demand.
Under an operating lease agreement for its office facilities in Brazil, which commences November 15, 2011, the Company is required to maintain restricted cash or letters of credit equal to three months rent of approximately R$191,000 Brazilian reais (approximately $103,000 based on the exchange rate at September 30, 2011) as guarantee that the Company will meet its performance obligations under such operating lease agreement.

Other Matters
The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. The Company accrues amounts, to the extent they can be reasonably estimated, that it believes are adequate to address any liabilities related to legal proceedings and other loss contingencies that the Company believes will result in a probable loss.



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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

6. Debt
Debt is comprised of the following (in thousands):
 
September 30,
2011
 
December 31,
2010

Credit facilities
$
7,447

 
$
—

Notes payable
3,407

 
5,668

Loans payable
1,452

 
977

Total debt
12,306

 
6,645

Less: current portion
(2,336
)
 
(1,911
)
Long-term debt
$
9,970

 
$
4,734

Credit Facility
In November 2010, the Company entered into the FINEP Credit Facility with Financiadora de Estudos e Projetos (“FINEP”), a state-owned company subordinated to the Brazilian Ministry of Science and Technology. This FINEP Credit Facility was extended to partially fund expenses related to the Company's research and development project on sugarcane-based biodiesel (“FINEP Project”) and provides for loans of up to an aggregate principal amount of R$6.4 million Brazilian reais (approximately $3.5 million based on the exchange rate at September 30, 2011) which is guaranteed by a chattel mortgage on certain equipment of the Company as well as bank letters of guarantee. Subject to compliance with certain terms and conditions under the FINEP Credit Facility, four disbursements of the loan will become available to the Company for withdrawal. The first disbursement received in February 2011 was approximately R$1.8 million Brazilian reais, and the next three disbursements will each be approximately R$1.6 million Brazilian reais. As of September 30, 2011 and December 31, 2010, there were R$1.8 million Brazilian reais (approximately $0.9 million based on the exchange rate at September 30, 2011) and zero amount outstanding, respectively, under this FINEP Credit Facility.
Interest on loans drawn under this credit facility is fixed at 5.0% per annum. In case of default under or non-compliance with the terms of the agreement, the interest on loans will be dependent on the long-term interest rate as published by the Central Bank of Brazil (“TJLP”). If the TJLP at the time of default is greater than 6.0%, then the interest will be 5.0% + a TJLP adjustment factor otherwise the interest will be at 11.0% per annum. In addition, a fine of up to 10.0% will apply to the amount of any obligation in default. Interest on late balances will be 1.0% interest per month, levied on the overdue amount. Payment of the outstanding loan balance will be made in 81 monthly installments which will commence in July 2012 and extend through March 2019. Interest on loans drawn and other charges are paid on a monthly basis commencing in March 2011.
The FINEP Credit Facility contains the following significant terms and conditions:
•
The Company will share with FINEP the costs associated with the FINEP Project. At a minimum, the Company will contribute from its own funds approximately R$14.5 million Brazilian reais ($7.8 million based on the exchange rate at September 30, 2011) of which R$11.1 million Brazilian reais should have been contributed prior to the release of the second disbursement;
•
After the release of the first disbursement, prior to any subsequent drawdown from the FINEP Credit Facility, the Company must provide bank letters of guarantee of up to R$3.3 million Brazilian reais in aggregate (approximately $1.8 million based on the exchange rate at September 30, 2011);
•
Amounts released from the FINEP Credit Facility must be completely used by the Company towards the FINEP Project within 30 months after the contract execution.
Notes Payable
During the period between May 2008 and October 2008, the Company entered into notes payable agreements with the lessor of its headquarters under which it borrowed a total of $3.3 million for the purchase of tenant improvements, bearing an interest rate of 9.5% per annum and to be repaid over a period of 55 to 120 months. As of September 30, 2011 and December 31, 2010, a principal amount of $2.1 million and $2.4 million, respectively, was outstanding under these notes payable.
During the period between January 2009 and December 2009, the Company entered into notes payable agreements with a service provider in connection with its software implementation under which it borrowed a total of $1.2 million for the payment of implementation services and software licenses, bearing an interest rate of 8.53% per annum and to be repaid over a period of 69 to 83 months. As of September 30, 2011 and December 31, 2010, a principal amount of zero and $1.0 million, respectively,

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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

was outstanding under these notes payable.
In February 2010, the Company entered into a notes payable agreement with its landlord for a loan of $239,000. The notes are payable in monthly principal and interest installments of $31,000 from June 2010 through January 2011. The notes payable accrue interest at 10.5%. As of September 30, 2011 and December 31, 2010, a principal amount of zero and $31,000, respectively, was outstanding under these notes payable.
During the period between August 2010 and November 2010, the Company entered into notes payable agreements with an equipment financing company under which it borrowed a total of $2.4 million for the purchase of equipment and leasehold improvements. The notes payable bears an interest rate of 16.7% per annum to be repaid over a period of 42 months. As of September 30, 2011 and December 31, 2010, a principal amount of zero and $2.2 million, respectively, was outstanding under these notes payable.
In connection with the operating lease for its headquarters (see Note 5) in Emeryville, California, the Company elected to defer a portion of monthly base rent due under the lease. In June 2011, a deferred rent obligation of $1.5 million resulting from this election became due and payable in 24 equal monthly installments of approximately $63,000. As such, the Company reclassified this obligation from Other Liabilities to Notes Payable. As of September 30, 2011 a principal amount of $1.3 million was outstanding under this note payable.
Loans Payable
In August 2009, the Company entered into a loans payable agreement with the lessor of its headquarters under which it borrowed $750,000. The loan is payable in monthly installments of interest only and unpaid interest and principal is payable in December 2011. Interest accrues at an interest rate of 10.5%. As of September 30, 2011 and December 31, 2010, a principal amount of $750,000, was outstanding under the loan. The notes payable agreement is secured by a $750,000 letter of credit.
In December 2009, the Company entered into a loans payable agreement with the lessor of its Emeryville pilot plant under which it borrowed a total of $250,000, bearing an interest rate of 10% per annum and to be repaid over a period of 96 months. As of September 30, 2011 and December 31, 2010, a principal amount of $210,000 and $228,000, respectively, was outstanding under the loan.
Letters of Credit
In November 2008, the Company entered into an uncommitted facility letter (the “Credit Agreement”) with a financial institution to finance the purchase and sale of fuel and for working capital requirements, as needed. In October 2009, the agreement was amended to decrease the maximum amount that the Company may borrow under such facility. The Credit Agreement, as amended, provides an aggregate maximum availability up to the lower of $20.0 million and the borrowing base as defined in the agreement, and is subject to a sub-limit of $5.7 million for the issuance of letters of credit and a sub-limit of $20.0 million for short-term cash advances for product purchases. The Credit Agreement is collateralized by a first priority security interest in certain of the Company's present and future assets. Amyris is a parent guarantor for the payment of the outstanding balance under the Credit Agreement. Outstanding advances bear an interest rate at the Company's option of the bank's prime rate plus 1.0% or the bank's cost of funds plus 3.5%. As of September 30, 2011, the Company had sufficient borrowing base levels to draw down up to a total of $9.2 million in short term cash advances and $0.3 million available for letters of credit in addition to those outstanding as of September 30, 2011. As of September 30, 2011 and December 31, 2010, the Company had no outstanding advances and had $5.4 million and $4.6 million, respectively, in outstanding letters of credit under the Credit Agreement.
To the extent that amounts under the Credit Agreement remain unused, while the Credit Agreement is in effect and for so long thereafter as any of the obligations under the Credit Agreement are outstanding, the Company will pay an annual commitment fee of $300,000. The Credit Agreement requires compliance with certain customary covenants that require maintenance of certain specified financial ratios and conditions. As of September 30, 2011, the Company was in compliance with its financial covenants under the Credit Agreement.
Revolving Credit Facility
On December 23, 2010, the Company established a revolving credit facility with a financial institution which provides for loans and standby letters of credit of up to an aggregate principal amount of $10.0 million, with a sublimit of $5.0 million on standby letters of credit. Interest on loans drawn under this revolving credit facility will be equal to (i) the Eurodollar Rate plus 3.0%; or (ii) the Prime Rate plus 0.5%. In case of default or non-compliance with the terms of the agreement, the interest on loans will be Prime Rate plus 2.0%. The credit facility is collateralized by a first priority security interest in certain of the Company's present and future assets. It has a $5,000 annual loan fee and contains the following significant financial and non-financial covenants,

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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

all of which the Company was in compliance as of September 30, 2011:
Financial Covenants: The Company must maintain a liquidity of at least $10 million plus two times its quarterly “Net Cash Used in Operating Activities” calculated using the Company's Condensed Consolidated Statements of Cash Flows reflected in the Company's most recent periodic report filed with the SEC. In addition, as of the end of each fiscal quarter, the Company must maintain a current ratio (current assets to current liabilities) equal to or greater than 2:1.
Financial Statements: The Company must provide financial statements to the lender on a quarterly basis within 60 days after the end of each of the first three quarters of each fiscal year and audited financial statements within 105 days after the end of each fiscal year.
Under this facility, loans aggregating $6.5 million and three letters of credit totaling $3.5 million were outstanding as of September 30, 2011. The outstanding letters of credit serve as security for certain facility leases and expire between November and December 2011 and may be automatically extended for another one-year period.
Future minimum payments under the debt agreements as of September 30, 2011 are as follows (in thousands):
Years ending December 31:
Notes Payable
 
Loans Payable
 
Credit Facility
2011(Three Months)
$
351

 
$
785

 
$
71

2012
1,405

 
400

 
282

2013
770

 
179

 
6,583

2014
355

 
45

 
55

2015
355

 
45

 
55

Thereafter
834

 
89

 
1,049

Total future minimum payments
4,070

 
1,543

 
8,095

Less: amount representing interest
(663
)
 
(91
)
 
(648
)
Present value of minimum debt payments
3,407

 
1,452

 
7,447

Less: current portion
(1,202
)
 
(1,134
)
 
—

Noncurrent portion of debt
$
2,205

 
$
318

 
$
7,447


7. Joint Ventures

SMA Indústria Química S.A.
On April 14, 2010, the Company established SMA, a joint venture with Usina São Martinho, to build the first facility in Brazil fully dedicated to the production of Amyris renewable products. The new company is located at the Usina São Martinho mill in Pradópolis, São Paulo state. SMA has a 20 year initial term.
Amyris plans to provide genetically engineered yeast to enable SMA to produce Amyris farnesene, or Biofene®, a molecule which may be used as an ingredient in a wide range of consumer and industrial products, including detergents, cosmetics, perfumes and industrial lubricants.
SMA is managed by a three member executive committee, of which the Company appoints two members one of whom is the plant manager who is the most senior executive responsible for managing the construction and operation of the facility. SMA is governed by a four member board of directors, of which the Company and Usina São Martinho each appoint two members. The board of directors has certain protective rights which include final approval of the engineering designs and project work plan developed and recommended by the executive committee.
Under the joint venture agreements, the Company granted a royalty-free license to SMA. The Company will fund the construction costs of the new facility. Usina São Martinho will reimburse up to R$61.8 million Brazilian reais (approximately $33.3 million based on the exchange rate as of September 30, 2011) of the construction costs after SMA commences production. Post commercialization, the Company will market and distribute the Amyris renewable products. Usina São Martinho will sell feedstock and provide certain other services to SMA. The cost of the feedstock to SMA is a price that is based on the average return that Usina São Martinho could receive from the production of its current products, sugar and ethanol. The Company is required to purchase the output of SMA for the first four years at a price that guarantees the return of Usina São Martinho's investment plus a fixed interest rate. After this four year period, the price is set to guarantee a break-even price to SMA plus an agreed upon return.

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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Under the terms of the joint venture agreements, if the Company becomes controlled, directly or indirectly, by a competitor of Usina São Martinho, then Usina São Martinho has the right to acquire the Company’s interest in SMA. If Usina São Martinho becomes controlled, directly or indirectly, by a competitor of the Company, then the Company has the right to sell its interest in SMA to Usina São Martinho. In either case, the purchase price shall be determined in accordance with the joint venture agreements, and the Company would continue to have the obligation to acquire products produced by SMA for the remainder of the term of the supply agreement then in effect even though the Company would no longer be involved in SMA’s management.
Amyris has a 50% ownership interest in SMA. The Company has identified SMA as a VIE. The Company is the primary beneficiary and consequently consolidates SMA’s operations in its financial statements. As of September 30, 2011, the Company’s investment in SMA did not have a significant impact on its consolidated financial position, results of operations or cash flows.

Joint Venture with Cosan
In June 2011, the Company entered into joint venture agreements with Cosan Combustíveis e Lubrificantes S.A. and Cosan S.A. Industria e Comércio (such Cosan entities, collectively or individually, “Cosan”), related to the formation of joint venture (the “JV”), which will focus on the worldwide development, production and commercialization of base oils made from Biofene produced by the JV or purchased from the Company or a contract manufacturer. The Company and Cosan are establishing entities related to the joint venture in both Brazil and the United States.
Under the joint venture agreements, the JV will undertake, on a worldwide basis, the development, production and commercialization of certain classes of base oils produced from Biofene for use in lubricants products in the automotive, commercial and industrial markets. The agreements provide that the Company will perform research and development activities on behalf of the JV under a research services arrangement and will grant a royalty-free license to the JV to use the Company's technology to develop, produce, market and distribute renewable base oils for use in lubricant products sold worldwide. The joint venture agreements provide that Cosan will provide technical expertise and use commercially reasonable efforts to contribute a base oils offtake agreement with a third party to the JV.
Subject to certain exceptions for the Company, the joint venture agreements provide that the JV will be the exclusive means through which the Company and Cosan will engage in the worldwide development and commercialization of specified classes of renewable base oils that are derived from Biofene or, under certain circumstances, from other intermediate molecules or technologies. The JV has certain rights of first refusal with respect to alternative base oil technologies that may be acquired by the Company or Cosan during the term of the JV.
Under the joint venture agreements, the Company and Cosan each own 50% of the JV and each party will share equally in any costs and any profits ultimately realized by the JV. The joint venture agreement has an initial term of 20 years from the date of the agreement, subject to earlier termination by mutual written consent or by a non-defaulting party in the event of specified defaults by the other party (including breach by a party of any material obligations under the joint venture agreements). The Shareholders' Agreement has an initial term of 10 years from the date of the agreement, subject to earlier termination if either the Company or Cosan ceases to own at least 10% of the voting stock of the JV.
The Company has identified the initial Brazilian JV entity formed (Novvi S.A.) as a VIE. The power to direct activities, which most significantly impact the economic success of joint venture, is shared between the Company and Cosan who are not related parties. Accordingly, the Company is not the primary beneficiary and therefore will account for its investments in the JV using the equity method. The Company will periodically review its consolidation analysis on an ongoing basis. As of September 30, 2011, the carrying amounts of the unconsolidated VIE's assets and liabilities were not material to the Company's consolidated financial statements.
In September 2011, the U.S. JV entity, Novvi LLC was formed. The Company and Cosan are still finalizing operating agreements for this new entity. Through September 30, 2011, there has been no activity in this joint venture.

8. Noncontrolling Interest

Redeemable Noncontrolling Interest
In February 2008, the Company formed a subsidiary Amyris Pesquisa e Desenvolvimento de Biocombustíveis, Ltda. In March 2008, the Company sold a 30% interest to Crystalsev and the subsidiary was renamed Amyris-Crystalsev Pesquisa e Desenvolvimento de Biocombustíveis Ltda. (“ACB”). The Company invested $3.8 million of cash for a 70% interest in ACB and Crystalsev contributed $1.6 million of cash for the remaining 30% interest.
In April 2009, the Company re-purchased Crystalsev’s 30% interest in ACB for $2.3 million resulting in ACB once again

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Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

becoming a wholly-owned subsidiary. The purchase of the noncontrolling interest was treated as an equity transaction and the fair value of the consideration paid of $2.3 million was recorded as a reduction of the carrying value of the noncontrolling interest and additional paid-in capital. In December 2009, ACB was renamed Amyris Brasil S.A. In May 2011, Amyris Brasil S.A. was converted into Amyris Brasil Ltda.
In December 2009, Amyris Brasil sold 1,111,111 of its shares representing a 4.8% interest in Amyris Brasil for R$10.0 million Brazilian reais. The redeemable noncontrolling interest was reported in the mezzanine equity section of the consolidated balance sheet because the Company was then subject to a contingent put option under which it could have been required to repurchase an interest in Amyris Brasil from the noncontrolling interest holder. The Company has recognized a noncontrolling interest from December 22, 2009 to December 31, 2009 in the consolidated balance sheets and statements of operations.
In March 2010, Amyris Brasil sold an additional 853,333 shares of its stock, an incremental 3.4% interest, for R$3.0 million Brazilian reais. In May 2010, Amyris Brasil sold an additional 1,111,111 shares of its stock, an incremental 4.07% interest, for R$10.0 million Brazilian reais.
Under the terms of the agreements with these Amyris Brasil investors, the Company had the right to require the investors to convert their shares of Amyris Brasil into shares of common stock at a 1:0.28 conversion ratio. On September 30, 2010, in connection with the Company’s IPO, shares of Amyris Brasil held by these investors were converted into 861,155 shares of the Company’s common stock. The remaining noncontrolling interest as of September 30, 2010 was converted to common stock and additional paid-in capital.
At the closing of the IPO, the Company recorded a one-time beneficial conversion feature charge of $2.7 million associated with the conversion of the shares of Amyris Brasil held by investors into shares of Amyris, Inc. common stock, which impacted earnings per share for the year ended December 31, 2010.

Noncontrolling Interest

SMA Indústria Química
The joint venture, SMA (see Note 7), is a VIE pursuant to the accounting guidance for consolidating VIEs because the amount of total equity investment at risk is not sufficient to permit SMA to finance its activities without additional subordinated financial support, as well as because the related commercialization agreement provides a substantive minimum price guarantee. Under the terms of the joint venture agreement, Amyris directs the design and construction activities, as well as production and distribution. In addition, Amyris has the obligation to fund the design and construction activities until commercialization is achieved. Subsequent to the construction phase, both parties equally fund SMA for the term of the joint venture. Based on those factors, the Company was determined to have the power to direct the activities that most significantly impact SMA’s economic performance and the obligation to absorb losses and the right to receive benefits. Accordingly, the financial results of SMA are included in the Company’s consolidated financial statements and amounts pertaining to Usina São Martinho’s interest in SMA are reported as noncontrolling interests in subsidiaries.

Glycotech
On January 3, 2011, the Company entered into a production service agreement with Glycotech, whereby Glycotech is to provide process development and production services for the manufacturing of various Amyris products at its leased facility in Leland, North Carolina. The Amyris products to be manufactured by Glycotech will be owned and distributed by the Company. Pursuant to the terms of the agreement, the Company will pay the manufacturing and operating costs of the Glycotech facility which is dedicated solely to the manufacture of Amyris products. The Company has determined that the arrangement with Glycotech qualifies as a VIE. The Company determined that it is the primary beneficiary of this arrangement since it has the power through the management committee over which it has majority control to direct the activities that most significantly impact the arrangement's economic performance. In addition, the Company is required to fund 100% of the Glycotech's actual operating costs for providing services each month while the facility is in operation under the production service agreement. Accordingly, the Company consolidates the financial results of Glycotech. As of September 30, 2011, the carrying amounts of the consolidated VIE's assets and liabilities were not material to the Company's consolidated financial statements.
The table below reflects the carrying amount of the assets and liabilities of the two consolidated VIEs for which the Company is the primary beneficiary. The assets primarily comprise of approximately $7.0 million in property and equipment and approximately $2.9 million in other assets, and $1.5 million in current assets. The liabilities comprise of $2.3 million in accounts payable and accrued current liabilities and $0.5 million in loan obligations by Glycotech to a financial institution that are non-recourse to the Company. The creditors of each consolidated VIE have recourse only to the assets of that VIE.

27
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

 
 
September 30, 2011
 
(In thousands)
Assets
$
11,396

Liabilities
$
2,768

The change in noncontrolling interest for nine months ended September 30, 2011 and 2010 is summarized below (in thousands):
 
2011
 
2010
Balance at January 1
$
2

 
$
—

Addition to noncontrolling interest
369

 
28

Loss attributable to noncontrolling interest
(437
)
 
(13
)
Balance at September 30
$
(66
)
 
$
15


 
9. Significant Agreements
Research and Development Activities
Total Collaboration Agreement

In June 2010, the Company entered into a technology license, development, research and collaboration agreement (“collaboration agreement”) with Total Gas & Power USA Biotech, Inc., an affiliate of Total S.A. (Total S.A. and its relevant affiliates, collectively, “Total”). The collaboration agreement sets forth the terms for the research, development, production and commercialization of certain to be determined chemical and/or fuel products made through the use of the Company’s synthetic biology platform. The collaboration agreement establishes a multiphased process through which projects are identified, screened, studied for feasibility, and ultimately selected as a project for development of an identified lead compound using an identified microbial strain. Under the terms of the collaboration agreement, Total will fund up to the first $50.0 million in research and development costs for the selected projects; thereafter the parties will share such costs equally. Amyris has agreed to dedicate the laboratory resources needed for collaboration projects. Total also plans to second employees at Amyris to work on the projects. Once a development project has commenced, the parties are obligated to work together exclusively to develop the lead compound during the project development phase. After a development project is completed, the Company and Total expect to form one or more joint ventures to commercialize any products that are developed, with costs and profits to be shared on an equal basis, provided that if Total has not achieved profits from sales of a joint venture product equal to the amount of funding it provided for development plus an agreed upon rate of return within three years of commencing sales, then Total will be entitled to receive all profits from sales until this rate of return has been achieved. Each party has certain rights to independently produce commercial quantities of these products under certain circumstances, subject to paying royalties to the other party. Total has the right of first negotiation with respect to exclusive commercialization arrangements that the Company would propose to enter into with certain third parties, as well as the right to purchase any of the Company’s products on terms no less favorable than those offered to or received by the Company from third parties in any market where Total or its affiliates have a significant market position.

The collaboration agreement has an initial term of 12 years and is renewable by mutual agreement by the parties for additional three year periods. Neither the Company nor Total has the right to terminate the agreement voluntarily. The Company and Total each have the right to terminate the agreement in the event the other party commits a material breach, is the subject of certain bankruptcy proceedings or challenges a patent licensed to it under the collaboration agreement. Total also has the right to terminate the collaboration agreement in the event the Company undergoes a sale or change of control to certain entities. If the Company terminates the collaboration agreement due to a breach, bankruptcy or patent challenge by Total, all licenses the Company has granted to Total terminate except licenses related to products for which Total has made a material investment and licenses related to products with respect to which binding commercialization arrangements have been approved, which will survive subject, in most cases, to the payment of certain royalties by Total to the Company. Similarly, if Total terminates the collaboration agreement due to a breach, bankruptcy or patent challenge by the Company, all licenses Total has granted to the Company terminate except licenses related to products for which the Company has made a material investment, certain grant-back licenses and licenses related to products with respect to which binding commercialization arrangements have been approved, which will survive subject, in most cases, to the payment of certain royalties to Total by the Company. On expiration of the collaboration agreement, or in the event the collaboration agreement is terminated for a reason other than a breach, bankruptcy or patent challenge by one party,

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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

licenses applicable to activities outside the collaboration generally continue with respect to intellectual property existing at the time of expiration or termination subject, in most cases, to royalty payments. There are circumstances under which certain of the licenses granted to Total will survive on a perpetual, royalty-free basis after expiration or termination of the collaboration agreement. Generally these involve licenses to use the Company’s synthetic biology technology and core metabolic pathway for purposes of either independently developing further improvements to marketed collaboration technologies or products or the processes for producing them within a specified scope agreed to by the Company and Total prior to the time of expiration or termination, or independently developing early stage commercializing products developed from collaboration compounds that met certain performance criteria prior to the time the agreement expired or was terminated and commercializing products related to such compounds. After the collaboration agreement expires, the Company may be obligated to provide Total with ongoing access to Amyris laboratory facilities to enable Total to complete research and development activities that commenced prior to termination.

