The following discussion and analysis should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-
K. Alldollar amounts are stated in thousands. On January 15, 2020, the Company effected a 1-for-40 reverse stock split of its common stock. Unless otherwise indicated, all share amounts, per share data, share prices, and conversion rates set forth in these notes and the accompanying financial statements have, where applicable, been adjusted to reflect this reverse stock split. Overview Yield10 Bioscience, Inc.("Yield10" or the "Company") is an agricultural bioscience company that is developing the oilseed Camelina sativa ("Camelina") as a platform crop for large scale production of low carbon sustainable seed products to address: •petroleum replacement markets, in which we are developing Camelina oil for use as a biofuel feedstock and PHA Bioplastics produced in Camelina seed for use as a biodegradable bioplastic; and •food and nutrition markets, in which we are developing omega-3 (DHA+EPA) oils produced in Camelina seed for aquaculture, nutraceuticals and protein meal for animal feed markets. Our commercial plan is based on developing and releasing a series of proprietary elite Camelina seed varieties incorporating genetic traits from our development pipeline which offer improved on-farm performance that we anticipate will lead to increased acreage adoption and seed product revenue. We also plan to create additional value for our shareholders by licensing yield and seed oil traits from our pipeline to large seed companies for commercialization in major food crops, including corn, soybean and canola. Yield10 is headquartered in Woburn, Massachusettsand has an Oilseed Center of Excellencein Saskatoon, Saskatchewan, Canada.
small and medium-sized enterprises in the start-up phase. Under the terms of the agreement, NRC has agreed to contribute up to a maximum of
During 2020, MOI received two short-term grants, similar to the 2021 IRAP grant, both of which provided financial research assistance, in the amounts of
$67and $86, respectively, for eligible payroll costs. MOI submitted claims for the eligible costs during 2020 and the full amount of these grants was recognized as grant revenue during the year ended December 31, 2020. During 2018 we entered into a sub-award with Michigan State University("MSU") to support a Department of Energy("DOE") funded grant entitled "A Systems Approach to Increasing Carbon Flux to Seed Oil." Our participation under this five-year grant has been awarded incrementally on an annual basis with the first year commencing September 15, 2017. Cumulative funding for this sub-award in the amount of $2,957has been appropriated by the U.S. Congressthrough the final contractual year ending in September 2022. During the years ended December 31, 2021and December 31, 2020, we recognized revenue of $575and $646, respectively, from this sub-award. As of December 31, 2021, revenue proceeds of $510remain to be earned from the MSU sub-award. This includes amounts for reimbursement to our subcontractors, as well as reimbursement for our employees' time, benefits and other expenses related to future performance. The status of government grants outstanding at December 31, 2021is shown in the following table. Remaining amount to Total revenue be recognized Funding Total Government recognized through as of
Program Title Agency Funds December 31, 2021 December 31, 2021
2,447 $ 510 September 15, 2022 entitled "A Systems Approach to Energy Increasing Carbon Flux to Seed Oil" Funding from National Research Council Canada through its National Industrial Research Assistance Research 39 39 - March 13, 2021 Program (NRC-IRAP) entitled Council Canada "
Innovation Assistance Program" Funding from National Research Council Canada through its National Industrial Research Assistance Research 67 67 - June 24, 2020 Program (NRC-IRAP) entitled Council Canada " Innovation Assistance Program" Funding from National Research Council Canada through its National Industrial Research Assistance Research 86 86 - December 19, 2020 Program (NRC-IRAP) entitled Council Canada " Innovation Assistance Program" Total $ 3,149$ 2,639 $ 510
Critical accounting estimates and judgments
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in
the United States of America("GAAP"). The preparation of these consolidated financial statements often requires us to make judgments and accounting estimates that can materially affect the amounts reported in the consolidated financial statements and accompanying notes. These judgments and estimates can have a significant effect on the financial statements because they result primarily from estimates about the effects of matters that are inherently uncertain. We make these estimates and judgments based on guidance provided by current GAAP, historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results may differ from these estimates.
We believe that the specific accounting policies and significant judgments described below are most critical to helping us fully understand and evaluate our consolidated financial condition and results of operations.
The accounting standards for stock-based compensation require that all stock-based awards be recognized as an expense in the consolidated financial statements and that such expense be measured based on the fair value of the award. We use the Black-Scholes option-pricing model to value our service-based option grants and to determine the related compensation expense to be recognized over each award's vesting period. Calculating the fair value of stock-based payment awards using modeling techniques requires the use of assumptions. These assumptions represent our best estimates, but the estimates involve inherent uncertainties and the application of judgment. We adjust our modeling assumptions when valuing new stock awards based on actual experience.
Due to the Company's history of annual income tax losses, it has never incurred significant income tax expense. We have, however, historically recorded and disclosed in our financial statements significant deferred income tax assets for net operating loss carry forwards and research tax credits that may be available to offset future taxable income. We routinely assess the realizability of the Company's deferred tax assets and have historically concluded that it is unlikely that deferred tax assets derived from our
U.S.operations will be realized under current accounting standards and therefore we have consistently maintained a full valuation allowance against these tax assets. Our U.S.deferred tax assets are also subject to substantial annual limitation under Section 382 of the Internal Revenue Code of 1986 due to stock ownership changes that have occurred, primarily as a result of our securities offerings. The calculation of Section 382 limitations is highly judgmental and the calculations are complex. Based on an analysis completed during 2021, we have concluded that all of our historical U.S.deferred tax assets generated through November 31, 2019are no longer available to us for future use to offset taxable income. MOI performs research services for Yield10 under a research services agreement subject to intercompany transfer pricing regulations established in the U.S.and Canada. These regulations require that MOI earn an arms-length profit from these research services, calculated in accordance with tax regulations, and results in the annual generation of taxable income in Canada. MOI files separate federal and provincial income tax returns in Canadaand has accumulated research tax credit carry forwards that may be used to offset future taxable income. We have recorded these Canadian research credits as a deferred tax asset within our consolidated balance sheet at December 31, 2021and December 31, 2020based on our judgment that MOI will continue to earn taxable income in the future and the deferred tax asset will be realized. We have concluded, therefore, that a valuation allowance against MOI's deferred tax asset related to its research credits would not be appropriate. This judgment may change in the future due to changes in MOI's taxable income or changes in U.S.and Canadian tax laws.
We offer our securities for sale to public and private investors from time to time. The structure of these offerings can be relatively straight-forward or they can be highly complex, requiring significant judgment in their accounting treatment and financial reporting. Our historical offerings completed to date have included different classes of securities, including common stock, convertible preferred stock and warrants with various exercise prices and terms. Depending on the facts and circumstances of each offering, including; the offering and market price of our common stock, the amount of cash proceeds received, the fair value determination of each type of security issued, the availability of authorized and unissued common shares to support conversion of preferred shares or the exercise of the warrants, the specific terms of securities purchase agreements and other factors that may come into consideration, the