In June 2010, concurrent with the collaboration agreement, the Company issued 7,101,548 shares of Series D preferred stock to Total for aggregate proceeds of approximately $133.0 million at a per share price of $18.75, which was lower than the per share fair value of common stock as determined by management and the Board of Directors. Due to the fact the collaboration agreement and the issuance of shares to Total occurred concurrently, the terms of both the collaboration agreement and the issuance of preferred stock were evaluated to determine whether their separately stated pricing was equal to the fair value of services and preferred stock. The Company determined that the fair value of Series D preferred stock was $22.68 at the time of issuance, and therefore, the Company measured the preferred stock initially at its fair value with a corresponding reduction in the consideration for the services under the collaboration agreement. As revenue from collaboration agreement will be generated over a period of time based on the performance requirements, the Company recorded the difference between the fair value and consideration received for Series D preferred stock of $27.9 million as deferred charge asset within other assets at the time of issuance which will be recognized as a reduction to revenue in proportion to the total estimated revenue under the collaboration agreement. As of September 30, 2011 and December 31, 2010, the Company has recognized a cumulative reduction of $5.7 million and $0.3 million, respectively against the deferred charge asset.

As a result of recording Series D preferred stock at its fair value, the effective conversion price was greater than the fair value of common stock as determined by management and the Board of Directors. Therefore, no beneficial conversion feature was recorded at the time of issuance. The Company further determined that the conversion option with a contingent reduction in the conversion price upon a qualified IPO was a potential contingent beneficial feature and, as a result, the Company calculated the intrinsic value of such conversion option upon occurrence of the qualified IPO. The Company determined that a contingent beneficial conversion feature existed and the Company recorded a charge within the equity section of its balance sheet, which impacted earnings per share for the year ended December 31, 2010, based upon the price at which shares were offered to the public in the IPO in relation to the adjustment provisions provided for the Series D preferred stock. Based on the IPO price of $16.00 per share, the charge to net loss attributable to Amyris’ common stockholders was $39.3 million.

In connection with Total’s equity investment, the Company agreed to appoint a person designated by Total to serve as a member of the Company’s Board of Directors in the class subject to the latest reelection date, and to use reasonable efforts, consistent with the Board of Directors’ fiduciary duties, to cause the director designated by Total to be re-nominated by the Board of Directors in the future. These membership rights terminate upon the earlier of Total holding less than half of the shares of common stock originally issuable upon conversion of the Series D preferred stock or a sale of the Company.

The Company also agreed with Total that, so long as Total holds at least 10% of the Company’s voting securities, the Company will notify Total if the Company’s Board of Directors seeks to cause the sale of the Company or if the Company receives an offer to be acquired. In the event of such decision or offer, the Company must provide Total with all information given to an offering party and certain other information, and Total will have an exclusive negotiating period of 15 business days in the event the Board of Directors authorizes the Company to solicit offers to buy the Company, or five business days in the event that the Company receives an unsolicited offer to be acquired. This exclusive negotiation period will be followed by an additional restricted negotiation period of 10 business days, during which the Company will be obligated to negotiate with Total and will be prohibited from entering into an agreement with any other potential acquirer. Total has also entered into a standstill agreement pursuant to which it agreed for a period of three years not to acquire in excess of the greater of 20% or the number of shares of Series D preferred stock purchased by Total (during the initial two years) or 30% (during the third year) of the Company’s common stock without the prior consent of our Board of Directors, except that, among other things, if another person acquires more than Total’s then current holdings of the Company’s common stock, then Total may acquire up to that amount plus one share.
In July 2011, the Company and Total entered into a term sheet to expand the current collaboration and to form a joint venture to commercialize diesel and other potential products produced with the Company's technology. Under the contemplated agreement, Total would fund expanded research and development at the Company and would provide capital for the acquisition and construction of dedicated production facilities.

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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Soliance Development and Commercialization Agreement
In June 2010, the Company entered into an agreement with Soliance for the development and commercialization of Biofene-based squalane for use as an ingredient in cosmetics products.

M&G Finanziaria Collaboration Agreement
In June 2010, the Company entered into a collaboration agreement with M&G Finanziaria S.R.L. ("M&G") to incorporate Biofene as an ingredient in M&G's polyethylene terephthalate, or PET, resins to be incorporated into containers for food, beverages and other products. Under the terms of the collaboration agreement each party bears its own costs incurred for the collaboration milestones. The agreement also establishes the terms under which M&G may purchase Biofene from the Company upon successful completion of product integration.

Firmenich Collaboration and Joint Development Agreements
In November 2010, the Company entered into collaboration and joint development agreements with Firmenich SA (“Firmenich”), a flavors and fragrances company based in Geneva, Switzerland. Under the agreement, Firmenich will fund technical development at the Company to produce an ingredient for the flavors and fragrances market. The Company will manufacture the ingredient and Firmenich will market it, and the parties will share in any resulting economic value. The agreement also grants worldwide exclusive flavors and fragrances commercialization rights to Firmenich for the ingredient. In addition, Firmenich has an option to collaborate with the Company to develop a second ingredient. In July 2011, the Company and Firmenich expanded their collaboration agreement to include a third ingredient. The Company is also eligible to receive potential total payments of $6.0 million upon the achievement of certain performance milestones towards which the Company will be required to make a contributory performance. These milestones are accounted for under the guidance in the FASB accounting standard update related to revenue recognition under the milestone method. The Company concluded that these milestones are substantive.
For the three and nine months ended September 30, 2011, the Company recorded $0.8 million and $4.6 million, respectively, of revenue from the collaboration agreement with Firmenich, including the first milestone payment of $2.0 million recognized in April 2011.
Givaudan Development Agreement
In February 2011, the Company entered into a development agreement with Givaudan SA (“Givaudan”), a flavors and fragrances company headquartered in Vernier, Switzerland. Under the agreement, subject to its successful achievement of certain technical milestones, the Company will supply Biofene to Givaudan to derive a proprietary fragrance ingredient for the global flavors and fragrances market.
Avantium Collaboration Agreement
In March 2011, the Company entered into a collaboration agreement with Avantium Chemicals B.V. ("Avantium"). Under the terms of the collaboration agreement Avantium will provide services to support the Company in the development of chemical processing of Biofene into final products. The term of the collaboration agreement is initially two years.
 
Kuraray Collaboration Agreement

In July 2011, the Company entered into a collaboration agreement with Kuraray Co., Ltd. ("Kuraray") to develop polymers from Biofene. Upon successful completion of the technical development program for the first polymer, the Company and Kuraray would enter into a supply agreement for Kuraray's exclusive use of Biofene in the manufacturing and commercialization of these polymer products.

Michelin Collaboration Agreement
In September 2011, the Company entered into a collaboration agreement with Manufacture Francaise des Pneumatiques Michelin (“Michelin”). Under the terms of the collaboration agreement the Company and Michelin will collaborate on the development, production and worldwide commercialization of isoprene or isoprenol, generally for tire applications, using the Company's technology. Under the agreement, Michelin has agreed to pay an upfront payment to the Company of $5.0 million, subject to a reimbursement provision under which the Company would have to repay $1.0 million if it fails to achieve specified future technical milestones. The agreement provides that, subject to achievement of technical milestones, Michelin can notify the Company of its desired date for initial delivery, and the parties will either collaborate to establish a production facility or use an existing Company facility for production. The agreement also includes a term sheet for a supply agreement that would be negotiated at the time the decision regarding production facilities is made. The agreement has an initial term that will expire upon the earlier

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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

of 42 months from the effective date and the completion of a development work plan. As of September 30, 2011, the Company recognized the upfront payment of $5.0 million from Michelin as deferred revenue.

Wilmar Collaboration Agreement
In September 2011, the Company entered into a collaboration agreement with Wilmar International Limited ("Wilmar"). The collaboration will focus on the development and worldwide commercialization of a family of surfactants derived from Biofene. Upon the earlier of the successful completion of the feasibility study or a decision by the parties to commence capital expenditures in support of developing, testing, certifying and commercializing collaboration products, the agreement contemplates that the parties will form a joint venture to further develop, produce and commercialize collaboration products. During the feasibility study, Wilmar and the Company will bear their own costs and third party costs will be shared equally.
Manufacturing Agreements

SMA Indústria Química S.A.
SMA, the Company's joint venture with Usina São Martinho (See Note 7), will manufacture farnesene using the Company's genetically engineered yeast and the sugarcane syrup feedstock provided by Usina São Martinho.
Biomin
In June 2010, the Company entered into a joint manufacturing agreement with Biomin do Brasil Nutri ão Animal Ltda. (“Biomin”) to utilize a portion of its Brazilian manufacturing facilities to produce Amyris products commencing in 2011. The joint manufacturing agreement requires the acquisition of certain equipment to be used exclusively for the manufacturing of the product. Under the terms of the agreement Amyris will procure and contract the engineering activities and the necessary equipment for the manufacturing of Amyris products. Biomin commenced production operations in the second quarter of 2011.
Tate & Lyle
In November 2010, the Company entered into a contract manufacturing agreement with Tate & Lyle Ingredients Americas, Inc. (“Tate & Lyle”), an affiliate of Tate & Lyle PLC. Under this arrangement, Tate & Lyle will produce Amyris products, which will be owned and distributed by the Company.
Glycotech
On January 3, 2011, the Company entered into a production service agreement with Glycotech, whereby Glycotech is to provide process development and production services for the manufacturing of various Amyris products at its leased facility in Leland, North Carolina. The Amyris products to be manufactured by Glycotech will be owned and distributed by the Company. Pursuant to the terms of the agreement, the Company will pay the manufacturing and operating costs of the Glycotech facility which is dedicated solely for the manufacture of Amyris products. The initial term of the agreement is for a two year period commencing on February 1, 2011 and will renew automatically for successive one-year terms, unless terminated by Amyris. On the same date as the production service agreement, the Company also entered into a right of first refusal agreement with the facility and site leased by Glycotech covering a two year period commencing in January 2011. Per the terms of the right of first refusal agreement the lessor agrees not to sell the facility and site leased by Glycotech during the term of the production service agreement. In the event that the lessor is presented with an offer to sell or decides to sell an adjacent parcel, the Company has the right of first refusal to acquire it. The Company has determined that the arrangement with Glycotech qualifies as a VIE (see Note 8).
Antibióticos
In March 2011, the Company entered into a contract manufacturing agreement with Antibióticos, S.A. (“Antibióticos”) for Antibióticos to produce Biofene for the Company at its facilities in León, Spain. Under the terms of the agreement the Company will provide required equipment for the manufacturing of its products. Antibióticos commenced production operations in the third quarter of 2011.
Paraíso Bioenergia
In March 2011, the Company entered into a supply agreement with Paraíso Bioenergia, a renewable energy company producing sugar, ethanol and electricity headquartered in São Paulo State, Brazil. Under the agreement, the Company will construct fermentation and separation capacity to produce its products and Paraíso Bioenergia will supply sugar cane juice and other utilities. The Company will retain the full economic benefits enabled by the sale of Amyris renewable products over the lower of sugar or ethanol alternatives. In conjunction with the supply agreement the Company also entered into an operating lease on a real property

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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

owned by Paraíso Bioenergia. The real property will be used by the Company for the construction of an industrial facility (see Note 5).
Per the terms of the supply agreement, in the event that Paraíso is presented with an offer to sell or decides to sell the real property, the Company has the right of first refusal to acquire it. If the Company fails to exercise its right of first refusal the purchaser of the real property will need to comply with the specific obligations of Paraíso Bioenergia to the Company under the lease agreement.
Albemarle
In July 2011, the Company entered into a contract manufacturing agreement with Albemarle Corporation ("Albemarle"), which will provide toll manufacturing services at its facility in Orangeburg, South Carolina. Under this agreement, Albemarle will manufacture lubricant base oils from Biofene, which will be owned and distributed by the Company or a Company commercial partner. The initial term of this agreement is from July 31, 2011 through December 31, 2012. Albemarle is required to modify its facility, including installation and qualification of equipment and instruments necessary in order to perform the toll manufacturing services under the agreement. The Company will reimburse Albemarle up to $10.0 million for all capital expenditures related to the facility modification. All equipment or facility modifications acquired or made by Albemarle will be owned by Albemarle, subject to Albemarle's obligation to transfer title to and ownership of certain assets to the Company within 30 days after termination of the agreement, at the Company's discretion and sole expense. As of September 30, 2011, the Company has paid $2.0 million under the agreement.
In addition, the Company will pay a one-time, non-refundable performance bonus of $5.0 million if Albemarle delivers to the Company certain quantity of the lubricant base stock by December 31, 2011 or $2.0 million if Albemarle delivers the same quantity by January 31, 2012.
Pursuant to the terms of the agreement, the Company has provided Albemarle with the product specifications and development process to be used to produce the Company's product. Even though Albemarle has title and ownership to their facility, the facility modifications and related manufacturing equipment are used entirely for the manufacture of the Company's products. As a result of the Company's financing of the capital project, the Company is deemed the owner of the construction project for accounting purposes during the facility modifications. Therefore, under ASC 840, the Company recorded an asset for construction-in-progress and a liability of $7.3 million attributable to the fair value of Albemarle's existing manufacturing equipment, as well as $2.6 million of facility modification costs as of September 30, 2011.
Supply Agreements
Procter and Gamble
In June 2010, the Company entered into a supply agreement with The Procter & Gamble Company ("P&G") that establishes terms under which P&G may purchase Biofene from the Company for use in P&G’s products. The terms of the agreement call for non-refundable development fees payable to the Company in addition to payments for purchase of Biofene. At this time, P&G does not have an obligation to purchase a specified quantity.
Shell
In June 2010, the Company entered into an agreement with Shell Western Supply and Trading Limited (“Shell"), a subsidiary of Royal Dutch Shell plc, that contemplates the Company’s sale of certain minimum quantities of Company diesel fuel to Shell, commencing 18 months after the Company provides notice of election to sell under this agreement, and running for two years after the date specified in such notice, up to the end of March 2016 at the latest, with an option to renew for a further year. At this time, Shell does not have an obligation to purchase a specific quantity, or any, product under this agreement, and the Company is not obligated to sell specific quantities to Shell, but the parties will become subject to obligations to purchase and sell to the extent that formal notices and orders are submitted under the agreement in the future.

Nikko Chemicals
In August 2011, the Company entered into an agreement with Nikko Chemicals Co., Ltd, (“Nikko"), a private limited company in Japan, which contemplates the Company selling certain minimum quantities of renewable squalane to Nikko (commencing in September 2011 and continuing for two years through the end of December 2013).



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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

10. Stockholders’ Equity

Initial Public Offering
On September 30, 2010, the Company closed its initial public offering (“IPO”) of 5,300,000 shares of common stock at an offering price of $16.00 per share, resulting in net proceeds to the Company of approximately $73.7 million, after deducting underwriting discounts of $5.9 million and offering costs of $5.2 million. Upon the closing of the IPO, the Company’s outstanding shares of convertible preferred stock were automatically converted into 31,550,277 shares of common stock and the outstanding convertible preferred stock warrants were automatically converted into common stock warrants to purchase a total of 195,604 shares of common stock and shares of Amyris Brasil held by third party investors were automatically converted into 861,155 shares of common stock.
In connection with the IPO, the Company granted the underwriters the right to purchase up to an additional 795,000 shares of common stock to cover over-allotments. In October 2010, the underwriters exercised such right to purchase 795,000 shares and the Company received approximately $11.8 million of proceeds, net of underwriter’s discount.
Common Stock
Pursuant to the Company’s amended and restated certificate of incorporation, the Company is authorized to issue 100,000,000 shares of common stock. Holders of the Company’s common stock are entitled to dividends as and when declared by the Board of Directors, subject to the rights of holders of all classes of stock outstanding having priority rights as to dividends. There have been no dividends declared to date. The holder of each share of common stock is entitled to one vote.
Preferred Stock
Pursuant to the Company's amended and restated certificate of incorporation, the Company is authorized to issue 5,000,000 shares of preferred stock. The board of directors has the authority, without action by its stockholders, to designate and issue shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof.
Prior to the closing of the Company's IPO, the Company had four series of convertible preferred stock outstanding, including Series D preferred stock issued to Total (see Note 9). At September 30, 2011 and December 31, 2010, the Company had no convertible preferred stock outstanding.
Common Stock Warrants
In 2008, in connection with consulting services, the Company issued a warrant to purchase 2,580 shares of the Company's Series B convertible preferred stock at an exercise price of $24.88 per share. These warrants remain unexercised and outstanding as of September 30, 2011.
In 2008, in connection with a capital lease agreement, the Company issued a warrant to purchase 10,048 shares of the Company's Series B convertible preferred at an exercise price of $24.88 per share. In September 2009, the Company canceled the warrant and issued a warrant to purchase 10,048 shares of the Company's Series C convertible preferred stock with an exercise price of $12.46 per share. These warrants were exercised in March 2011.
In 2008, in connection with the Company's issuance of Series B-1 convertible preferred stock, the Company issued warrants to purchase 100,715 shares of the Company's Series B-1 convertible preferred stock at an exercise price of $25.26 per share to the placement agent. The warrants were immediately exercisable and expire seven years from the effective date. These warrants were exercised in March 2011.
In 2008, in connection with an operating lease, the Company issued a warrant to purchase 2,009 shares of the Company's Series B-1 convertible preferred stock at an exercise price of $25.26 per share. These warrants remain unexercised and outstanding as of September 30, 2011.
In 2009, in connection with the Company's issuance of Series B-1 convertible preferred stock, the Company issued a warrant to purchase 3,843 shares of the Company's Series B-1 convertible preferred stock at an exercise price of $25.26 per share to the placement agent. This warrant was exercised in March 2011.
In September 2009, the Company canceled the warrant to purchase 10,048 shares of the Company's Series B convertible preferred stock and issued a warrant to purchase 16,075 shares of the Company's Series C convertible preferred stock with an exercise price of $12.46 per share. This warrant was exercised in March 2011. In connection with a capital lease arrangement, the Company issued a warrant to purchase 8,026 shares of the Company's Series C convertible preferred stock at an exercise price of

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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

$12.46 per share. This warrant was exercised in March 2011.
In January 2010, in connection with the Company's issuance of Series C convertible preferred stock, the Company issued a warrant to purchase 49,157 shares of the Company's Series C convertible preferred stock at an exercise price of $12.46 per share to the placement agent. This warrant was exercised in March 2011.
Upon the closing of the Company's IPO on September 30, 2010, the outstanding convertible preferred stock warrants were automatically converted into common stock warrants to purchase 195,604 shares of common stock. In addition, the fair value of the convertible preferred stock warrants as of September 30, 2010, estimated to be $2.3 million using the Black-Scholes option pricing model, was reclassified to additional paid in capital.
The Company recorded zero and income of $963,000, respectively, for the three months ended September 30, 2011 and 2010, and zero and income of $929,000, respectively, for the nine months ended September 30, 2011 and 2010, to other income, net to reflect the change in the fair value of the warrants.
Each of these warrants includes a cashless exercise provision which permits the holder of the warrant to elect to exercise the warrant without paying the cash exercise price, and receive a number of shares determined by multiplying (i) the number of shares for which the warrant is being exercised by (ii) the difference between the fair market value of the stock on the date of exercise and the warrant exercise price, and dividing such by (iii) the fair market value of the stock on the date of exercise. During the nine months ended September 30, 2011 and 2010, 190,468 and zero warrants, respectively, were exercised through the cashless exercise provision and 77,087 and zero shares of common stock, respectively, were issued after deducting the shares to cover the cashless exercises. There were no warrants exercised during the three months ended September 30, 2011 and 2010.
At September 30, 2011 and December 30, 2010, the Company had the following unexercised common stock warrants:
 
 
Exercise
Price per Share
 
Shares as of
 
Shares as of
Underlying Stock
 
 
September 30, 2011
 
December 31, 2010
Common Stock
 
$
24.88

 
2,884

 
2,884

Common Stock
 
$
25.26

 
2,252

 
119,462

Common Stock
 
$
12.46

 
—

 
73,258

Total
 
 
 
5,136

 
195,604

 


11. Stock-Based Compensation Plans

2010 Equity Incentive Plan
The Company's 2010 Equity Incentive Plan (“2010 Equity Plan”) became effective on September 28, 2010 and will terminate in 2020. Pursuant to the 2010 Equity Plan, any shares of the Company's common stock (i) issued upon exercise of stock options granted under the 2005 Plan that cease to be subject to such option and (ii) issued under the 2005 Plan that are forfeited or repurchased by the Company at the original purchase price will become part of the 2010 Equity Plan. During the nine months ended September 30, 2011, an additional 100,849 shares that were forfeited under the 2005 Plan were added to the shares reserved for issuance under the 2010 Equity Plan.
The number of shares reserved for issuance under the 2010 Equity Plan will increase automatically on the first day of each January, starting with January 1, 2011, by the number of shares equal to five percent of the Company's total outstanding shares as of the immediately preceding December 31st. The Company's Board of Directors or Leadership Development and Compensation Committee will be able to reduce the amount of the increase in any particular year. The 2010 Equity Plan provides for the granting of common stock options, restricted stock awards, stock bonuses, stock appreciation rights, restricted stock units and performance awards. It allows for time-based or performance-based vesting for the awards. Options granted under the 2010 Equity Plan may be either ISOs or NSOs. ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, non-employee directors and consultants. The Company will be able to issue no more than 30,000,000 shares pursuant to the grant of ISOs under the 2010 Equity Plan. Options under the 2010 Equity Plan may be granted for periods of up to ten years. All options issued to date have had a ten year life. The exercise price of an ISO and NSO shall not be less than 100% of the fair value of the shares on the date of grant. The exercise price of an ISO and NSO granted to a 10% stockholder shall not be less than 110% of the fair value of the underlying stock on the date of grant. The Company's options generally vest over four to five years.

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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

As of September 30, 2011, options and restricted stock awards to purchase 3,837,970 shares of the Company's common stock granted from the 2010 Equity Plan remained outstanding and 2,804,064 shares of the Company's common stock remained available for issuance upon the exercise of awards that may be granted from the 2010 Equity Plan. The options outstanding as of September 30, 2011 had a weighted-average exercise price of approximately $24.73 per share.

2005 Stock Option/Stock Issuance Plan
In 2005, the Company established its 2005 Stock Option/Stock Issuance Plan (the “2005 Plan”) which provided for the granting of common stock options, restricted stock units, restricted stock and stock purchase rights awards to employees and consultants of the Company. The 2005 Plan allowed for time-based or performance-based vesting for the awards. Options granted under the 2005 Plan were either incentive stock options (“ISOs”) or nonqualified stock options (“NSOs”). ISOs were granted only to Company employees (including officers and directors who are also employees). NSOs were granted to Company employees, non-employee directors and consultants.
All options issued under the 2005 Plan have had a ten year life. The exercise price of an ISO and NSO should not be less than 100% of the estimated fair value of the shares on the date of grant, as determined by the Board of Directors. The exercise price of an ISO and NSO granted to a 10% stockholder could not be less than 110% of the estimated fair value of the underlying stock on the date of grant as determined by the Board of Directors. The options generally vested over five years.
As of September 30, 2011, options to purchase 4,830,498 shares of the Company's common stock granted from the 2005 Stock Option/Stock Issuance Plan remained outstanding and no shares of the Company's common stock remained available for issuance under the 2005 Plan as a result of the adoption of the 2010 Equity Incentive Plan discussed above. The options outstanding under the 2005 Plan as of September 30, 2011 had a weighted-average exercise price of approximately $6.47 per share.
No income tax benefit has been recognized relating to stock-based compensation expense and no tax benefits have been realized from exercised stock options.

2010 Employee Stock Purchase Plan
The 2010 Employee Stock Purchase Plan (the “2010 ESPP”) became effective on September 28, 2010. The 2010 ESPP is designed to enable eligible employees to purchase shares of the Company's common stock at a discount. Each offering period is for one year and consists of two six-month purchase periods. The purchase price for shares of common stock under the 2010 ESPP is 85% of the lesser of the fair market value of the Company's common stock on the first day of the applicable offering period or the last day of each purchase period. A total of 168,627 shares of common stock were initially reserved for future issuance under the 2010 Employee Stock Purchase Plan. During the first eight years of the life of the 2010 ESPP, the number of shares reserved for issuance increases automatically on the first day of each January, starting with January 1, 2011, by the number of shares equal to one percent of the Company's total outstanding shares as of the immediately preceding December 31st, subject to reduction as described below. Pursuant to this automatic increase, an additional 438,474 shares were reserved for issuance during the nine months ended September 30, 2011. The Company's Board of Directors or Leadership Development and Compensation Committee is able to reduce the amount of the increase in any particular year. No more than 10,000,000 shares of the Company's common stock may be issued under the 2010 ESPP and no other shares may be added to this plan without the approval of the Company's stockholders.
The initial offering period commenced on September 27, 2010, and will end on November 15, 2011. The initial offering period consists of a single purchase period. Thereafter, a twelve-month offering period will commence on each May 16th and November 16th, with each offering period consisting of two six-month purchase periods.
At September 30, 2011, 607,101 shares of the Company's common stock remained available for issuance under the 2010 ESPP.


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Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

Stock Option Activity
The Company's stock option, restricted stock units, and restricted stock grant activity and related information for the nine months ended September 30, 2011 was as follows:

 
 
Shares
Available
for Grant
 
Restricted
Stock
Units
Outstanding
 
Stock Options
 
Number
Outstanding
 
Weighted -
Average
Exercise
Price
 
Weighted -
Average
Remaining
Contractual
Life (Years)
 
Aggregate
Intrinsic
Value
 
 
 
 
 
 
 
 
 
 
 
(in thousands)
Outstanding - December 31, 2010
3,301,259

 
—

 
7,274,637

 
$
8.01

 
8.0
 
$
135,792

Additional shares authorized
2,192,371

 

 
—

 

 

 

Options granted
(2,493,125
)
 

 
2,493,125

 
26.71

 

 

Restricted stock units granted
(385,156
)
 
385,156

 
—

 
—

 

 

Restricted stock units released
—

 
(9,967
)
 
—

 
—

 

 

Options exercised
—

 

 
(1,230,867
)
 
4.06

 

 

Shares repurchased
1,137

 

 
—

 
4.31

 

 

Restricted stock units settled for taxes
3,962

 

 
—

 
—

 

 

Options canceled
183,616

 

 
(183,616
)
 
15.11

 

 

Outstanding - September 30, 2011
2,804,064

 
375,189

 
8,353,279

 
$
14.02

 
8.1
 
$
69,848

Vested and expected to vest - September 30, 2011
 
 
 
 
8,034,722

 
$
13.78

 
8.0
 
$
68,701

Exercisable - September 30, 2011
 
 
 
 
3,174,992

 
$
6.60

 
6.9
 
$
44,840

The aggregate intrinsic value of options exercised was $5.2 million and $24,000 for the three months ended September 30, 2011 and 2010, respectively, and $27.4 million and $356,000 for the nine months ended September 30, 2011 and 2010, respectively, determined as of the date of option exercise.
The following table summarizes information about stock options outstanding as of September 30, 2011:
  
Options Outstanding
 
Options Exercisable
Exercise Price      
Number of Options
 
Weighted -Average
Remaining
Contractual Life
(Years)
 
Weighted -Average
Exercise Price
 
Number of Options
 
Weighted -Average
Exercise Price
$   0.10   -   $   0.20
26,700

 
4.2
 
$
0.10

 
26,700

 
$
0.10

$   0.28   -   $   0.28
886,746

 
5.3
 
$
0.28

 
854,258

 
$
0.28

$   1.50   -   $   1.50
203,795

 
5.8
 
$
1.50

 
179,830

 
$
1.50

$   3.93   -   $   3.93
1,323,066

 
6.4
 
$
3.93

 
899,583

 
$
3.93

$   4.31   -   $   4.31
765,415

 
8.0
 
$
4.31

 
331,420

 
$
4.31

$   9.32   -   $   9.32
954,022

 
8.3
 
$
9.32

 
264,241

 
$
9.32

$ 14.28   -   $ 19.61
908,517

 
9.0
 
$
16.33

 
216,691

 
$
15.55

$ 20.41   -   $ 24.20
974,488

 
8.9
 
$
22.23

 
233,056

 
$
21.53

$ 24.50   -   $ 26.50
211,450

 
9.7
 
$
25.73

 
5,083

 
$
26.24

$ 26.84   -   $ 30.17
2,099,080

 
9.5
 
$
27.26

 
164,130

 
$
27.40

$ 0.10 - $ 30.17
8,353,279

 
8.1
 
$
14.02

 
3,174,992

 
$
6.60


Common Stock Subject to Repurchase
Historically under the 2005 Plan, the Company allowed employees to exercise options prior to vesting. The Company has the right to repurchase at the original purchase price any unvested (but issued) common shares upon termination of service of an employee. The consideration received for an early exercise of an option is considered to be a deposit of the exercise price and the

36
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

related dollar amount is recorded as a liability. The shares and liability are reclassified into equity on a ratable basis as the award vests. The Company recorded a liability in accrued expenses of $37,000 and $70,000 relating to options for 10,335 and 33,396 shares of common stock that were exercised and unvested as of September 30, 2011 and December 31, 2010, respectively. These shares were subject to a repurchase right held by the Company and are included in issued and outstanding shares as of September 30, 2011 and December 31, 2010, respectively.
Stock-Based Compensation Expense
Stock-based compensation expense related to options and restricted stock units granted to employees and nonemployees was allocated to research and development expense and sales, general and administrative expense as follows (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Research and development
$
1,711

 
$
461

 
$
4,697

 
$
1,337

Sales, general and administrative
5,162

 
2,144

 
14,139

 
5,571

Total stock-based compensation expense
$
6,873

 
$
2,605

 
$
18,836

 
$
6,908


Employee Stock–Based Compensation
During the three months ended September 30, 2011 and 2010, the Company granted options to purchase 228,750 and 577,626 shares of its common stock, respectively, to employees with weighted average grant date fair values of $14.48 and $12.88 per share, respectively. During the nine months ended September 30, 2011 and 2010, the Company granted options to purchase 2,478,125 and 2,467,390 shares of its common stock, respectively, to employees with weighted average grant date fair values of $19.21 and $10.78 per share, respectively. As of September 30, 2011 and December 31, 2010, there were unrecognized compensation costs of $60.9 million and $30.9 million, respectively, related to these stock options. The Company expects to recognize those costs over a weighted average period of 3.2 years as of September 30, 2011. Future option grants will increase the amount of compensation expense to be recorded in these periods.
During the three and nine months ended September 30, 2011, 21,000 and 352,301 restricted stock units, respectively, were granted to employees with a weighted average service-inception date fair value of $24.50 and $29.85, respectively. A total of $0.9 million and $2.7 million, respectively, in stock compensation expense was recognized for the three and nine months ended September 30, 2011, respectively, for restricted stock units granted to employees. As of September 30, 2011 and December 31, 2010, there were unrecognized compensation costs of $7.1 million and zero, respectively, related to these restricted stock units. There were no restricted stock units granted to employees during the three and nine months ended September 30, 2010.
Compensation expense was recorded for stock-based awards granted to employees based on the grant date estimated fair value (in thousands):
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Research and development
$
1,703

 
$
455

 
$
4,663

 
$
1,274

Sales, general and administrative
4,883

 
1,507

 
13,274

 
3,504

Total stock-based compensation expense
$
6,586

 
$
1,962

 
$
17,937

 
$
4,778

Employee stock-based compensation expense recognized for the three and nine months ended September 30, 2011 included $141,000 related to option modification. As part of a termination agreement with a key employee, the Company agreed to accelerate the vesting of options for 50,668 shares of common stock. The weighted average fair value per share of the modified options was $14.84 which was determined as of the date of modification. This modification to accelerate vesting of the associated stock options resulted in incremental stock-based compensation expense of $414,000 which will be amortized through June 2012.
The Company sells ethanol and reformulated ethanol-blended gasoline procured from third parties and relies on contracted third parties for the transportation and storage of products. In the quarter ended June 30, 2011, the Company commenced sales of farnesene-derived products which are procured from contracted third parties. Accordingly, the Company does not have any dedicated production headcount so there is no stock compensation expense recorded in cost of product sales.


37
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

The Company estimated the fair value of employee stock options using the Black-Scholes option pricing model. The fair value of employee stock options is being amortized on a straight-line basis over the requisite service period of the awards. The fair value of employee stock options was estimated using the following weighted-average assumptions:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Expected dividend yield
—%
 
—%
 
—%
 
—%
Risk-free interest rate
1.3%
 
1.55%
 
2.4%
 
2.5%
Expected term (in years)
5.1
 
6.0
 
5.8
 
6.0
Expected volatility
85%
 
98%
 
86%
 
98%

Expected Dividend Yield—The Company has never paid dividends and does not expect to pay dividends.
Risk-Free Interest Rate—The risk-free interest rate was based on the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term.
Expected Term—Expected term represents the period that the Company’s stock-based awards are expected to be outstanding. The Company’s assumptions about the expected term have been based on that of companies that have similar industry, life cycle, revenue, and market capitalization and the historical data on employee exercises.
Expected Volatility—The expected volatility was based on the historical stock volatilities of several of the Company’s publicly listed comparable companies over a period equal to the expected terms of the options, as the Company does not have a long trading history to use the volatility of its own common stock.
Fair Value of Common Stock— Prior to the IPO, the fair value of the shares of common stock underlying the stock options has historically been determined by the Board of Directors. Because there has been no public market for the Company’s common stock, the Board of Directors has determined fair value of the common stock at the time of grant of the option by considering a number of objective and subjective factors including valuation of comparable companies, sales of convertible preferred stock to unrelated third parties, operating and financial performance, the lack of liquidity of capital stock and general and industry specific economic outlook, amongst other factors. The fair value of the underlying common stock was determined by the Board of Directors until the IPO when the Company’s common stock started trading in the NASDAQ Global Market under ticker symbol AMRS on September 28, 2010. Consequently, after the IPO the fair value of the shares of common stock underlying the stock options is the closing price on the option grant date.
Forfeiture Rate—The Company estimates its forfeiture rate based on an analysis of its actual forfeitures and will continue to evaluate the adequacy of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover behavior, and other factors. The impact from a forfeiture rate adjustment will be recognized in full in the period of adjustment, and if the actual number of future forfeitures differs from that estimated by the Company, the Company may be required to record adjustments to stock-based compensation expense in future periods.
Each of the inputs discussed above is subjective and generally requires significant management and director judgment to determine.

Nonemployee Stock–Based Compensation
During the three months ended September 30, 2011 and 2010, the Company granted nonemployee options to purchase 15,000 and 15,000 shares of its common stock, respectively, and, for the nine months ended September 30, 2011 and 2010, 15,000 and 50,000 shares of its common stock, respectively, in exchange for services. Compensation expense of $227,000 and $122,000 was recorded for the three months ended September 30, 2011 and 2010, respectively, and $699,000 and $313,000 for the nine months ended September 30, 2011 and 2010, respectively, for stock-based awards granted to nonemployees. The nonemployee options were valued using the Black-Scholes option pricing model.
During the three months ended September 30, 2011 and 2010, 2,855 and zero restricted stock units, respectively, were granted to nonemployees and a total of $61,000 and $521,000, respectively, in stock compensation expense was recognized for restricted stock units granted to nonemployees. For the nine months ended September 30, 2011 and 2010, 32,855 and 126,272 restricted stock units, respectively, were granted to nonemployees and a total of $200,000 and $1,817,000, respectively, in stock compensation expense was recognized by the Company. The 126,272 restricted stock units that were granted in 2010 were awarded

38
Table of Contents
Amyris, Inc.
Notes to Unaudited Condensed Consolidated Financial Statements – (Continued)

to a related party as compensation for advisory services rendered. These restricted stock units vested quarterly and became fully vested as of September 30, 2010. 
The fair value of nonemployee stock options was estimated using the following weighted-average assumptions:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Expected dividend yield
—%
 
—%
 
—%
 
—%
Risk-free interest rate
1.5%
 
2.8%
 
2.3%
 
3.3%
Expected term (in years)
7.8
 
8.6
 
7.9
 
8.7
Expected volatility
85%
 
98%
 
86%
 
98%

12. Employee Benefit Plan

The Company established a 401(k) Plan to provide tax deferred salary deductions for all eligible employees. Participants may make voluntary contributions to the 401(k) Plan up to 90% of their eligible compensation, limited by certain Internal Revenue Service restrictions. The Company does not match employee contributions.

13. Related Party Transactions
The Company has entered into a license agreement with University of California, Berkeley. A co-founder and advisor to the Company is a professor at the University of California, Berkeley. The Company paid the advisor zero and $23,000 for the nine months ended September 30, 2011 and 2010, respectively.
During 2008, the Company entered into an agreement with a venture capital group to provide strategic advisory services to Amyris and its then majority owned subsidiary Amyris Brasil. One of its former directors is also a member of the Company’s Board of Directors. Under the agreement, the Company issued options to the venture capital group, which vests and becomes exercisable based on the service of the former director of the group on the Company's Board of Directors (see Note 11).
On June 21, 2010, the Company entered into agreements with affiliates of Total S.A. relating to their purchase of the Company’s Series D preferred stock and collaboration for the research, development, production and commercialization of chemical and/or fuel products. Subject to the terms of the collaboration agreement between Total and the Company, Total has agreed to pay up to the first $50.0 million in future research and development costs for the selected projects; thereafter the parties will share such costs equally.
 

14. Restructuring

In June 2009, the Company initiated a restructuring plan to reduce its cost structure. The restructuring plan resulted in the consolidation of the Company’s headquarter facility located in Emeryville, California, which is under an operating lease. The Company ceased using a certain part of this headquarter facility in August 2009. The Company recorded approximately $5.4 million of restructuring charges associated with the facility lease costs after the operations ceased. In addition, as a result of the consolidation of the headquarter facility, the Company recorded approximately $3.1 million related to asset impairments and reversed $2.7 million related to deferred rent associated with the leased facility. In September 2010, the Company’s Board of Directors approved the Company’s plan to reoccupy the part of its headquarter facility that was previously the subject of the 2009 restructuring. This reoccupied space was used to meet the Company’s expansion requirements. As a result, the Company reversed approximately $4.6 million of its restructuring liability and recognized an income from restructuring of $2.1 million during the three and nine months ended September 30, 2010. No restructuring income was recorded during the three and nine months ended September 30, 2011.

15. Income Taxes

For the three months ended September 30, 2011, the Company recorded a provision for income taxes of $474,000 for the accrual of Brazilian withholding tax on the intercompany interest liability. For nine months ended September 30, 2011, the provision for income taxes of $299,000 consists of the above $474,000 accrual for foreign withholding tax partially offset by $175,000 benefit from income taxes resulting from valuation allowance adjustments due to an increase in currency translation adjustments classified as other comprehensive losses. Other than the above mentioned provision for income tax, no additional provision for income taxes has been made, net of the valuation allowance, due to cumulative losses since the commencement of operations.

39



The Company is currently under audit by the US Internal Revenue Service for tax year 2008. As of September 30, 2011, the Company has not received an assessment with regard to this audit.


16. Reporting Segments
The chief operating decision maker for the Company is the Chief Executive Officer. The Chief Executive Officer reviews financial information presented on a consolidated basis, accompanied by information about revenue by geographic region, for purposes of allocating resources and evaluating financial performance. The Company has one business activity and there are no segment managers who are held accountable for operations, operating results or plans for levels or components below the consolidated unit level. Accordingly, the Company has determined that it has a single reportable segment and operating unit structure.
Revenues by geography are based on the location of the customer. The following tables set forth revenue and long-lived assets by geographic area (in thousands):
Revenues
 
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
United States
$
35,441

 
$
24,225

 
$
100,799

 
$
50,582

Brazil
6

 
—

 
6

 
—

Europe
829

 
—

 
4,647

 
—

Total
$
36,276

 
$
24,225

 
$
105,452

 
$
50,582


Long-Lived Assets
 
 
September 30,
2011
 
December 31,
2010
United States
$
82,245

 
$
43,147

Brazil
30,936

 
11,700

Europe
2,669

 
—

Total
$
115,850

 
$
54,847



17. Subsequent Events
Draths
In October 2011, the Company entered into an asset purchase agreement with Draths Corporation (“Draths”). The consideration paid by the Company was 362,319 shares of Company common stock (including 41,408 shares withheld in escrow for up to 18 months to cover certain Draths indemnification obligations) issued in a private placement to Draths, and $2.9 million in cash. Under the asset purchase agreement, the Company acquired specified assets of Draths and assumed specified liabilities of Draths.


40




41


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

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

Overview
We are building an integrated renewable products company to provide sustainable alternatives to a broad range of petroleum-sourced products used in specialty chemical and transportation fuel markets worldwide. We do this by applying our industrial synthetic biology technology platform to modify microorganisms, primarily yeast, to function as living factories in established fermentation processes to convert plant-sourced sugars into a variety of hydrocarbon molecules that can serve as, flexible building blocks to be used in a wide range of products.
We were incorporated in 2003 and commenced research, development, marketing and administrative activities in 2005. To further develop our business we have established two subsidiaries, Amyris Brasil, Ltda. (formerly Amyris Brasil S.A.), which oversees the establishment and expansion of our production in Brazil, and Amyris Fuels, LLC, which we believe will help us to develop fuel distribution capabilities in the U.S. Amyris Fuels currently generates revenue from the sale of ethanol and ethanol blended gasoline to wholesale customers through a network of terminals primarily in the southeastern U.S.
While our technology enables us to design yeast and other microorganisms to produce many different kinds of molecules, our current priority is the commercialization and production of one such molecule called farnesene, or BiofeneTM, and its derivatives for sale in a range of specialty chemical applications within the following six identified markets: cosmetics, lubricants, flavors and fragrances, polymers, consumer products and transportation fuels.
In April 2010 we entered into a definitive agreement with Usina São Martinho, one of the largest sugar and ethanol producers in Brazil, to establish a joint venture entity that intends to construct and operate the first commercial plant dedicated to the production of Amyris renewable products. Usina São Martinho will share a portion of the costs associated with this construction. In addition to this agreement, we have entered into non-binding letters of intent with three other Brazilian sugar and ethanol producers: Bunge, Cosan and Açúcar Guarani, to produce our products. Usina São Martinho also has the right to produce Amyris products at a second facility. We expect to work with these producers to build new, “bolt-on” facilities adjacent to their existing mills instead of building entirely new “greenfield” facilities, thereby reducing the capital required to establish and scale our production.
In June 2010, we entered into a collaboration agreement with Total. This agreement provides for joint collaboration on the development of products through the use of our synthetic biology platform. In connection with this agreement, Total invested $133.2 million in our equity, which represented approximately 21.4% of our outstanding shares as of September 30, 2011. In addition, Total received the right to appoint a Total representative to our Board of Directors. In November 2010, Philippe Boisseau, President of Total's Gas & Power division, joined our Board of Directors. At the end of the second quarter of 2010, we recorded a deferred charge asset of $27.9 million associated with the Total investment. This deferred charge asset resulted from the difference between a third party valuation of our stock and the price paid by Total. This deferred charge asset will be offset against future revenue earned under arrangements with Total. As of September 30, 2011, we recognized a cumulative reduction of $5.7 million against the deferred charge asset.
To support our goal of commencing commercial production of Biofene in 2011, we entered into contract manufacturing agreements in June 2010 with Biomin and in November 2010 with Tate & Lyle. We are providing certain equipment to these

42


producers to enable their production of Biofene. In January 2011, we also entered into a production service agreement, under which, Glycotech will perform finishing steps to convert Biofene into squalane, industrial lubricants and other final products.
In March 2011, we entered into an agreement with Antibióticos for the production of Biofene at its facilities in León, Spain. Also in March 2011, we entered into an agreement with Paraíso Bioenergia headquartered in São Paulo State, Brazil where we will construct a fermentation and separation facility to produce our products and Paraíso Bioenergia will supply sugar cane juice and certain utilities. In July 2011, we entered into a contract manufacturing agreement with Albemarle under which Albemarle will provide toll manufacturing services at its facility in South Carolina and we are obligated to reimburse Albemarle for capital expenditures related to facility modifications required for the services. We may seek to enter into additional contract manufacturing arrangements. We expect to work with third parties specializing in particular industries to convert Biofene by simple chemical processes and to sell it initially primarily in the forms of squalane, diesel, base oils for industrial lubricants, and other products.
To commercialize our initial product, squalane, for sale to cosmetics companies for use as a moisturizing ingredient in the cosmetics and other personal care products, we entered into a marketing and distribution agreement with Soliance, a leading provider of ingredients to the cosmetics industry based in the Champagne-Ardenne region of France, in June 2010. As an early step toward selling diesel, we have entered into an arrangement with the Brazilian city of São Paulo to supply diesel for the city's bus fleet commencing in 2011. For the industrial lubricants market, in June 2011 we established a joint venture with Cosan for the worldwide development, production and commercialization of renewable base oils.
We have also entered into agreements for the sale of Biofene and its derivatives directly to customers, including with P&G for use in cleaning products, with M&G for use in plastics, with Kuraray for use in production of polymers, and with Shell for our renewable diesel. In addition, in November 2010, we executed a collaboration and joint development agreement with Firmenich for the development and commercialization of a non-Biofene molecule that is widely used in the production of fragrances. Production and sale of our products pursuant to any of these relationships will depend on the achievement of contract-specific technical, development and commercial milestones.
In July 2011, we entered into a term sheet with Total to expand the current collaboration and to form a joint venture to commercialize Amyris diesel and other potential products. Under the contemplated agreement, Total would fund expanded R&D at Amyris and would provide capital for the acquisition and construction of dedicated production facilities.
Since inception through September 30, 2011, we have recognized $277.3 million in revenue, primarily from the sale of ethanol and reformulated ethanol-blended gasoline by our Amyris Fuels subsidiary. As of September 30, 2011, we had an accumulated deficit of $321.8 million. We expect to fund operations for the foreseeable future with cash and investments currently on hand, with cash inflows from collaboration and grant funding and potential cash contributions from product sales, and with new debt to provide additional working capital and to cover portions of our capital expenditures. As currently contemplated, our operating expenditures, capital expenditures and other strategic plans for the remainder of 2011 and for 2012 require significant inflows of cash from credit facilities and similar sources of indebtedness, as well as funding from collaboration partners, that are not yet subject to definitive agreements or commitments from such parties. In addition, some of our anticipated capital expenditures depend on our finding additional sources of funding beyond those we have currently identified. If we fail to secure any such debt or collaboration cash, we will be required to seek other types of funding (such as corporate debt or equity funding) or to curtail our operations, including through reductions and delays of planned capital expenditures and scaling back our operations. If we are forced to curtail our operations, we may be unable to proceed with construction of certain planned production facilities, enter into definitive agreements for supply of feedstock and associated milling and production arrangements that are currently subject to letters of intent, commercialize our products within the timeline we expect, or otherwise continue our business as currently contemplated.
If, to support our planned operations, we seek additional types of funding that 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 ability to conduct our business. Furthermore, we may not be able to raise sufficient additional funds, through debt or equity financings or otherwise, on terms that are favorable to us, if at all. If we fail to raise sufficient funds, 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 resulting from our technologies, curtail or cease operations, or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.
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 U.S. The preparation of

43


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 management's judgments and estimates in the preparation of our financial statements.
Revenue Recognition
We currently recognize revenues from the sale of ethanol and reformulated ethanol-blended gasoline, from the sale of farnesene-derived products, from the delivery of collaborative research services and from government grants. Revenues are recognized when all of the following criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed or determinable and collectability is reasonably assured.
If sales arrangements contain multiple elements, we evaluate whether the components of each arrangement represent separate units of accounting. We have determined that all of our revenue arrangements should be accounted for as a single unit of accounting. Application of revenue recognition standards requires subjective determination and requires management to make judgments about the fair values of each individual element and whether it is separable from other aspects of the contractual relationship.
For each source of revenues, we apply the above revenue recognition criteria in the following manner:
Product Sales
We sell ethanol and reformulated ethanol-blended gasoline under short-term agreements and in spot transactions at prevailing market prices. Starting in the second quarter of 2011, the Company commenced sales of farnesene-derived products. Revenues are recognized, net of discounts and allowances, once passage of title and risk of loss have occurred, provided all other revenue recognition criteria have also been met.
Shipping and handling costs charged to customers are recorded as revenues. Shipping costs are included in cost of product revenues. Such charges were not significant in any of the periods presented.
Grants and Collaborative Research Services
Revenues from collaborative research services are recognized as the services are performed consistent with the performance requirements of the contract. In cases where the planned levels of research services fluctuate over the research term, we recognize revenues using the proportionate performance method based upon actual efforts to date relative to the amount of expected effort to be incurred by us. When up-front payments are received and the planned levels of research services do not fluctuate over the research term, revenues are recorded on a ratable basis over the arrangement term, up to the amount of cash received. When up-front payments are received and the planned levels of research services fluctuate over the research term, revenues are recorded using the proportionate performance method, up to the amount of cash received. Where arrangements include milestones that are determined to be substantive and at risk at the inception of the arrangement, revenues are recognized upon achievement of the milestone and is limited to those amounts whereby collectability is reasonably assured.
Government grants are made pursuant to agreements that generally provide cost reimbursement for certain types of expenditures in return for research and development activities over a contractually defined period. Revenues from government grants are recognized in the period during which the related costs are incurred, provided that the conditions under which the government grants were provided have been met and only perfunctory obligations are outstanding.
Consolidations
We have interests in certain joint venture entities that are variable interest entities or VIEs. Determining whether to consolidate a variable interest entity may require judgment in assessing (i) whether an entity is a variable interest entity and (ii) if we are the entity's primary beneficiary and thus required to consolidate the entity. To determine if we are the primary beneficiary of a VIE, we evaluate whether we have (i) the power to direct the activities that most significantly impact the VIE's economic performance and (ii) the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. Our evaluation includes identification of significant activities and an assessment of our ability to direct those activities based on governance provisions and arrangements to provide or receive product and process technology, product supply, operations services, equity funding and financing and other applicable agreements and circumstances. Our assessment of whether we are the primary beneficiary of our VIEs requires significant assumptions and judgment.

44


Impairment of Long-Lived Assets
We assess impairment of long-lived assets, which include property and equipment, on at least an annual basis and test long-lived assets for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to, significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; or expectations that the asset will more likely than not be sold or disposed of significantly before the end of its estimated useful life.
Recoverability is assessed based on the fair value of the asset, which is calculated as the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset. An impairment loss is recognized in the consolidated statements of operations when the carrying amount is determined to be not recoverable and exceeds fair value, which is determined on a discounted cash flow basis.
We make estimates and judgments about future undiscounted cash flows and fair values. Although our cash flow forecasts are based on assumptions that are consistent with our plans, there is significant exercise of judgment involved in determining the cash flow attributable to a long-lived asset over its estimated remaining useful life. Our estimates of anticipated cash flows could be reduced significantly in the future. As a result, the carrying amounts of our long-lived assets could be reduced through impairment charges in the future.
Stock-Based Compensation
We recognize compensation expense related to stock-based transactions, including the awarding of employee stock options, based on the grant date estimated fair value. We amortize the fair value of the employee stock options on a straight-line basis over the requisite service period of the award, which is generally the vesting period. We account for restricted stock units issued to employees based on the fair market value of our common stock.
We account for stock options issued to nonemployees based on the fair value of the awards using the Black-Scholes option pricing model. We account for restricted stock units issued to nonemployees based on the estimated fair value of our common stock. The measurement of stock based compensation is subject to periodic adjustments as the underlying equity instruments vest, and the resulting change in value, if any, is recognized in our consolidated statement of operations during the period the related services are rendered. There is inherent uncertainty in these estimates and if different assumptions had been used, the fair value of the equity instruments issued to nonemployee consultants could have been significantly different.
In future periods, our stock-based compensation expense is expected to increase as a result of our existing unrecognized stock-based compensation still to be recognized and as we issue additional stock-based awards in order to attract and retain employees and nonemployee consultants.
Significant Factors, Assumptions and Methodologies Used In Determining Fair Value
We utilize the Black-Scholes option pricing model to estimate the fair value of our share-based payment awards. The Black-Scholes option pricing model requires inputs such as the expected term of the grant, expected volatility and risk-free interest rate. Further, the forfeiture rate also affects the amount of aggregate compensation that we are required to record as an expense. These inputs are subjective and generally require significant judgment. 

The fair value of employee stock options was estimated using the following weighted-average assumptions:
 
Three Months Ended
September 30,
 
Nine Months Ended
September 30,
 
2011
 
2010
 
2011
 
2010
Expected dividend yield
—%
 
—%
 
—%
 
—%
Risk-free interest rate
1.3%
 
1.55%
 
2.4%
 
2.5%
Expected term (in years)
5.1
 
6.0
 
5.8
 
6.0
Expected volatility
85%
 
98%
 
86%
 
98%
Our expected term is derived from a comparable group of publicly listed companies that has a similar industry, life cycle, revenue, and market capitalization and the historical data on employee exercises.
Our expected volatility is derived from the historical volatilities of comparable group of publicly listed companies within our industry over a period equal to the expected term of our options because we do not yet have a long trading history to use for calculating the volatility of our own common stock.

45



Our risk-free interest rate is the market yield currently available on United States Treasury securities with maturities approximately equal to the option’s expected term.
Our expected dividend yield was assumed to be zero as we have not paid, and do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future.
We estimate our forfeiture rate based on an analysis of our actual forfeitures and will continue to evaluate the appropriateness of the forfeiture rate based on actual forfeiture experience, analysis of employee turnover and other factors. Quarterly changes in the estimated forfeiture rate can have a significant effect on reported stock-based compensation expense, as the cumulative effect of adjusting the rate for all expense amortization is recognized in the period the forfeiture estimate is changed. If a revised forfeiture rate is higher than the previously estimated forfeiture rate, an adjustment is made that will result in a decrease to the stock-based compensation expense recognized in the consolidated financial statements. If a revised forfeiture rate is lower than the previously estimated forfeiture rate, an adjustment is made that will result in an increase to the stock-based compensation expense recognized in the consolidated financial statements.
We will continue to use judgment in evaluating the expected term, volatility and forfeiture rate related to our own stock-based compensation on a prospective basis and incorporating these factors into the Black-Scholes option pricing model.
Each of these inputs is subjective and generally requires significant management and director judgment to determine. If, in the future, we determine that another method for calculating the fair value of our stock options is more reasonable, or if another method for calculating these input assumptions is prescribed by authoritative guidance, and, therefore, should be used to estimate expected volatility or expected term, the fair value calculated for our employee stock options could change significantly. Higher volatility and longer expected terms generally result in an increase to stock-based compensation expense determined at the date of grant.
Income Taxes
We are subject to income taxes in both the U.S. and foreign jurisdictions, and we use estimates in determining our provisions for income taxes. We use the liability method of accounting for income taxes, whereby deferred tax assets or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect for the year in which the differences are expected to affect taxable income.
Recognition of deferred tax assets is appropriate when realization of such assets is more likely than not. We recognize a valuation allowance against our net deferred tax assets if it is more likely than not that some portion of the deferred tax assets will not be fully realizable. This assessment requires judgment as to the likelihood and amounts of future taxable income by tax jurisdiction. At September 30, 2011 and December 31, 2010, we had a full valuation allowance against all of our deferred tax assets.
The Company applies the provisions of FASB's guidance on accounting for uncertainty in income taxes. We assess all material positions taken in any income tax return, including all significant uncertain positions, in all tax years that are still subject to assessment or challenge by relevant taxing authorities. Assessing an uncertain tax position begins with the initial determination of the position’s sustainability and is measured at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. As of each balance sheet date, unresolved uncertain tax positions must be reassessed, and we will determine whether (i) the factors underlying the sustainability assertion have changed and (ii) the amount of the recognized tax benefit is still appropriate. The recognition and measurement of tax benefits requires significant judgment. Judgments concerning the recognition and measurement of a tax benefit might change as new information becomes available.



46


Results of Operations

The following table sets forth our condensed consolidated statement of operations data for the periods shown (in thousands except share and per share amounts):
 

 
Three Months Ended
 September 30,
 
Nine Months Ended
 September 30,
 
2011
 
2010
 
2011
 
2010
Consolidated Statement of Operations Data:
 
 
 
 
 
 
 
Revenues
 
 
 
 
 
 
 
Product sales
$
31,162

 
$
22,055

 
$
92,998

 
$
42,037

Grants and collaborations revenue
5,114

 
2,170

 
12,454

 
8,545

Total revenues
36,276

 
24,225

 
105,452

 
50,582

Cost and operating expenses
 
 
 
 
 
 
 
Cost of product sales
35,729

 
22,900

 
99,247

 
43,032

Research and development(1)
23,441

 
14,701

 
66,622

 
38,293

Sales, general and administrative(1)
21,174

 
10,484

 
59,401

 
29,385

Restructuring income
—

 
(2,061
)
 
—

 
(2,061
)
Total cost and operating expenses
80,344

 
46,024

 
225,270

 
108,649

Loss from operations
(44,068
)
 
(21,799
)
 
(119,818
)
 
(58,067
)
Other income (expense):
 
 
 
 
 
 
 
Interest income
609

 
702

 
1,250

 
1,264

Interest expense
(291
)
 
(524
)
 
(1,172
)
 
(1,284
)
Other income, net
310

 
1,013

 
160

 
953

Total other income
628

 
1,191

 
238

 
933

Loss before income taxes
$
(43,440
)
 
$
(20,608
)
 
$
(119,580
)
 
$
(57,134
)
Provision for income taxes
(474
)
 
—

 
(299
)
 
—

Net Loss
$
(43,914
)
 
$
(20,608
)
 
$
(119,879
)
 
$
(57,134
)
Net loss attributable to noncontrolling interest
224

 
477

 
437

 
907

Net loss attributable to Amyris, Inc.
$
(43,690
)
 
$
(20,131
)
 
$
(119,442
)
 
$
(56,227
)
Deemed dividend related to the beneficial conversion feature of Series D convertible preferred stock and conversion of Amyris Brasil S.A. shares held by third parties
—

 
(42,009
)
 
—

 
(42,009
)
Net loss attributable to Amyris, Inc. common stockholders
$
(43,690
)
 
$
(62,140
)
 
$
(119,442
)
 
$
(98,236
)
Net loss per share attributable to common stockholders, basic and diluted
$
(0.97
)
 
$
(11.89
)
 
$
(2.68
)
 
$
(19.26
)
Weighted-average shares of common stock outstanding used in computing net loss per share of common stock, basic and diluted
45,031,613

 
5,227,689

 
44,507,686

 
5,099,635

___________________________________________________
(1) Includes stock-based compensation expense.



47


Comparison of Three Months Ended September 30, 2011 and 2010

Revenues
 
 
Three Months Ended
 September 30,
 
Year-to-Year
 
Percentage
 
2011
 
2010
 
Change
 
Change
 
(Dollars in thousands)
 
 
Revenues
 
 
 
 
 
 
 
Product sales
$
31,162

 
$
22,055

 
$
9,107

 
41
%
Grants and collaborations revenue
5,114

 
2,170

 
2,944

 
136
%
Total revenues
$
36,276

 
$
24,225

 
$
12,051

 
50
%
Our total revenue increased by $12.1 million to $36.3 million in the three months ended September 30, 2011 from $24.2 million in the comparable period of the prior year primarily as a result of increases in product sales. Revenue from product sales increased by $9.1 million to $31.2 million primarily from sales of ethanol and reformulated ethanol-blended gasoline purchased from third parties in the three months ended September 30, 2011, resulting primarily from an increase in average selling price per gallon offset in part by a decrease in gallons sold over the same period of the prior year. We sold 2.1 million gallons of ethanol and 8.5 million gallons of reformulated ethanol-blended gasoline in the three months ended September 30, 2011 compared to 5.3 million gallons of ethanol and 5.7 million gallons of reformulated ethanol-blended gasoline sales in the comparable period of the prior year. We recognized product sales from farnesene-derived products for the first time in the quarter ended June 30, 2011, which have not been significant to date. The increase of $2.9 million in grants and collaborations revenue was primarily from collaborative research largely with Cosan in the current quarter and to a lesser extent from grant revenue.

Cost and Operating Expenses
 
 
Three Months Ended
 September 30,
 
Year-to-Year
 
Percentage
 
2011
 
2010
 
Change
 
Change
 
(Dollars in thousands)
 
 
Cost of product sales
$
35,729

 
$
22,900

 
$
12,829

 
56
 %
Research and development
23,441

 
14,701

 
8,740

 
59
 %
Sales, general and administrative
21,174

 
10,484

 
10,690

 
102
 %
Restructuring income
—

 
(2,061
)
 
2,061

 
(100
)%
Total cost and operating expenses
$
80,344

 
$
46,024

 
$
34,320

 
75
 %

Cost of Product Sales
Our cost of product sales increased by $12.8 million to $35.7 million in the three months ended September 30, 2011 compared to the same period of the prior year. The increase was primarily the result of an increase of $8.4 million in costs of ethanol and reformulated ethanol-blended gasoline purchased from third parties, which was based on an increase in product cost per gallon partially offset by lower product volume. We also incurred $4.4 million of cost of renewable products related to a scale-up in production of such products and had no corresponding charge in the three months ended September 30, 2010.
Research and Development Expenses
Our research and development expenses increased by $8.7 million to $23.4 million in the three months ended September 30, 2011 compared to the same period of the prior year, primarily resulting from a $3.4 million increase in personnel-related expenses associated with headcount growth, higher stock-based compensation and higher bonus expense, a $2.6 million increase in outside consulting expenses associated with increased development activities and $1.8 million in higher overhead costs associated with increased headcount and development activities. Research and development expenses included stock-based compensation expense of $1.7 million in the three months ended September 30, 2011 compared to $0.5 million in the same period of 2010.


48


Sales, General and Administrative Expenses
Our sales, general and administrative expenses increased by $10.7 million to $21.2 million in the three months ended September 30, 2011 compared to the same period of prior year, primarily resulting from an $7.6 million increase in personnel-related costs associated with headcount growth, higher stock-based compensation and higher bonus expenses, a $1.9 million increase in consulting and professional service expense and higher legal and accounting costs. Sales, general and administrative expenses included stock-based compensation of $5.2 million compared to $2.1 million in the same period of 2010.
Restructuring Income
In June 2009, we initiated a restructuring plan to reduce our cost structure. The restructuring plan resulted in the consolidation of our headquarter facility located in Emeryville, California, which is under an operating lease. We ceased using a certain part of our headquarter facility in August 2009. We recorded approximately $5.4 million of restructuring charges associated with the facility lease costs after the operations ceased. In addition, as a result of the consolidation of the headquarter facility, we recorded approximately $3.1 million related to asset impairments and reversed $2.7 million related to deferred rent associated with the leased facility.
In September 2010, our Board of Directors approved our plan to reoccupy the part of our headquarter facility that previously was the subject of the 2009 restructuring. This reoccupied space was used to meet our expansion requirements. As a result, we reversed approximately $4.6 million of our restructuring liability that had been accrued in connection with the 2009 restructuring and recognized an income from restructuring of $2.1 million during the three months ended September 30, 2010. No restructuring income was recorded during the three months ended September 30, 2011.
Other Income (Expense)
 
Three Months Ended
 September 30,
 
Year-to-Year
 
Percentage
 
2011
 
2010
 
Change
 
Change
 
(Dollars in thousands)
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
$
609

 
$
702

 
$
(93
)
 
(13
)%
Interest expense
(291
)
 
(524
)
 
233

 
(44
)%
Other income, net
310

 
1,013

 
(703
)
 
(69
)%
Total other income
$
628

 
$
1,191

 
$
(563
)
 
(47
)%

Total other income decreased by approximately $0.6 million to $0.6 million in the three months ended September 30, 2011 compared to the comparable period of the prior year. The decrease in total other income related primarily to a $0.7 million decline in other income, net, in the three months ended September 20, 2011, primarily attributable to $1.0 million of income, which was recorded in the three months ended September 30, 2010 for the change in fair value of our convertible preferred stock warrants. There was no corresponding income recognized in the three months ended September 30, 2011 because these warrants converted into warrants to purchase our common stock on completion of our initial public offering.
Deemed Dividend
We recognized a deemed dividend in the three months ended September 30, 2010 related to the charges incurred with the one-time beneficial conversion feature of the Series D convertible preferred stock of $39.3 million and to the one-time beneficial conversion feature related to the conversion of Amyris Brasil S.A. shares of $2.7 million, each of which converted into Amyris Inc. common stock upon the consummation of the Company's initial public offering in September 2010, or IPO. The deemed dividend was recorded at the closing of the IPO and impacted earnings and earnings per share for the three months ended September 30, 2010.



49


Comparison of Nine Months Ended September 30, 2011 and 2010
Revenues
 
Nine Months Ended
 September 30,
 
Year-to-Year
 
Percentage
 
2011
 
2010
 
Change
 
Change
 
(Dollars in thousands)
 
 
Revenues
 
 
 
 
 
 
 
Product sales
$
92,998

 
$
42,037

 
$
50,961

 
121
%
Grants and collaborations revenue
12,454

 
8,545

 
3,909

 
46
%
Total revenues
$
105,452

 
$
50,582

 
$
54,870

 
108
%

 Our total revenue increased by $54.9 million to $105.5 million in the nine months ended September 30, 2011 from $50.6 million in the comparable period of the prior year primarily as a result of increases in product sales. Revenue from product sales increased by $51.0 million to $93.0 million primarily from sales of ethanol and reformulated ethanol-blended gasoline purchased from third parties in the nine months ended September 30, 2011, resulting primarily from an increase in average selling price per gallon and from an increase in gallons sold over the same period of the prior year. We sold 8.5 million gallons of ethanol and 24.3 million gallons of reformulated ethanol-blended gasoline in the nine months ended September 30, 2011 compared to sales of 15.8 million gallons of ethanol and 5.7 million gallons of reformulated ethanol-blended gasoline in the comparable period of the prior year. The increase of $3.9 million in grants and collaborations revenue was primarily the result of higher revenue generated from collaborative research offset in part by lower grant revenue in the nine months ended September 30, 2011 compared to the same period of the prior year.
Cost and Operating Expenses
 
Nine Months Ended
 September 30,
 
Year-to-Year
 
Percentage
 
2011
 
2010
 
Change
 
Change
 
(Dollars in thousands)
 
 
Cost of product sales
$
99,247

 
43,032

 
$
56,215

 
131
 %
Research and development
66,622

 
38,293

 
28,329

 
74
 %
Sales, general and administrative
59,401

 
29,385

 
30,016

 
102
 %
Restructuring income
—

 
(2,061
)
 
2,061

 
(100
)%
Total cost and operating expenses
$
225,270

 
$
108,649

 
$
116,621

 
107
 %
 Cost of Product Sales
Our cost of product sales increased by $56.2 million to $99.2 million in the nine months ended September 30, 2011 compared to the same period of the prior year. The increase was primarily the result of an increase of $50.1 million in costs of ethanol and reformulated ethanol-blended gasoline purchased from third parties, which was based on an increase in purchase price per gallon and higher product volume. We also incurred $6.1 million of cost of renewable products related to a scale-up in production of such products in the nine months ended September 30, 2011 and had no corresponding charge in the same period of 2010.
Research and Development Expenses
Our research and development expenses increased by $28.3 million to $66.6 million in the nine months ended September 30, 2011 compared to the same period of the prior year, primarily as a result of a $10.3 million increase in personnel-related expenses associated with headcount growth, higher stock-based compensation and higher bonus expense, a $9.2 million increase in outside consulting expenses associated with increased development activities and $5.1 million in higher overhead costs associated with increased headcount and development activities. Research and development expenses included stock-based compensation expense of $4.7 million in the nine months ended September 30, 2011 compared to $1.3 million in the same period of 2010.

50


Sales, General and Administrative Expenses
Our sales, general and administrative expenses increased by $30.0 million to $59.4 million in the nine months ended September 30, 2011 compared to the same period of the prior year, primarily as a result of a $21.2 million increase in personnel-related costs associated with higher stock-based compensation, headcount growth and higher bonus expenses, $2.7 million increase in consulting and professional services expenses and $2.1 million in marketing expenses. Sales, general and administrative expenses included stock-based compensation of $14.1 million compared to $5.6 million in the same period of 2010.
Restructuring Income
In June 2009, we initiated a restructuring plan to reduce our cost structure. The restructuring plan resulted in the consolidation of our headquarter facility located in Emeryville, California, which is under an operating lease. We ceased using a certain part of our headquarter facility in August 2009. We recorded approximately $5.4 million of restructuring charges associated with the facility lease costs after the operations ceased. In addition, as a result of the consolidation of the headquarter facility, we recorded approximately $3.1 million related to asset impairments and reversed $2.7 million related to deferred rent associated with the leased facility.
In September 2010, our Board of Directors approved our plan to reoccupy the part of our headquarter facility that previously was the subject of the 2009 restructuring. This reoccupied space was used to meet our expansion requirements. As a result, we reversed approximately $4.6 million of our restructuring liability that had been accrued in connection with the 2009 restructuring and recognized an income from restructuring of $2.1 million during the nine months ended September 30, 2010. No restructuring income was recorded during the nine months ended September 30, 2011.
Other Income (Expense)
 
Nine Months Ended
 September 30,
 
Year-to-Year
 
Percentage
 
2011
 
2010
 
Change
 
Change
 
(Dollars in thousands)
 
 
Other income (expense):
 
 
 
 
 
 
 
Interest income
$
1,250

 
$
1,264

 
$
(14
)
 
(1
)%
Interest expense
(1,172
)
 
(1,284
)
 
112

 
(9
)%
Other income, net
160

 
953

 
(793
)
 
(83
)%
Total other income
$
238

 
$
933

 
$
(695
)
 
(74
)%

Total other income decreased by approximately $0.7 million to $0.2 million in the nine months ended September 30, 2011 compared to the comparable period of the prior year. The decrease related primarily to lower other income, net of $0.8 million in the nine months ended September 30, 2010, which resulted primarily from our having recorded $0.9 million in income for the change in fair value of our convertible preferred stock warrants in the nine months ended September 30, 2010. These warrants converted into warrants to purchase our common stock on completion of our initial public offering.
Deemed Dividend
We recognized a deemed dividend in the nine months ended September 30, 2010 related to the charges incurred with the one-time beneficial conversion feature of the Series D convertible preferred stock of $39.3 million and to the one-time beneficial conversion feature related to the conversion of Amyris Brasil S.A. shares of $2.7 million, each of which converted into Amyris Inc. common stock upon the consummation of the Company's initial public offering in September 2010, or IPO. The deemed dividend was recorded at the closing of the IPO and impacted earnings and earnings per share for the nine months ended September 30, 2010.



51


Liquidity and Capital Resources
 
 
September 30,
 
December 31,
 
2011
 
2010
 
(Dollars in thousands)
Working capital
$
83,810

 
$
242,818

Cash and cash equivalents and short-term investments
$
123,794

 
$
257,933

 
 
 
 
 
Nine Months Ended
 September 30,
 
2011
 
2010
 
(Dollars in thousands)
Net cash used in operating activities
$
(65,768
)
 
$
(42,814
)
Net cash provided by (used in) investing activities
$
23,636

 
$
(126,897
)
Net cash provided by financing activities
$
6,041

 
$
256,928


As of September 30, 2011, we had cash, cash equivalents and short-term investments of $123.8 million compared to $257.9 million as of December 31, 2010. As of September 30, 2011, we had total debt, including capital lease obligations, of $16.1 million. In addition, we had total borrowing capacity of $9.3 million substantially all of which was under our uncommitted facility letter, or Credit Agreement, which we currently utilize in connection with our Amyris Fuels business.
In 2010, we were awarded a $24.3 million “Integrated Bio-Refinery” grant from the U.S. Department of Energy, or DOE. Under this grant, we are required to fund an additional $10.6 million in cost sharing expenses. According to the terms of the DOE grant, we are required to maintain a cash balance of $8.7 million, calculated as a percentage of the total project costs, to cover potential contingencies and cost overruns. These funds are not legally restricted but they must be available and unrestricted during the term of the project. Our obligation for this cost share is contingent on reimbursement for project costs incurred. During the nine months ended September 30, 2011, we recognized $5.6 million in revenue under this grant, of which $4.6 million was received as of September 30, 2011.
In August 2010, we were appointed as a subcontractor to National Renewable Energy Laboratory, or NREL, under a DOE grant awarded to NREL. We have the right to be reimbursed for up to $3.9 million and are required to fund an additional $1.5 million in cost sharing expenses. During the nine months ended September 30, 2011, we recognized $269,000 in revenue under this grant, of which $161,000 was received as of September 30, 2011.
To support production of our products in contract manufacturing and dedicated production facilities, we have incurred, and we expect to continue to incur, capital expenditures as we invest in these facilities. Additionally, we have incurred and expect to continue to incur capital expenditures for research and scale-up equipment and tenant improvements. We plan to secure external debt financing from U.S. and Brazilian sources to offset our investment in these contract manufacturing and dedicated production facilities.
The timing and amount of capital expenditures for additional production facilities will depend on our business and financial outlook and the specifics of the opportunity. For example, we believe that the amount of financing that we agree to provide for the construction of bolt-on, or other, production facilities may influence the other terms of the arrangements that we establish with the facility owner, and, accordingly, expect to evaluate the optimal amount of capital expenditures that we agree to fund on a case-by-case basis. We may also consider additional strategic investments or acquisitions. These events may require us to access additional capital through equity or debt offerings. If we are unable to access additional capital, our growth may be limited due to the inability to invest in additional production facilities.
We expect that we will be able to finance our operations over the next 12 months with cash and investments currently on hand, with cash inflows from collaboration and grant funding and potential cash contributions from product sales, and with new debt to provide additional working capital and to cover portions of our capital expenditures. As currently contemplated, our operating expenditures, capital expenditures and other strategic plans for the remainder of 2011 and for 2012 require significant inflows of cash from credit facilities and similar sources of indebtedness, as well as funding from collaboration partners, that are not yet subject to definitive agreements or commitments from such parties. In addition, some of our anticipated capital expenditures depend on our finding additional sources of funding beyond those we have currently identified. If we fail to secure any such debt or collaboration cash, we will be required to seek other types of funding (such as corporate debt or equity funding) or to curtail our operations, including through reductions and delays of planned capital expenditures and scaling back our operations. If we are forced to curtail our operations, we may be unable to proceed with construction of certain planned production facilities, enter

52


into definitive agreements for supply of feedstock and associated milling and production arrangements that are currently subject to letters of intent, commercialize our products within the timeline we expect, or otherwise continue our business as currently contemplated.
FINEP Credit Facility. In November 2010, we entered into a credit facility with Financiadora de Estudos e Projetos, or FINEP, a state-owned company subordinated to the Brazilian Ministry of Science and Technology. This FINEP Credit Facility was extended to partially fund expenses related to our research and development project on sugarcane-based biodiesel and provides for loans of up to an aggregate principal amount of R$6.4 million Brazilian reais (approximately $3.5 million based on the exchange rate at September 30, 2011) which is guaranteed by a chattel mortgage on certain of our equipment as well as bank letters of guarantee. The first disbursement of approximately R$1.8 million Brazilian reais was received on February 11, 2011 and the next three disbursements will each be approximately R$1.6 million Brazilian reais. Subject to compliance with certain terms and conditions under the FINEP Credit Facility, the three remaining disbursements of the loan will become available to us for withdrawal.
Interest on loans drawn under this credit facility is fixed at 5.0% per annum. In case of default under or non-compliance with the terms of the agreement the interest on loans will be dependent on the long-term interest rate as published by the Central Bank of Brazil (“TJLP”). If the TJLP at the time of default is greater than 6%, then the interest will be 5.0% + a TJLP adjustment factor otherwise the interest will be at 11.0% per annum. In addition, a fine of up to 10.0% will apply to the amount of any obligation in default. Interest on late balances will be 1.0% interest per month, levied on the overdue amount. Payment of the outstanding loan balance will be made in 81 monthly installments which will commence in July 2012 and extend through March 2019. Interest on loans drawn and other charges are paid on a monthly basis commencing in March 2011. As of September 30, 2011 and December 31, 2010, there were R$1.8 million Brazilian reais (approximately $0.9 million based on the exchange rate at September 30, 2011) and zero amount outstanding, respectively, under this FINEP Credit Facility.
The FINEP Credit Facility contains the following significant terms and conditions:
•
We will share with FINEP the costs associated with the FINEP Project. At a minimum, we will contribute approximately R$14.5 million Brazilian reais ($7.8 million based on the exchange rate at September 30, 2011) of which R$11.1 million Brazilian reais should have been contributed prior to the release of the second disbursement;
•
After the release of the first disbursement, prior to any subsequent drawdown from the FINEP Credit Facility, we must provide bank letters of guarantee of up to R$3.3 million Brazilian reais in aggregate (approximately $1.8 million based on the exchange rate at September 30, 2011);
•
Amounts released from the FINEP Credit Facility must be completely used by us towards the FINEP Project within 30 months after the contract execution.
Revolving Credit Facility. In December 2010 we established a revolving credit facility which provides for loans and standby letters of credit of up to an aggregate principal amount of $10.0 million with a sublimit of $5.0 million on the standby letters of credit. Interest on loans drawn under this revolving credit facility will be equal to (i) the Eurodollar Rate plus 3%; or (ii) the Prime Rate plus 0.50%. In case of default or non-compliance with the terms of the agreement, the interest on loans will be Prime Rate plus 2%. The credit facility is collateralized by a first priority security interest in certain of our present and future assets. It has a $5,000 annual loan fee and contains financial and non-financial covenants (see Note 6 to our Consolidated Financial Statements) including a required liquidity of at least $10 million plus two times our quarterly “Net Cash Used in Operating Activities” calculated using our Condensed Consolidated Statements of Cash Flows reflected in our most recent periodic report filed with the SEC. In addition, as of the end of each fiscal quarter, we must maintain a current ratio (current assets to current liabilities) equal to or greater than 2:1. We were in compliance with all covenants as of September 30, 2011.
On February 10, 2011, we borrowed $3.3 million under this revolving credit facility to pay off certain notes payable balances of approximately the same amount. As a result of the payoff, $1.0 million of the $4.1 million outstanding letters of credit under the revolving credit facility was canceled.
On March 29, 2011, we borrowed an additional $3.2 million under this revolving credit facility to finance capital expenditures. Under this facility, there were $6.5 million in loans outstanding and three letters of credit outstanding totaling $3.5 million as of September 30, 2011. The outstanding letters of credit serve as security for certain facility leases and expire between November and December 2011 and may be automatically extended for another one-year period.
Credit Agreement. In November 2008, we entered into a Credit Agreement with a financial institution to secure letters of credit and to finance short term advances for the purchase of ethanol and associated margin requirements as needed. In October 2009, the agreement was amended to decrease the maximum amount that we may borrow under such facility. The Credit Agreement, as amended, provides for an aggregate maximum availability of up to the lower of $20.0 million or the borrowing base as defined in the agreement to secure letters of credit and to finance short term advances for the purchase of ethanol and associated margin requirements as needed. We may use this line to secure letters of credit for product purchases in an aggregate amount up to $5.7

53


million. In addition, we may borrow cash for the purchase of product, which is determined by our borrowing base. As of September 30, 2011 we had sufficient borrowing base levels to draw up to a total of $9.2 million in short-term cash advances and had $0.3 million available for letters of credit in addition to those then outstanding. As of September 30, 2011 and December 31, 2010 we had no outstanding advances and had $5.4 million and $4.6 million, respectively in outstanding letters of credit under the Credit Agreement which are guaranteed by Amyris, Inc. and payable on demand. The Credit Agreement is collateralized by a first priority security interest in certain of our present and future assets.
Cash Flows during the Nine Months Ended September 30, 2011 and 2010
Cash Flows from Operating Activities
Our primary uses of cash from operating activities are cost of product sales and personnel related expenditures offset by cash received from product sales. Cash used in operating activities was $65.8 million, and $42.8 million for the nine months ended September 30, 2011 and 2010, respectively.
Net cash used in operating activities of $65.8 million in the nine months ended September 30, 2011 reflected a net loss of $119.9 million partially offset by non-cash charges of $29.6 million and a $24.5 million net change in our operating assets and liabilities. Net change in operating assets and liabilities of $24.5 million primarily consists of a $17.7 million increase in accrued and other long term liabilities, an $11.0 million increase in accounts payable and a $4.6 million increase in deferred revenue partially offset by a $7.1 million increase in inventory and a $1.1 million increase in prepaid expenses and other assets. Non-cash charges primarily included $18.8 million of stock-based compensation and $7.7 million of depreciation and amortization.
Net cash used in operating activities of $42.8 million in the nine months ended September 30, 2010 reflected a net loss of $57.1 million partially offset by non-cash charges of $10.2 million and a $4.1 million net change in our operating assets and liabilities. Non-cash charges primarily included $6.9 million of stock-based compensation and $5.3 million of depreciation and amortization.
Cash Flows from Investing Activities
Our investing activities consist primarily of net investment purchases, maturities and sales and capital expenditures.
For the nine months ended September 30, 2011, cash provided by investing activities was $23.6 million as a result of $94.5 million in net investment maturities and $0.3 million in acquisition of cash in noncontrolling interest offset by $71.2 million of capital expenditures and deposits on property and equipment.
For the nine months ended September 30, 2010 cash used in investing activities was $126.9 million as a result of $116.5 million in net investment purchases and $10.4 million of capital expenditures and deposits on property and equipment.
Cash Flows from Financing Activities
In the nine months ended September 30, 2011, cash provided by financing activities was $6.0 million, primarily the result of the net receipt of $7.6 million from debt financing and the receipt of $5.0 million in proceeds from option exercises, These cash receipts were offset in part by principal payments on debt of $4.0 million and principal payments on capital leases of $2.1 million.
In the nine months ended September 30, 2010 cash provided by financing activities was $256.9 million, primarily the result of the net receipt of $132.9 million from our sale of Series D convertible preferred stock, the receipt of the net proceeds of $75.4 million from the IPO, the net receipt of $47.8 million from our sale of Series C-1 convertible preferred stock, the net receipt of $3.7 million from our sale of Series C convertible preferred stock, the receipt of $7.1 million from investors in Amyris Brasil and $1.4 million in proceeds from equipment financing. These cash receipts were offset in part by principal payments on debt of $9.3 million and principal payments on capital leases of $2.1 million.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any material 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 financial statements.


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Contractual Obligations
The following is a summary of our contractual obligations as of September 30, 2011 (in thousands):
 
 
Total
 
2011
2012
2013
2014
2015
Thereafter
Principal payments on long-term debt
$
12,306

 
$
1,056

$
1,597

$
7,298

$
277

$
305

$
1,773

Interest payments on long-term debt, fixed rate(1)
1,090

 
94

264

206

177

150

199

Interest payments on long-term debt, variable rate(2)
312

 
57

227

28

—

—

—

Operating leases
46,684

 
1,662

6,741

6,536

6,614

6,792

18,339

Principal payments on capital leases
3,836

 
745

2,707

384

—

—

—

Interest payments on capital leases
314

 
104

203

7

—

—

—

Terminal storage costs
900

 
358

542

—

—

—

—

Purchase obligations(3)
72,648

 
33,594

38,306

748

—

—

—

Total
$
138,090

 
$
37,670

$
50,587

$
15,207

$
7,068

$
7,247

$
20,311

 
______________ 
(1) 
For fixed rate facilities, the interest rates are more fully described in Note 6 of our consolidated financial statements.
(2) 
For variable rate facilities, amounts are based on weighted average interest rate which was 3.5% as of September 30, 2011.
(3) 
Purchase obligations include $66.1 million in non-cancelable contractual obligations and construction commitments.

This table does not reflect that portion of the expenses that we expect to incur from 2011 through 2012 in connection with research activities under the DOE Integrated Bio-Refinery grant and the DOE grant to NREL, with respect to which we are a subcontractor, for which we will not be reimbursed. We have the right to be reimbursed for up to $24.3 million of a total of up to $34.9 million of expenses for research activities that we undertake under the DOE Integrated Bio-Refinery grant. We have the right to be reimbursed for up to $3.9 million of a total of $5.4 million of expenses for research activities that we undertake under the NREL grant.
Recent Accounting Pronouncements
The information contained in Note 2 to the Unaudited Condensed Consolidated Financial Statements under the heading recent accounting pronouncements is hereby incorporated by reference into this Part I, Item 2.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

We are exposed to financial market risks, primarily changes in interest rates, currency exchange rates and commodity prices. On a limited basis we use derivative financial instruments primarily to manage commodity price risk.

Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to our investment portfolio and our outstanding debt obligations. We generally invest our cash in investments with short maturities or with frequent interest reset terms. Accordingly, our interest income fluctuates with short-term market conditions. As of September 30, 2011, our investment portfolio consisted primarily of money market funds and certificates of deposit, both of which are highly liquid investments. Due to the short-term nature of our investment portfolio, our exposure to interest rate risk is minimal.
As of September 30, 2011, 47% of our debt portfolio was comprised of fixed-rate debt and the balance was variable-rate debt. We pay interest on borrowings under our revolving credit facility at rates that vary with a bank's prime rate. As of September 30, 2011, our weighted average borrowing rate on the revolving credit facility was 3.5%. If interest rates had increased by 100 basis points related to the outstanding borrowings under our revolving credit facility as of September 30, 2011, our interest expense would have increased by $65,000 on an annual basis. Because our average borrowings under our revolving credit facility are not substantial, changes in the interest rate will not have a significant impact on our interest expense.

Foreign Currency Risk
Most of our sales contracts are principally denominated in U.S. dollars and, therefore, our revenues are not currently subject to significant foreign currency risk. We do incur certain operating expenses and capital expenditures in currencies other than the U.S. dollar in relation to Amyris Brasil and SMA and, therefore, are subject to volatility in cash flows due to fluctuations in foreign

55


currency exchange rates, particularly changes in the Brazilian reais. To date, we have not entered into any hedging contracts since exchange rate fluctuations have not had a significant impact on our results of operations and cash flows.

Commodity Price Risk
Our exposure to market risk for changes in commodity prices currently relates primarily to our purchases of ethanol and reformulated ethanol-blended gasoline. When possible, we manage our exposure to this risk primarily through the use of supplier pricing agreements. We also, at times, use standard derivative commodity instruments to hedge the price volatility of ethanol and reformulated ethanol-blended gasoline, principally through futures contracts. The changes in fair value of these contracts are recorded on the balance sheet and recognized immediately in cost of product sales. We recognized a loss of $2.1 million and a loss of $0.4 million, as the change in fair value for the nine months ended September 30, 2011 and 2010, respectively (see Note 3 to our Unaudited Condensed Consolidated Financial Statements).



Item 4. Controls and Procedures

(a) Disclosure Controls and Procedures

The SEC defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. “Disclosure controls and procedures” include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and our Chief Financial Officer have concluded, based on an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act) by our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2011.

Our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

(b) Changes in Internal Control

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during our third fiscal quarter of 2011 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


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PART II: OTHER INFORMATION
 
Item 1. Legal Proceedings

We are not involved in any legal proceedings that management believes will have a material adverse effect our business, results of operations, financial position or cash flows. We may, however, be involved, from time to time, in legal proceedings and claims arising in the ordinary course of our business. Such matters are subject to many uncertainties and there can be no assurance that legal proceedings arising in the ordinary course of business or otherwise will not have a material adverse effect on our business, results of operations, financial position or cash flows.

Item 1A. 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 set forth in this Quarterly Report on Form 10-Q, which could materially affect our business, financial condition or future results. If any of the following risks actually occurs, our business, financial condition, results of operations and future prospects could be materially and adversely harmed. 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.

Risks Related to Our Business
We have incurred losses to date, anticipate continuing to incur losses in the future and may never achieve or sustain profitability.
As of September 30, 2011, we had an accumulated deficit of $321.8 million. We expect to incur additional costs and expenses related to the continued development and expansion of our business, including our research and development operations, continued operation of our pilot plants and demonstration facility, engineering and design work. Further, we expect to incur costs related to implementation of multiple contract manufacturing arrangements, including equipment purchases, facility construction and technology transfer, as well as those related to the facilities that we are developing with Usina São Martinho and Paraíso Bioenergia and deployment of our technology at other sugar and ethanol mills. There can be no assurance that we will ever achieve or sustain profitability on a quarterly or annual basis.
We have very limited experience producing our products at the commercial scale needed for the development of our business, and we will not succeed if we cannot effectively scale our technology and processes.
To commercialize our products, we must be successful in using our yeast strains to produce target molecules at commercial scale and on an economically viable basis. Such production will require that our technology and processes be scalable from laboratory, pilot and demonstration projects and industrial-scale test runs to commercial-scale production. Up to and through most of 2010, our primary focus was research and development. We are now working to build out our supply chain and manufacturing operations at the same time that we are commencing sales of our products. We have very limited supply chain and manufacturing experience and cannot be sure that we will be successful in establishing these operations in a timely manner and on a scale that will allow us to meet our plans for commercialization. We are outsourcing to contract manufacturers and other third parties some of the production process development work associated with commercial scale-up and such third parties may not perform such development work at the level we expect. Furthermore, our technology may not perform as expected when applied at commercial scale on a sustained basis, or we may encounter operational challenges for which we are unable to devise a workable solution. For example, contamination in the production process could decrease process efficiency, create delays and increase our costs. We may not be able to scale up our production in a timely manner, if at all, even to the extent we successfully complete product development in our laboratories and pilot and demonstration facilities and conduct successful industrial-scale test runs. If this occurs, our ability to commercialize our technology will be adversely affected, and, with respect to any products that we are able to bring to market, we may not be able to lower the cost of production, which would adversely affect our ability to sell our products and achieve profits. Similarly, our ability to produce the volume of Biofene covered by our existing agreements is based in part on our ability to achieve substantially higher production efficiencies than we have to date. We may never achieve those production efficiencies.
We may require additional financing for future growth and may not be able to obtain such financing on favorable terms, if at all.
We will continue to fund our research and development and related activities and to provide working capital to fund production, storage, distribution and other aspects of our business. We may also from time to time consider acquisitions of other companies, assets or technologies to accelerate our research and development and commercialization efforts. In addition, we plan to make significant capital expenditures in connection with our contract manufacturing arrangements and mill production plant arrangements. While we plan to enter into relationships with sugar and ethanol producers for them to provide some portion or all of the capital needed to build the new, adjacent bolt-on production facility, such parties may not be willing to provide such capital

57


and we may be required to provide some or all of the financing that we currently expect to be provided by these owners. Furthermore, as currently contemplated, our operating expenditures, capital expenditure and other strategic plans for the remainder of 2011 and for 2012 require significant inflows of cash from credit facilities and similar sources of indebtedness, as well as funding from collaboration partners, that are not yet subject to definitive agreements or commitments from such parties. In addition, some of our anticipated capital expenditures depend on our finding additional sources of funding beyond those we have currently identified. If we fail to secure any such debt or collaboration cash, we will be required to seek other types of funding (such as corporate debt or equity funding) or to curtail our operations, including through reductions and delays of planned capital expenditures and scaling back our operations. If we are forced to curtail our operations, we may be unable to proceed with construction of certain planned production facilities, enter into definitive agreements for supply of feedstock and associated milling and production arrangements that are currently subject to letters of intent, commercialize our products within the timeline we expect, or otherwise continue our business as currently contemplated.
If, to support our planned operations, we seek additional types of funding that 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 ability to conduct our business. 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 resulting from our technologies, curtail or cease operations, or obtain funds through collaborative and licensing arrangements that may require us to relinquish commercial rights, or grant licenses on terms that are not favorable to us. If adequate funds are not available, we will not be able to successfully execute our business plan or continue our business.
If our major production facilities in Brazil do not successfully commence operations on schedule, our customer relationships, business and results of operations may be adversely affected.
We have selected Brazil as the optimal geography for a substantial proportion of the initial commercial production of our products, largely because of the availability of sugarcane as a feedstock and the existing infrastructure for producing, gathering and processing this sugarcane. Our business plan envisions that we will develop substantial production capacity in Brazil primarily through arrangements with existing sugar and ethanol producers. In order to have control over the development of our first major commercial production facility in Brazil, we entered into an agreement with Usina São Martinho, one of the largest sugar and ethanol producers in Brazil, for the joint ownership and development of a production facility at the Usina São Martinho mill. We also entered into a manufacturing agreement with Paraíso Bioenergia, also in Brazil, under which Amyris will be responsible for construction of the production facility. A substantial component of our planned production capacity for 2013 and beyond depends on the completion and commencement of operations at these production facilities, and development of additional facilities using similar models thereafter.
In order for our production facilities at Usina São Martinho and Paraíso Bioenergia to meet our goals for commencement of production, construction of the facilities must be completed on a timely basis and within the budget. Once the facilities are operational, they must perform as we have designed them. If we encounter significant delays, cost overruns, engineering problems, equipment supply constraints or other serious challenges in bringing these facilities online, we may be unable to produce our initial renewable products in the time frame we have planned, or we may need to continue to use contract manufacturing sources to a greater degree, which would reduce our expected gross margins. Further, if our efforts to complete, and commence production at, these facilities are not successful, other mill owners in Brazil may decide not to work with us to develop additional production facilities, demand more favorable terms or delay their commitment to invest capital in our production.
Our joint venture with Usina São Martinho contemplates that we will make significant capital expenditures and subject us to certain legal and financial terms that could adversely affect us.
The terms of our joint venture with Usina São Martinho are complex and are set forth in a number of agreements and schedules. If we and Usina São Martinho disagree over the interpretation of any of these joint venture documents, the future success of the joint venture may be impaired and any amount that we have invested in it may be at risk.
The facility at Usina São Martinho is our first major production facility construction project, and we will design and manage the project. We expect the construction costs of the new facility to total between $80 million to $100 million. Ultimately, under the terms of our joint venture agreements, Usina Sao Martinho would contribute the lower of 61.8 million reais ($33.3 million based on the exchange rate at September 30, 2011) and half of the aggregate cost of construction with us contributing the remainder; however the timing of contributions from Usina Sao Martino depend on in part on the successful commencement of commercial operations at the plant, which could leave us vulnerable in the event we encounter challenges in building the facility or bringing it online, delays in achieving commercial viability with our Biofene production process, disputes with Usina São Martinho or other unanticipated events that may occur prior to the time Usina São Martinho makes its capital contribution. In addition, because

58


Usina São Martinho's contribution is capped, we will bear the responsibility for construction costs in excess of those anticipated.
The joint venture has agreed to purchase, and Usina São Martinho has agreed to provide, feedstock for a price that is based on the average return that Usina São Martinho could receive from the production of its current products, sugar and ethanol. If the cost of these products increases relative to the price at which we can sell the output that we are required to purchase from the joint venture, our return on sales of products produced by the joint venture would be adversely affected. We are required to purchase the output of the joint venture for the first four years at a price that guarantees the return of Usina São Martinho's investment plus a fixed interest rate. We may not be able to sell the output at a price that allows us to achieve anticipated, or any, level of profitability on the product we acquire under these terms. Similarly, the return that we are required to provide the joint venture for products after the first four years may have an adverse effect on the profitability we achieve from acquiring the mill's output. Finally, our purchase obligation with the mill requires us to purchase the output regardless of whether we have a customer for such output, and our results of operations and financial condition would be adversely affected if we are unable to sell the output that we are required to purchase.
If the joint venture is terminated, we would be required to buy the joint venture's assets at fair value and transfer them to another location. In that event, we could incur significant unexpected costs and be required to find alternative locations for our facility, which would substantially delay the commencement of production. In addition, if Amyris Brasil becomes controlled, directly or indirectly, by a competitor of Usina São Martinho, then Usina São Martinho has the right to acquire our interest in the joint venture and if Usina São Martinho becomes controlled, directly or indirectly, by a competitor of ours, then we have the right to sell our interest in the joint venture to Usina São Martinho. In either case, the purchase price is to be determined in accordance with the joint venture agreements, and we would continue to have the obligation to acquire products produced by the joint venture for the remainder of the term of the supply agreement then in effect even though we might no longer be involved in the joint venture's management.
We consolidate our joint venture with Usina São Martinho in accordance with the guidance for consolidation of variable interest entities, which requires an ongoing assessment of whether we have the power to direct the activities that most significantly impact the joint venture's economic performance. We may be unable to consolidate this joint venture in the future, if we no longer meet the requirements for consolidation as a variable interest entity.
We plan to enter into arrangements with Brazilian sugar and ethanol producers to produce a substantial portion of our products, and if we are not able to complete these arrangements in a timely manner and on terms favorable to us, our business will be adversely affected.
To expand our production in Brazil beyond that of our initial production facilities with Biomin, Usina São Martinho and Paraíso Bioenergia, we intend to enter into agreements with sugar and ethanol producers in Brazil that require them to make a substantial capital or operating contribution to produce our renewable products. In return, we expect to provide them with a share of the higher gross margin we believe we will realize from the sale of these products relative to their existing products. There can be no assurance that a sufficient number of Brazilian sugar and ethanol mill owners will accept the opportunity to partner with us for the production of our products, whether on those terms or at all. Reluctance on the part of mill owners may be caused, for example, by their failure to understand our technology or product opportunities or agree with the greater economic benefits that we believe they can achieve from partnering with us. Mill owners may also be reluctant or unable to obtain needed capital, or they may be limited by existing contractual obligations with other third parties, liability, health and safety concerns, additional maintenance, training, operating and other ongoing expenses. We have entered into letters of intent with certain Brazilian sugar and ethanol producers to produce our products and Usina São Martinho has the option for production at a second mill, but these do not bind either the mill owner or us to enter into and proceed with a formal relationship. In addition, there are numerous issues regarding these mill relationships that must be successfully negotiated with each of the mill owners and we may not be successful in completing these negotiations. Even if sugar and ethanol producers are willing to build new facilities and produce our products, they may do so only on economic terms that place more of the cost, or confer less of the economic return, on us than we currently anticipate. If we are not successful in negotiations with sugar and ethanol mill owners, our cost of gaining this production capacity may be higher than we anticipate in terms of up-front costs, capital expenditure or lost future returns, and we may not gain the production base that we need in Brazil to allow us to grow our business.
Building new, bolt-on facilities adjacent to existing sugar and ethanol mills for production of our products requires significant capital, and if mill owners are unwilling to contribute capital, or do not have or have access to this capital, production of our products would be more limited or more expensive than expected and our business would be harmed.
We expect to expand our production capacity using a capital light approach, through which mill owners would invest a substantial portion or all of the capital needed to build our bolt-on production facilities, in exchange for a share of the higher gross margin from the sale of our renewable chemicals and fuels, as compared to their current products. Mill owners may perceive this construction as a costly process requiring substantial capital or operating contribution. Mill owners may not have sufficient capital of their own for this purpose or may not be willing or able to secure financing. As a result, they may choose not to contribute the

59


amount of capital that we anticipate or may need to seek external sources of financing, which may not be available. If the mill owner needs to obtain financing through debt, we may be required to provide a guarantee. Furthermore, even if we are able to establish mill relationships where mill owners contribute desired levels of capital, we will be required to contribute significant capital ourselves, as is the case with the facilities at Biomin, Usina São Martinho and Paraíso Bioenergia. As we add relationships and commit to building additional production facilities, we will require additional financial resources to finance such projects, which could include equity financing, debt and additional contributions from existing and new collaboration partners.
Even if sugar and ethanol producers are attracted to the opportunity, they may not attract the credit that they need or want to do so. In the past, Brazil has experienced very high rates of inflation, and the government's measures to control inflation have often included maintaining a tight monetary policy with high interest rates, restricting the availability of credit. Limitations in the credit markets that would impede or prevent this kind of financing could adversely affect our ability to develop the production capacity needed to allow us to grow our business.
Our strategy of relying on existing Brazilian sugar and ethanol producers to produce our products will make us substantially dependent on these owners, and they may not perform their obligations under agreements with us or otherwise perform to our standards.
Even if we reach agreements with Brazilian sugar and ethanol producers to produce our products, initially the mill owners will be unfamiliar with our technology and production processes. We cannot be sure that the owners will have or develop the operational expertise needed to run the additional equipment and processes required to produce our products. Further, we may have limited control over the application of our specifications and quality requirements and the amount or timing of resources that any mill owner is able or willing to devote to production of our products. Mill owners may fail to perform their obligations as expected or may breach or terminate key terms of their agreements with us, such as the obligation to provide the agreed-upon amount of sugarcane feedstock for the production of our products. Moreover, disagreements with one or more mill owners could develop, and any conflict with a mill owner could negatively impact our relationship, and reduce our ability to enter into future agreements, with other sugar and ethanol mill owners. Furthermore, the sugar and ethanol mills may be subject to unanticipated disruptions to operations such as unscheduled down times, operational hazards, equipment failures, labor disruptions, land reform movements, political disruptions and natural disasters, thus preventing or delaying the production of our products. If our sugar and ethanol mill partners in Brazil fail to successfully operate the production facilities for our products, or terminate their relationships with us, such operational difficulties could adversely impact the timely and efficient production of our products. As a result, our business, results of operations and financial condition could be harmed.
Our reliance on contract manufacturers to produce our products during construction of our Usina São Martinho joint venture production facility and potentially thereafter exposes us to risks relating to the price and availability of that contract manufacturing and could adversely affect our growth.
We commenced production of initial specialty-chemical products in 2011 through the use of contract manufacturers and we anticipate that we will continue to use contract manufacturers to produce a portion of our products thereafter. Setting up sufficient contract manufacturing facilities requires us to make significant capital expenditures, which reduces our cash and subjects us to losses from depreciation. For example, we have incurred, and expect to continue to incur, significant capital expenditures in connection with our contract manufacturing arrangements, including Biomin in Brazil, Tate & Lyle in the U.S., and Antibióticos in Spain. Furthermore, we have outsourced production process development to some of these contract manufacturers and are relying on them to help us achieve production efficiency in our commercial scale-up efforts. We cannot be sure that contract manufacturers with this capacity will be available when we need their services, that they will be willing to dedicate a portion of their production capacity to our products or that we will be able to reach acceptable price and other terms with them for the provision of their production services. If we are unable to secure the services of such third parties when and as needed, we may lose customer opportunities and the growth of our business may be impaired. Furthermore, third party manufacturing partners may not be successful in the development work we have outsourced. For example, they may prioritize other projects or customers or lack expertise or resources at any given time. Failures to develop our production process could prevent us from being able to offer our planned products at competitive prices, on the timeline we expect, or at all. In addition, we expect that our costs to produce products using contract manufacturers will be higher than the costs to produce our products in sugar and ethanol mills with which we have entered into long term relationships.
The production of our products will require sugar feedstock, and the inability to obtain such feedstock in sufficient quantities or in a timely manner may limit our ability to produce our products.
We anticipate that the production of our products will require large volumes of feedstock. For our major production facilities, we expect to rely primarily on Brazilian sugarcane. We cannot predict the future availability of feedstock or be sure that our mill partners, which we expect to supply the sugarcane feedstock necessary to produce our products in Brazil, will be able to supply it in sufficient quantities or in a timely manner. Furthermore, to the extent we are required to rely on sugar feedstock other than

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Brazilian sugarcane, the cost of such feedstock may be higher than we expect, increasing our anticipated production costs. Feedstock crop yields and sugar content depend on weather conditions, such as rainfall and temperature, that vary. Weather conditions have historically caused volatility in the ethanol and sugar industries by causing crop failures or reduced harvests. Excessive rainfall can adversely affect the supply of sugarcane and other sugar feedstock available for the production of our products by reducing the sucrose content and limiting growers' ability to harvest. Crop disease and pestilence can also occur from time to time and can adversely affect feedstock growth, potentially rendering useless or unusable all or a substantial portion of affected harvests. With respect to sugarcane, our initial primary feedstock, the limited amount of time during which it keeps its sugar content after harvest and the fact that sugarcane is not itself a traded commodity increases these risks and limits our ability to substitute supply in the event of such an occurrence. If production of sugarcane or any other feedstock we may use to produce our products is adversely affected by these or other conditions, our production will be impaired, and our business will be adversely affected.
If we are unable to decrease our production costs, we may not be able to produce our products at competitive prices and our ability to grow our business will be limited.
Currently, our costs of production are not low enough to allow us to offer many of our planned products at competitive prices.  For us to establish significant sales of our specialty chemicals or fuels, we must achieve commercially-viable production efficiencies and cost structures. Our production cost depends on many factors that could have a negative effect on our ability to offer our planned products at competitive prices. For example, the price of feedstock and our ability to build large-scale production capacity will have a significant impact on our pricing. Other factors that impact our production cost include yield, productivity, separation efficiency and chemical process efficiency. Yield refers to the amount of the desired molecule that can be produced from a fixed amount of feedstock. Productivity represents the rate at which our product is produced by a given yeast strain. Separation efficiency refers to the amount of desired product produced in the fermentation process that we are able to extract and the time that it takes to do so. Chemical process efficiency refers to the cost and yield for the chemical finishing steps that convert our target molecule into a desired product. In order to successfully enter transportation fuels and certain other specialty chemical markets, we must produce those products at significantly lower cost, which will require both substantially higher yields than we have achieved to date and other significant improvements in production efficiency. There can be no assurance that we will be able to make these improvements or reduce our production costs sufficiently to offer our planned products at competitive prices, and any such failure could have a material adverse impact on our business and prospects.
Our ability to establish substantial commercial sales of our products is subject to many risks, any of which could prevent or delay revenue growth and adversely impact our customer relationships, business and results of operations.
There can be no assurance that our products will be approved or accepted by customers, that customers will choose our products over competing products, or that we will be able to sell our products profitably at prices and with features sufficient to establish demand. Although we have recently begun to sell squalane and some diesel, we are in the very early stages of selling our products into the commercial markets we are targeting. Our sales and marketing efforts for our initial products are primarily focused on a small number of target customers and we will need to convince them that our products are comparable to or better than the products they currently use that we seek to replace. In addition, these customers will need to complete product qualification procedures, which may not be achieved in a timely manner or at all.
We also face risks related to commercial production which could affect our efforts to commercialize our products. While we have entered into a variety of contract manufacturing and chemical processing agreements to facilitate near-term production, we may need to expand these arrangements or enter into additional production arrangements to meet our production goals in any given year. There can be no assurance that we will be able to complete additional contract manufacturing or similar agreements as needed on a timely basis or on commercially reasonable terms. Also, in order for production to commence under some of our existing manufacturing arrangement, and perhaps under future contract manufacturing arrangements, we will have to provide equipment needed for the production of our products and we cannot be assured that such equipment can be ordered, or installed, on a timely basis, at acceptable costs, or at all. In addition, we will need to transfer our yeast strains and production processes to third-party contract manufacturing facilities, which may pose technical or operational challenges that delay production or increase our costs. The failure of these facilities to produce our products on a timely basis or at all, or with adequate quality or in volumes sufficient to meet our customer demand, could harm our relationships with our customers and prevent or delay sales. Our production costs will also depend on our ability to make progress in improving the yield, productivity, separation efficiency and chemical process efficiency of our production process. If we are unable to make the necessary progress or otherwise wish to accelerate our commercialization efforts, we may sell our products at a loss in order to establish demand for our products and develop customer relationships, which could adversely affect our results of operations.
We have entered into a number of agreements for the development, initial commercialization and sale of certain products that contain important technical, development and commercial milestones. If we do not meet those milestones our future revenue and financial results will be harmed.
We have entered into a number of agreements regarding arrangements for the further development of certain of our products

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and, in some cases, for ultimate sale to the customer under the agreement. None of these agreements affirmatively obligates the other party to purchase specific quantities of any products at this time, and these agreements contain important conditions that must be satisfied before any such purchases may be made. These conditions include research and development milestones and technical specifications that must be achieved to the satisfaction of our customers, which we cannot be certain we will be able to achieve. Some agreements provide that we will not seek to initiate sales until we achieve advances in production efficiency to lower production costs. In addition, these agreements contain exclusivity and other terms that may limit our ability to commercialize our products and technology in ways that we do not currently envision. If we do not achieve these contractual milestones, our revenues and financial results will be harmed.
We have also entered into a collaboration agreement with an affiliate of Total S.A., or Total, for the development of future to-be-determined chemical and/or fuel products and for the eventual production and commercialization of these products. We cannot be certain that we will be able to reach final agreement on any specific future product development projects or that any products will be successfully developed under this collaboration or, even if developed, that they will be successfully produced or commercialized.
Our relationship with our strategic partner Total may have a substantial impact on our company.
We have entered into a strategic relationship with Total. As part of this relationship, Total has made a significant equity investment in our company and has certain board membership rights, as well as certain first negotiation rights in the event of a sale of our company. As a result, Total will have access to a significant amount of information about our company and the ability to influence our management and affairs. Total's right of first negotiation may adversely affect our ability to complete a change in control transaction that our Board of Directors believes is in the best interests of stockholders other than Total.
We also entered into a license, development, research and collaboration agreement with an affiliate of Total, under which we may develop, produce and commercialize products with Total. The agreement provides for Total to pay up to the first $50.0 million in research costs for selected research and development projects, but we must agree with Total on the product development projects we wish to pursue. Although we have agreed on two initial product development programs, we have not yet finalized all relevant terms and conditions for those programs. We cannot be certain that we will agree on any future product development projects. Our ability to successfully pursue product development under this agreement will depend, among other things, on our ability to work cooperatively with Total. If we cannot agree to the final terms and conditions for our initial projects, or agree on any subsequent projects, then we would not receive the research and development funding we expect from Total, and this could adversely affect our product development plans and would lead to an impairment of our deferred charged assets. In addition, Total has a right of first negotiation with us with respect to exclusive commercialization arrangements that we would propose to enter into with certain third parties, as well as the right to purchase any of our products on terms not less favorable than those offered to or received by us from third parties in any market where Total or its affiliates have a significant market position. These rights might inhibit potential strategic partners or potential customers from entering into negotiations with us about future business opportunities. Further, the agreement is complex and covers a range of future activities, and disputes may arise between us and Total that could delay the programs on which we are working or could prevent the commercialization of products developed under our collaboration agreement. Total also has the right to terminate the collaboration agreement in the event we undergo a sale or change of control to certain entities, which could discourage a potential acquirer from making an offer to acquire us.
In addition, in August 2011, we entered into a term sheet with Total for worldwide commercialization of Amyris diesel and other potential products, which, among other things, contemplates additional funding by Total to Amyris under the associated collaboration. There can be no assurance that the term sheet with Total will result in definitive agreements or that any final agreements will, ultimately, contain the terms provided in the term sheet. Our ability to commercialize Amyris diesel depends on our investing significantly in development, production and scale up and, if we cannot secure this funding from the anticipated agreement with Total, we may be compelled to seek alternative funding, which may not be available to us on acceptable terms or at all.
An increase in the price and profitability of ethanol and sugar relative to our products could adversely affect our arrangements with sugar and ethanol producers.
In order to induce owners of sugar and ethanol facilities to produce our products, we generally have planned to compensate them for the feedstock consumed in the production of our products in an amount equal to the revenue they would have realized had they instead produced their traditional products, plus any incremental costs incurred in the production of our products over their usual production costs. Also, as we sell our products, we expect to share a portion of the realized gross margin with these mill owners. An increase in the price of ethanol or sugar relative to the price at which we can sell our products could result in the cost of our products increasing without a corresponding increase in the price at which we can sell our products. In this event our results of operations would be adversely affected. If ethanol prices are sufficiently high that the return from converting a given amount of sugarcane to ethanol exceeds the return from converting that amount of sugarcane into our products, then we will have

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to compensate the mill owner for that loss or risk the mill owner reverting to the production of ethanol and not producing our products at all. Many factors could cause this unfavorable price dislocation. If sugar prices increase over a sustained period of time, this may encourage sugar production at the expense of ethanol in mills with flexibility to produce both products, which in turn could cause domestic prices in Brazilian reais for ethanol to increase. In addition, the Brazilian government currently requires the use of anhydrous ethanol as a gasoline additive. Any change in these government policies could affect ethanol demand in a way that discourages mill owners from producing our products.
The price of sugarcane feedstock can be volatile as a result of changes in industry policy and may increase the cost of production of our products.
In Brazil, Conselho dos Produtores de Cana, Açúcar e Álcool (Council of Sugarcane, Sugar and Ethanol Producers), or Consecana, an industry association of producers of sugarcane, sugar and ethanol, sets market terms and prices for general supply, lease and partnership agreements for sugarcane. Changes in such prices and terms could result in higher sugarcane prices and/or a significant decrease in the volume of sugarcane available for the production of our products. If Consecana were to cease to be involved in this process, such prices and terms could become more volatile. Any of these events could adversely affect our business and results of operations.
Most of our planned initial commercial production capacity will be in Brazil, and our business will be adversely affected if we do not operate effectively in that country.
For the foreseeable future, we will be subject to risks associated with the concentration of essential product sourcing and operations in Brazil. 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 Brazil's economy. For example, the government's 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. We have no control over, and cannot predict, what policies or actions the Brazilian government may take in the future. For example, the Brazilian government may take actions to support state-controlled entities in our industry that could adversely affect us. Our business, financial performance and prospects may be adversely affected by, among others, the following factors:
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delays or failures in securing licenses, permits or other governmental approvals necessary to build and operate facilities and use our yeast strains to produce products;
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rapid consolidation in the sugar and ethanol industries in Brazil, which could result in a decrease in competition;
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political, economic, diplomatic or social instability in or affecting Brazil;
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changing interest rates;
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tax burden and policies;
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effects of changes in currency exchange rates;
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exchange controls and restrictions on remittances abroad;
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inflation;
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land reform movements;
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export or import restrictions that limit our ability to move our products out of Brazil or interfere with the import of essential materials into Brazil;
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changes in or interpretations of foreign regulations that may adversely affect our ability to sell our products or repatriate profits to the U.S.;
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tariffs, trade protection measures and other regulatory requirements;
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successful compliance with U.S. and foreign laws that regulate the conduct of business abroad;
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an inability, or reduced ability, to protect our intellectual property in Brazil including any effect of compulsory licensing imposed by government action; and
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difficulties and costs of staffing and managing foreign operations.
Such factors could have a material adverse impact on our results of operations and financial condition.
We cannot predict whether the current or future Brazilian government will implement changes to existing policies on taxation, exchange controls, monetary strategy and social security, among others. We cannot estimate the impact of any such changes on the Brazilian economy or our operations.

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We may face risks relating to the use of our genetically modified yeast strains and if we are not able to secure regulatory approval for the use of our yeast strains or if we face public objection to our use of them, our business could be adversely affected.
The use of genetically-modified microorganisms, or GMMs, such as our yeast strains, is subject to laws and regulations in many countries, some of which are new and some of which are still evolving. Public attitudes about the safety and environmental hazards of, and ethical concerns over, genetic research and GMMs could influence public acceptance of our technology and products. In the U.S., the Environmental Protection Agency, or EPA, regulates the commercial use of GMMs as well as potential products from the GMMs. While the strain of genetically modified yeast that we currently use for the development and anticipate using for the commercial production of our target molecules, S. cerevisiae, is eligible for exemption from EPA review because it is recognized as posing a low risk, we must satisfy certain criteria to achieve this exemption, including but not limited to use of compliant containment structures and safety procedures, and we cannot be sure that we will meet such criteria in a timely manner, or at all. If exemption of S. cerevisiae is not obtained, our business may be substantially harmed. In addition to S. cerevisiae, we may seek to use different GMMs in the future that will require EPA approval. If approval of different GMMs is not secured, our ability to grow our business could be adversely affected.
In Brazil, GMMs are regulated by the National Biosafety Technical Commission, or CTNBio. We have obtained approval from CTNBio to use GMMs in a contained environment in our Campinas facilities for research and development purposes as well as at Biomin, our first contract manufacturing facility in Brazil. In addition, we have obtained initial commercial approval from CTNBio for one of our current yeast strains. As we continue to develop new yeast strains and deploy our technology at new production facilities in Brazil, we will be required to obtain further approvals from CTNBio in order to use these strains in commercial production in Brazil. We may not be able to obtain approvals from relevant Brazilian authorities on a timely basis, or at all, and if we do not, our ability to produce our products in Brazil would be impaired, which would adversely affect our results of operations and financial condition.
In addition to our production operations in the U.S. and Brazil, we have entered into a contract manufacturing agreement with a company in Spain and expect to identify other locations for production around the world. The use of GMM technology is strictly regulated in the European Union, which has established various directives for member states regarding regulation of the use of such technology, including notification processes for contained use of such technology. We expect to encounter GMM regulations in most if not all of the countries in which we may seek to establish production capabilities, and the scope and nature of these regulations will likely be different from country to country. If we cannot meet the applicable requirements in other countries in which we intend to produce products using our yeast strains, or if it takes longer than anticipated to obtain such approvals, our business could be adversely affected.
We may not be able to obtain regulatory approval for the sale of our renewable products.
Our renewable chemical products may be subject to government regulation in our target markets. In the U.S., the EPA administers the Toxic Substances Control Act, or TSCA, which regulates the commercial registration, distribution, and use of many chemicals. Before an entity can manufacture or distribute significant volumes of a chemical, it needs to determine whether that chemical is listed in the TSCA inventory. If the substance is listed, then manufacture or distribution can commence immediately. If not, then often a “Chemical Abstracts Service” number registration and pre-manufacture notice must be filed with the EPA for a review period of up to 180 days including extensions. Some of the products we produce or plan to produce, such as Biofene and squalane, are already in the TSCA inventory. Others, such as our lubricants, farnesane (diesel) and new jet fuel molecules, are not yet listed. We may not be able to expediently receive approval from the EPA to list the molecules we would like to make on the TSCA registry, resulting in delays or significant increases in testing requirements. A similar program exists in the European Union, called REACH (Registration, Evaluation, Authorization, and Restriction of Chemical Substances). We similarly need to register our products with the European Commission, and this process could cause delays or significant costs. To the extent that other geographies, such as Brazil, may rely on TSCA or REACH for chemical registration in their geographies, delays with the U.S. or European authorities may subsequently delay entry into these markets as well.
Our diesel fuel is subject to regulation by various government agencies, including the EPA and the California Air Resources Board in the U.S. and Agência Nacional do Petróleo, or ANP, in Brazil. To date, we have obtained registration with the EPA for the use of our diesel in the U.S. at a 35% blend rate with petroleum diesel. We are currently working to secure ANP approval for use of our diesel in Brazil at a 10% blend rate. We are also currently in the process of registration of our fuel with the California Air Resources Board and the European Commission. Registration with each of these bodies is required for the sale and use of our fuels within their respective jurisdictions. In addition, for us to achieve full access to the U.S. fuels market for our fuel products, we will need to obtain EPA and California Air Resources Board (and potentially other state agencies) certifications for our feedstock pathway and production facilities, including certification of a feedstock lifecycle analysis relating to greenhouse gas emissions. Any delay in obtaining these additional certifications could impair our ability to sell our renewable fuels to refiners, importers, blenders and other parties that produce transportation fuels as they comply with Federal and state requirements to include certified

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renewable fuels in their products.
We expect to encounter regulations in most if not all of the countries in which we may seek to sell our renewable chemical and fuel products, and we cannot assure you that we will be able to obtain necessary approvals in a timely manner or at all. If our chemical and fuel products do not meet applicable regulatory requirements in a particular country or at all, then we may not be able to commercialize our products and our business will be adversely affected.
We cannot assure you that our products will be approved or accepted by customers in specialty chemical markets.
The markets we intend to enter first are primarily those for specialty chemical products used by large consumer products or specialty chemical companies. In entering these markets, we intend to sell our products as alternatives to chemicals currently in use, and in some cases the chemicals that we seek to replace have been used for many years. The potential customers for our molecules generally have well developed manufacturing processes and arrangements with suppliers of the chemical components of their products and may have a resistance to changing these processes and components. These potential customers frequently impose lengthy and complex product qualification procedures on their suppliers, influenced by consumer preference, manufacturing considerations such as process changes and capital and other costs associated with transitioning to alternative components, supplier operating history, regulatory issues, product liability and other factors, many of which are unknown to, or not well understood by, us. Satisfying these processes may take many months or years. If we are unable to convince these potential customers that our products are comparable to the chemicals that they currently use or that the use of our products is otherwise to their benefits, we will not be successful in entering these markets and our business will be adversely affected.
If we are unable to satisfy the significant product qualification requirements of equipment manufacturers, we may not be able to successfully enter markets for transportation fuels, and our business would be adversely affected.
In order for our diesel fuel product to be accepted in various countries around the world, diesel engine manufacturers must determine that the use of our fuels in their equipment will not invalidate product warranties and that they otherwise regard our diesel as an acceptable fuel. In addition, we must successfully demonstrate to these manufacturers that our fuel does do not degrade the performance or reduce the life cycle of their engines or cause them to fail to meet emissions standards. Meeting these suitability standards can be a time consuming and expensive process, and we may invest substantial time and resources into such qualification efforts without ultimately securing approval. To date, our diesel fuel products have achieved limited approvals from certain engine manufacturers, but we cannot be assured that other engine or vehicle manufacturers or fleet operators, will approve usage of our fuels. Although our diesel fuel satisfies existing pipeline operator and fuel distributor requirements, such fuel has not been reviewed nor transported by such operators as of this date. If these operators impose volume limitations on the transport of our fuels, our ability to sell our fuels may be impaired.
Our ability to sell a jet fuel product will be subject to the same types of qualification requirements as our diesel fuel, although we believe the qualification process will take longer and will be more expensive than the process for diesel.
We expect our international operations to expose us to the risk of fluctuation in currency exchange rates and rates of foreign inflation, which could adversely affect our results of operations.
We currently incur some costs and expenses in Brazilian reais and may in the future incur additional expenses in foreign currencies and derive a portion of our revenues in the local currencies of customers throughout the world. As a result, our revenues and results of operations are subject to foreign exchange fluctuations, which we may not be able to manage successfully. During the past few decades, the Brazilian currency in particular faced frequent and substantial exchange rate fluctuations in relation to the U.S. dollar and other foreign currencies. There can be no assurance that the real will not significantly appreciate or depreciate against the U.S. dollar in the future.
We bear the risk that the rate of inflation in the foreign countries where we incur costs and expenses or the decline in value of the U.S. dollar compared to those foreign currencies will increase our costs as expressed in U.S. dollars. For example, future measures by the Central Bank of Brazil to control inflation, including interest rate adjustments, intervention in the foreign exchange market and changes to the fixed the value of the real, may weaken the U.S. dollar in Brazil. Whether in Brazil or otherwise, we may not be able to adjust the prices of our products to offset the effects of inflation or foreign currency appreciation on our cost structure, which could increase our costs and reduce our net operating margins. If we do not successfully manage these risks through hedging or other mechanisms, our revenues and results of operations could be adversely affected.
We expect to face competition for our specialty chemical and transportation fuels products from providers of petroleum-based products and from other companies seeking to provide alternatives to these products, and if we cannot compete effectively against these companies or products we may not be successful in bringing our products to market or further growing our business after we do so.
We expect that our renewable products will compete with both the traditional, largely petroleum-based specialty chemical

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and fuels products that are currently being used in our target markets and with the alternatives to these existing products that established enterprises and new companies are seeking to produce. Amyris Fuels competes with other distributors in buying and selling third party ethanol and reformulated ethanol-blended gasoline.
In the specialty chemical markets that we will seek to enter initially, and in other chemical markets that we may seek to enter in the future, we will compete primarily with the established providers of chemicals currently used in these products. Producers of these incumbent products include global oil companies, large international chemical companies and other companies specializing in specific products, such as squalane or essential oils. We may also compete in one or more of these markets with products that are offered as alternatives to the traditional petroleum-based or other traditional products being offered in these markets.
 
In the transportation fuels market, we expect to compete with independent and integrated oil refiners, advanced biofuels companies and biodiesel companies. These refiners compete with us by selling traditional fuel products and some are also pursuing hydrocarbon fuel production using non-renewable feedstocks, such as natural gas and coal, as well as processes using renewable feedstocks, such as vegetable oil and biomass. We also expect to compete with companies that are developing the capacity to produce diesel and other transportation fuels from renewable resources in other ways. These include advanced biofuels companies using specific enzymes that they have developed to convert cellulosic biomass, which is non-food plant material such as wood chips, corn stalks and sugarcane bagasse, into fermentable sugars. Similar to us, some companies are seeking to use engineered enzymes to convert sugars, in some cases from cellulosic biomass and in others from natural sugar sources, into renewable diesel and other fuels. Biodiesel companies convert vegetable oils and animal oils into diesel fuel and some are seeking to produce diesel and other transportation fuels using thermochemical methods to convert biomass into renewable fuels.
With the emergence of many new companies seeking to produce chemicals and fuels from alternative sources, we may face increasing competition from alternative fuels and chemicals companies. As they become established and funded, some of these companies may be able to establish production capacity and commercial partnerships to compete with us. If we are unable to establish production and sales channels that allow us to offer comparable products at attractive prices, we may not be able to compete effectively with these companies.
We believe the primary competitive factors in both the chemicals and fuels markets are:
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product price;
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product performance and other measures of quality;
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infrastructure compatibility of products;
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sustainability; and
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dependability of supply.
The oil companies, large chemical companies and well-established agricultural products companies with whom we compete are much larger than we are, have, in many cases, well developed distribution systems and networks for their products, have valuable historical relationships with the potential customers we are seeking to serve and have much more extensive sales and marketing programs in place to promote their products. In order to be successful, we must convince customers that our products are at least as effective as the traditional products they are seeking to replace and must provide our products on a cost-competitive basis with these traditional products and other available alternatives. Some of our competitors may use their influence to impede the development and acceptance of renewable products of the type that we are seeking to produce.
We believe that for our chemical products to succeed in the market, we must demonstrate that our products are comparable alternatives to existing products and to any alternative products that are being developed for the same markets based on some combination of product cost, availability, performance, and consumer preference characteristics. With respect to our diesel and other transportation fuels products, we believe that our product must perform as effectively as petroleum-based fuel, or alternative fuels, and be available on a cost-competitive basis. In addition, with the wide range of renewable fuels products under development, we must be successful in reaching potential customers and convincing them that ours are effective and reliable alternatives.
Amyris Fuels currently competes with regional distributors in its purchase, distribution and sale of third party ethanol and reformulated ethanol-blended gasoline in the southeastern U.S. and competes with other suppliers based on price, convenience and reliability of supply.
A decline in the price of petroleum and petroleum-based products may reduce demand for many of our renewable products and may otherwise adversely affect our business.
We anticipate that most of our renewable products, and in particular our fuels, will be marketed as alternatives to corresponding petroleum-based products. If the price of oil falls, we may be unable to produce products that are cost-effective alternatives to their petroleum-based products. Declining oil prices, or the perception of a future decline in oil prices, may adversely affect the

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prices we can obtain from our potential customers or prevent potential customers from entering into agreements with us to buy our products. During sustained periods of lower oil prices we may be unable to sell some of our products, which could materially and adversely affect our operating results.
 
Our pursuit of new product opportunities may not be technically feasible, which would limit our ability to expand our product line and sources of revenues.
Our technology provides us with the capability to genetically engineer microbes to produce potentially thousands of types of molecules. In order to grow our business over time we will need to, and we intend to, commit substantial resources, alone or with collaboration partners, to the development and analysis of these new molecules and the new pathways, or microbial strains, required to produce them. There is no guarantee that we will be successful in creating microbial strains that are capable of producing each target molecule. For example, some target molecules may be “toxic” to the microbe, which means that the production of the molecule kills the microbe. Other molecules may be biologically producible in small amounts but cannot be produced in quantities adequate for commercial production. Alternatively, the compounds are produced in adequate quantities but because they are volatile, we are unable to capture the compounds in commercially adequate quantities. In addition, some of our microbes may have longer production cycles that may make production of the target molecules more costly. If we are unable to resolve issues of this nature, we may not be able to expand our product line to introduce new sources of future revenues.
Changes in government regulations, including subsidies and economic incentives, could have a material adverse effect upon our business.
The market for renewable fuels is heavily influenced by foreign, federal, state and local government regulations and policies. Changes to existing or adoption of new domestic or foreign federal, state and local legislative initiatives that impact the production, distribution or sale of renewable fuels may harm our renewable fuels business. For example, in 2007, the U.S. Congress passed an alternative fuels mandate that called for nearly 14 billion gallons of liquid transportation fuels sold in 2011 to come from alternative sources, including renewable fuels, a mandate that grows to 36 billion gallons by 2022. Of this amount, a minimum of 21 billion gallons must be advanced biofuels, mostly cellulosic, by 2022. In the U.S. and in a number of other countries, these regulations and policies have been modified in the past and may be modified again in the future. Any reduction in mandated requirements for fuel alternatives and additives to gasoline may cause demand for biofuels to decline and deter investment in the research and development of renewable fuels. In addition, the U.S. Congress has passed legislation that extends tax credits to blenders of certain renewable fuel products. However, there is no assurance that this or any other favorable legislation will remain in place. For example, the biodiesel tax credit expired in December 2009, and its extension was not approved until December 2010. Any reduction in, or phasing out or elimination of existing tax credits, subsidies and other incentives in the U.S. and foreign markets for renewable fuels, or any inability of our customers to access such credits, subsidies and incentives, may adversely affect demand for our products and increase the overall cost of commercialization of our renewable fuels, which would adversely affect our renewable fuels business. In addition, market uncertainty regarding future policies may also affect our ability to develop new renewable products or to license our technologies to third parties and to sell products to our end customers. Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our business, financial condition and results of operations.
Concerns associated with renewable fuels, including land usage, national security interests and food crop usage, are receiving legislative, industry and public attention. This could result in future legislation, regulation and/or administrative action that could adversely affect our business. Any inability to address these requirements and any regulatory or policy changes could have a material adverse effect on our business or the business of our partners or customers, financial condition and results of operations.
Furthermore, the production of our products will depend on the availability of feedstock, especially sugarcane. Agricultural production and trade flows are subject to government policies and regulations. Governmental policies affecting the agricultural industry, such as taxes, tariffs, duties, subsidies, incentives and import and export restrictions on agricultural commodities and commodity products, can influence the planting of certain crops, the location and size of crop production, whether unprocessed or processed commodity products are traded, the volume and types of imports and exports, and the availability and competitiveness of feedstocks as raw materials. Future government policies may adversely affect the supply of sugarcane, restrict our ability to use sugarcane to produce our products, and negatively impact our future revenues and results of operations.
 
We may incur significant costs complying with environmental laws and regulations, and failure to comply with these laws and regulations could expose us to significant liabilities.
We use hazardous chemicals and radioactive and biological materials in our business and are subject to a variety of federal, state and local laws and regulations governing the use, generation, manufacture, storage, handling and disposal of these materials both in the U.S. and overseas. Although we have implemented safety procedures for handling and disposing of these materials and waste products in an effort to comply with these laws and regulations, we cannot be sure that our safety measures are compliant or capable of eliminating the risk of accidental injury or contamination from the use, storage, handling or disposal of hazardous materials. In the event of contamination or injury, we could be held liable for any resulting damages, and any liability could exceed

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our insurance coverage. There can be no assurance that violations of environmental, health and safety laws will not occur in the future as a result of human error, accident, equipment failure or other causes. Compliance with applicable environmental laws and regulations may be expensive, and the failure to comply with past, present, or future laws could result in the imposition of fines, third party property damage, product liability and personal injury claims, investigation and remediation costs, the suspension of production, or a cessation of operations, and our liability may exceed our total assets. Liability under environmental laws can be joint and several and without regard to comparative fault. Environmental laws could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations, which could impair our research, development or production efforts and harm our business.
Our financial results could vary significantly from quarter to quarter and are difficult to predict.
Our revenues and results of operations could vary significantly from quarter to quarter because of a variety of factors, many of which are outside of our control. As a result, comparing our results of operations on a period-to-period basis may not be meaningful. Factors that could cause our quarterly results of operations to fluctuate include:
•achievement, or failure to achieve, technology or product development milestones needed to allow us to enter identified markets on a cost effective basis;
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delays or greater than anticipated expenses associated with the completion of new production facilities, and the time to complete scale-up of production following completion of a new production facility;
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disruptions in the production process at any facility where we produce our products;
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the timing, size and mix of sales to customers for our products;
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increases in price or decreases in availability of our feedstocks;
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the unavailability of contract manufacturing capacity altogether or at anticipated cost;
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fluctuations in foreign currency exchange rates;
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gains or losses associated with our hedging activities, especially in Amyris Fuels;
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fluctuations in the price of and demand for sugar, ethanol, and petroleum-based and other products for which our products are alternatives;
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seasonal production and sale of our products;
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the effects of competitive pricing pressures, including decreases in average selling prices of our products;
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unanticipated expenses associated with changes in governmental regulations and environmental, health and safety requirements;
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reductions or changes to existing fuel and chemical regulations and policies;
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departure of executives or other key management employees;
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our ability to use our net operating loss carry forwards to offset future taxable income;
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business interruptions such as earthquakes and other natural disasters;
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our ability to integrate businesses that we may acquire;
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risks associated with the international aspects of our business; and
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changes in general economic, industry and market conditions, both domestically and in our foreign markets.
Due to these factors and others the results of any quarterly or annual period may not meet our expectations or the expectations of our investors and may not be meaningful indications of our future performance.
Disruption of transportation and logistics services or insufficient investment in public infrastructure could adversely affect our business.
We initially intend to manufacture most of our renewable products in Brazil, where existing transportation infrastructure is underdeveloped. Substantial investments required for infrastructure changes and expansions may not be made on a timely basis or at all. Any delay or failure in making the changes to or expansion of infrastructure could harm demand or prices for our renewable products and impose additional costs that would hinder their commercialization.
In Brazil, a substantial portion of commercial transportation is by truck, which is significantly more expensive than the rail transportation available to U.S. and certain other international producers. Our dependence on truck transport may affect our production cost and, consequently, impair our ability to compete with petroleum-sourced products in local and world markets.

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Our fuels marketing and distribution business depends on purchasing and reselling ethanol produced by third parties and reformulated ethanol-blended gasoline, which may not be available to us on favorable terms or at all and which subjects us to distribution and environmental risks.
Amyris Fuels currently purchases and sells ethanol and reformulated ethanol-blended gasoline under short-term agreements and in spot transactions. In the near term, we plan to continue the purchase and sale of ethanol and reformulated ethanol-blended gasoline and to hedge the price volatility of ethanol and gasoline using futures contracts. We cannot predict future market prices or other terms of any supply contracts that Amyris Fuels may enter into. We cannot assure you that Amyris Fuels will be able to purchase ethanol and reformulated ethanol-blended gasoline at favorable prices, allowing our ethanol and reformulated ethanol-blended gasoline marketing activities to be profitable. In addition, there can be no guarantee that futures contracts to hedge the risks from the purchase and sale of ethanol and gasoline will effectively mitigate risk as intended, that such hedging instruments will always be available, or that counterparties to such hedging contracts will honor their obligations. As a result of these pricing and hedging uncertainties, Amyris Fuels may incur operating losses, harming our results of operations and financial condition. In addition, in order to distribute and sell ethanol and reformulated ethanol-blended gasoline, Amyris Fuels needs access to certain terminal and other storage capacity for ethanol and reformulated ethanol-blended gasoline, and relies on providers of transportation and transloading services for the movement of ethanol and reformulated ethanol-blended gasoline. If Amyris Fuels is unable to access sufficient terminal and other storage capacity and/or to obtain transportation and transloading services on favorable terms, its business will be substantially harmed, which will reduce our future revenues and adversely affect our results of operations and financial condition. Furthermore, there are potential environmental hazards, including risk of spill or fire, associated with the movement and storage of fuel. Although Amyris maintains insurance coverage to mitigate its exposure to such risks, its liability coverage may not be sufficient for a catastrophic event.
Growth may place significant demands on our management and our infrastructure.
We have experienced, and may continue to experience, expansion of our business as we continue to make efforts to develop and bring our products to market. We have grown from 18 employees at the end of 2005 to 221 employees at the end of 2009 and 467 at September 30, 2011. We are working simultaneously on multiple projects to develop, produce and commercialize several types of renewable chemicals and fuels. Our growth and diversified operations have placed, and may continue to place, significant demands on our management and our operational and financial infrastructure. In particular, continued growth could strain our ability to:
•develop and improve our operational, financial and management controls;
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enhance our reporting systems and procedures;
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recruit, train and retain highly skilled personnel;
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develop and maintain our relationships with existing and potential business partners;
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maintain our quality standards; and
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maintain customer satisfaction.
Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, results of operations and financial condition would be harmed.
Our proprietary rights may not adequately protect our technologies and product candidates.
Our commercial success will depend substantially on our ability to obtain patents and maintain adequate legal protection for our technologies and product candidates in the U.S. and other countries. As of September 30, 2011, we had 53 issued U.S. and foreign patents and 247 pending U.S. and foreign patent applications that are owned by or licensed to us. We will be able to protect our proprietary rights from unauthorized use by third parties only to the extent that our proprietary technologies and future products are covered by valid and enforceable patents or are effectively maintained as trade secrets.
We apply for patents covering both our technologies and product candidates, as we deem appropriate. However, we may fail to apply for patents on important technologies or product candidates in a timely fashion, or at all. Our existing and future patents may not be sufficiently broad to prevent others from practicing our technologies or from developing competing products or technologies. In addition, the patent positions of companies like ours are highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of patent claims has emerged to date in the U.S. and the landscape is expected to become even more uncertain in view of recent rule changes by the Patent and Trademark Office, or USPTO, the introduction of patent reform legislation in Congress and recent decisions in patent law cases by the U.S. Supreme Court. In addition, we obtained certain key U.S. patents using a procedure for accelerated examination recently implemented by the USPTO which requires special activities and disclosures that may create additional risks related to the validity or enforceability of the U.S. patents so obtained. The patent situation outside of the U.S. is even less predictable. As

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a result, the validity and enforceability of patents cannot be predicted with certainty. Moreover, we cannot be certain whether:
•
we or our licensors were the first to make the inventions covered by each of our issued patents and pending patent applications;
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we or our licensors were the first to file patent applications for these inventions;
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others will independently develop similar or alternative technologies or duplicate any of our technologies;
•
any of our or our licensors' patents will be valid or enforceable;
•
any patents issued to us or our licensors will provide us with any competitive advantages, or will be challenged by third parties;
•
we will develop additional proprietary products or technologies that are patentable; or
•
the patents of others will have an adverse effect on our business.
We do not know whether any of our patent applications or those patent applications that we license will result in the issuance of any patents. Even if patents are issued, they may not be sufficient to protect our technology or product candidates. The patents we own or license and those that may be issued in the future may be challenged, invalidated, rendered unenforceable, or circumvented, and the rights granted under any issued patents may not provide us with proprietary protection or competitive advantages. In particular, U.S. patents we obtained using the USPTO accelerated examination program may introduce additional risks to the validity or enforceability of some or all of these specially-obtained U.S. patents if validity or enforceability are challenged. Moreover, third parties could practice our inventions in territories where we do not have patent protection or in territories where they could obtain a compulsory license to our technology where patented. Such third parties may then try to import products made using our inventions into the U.S. or other territories. Additional uncertainty may result from potential passage of patent reform legislation by the U.S. Congress, legal precedent by the U.S. Federal Circuit and Supreme Court as they determine legal issues concerning the scope and construction of patent claims and inconsistent interpretation of patent laws by the lower courts. Accordingly, we cannot ensure that any of our pending patent applications will result in issued patents, or even if issued, predict the breadth, validity and enforceability of the claims upheld in our and other companies' patents.
Unauthorized parties may attempt to copy or otherwise obtain and use our products or technology. Monitoring unauthorized use of our intellectual property is difficult, and we cannot be certain that the steps we have taken will prevent unauthorized use of our technology, particularly in certain foreign countries where the local laws may not protect our proprietary rights as fully as in the U.S. or may provide, today or in the future, for compulsory licenses. If competitors are able to use our technology, our ability to compete effectively could be harmed. Moreover, others may independently develop and obtain patents for technologies that are similar to, or superior to, our technologies. If that happens, we may need to license these technologies, and we may not be able to obtain licenses on reasonable terms, if at all, which could cause harm to our business.
 
We rely in part on trade secrets to protect our technology, and our failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
We rely on trade secrets to protect some of our technology, particularly where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to maintain and protect. Our strategy for contract manufacturing and scale-up of commercial production requires us to share confidential information with our Brazilian business partners and other parties. Our product development collaborations with third parties, including with Total, require us to share confidential information, including with employees of Total who are seconded to Amyris during the term of the collaboration. While we use reasonable efforts to protect our trade secrets, our or our business partners' employees, consultants, contractors or scientific and other advisors may unintentionally or willfully disclose our proprietary information to competitors. Enforcement of claims that a third party has illegally obtained and is using trade secrets is expensive, time consuming and uncertain. In addition, foreign courts are sometimes less willing than U.S. courts to protect trade secrets. If our competitors independently develop equivalent knowledge, methods and know-how, we would not be able to assert our trade secrets against them. We require new employees and consultants to execute confidentiality agreements upon the commencement of an employment or consulting arrangement with us. These agreements generally require that all confidential information developed by the individual or made known to the individual by us during the course of the individual's relationship with us be kept confidential and not disclosed to third parties. These agreements also generally provide that inventions conceived by the individual in the course of rendering services to us shall be our exclusive property. Nevertheless, our proprietary information may be disclosed, or these agreements may be unenforceable or difficult to enforce. Additionally, trade secret law in Brazil differs from that in the U.S. which requires us to take a different approach to protecting our trade secrets in Brazil. Some of these approaches to trade secret protection may be novel and untested under Brazilian law and we cannot guarantee that we would prevail if our trade secrets are contested in Brazil. If any of the above risks materializes our failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
Third parties may misappropriate our yeast strains.

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Third parties, including sugar and ethanol mill owners, contract manufacturers, other contractors and shipping agents, often have custody or control of our yeast strains. If our yeast strains were stolen, misappropriated or reverse engineered, they could be used by other parties who may be able to reproduce the yeast strains for their own commercial gain. If this were to occur, it would be difficult for us to challenge and prevent this type of use, especially in countries where we have limited intellectual property protection or that do not have robust intellectual property law regimes.
If we are sued for infringing intellectual property rights or other proprietary rights of third parties, litigation could be costly and time consuming and could prevent us from developing or commercializing our future products.
Our commercial success depends on our ability to operate without infringing the patents and proprietary rights of other parties and without breaching any agreements we have entered into with regard to our technologies and product candidates. We cannot determine with certainty whether patents or patent applications of other parties may materially affect our ability to conduct our business. Our industry spans several sectors, including biotechnology, renewable fuels, renewable specialty chemicals and other renewable compounds, and is characterized by the existence of a significant number of patents and disputes regarding patent and other intellectual property rights. Because patent applications can take several years to issue, there may currently be pending applications, unknown to us, that may result in issued patents that cover our technologies or product candidates. We are aware of a significant number of patents and patent applications relating to aspects of our technologies filed by, and issued to, third parties. The existence of third-party patent applications and patents could significantly reduce the coverage of patents owned by or licensed to us and limit our ability to obtain meaningful patent protection. If we wish to make, use, sell, offer to sell, or import the technology or compound claimed in issued and unexpired patents owned by others, we will need to obtain a license from the owner, enter into litigation to challenge the validity of the patents or incur the risk of litigation in the event that the owner asserts that we infringe its patents. If patents containing competitive or conflicting claims are issued to third parties and these claims are ultimately determined to be valid, we may be enjoined from pursing research, development, or commercialization of products, or be required to obtain licenses to these patents, or to develop or obtain alternative technologies.
If a third-party asserts that we infringe upon its patents or other proprietary rights, we could face a number of issues that could seriously harm our competitive position, including:
•
infringement and other intellectual property claims, which could be costly and time consuming to litigate, whether or not the claims have merit, and which could delay getting our products to market and divert management attention from our business;
•
substantial damages for past infringement, which we may have to pay if a court determines that our product candidates or technologies infringe a competitor's patent or other proprietary rights;
•
a court prohibiting us from selling or licensing our technologies or future products unless the holder licenses the patent or other proprietary rights to us, which it is not required to do; and
•
if a license is available from a third party, we may have to pay substantial royalties or grant cross licenses to our patents or proprietary rights.
The industries in which we operate, and the biotechnology industry in particular, are characterized by frequent and extensive litigation regarding patents and other intellectual property rights. Many biotechnology companies have employed intellectual property litigation as a way to gain a competitive advantage. If any of our competitors have filed patent applications or obtained patents that claim inventions also claimed by us, we may have to participate in interference proceedings declared by the relevant patent regulatory agency to determine priority of invention and, thus, the right to the patents for these inventions in the U.S. These proceedings could result in substantial cost to us even if the outcome is favorable. Even if successful, an interference proceeding may result in loss of certain claims. Our involvement in litigation, interferences, opposition proceedings or other intellectual property proceedings inside and outside of the U.S., to defend our intellectual property rights or as a result of alleged infringement of the rights of others, may divert management time from focusing on business operations and could cause us to spend significant resources, all of which could harm our business and results of operations.
Many of our employees were previously employed at universities, biotechnology, specialty chemical or oil companies, including our competitors or potential competitors. We may be subject to claims that these employees or we have inadvertently or otherwise used or disclosed trade secrets or other proprietary information of their former employers. Litigation may be necessary to defend against these claims. If we fail in defending such claims, in addition to paying monetary damages, we may lose valuable intellectual property rights or personnel and be enjoined from certain activities. A loss of key research personnel or their work product could hamper or prevent our ability to commercialize our product candidates, which could severely harm our business. Even if we are successful in defending against these claims, litigation could result in substantial costs and demand on management resources.

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We may need to commence litigation to enforce our intellectual property rights, which would divert resources and management's time and attention and the results of which would be uncertain.
Enforcement of claims that a third party is using our proprietary rights without permission is expensive, time consuming and uncertain. Litigation would result in substantial costs, even if the eventual outcome is favorable to us and would divert management's attention from our business objectives. In addition, an adverse outcome in litigation could result in a substantial loss of our proprietary rights and we may lose our ability to exclude others from practicing our technology or producing our product candidates.
The laws of some foreign countries do not protect intellectual property rights to the same extent as do the laws of the U.S. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of certain countries, particularly certain developing countries, do not favor the enforcement of patents and other intellectual property protection, particularly those relating to biotechnology and/or bioindustrial technologies. 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 patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Moreover, our efforts to protect our intellectual property rights in such countries may be inadequate.
Loss of key personnel, including key management personnel, and/or failure to attract and retain additional personnel could delay our product development programs and harm our research and development efforts and our ability to meet our business objectives.
Our business involves complex, global operations across a variety of markets and requires a management team and employee workforce that is knowledgeable in the many areas in which we operate. The loss of any key member of our management or key technical and operational employees, or the failure to attract or retain such employees could prevent us from developing and commercializing our products for our target markets and executing our business strategy. We may not be able to attract or retain qualified employees in the future due to the intense competition for qualified personnel among biotechnology and other technology-based businesses, particularly in the renewable fuels area, or due to the availability of personnel with the qualifications or experience necessary for our business. If we are not able to attract and retain the necessary personnel to accomplish our business objectives, we may experience staffing constraints that will adversely affect our ability to meet the demands of our collaborators and customers in a timely fashion or to support our internal research and development programs. In particular, our product and process development programs are dependent on our ability to attract and retain highly skilled technical and operational personnel. Competition for such personnel from numerous companies and academic and other research institutions may limit our ability to do so on acceptable terms. All of our employees are at-will employees, which mean that either the employee or we may terminate their employment at any time.
As we expand our operations, we will need to hire additional qualified research and development and management personnel to succeed. The process of hiring, training and successfully integrating qualified personnel into our operation, in both the U.S. and Brazil, is a lengthy and expensive one. The market for qualified personnel is very competitive because of the limited number of people available with the necessary technical skills and understanding of our technology and anticipated products, particularly in Brazil. Our failure to hire and retain qualified personnel could impair our ability to meet our research and development and business objectives and adversely affect our results of operations and financial condition.
We may be sued for product liability.
The design, development, production and sale of our products involve an inherent risk of product liability claims and the associated adverse publicity. We may be named directly in product liability suits relating to our products, even for defects resulting from errors of our commercial partners, contract manufacturers or chemical finishers. These claims could be brought by various parties, including customers who are purchasing products directly from us or other users who purchase products from our customers. We could also be named as co-parties in product liability suits that are brought against the contract manufacturers or Brazilian sugar and ethanol mills who produce our products. Insurance coverage is expensive, may be difficult to obtain and may not be available in the future on acceptable terms. We cannot assure you that our contract manufacturers or the sugar and ethanol producers who produce our products will have adequate insurance coverage to cover against potential claims. This insurance may not provide adequate coverage against potential losses, and if claims or losses exceed our liability insurance coverage, we may go out of business. In addition, insurance coverage may become more expensive, which would harm our results of operations.
During the ordinary course of business, we may become subject to lawsuits or indemnity claims, which could materially and adversely affect our business and results of operations.
From time to time, we may in the ordinary course of business be named as a defendant in lawsuits, claims and other legal proceedings. These actions may seek, among other things, compensation for alleged personal injury, worker's compensation, employment discrimination, breach of contract, property damages, civil penalties and other losses of injunctive or declaratory

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relief. In the event that such actions or indemnities are ultimately resolved unfavorably at amounts exceeding our accrued liability, or at material amounts, the outcome could materially and adversely affect our reputation, business and results of operations. In addition, payments of significant amounts, even if reserved, could adversely affect our liquidity position.
If we fail to maintain an effective system of internal controls, we might not be able to report our financial results accurately or prevent fraud; in that case, our stockholders could lose confidence in our financial reporting, which would harm our business and could negatively impact the price of our stock.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. In addition, Section 404 of the Sarbanes-Oxley Act of 2002 will require us and our independent registered public accounting firm to evaluate and report on our internal control over financial reporting beginning with our Annual Report on Form 10-K for the year ending December 31, 2011. The process of implementing our internal controls and complying with Section 404 will be expensive and time consuming, and will require significant attention of management. We cannot be certain that these measures will ensure that we implement and maintain adequate controls over our financial processes and reporting in the future. In addition, to the extent we create joint ventures or have any variable interest entities and the financial statements of such entities are not prepared by us, we will not have direct control over their financial statement preparation. As a result, we will, for our financial reporting, depend on what these entities report to us, which could result in us adding monitoring and audit processes and increase the difficulty of implementing and maintaining adequate controls over our financial processes and reporting in the future. This may be particularly true where we are establishing such entities with commercial partners that do not have sophisticated financial accounting processes in place, or where we are entering into new relationships at a rapid pace, straining our integration capacity. Additionally, if we do not receive the information from the joint venture or variable interest entity on a timely basis, this could cause delays in our external reporting. Even if we conclude, and our independent registered public accounting firm concurs, that our internal control over financial reporting provides reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles, because of its inherent limitations, internal control over financial reporting may not prevent or detect fraud or misstatements. Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our results of operations or cause us to fail to meet our reporting obligations. If we or our independent registered public accounting firm discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market's confidence in our financial statements and harm our stock price. In addition, a delay in compliance with Section 404 could subject us to a variety of administrative sanctions, including SEC action, ineligibility for short form resale registration, the suspension or delisting of our common stock from the stock exchange on which it is listed and the inability of registered broker-dealers to make a market in our common stock, which would further reduce our stock price and could harm our business.
Our ability to use our net operating loss carry forwards to offset future taxable income may be subject to certain limitations.
In general, 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. If the Internal Revenue Service challenges our analysis that our existing NOLs are not subject to limitations arising from previous ownership changes, or if we undergo an ownership change in connection with or after this public offering, our ability to utilize NOLs could be limited by Section 382 of the Code. Future changes in our stock ownership, some of which are outside of our control, could result in an ownership change under Section 382 of the Code. Furthermore, our ability to utilize NOLs of companies that we may acquire in the future may be subject to limitations. For these reasons, we may not be able to utilize a material portion of the NOLs reflected on our balance sheet, even if we attain profitability.
Loss of our government grant funding could impair our research and development efforts.
In 2010, we were awarded a $24.3 million “Integrated Bio-Refinery” grant from the U.S. Department of Energy, or DOE. The terms of this grant make the funds available to us to leverage and expand our existing Emeryville, California, pilot plant and support laboratories to develop U.S.-based production capabilities for renewable fuels and chemicals derived from sweet sorghum. Generally, government grant agreements have fixed terms and may be terminated, modified or recovered by the granting agency under certain conditions. For example, our grant requires us to implement substantial reporting, governance and other processes to comply with the grant contract, and we are subject to audits and reviews by government agencies with respect to such compliance. We have limited experience in complying with such government contract requirements, and any compliance failures can result in additional audits, burdensome corrective action plans, and significant penalties, up to and including termination, modification and recovery of the grant by the granting agency. Our first DOE audit was performed in 2011 for the year ended December 31, 2010, and as a result of the audit we were required to implement a corrective action plan with respect to certain administrative requirements. If the DOE terminates its grant agreement with us, our U.S.-based research and development activities could be impaired, which could harm our business.
Our headquarters and other facilities are located in an active earthquake zone, and an earthquake or other types of natural disasters affecting us or our suppliers could cause resource shortages and disrupt and harm our results of operations.

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We conduct our primary research and development operations in the San Francisco Bay Area in an active earthquake zone, and certain of our suppliers conduct their operations in the same region or in other locations that are susceptible to natural disasters. In addition, California and some of the locations where certain of our suppliers are located have experienced shortages of water, electric power and natural gas from time to time. The occurrence of a natural disaster, such as an earthquake, drought or flood, or localized extended outages of critical utilities or transportation systems, or any critical resource shortages, affecting us or our suppliers could cause a significant interruption in our business, damage or destroy our facilities, production equipment or inventory or those of our suppliers and cause us to incur significant costs or result in limitations on the availability of our raw materials, any of which could harm our business, financial condition and results of operations. The insurance we maintain against fires, earthquakes and other natural disasters may not be adequate to cover our losses in any particular case.
Risks Related to Ownership of Our Common Stock
Our stock price may be volatile.
The market price of our common stock could be subject to significant fluctuations and it may decline below the initial public offering price. Market prices for securities of early stage companies have historically been particularly volatile. Such fluctuations could be in response to, among other things, the factors described in this “Risk Factors” section or elsewhere in this registration statement, or other factors, some of which are beyond our control, such as:
•
fluctuations in our financial results or outlook or those of companies perceived to be similar to us;
•
changes in estimates of our financial results or recommendations by securities analysts;
•
changes in market valuations of similar companies;
•
changes in the prices of commodities associated with our business such as sugar, ethanol and petroleum;
•
changes in our capital structure, such as future issuances of securities or the incurrence of debt;
•
announcements by us or our competitors of significant contracts, acquisitions or strategic alliances;
•
regulatory developments in the U.S., Brazil, and/or other foreign countries;
•
litigation involving us, our general industry or both;
•
additions or departures of key personnel;
•
investors' general perception of us; and
•
changes in general economic, industry and market conditions.
 
Furthermore, the stock markets have experienced price and volume fluctuations that have affected, and continue to affect, the market prices of equity securities of many companies. These fluctuations often have been unrelated or disproportionate to the operating performance of those companies. These broad market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rate changes and international currency fluctuations, may negatively affect the market price of our common stock.
In the past, many companies that have experienced volatility in the market price of their stock have become 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 management's attention from other business concerns, which could seriously harm our business.
We are incurring increased costs and demands upon management as a result of complying with the laws and regulations affecting public companies, which could harm our results of operations.
As a public company, we are incurring significant additional accounting, legal and other expenses that we did not incur as a private company, including costs associated with public company reporting requirements. We also have incurred and will continue to incur costs associated with corporate governance requirements, including requirements under Section 404 and other provisions of the Sarbanes-Oxley Act, as well as rules implemented by the SEC and NASDAQ. The expenses incurred by public companies for reporting and corporate governance purposes have increased dramatically in recent years. We expect these rules and regulations to substantially increase our financial and legal compliance costs.
The concentration of our capital stock ownership with insiders will limit your ability to influence corporate matters.
As of September 30, 2011, our executive officers, directors, current ten percent or greater stockholders and entities affiliated with them together beneficially owned approximately 39.6% and a single stockholder-Total-held approximately 21.4% of our outstanding common stock, respectively. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders.

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Also, these stockholders, acting together, will be able to control our management and affairs and matters requiring stockholder approval, including the election of directors and the approval of significant corporate transactions, such as mergers, consolidations or the sale of substantially all of our assets. Consequently, this concentration of ownership may have the effect of delaying or preventing a change of control, including a merger, consolidation or other business combination involving us, or discouraging a potential acquirer from making a tender offer or otherwise attempting to obtain control, even if that change of control would benefit our other stockholders.
A significant portion of our total outstanding shares recently became available for sale on the public market, and the increased supply of stock could cause the market price of our common stock to drop significantly, even if our business is doing well.
All of the shares sold in our initial public offering are freely tradable without restrictions or further registration under the federal securities laws, unless purchased by our “affiliates” as that term is defined in Rule 144 under the Securities Act of 1933, as amended, or the Securities Act. Substantially all the remaining shares of our outstanding common stock became eligible for sale in the public market beginning following the expiration in late March 2011 of the lock-up agreements relating to our initial public offering, subject in certain circumstances to the volume, manner of sale and other limitations under Rule 144. Additionally, we have registered all shares of our common stock that we may issue under our equity incentive plans. These shares can be freely sold in the public market upon issuance, unless pursuant to their terms these stock awards have transfer restrictions attached to them. Sales of a substantial number of shares of our common stock, or the perception in the market that the holders of a large number of shares intend to sell shares, could reduce the market price of our common stock.
If securities or industry analysts do not publish or cease publishing research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.
The trading market for our common stock will be influenced by the research and reports that industry or securities analysts may publish about us, our business, our market or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.
We do not expect to declare any dividends in the foreseeable future.
We do not anticipate declaring any cash dividends to holders of our common stock in the foreseeable future. In addition, certain of our equipment leases and credit facilities currently restrict our ability to pay dividends. 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.
Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.
Our amended and restated certificate of incorporation and our amended and restated bylaws that became effective upon the completion of our initial public offering contain provisions that could delay or prevent a change in control of our company. These provisions could also make it more difficult for stockholders to elect directors and take other corporate actions. These provisions include:
•
staggered board of directors;
•
authorizing the board to issue, without stockholder approval, preferred stock with rights senior to those of our common stock;
•
authorizing the board to amend our bylaws and to fill board vacancies until the next annual meeting of the stockholders;
•
prohibiting stockholder action by written consent;
•
limiting the liability of, and providing indemnification to, our directors and officers;
•
not authorizing our stockholders to call a special stockholder meeting;
•
eliminating the ability of our stockholders to call special meetings; and
•
requiring advance notification of stockholder nominations and proposals.
Section 203 of the Delaware General Corporation Law prohibits, subject to some exceptions, “business combinations” between a Delaware corporation and an “interested stockholder,” which is generally defined as a stockholder who becomes a beneficial owner of 15% or more of a Delaware corporation's voting stock, for a three-year period following the date that the stockholder became an interested stockholder. We have agreed to opt out of Section 203 through our certificate of incorporation, but our certificate of incorporation contains substantially similar protections to our company and stockholders as those afforded

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under Section 203, except that we have agreed with Total that it and its affiliates will not be deemed to be “interested stockholders” under such protections.
 
In addition, we have an agreement with Total, which provides that, so long as Total holds at least 10% of our voting securities, we must inform Total of any offer to acquire us or any decision of our Board of Directors to sell our company, and we must provide Total with information about the contemplated transaction. In such events, Total will have an exclusive negotiating period of 15 business days in the event the Board of Directors authorizes us to solicit offers to buy Amyris, or five business days in the event that we receive an unsolicited offer to purchase us. This exclusive negotiation period will be followed by an additional restricted negotiation period of 10 business days, during which we are obligated to continue to negotiate with Total and will be prohibited from entering into an agreement with any other potential acquirer.

These and other provisions in our amended and restated certificate of incorporation and our amended and restated bylaws that became effective upon the completion of our initial public offering under Delaware law and in our agreement with Total could discourage potential takeover attempts, reduce the price that investors might be willing to pay in the future for shares of our common stock and result in the market price of our common stock being lower than it would be without these provisions.


Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

(b) Use of Proceeds from Public Offering of Common Stock

Our initial public offering of common stock was effected through a Registration Statement on Form S-1 (File No. 333-164593) that was declared effective by the SEC on September 27, 2010. The net offering proceeds to us, after deducting underwriting discounts and commissions and offering costs, were approximately $85.5 million. Of the net proceeds, as of September 30, 2011, $76.4 million has been used for capital expenditures, including deposits on capital expenditures, and approximately $3.9 million has been used for debt reduction and payment of capital lease obligations. At September 30, 2011, the remainder of the net proceeds was invested in short-term, interest-bearing investment grade securities. We expect that our use of the net proceeds from the initial public offering will conform to the intended use of proceeds as described in our initial public offering prospectus dated September 27, 2010.


Item 6. Exhibits

The exhibits listed in Exhibit Index immediately preceding the exhibits are filed (other than exhibits 32.01, 32.02 and 101) as part of this Quarterly Report on Form 10-Q and such Exhibit Index is incorporated herein by reference.


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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
AMYRIS, INC.
 
 
 
Dated: November 9, 2011
By:
/S/    JOHN G. MELO
 
 
John G. Melo
President and Chief Executive Officer
(Principal Executive Officer)
 
 
 
Dated: November 9, 2011
By:
/S/    JERYL HILLEMAN
 
 
Jeryl Hilleman
Chief Financial Officer
(Principal Financial and Accounting Officer)



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EXHIBIT INDEX
 
Exhibit
Index
 
 
 
 
Previously Filed
 
Filed
Herewith 
 
 
Description
 
 
Form
 
File No. 
 
 
Filing Date 
 
 
Exhibit 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 3.01
 
Restated Certificate of Incorporation
 
10-Q
 
001-34885
 
November 10, 2010
 
3.01
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 3.02
 
Restated Bylaws
 
10-Q
 
001-34885
 
November 10, 2010
 
3.02
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
10.01*
 
Letter Agreement dated August 2, 2011 between Amyris, Inc. and Jeryl Hilleman
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
10.02*
 
2005 Stock Option/Stock Issuance Plan, as amended July 19, 2011
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.01
 
Certification of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(c) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
31.02
 
Certification of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(c) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.01†
 
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
32.02†
 
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
 
 
 
 
 
 
 
X
 
 
 
 
 
 
 
 
 
 
 
 
 
101††
 
The following financial statements from Amyris Inc.'s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted in XBRL (Extensible Business Reporting Language): (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Operations; (iii) the Condensed Consolidated Statement of Stockholders' Equity; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.
 
 
 
 
 
 
 
 
 
X
 
 
 
*
Indicates management contract or compensatory plan or arrangement.

 
 
†
This certification shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or Exchange Act, or otherwise subject to the liability of that Section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended or the Exchange Act of 1934.
 
 
††
Pursuant to applicable securities laws and regulations, the Company is deemed to have complied with the reporting obligation relating to the submission of interactive data files in such exhibits and is not subject to liability under any anti-fraud provisions of the federal securities laws as long as the Company has made a good faith attempt to comply with the submission requirements and promptly amends the interactive data files after becoming aware that the interactive data files fails to comply with the submission requirements.  These interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act, are deemed not filed for purposes of section 18 of the Exchange Act and otherwise are not subject to liability under these sections.


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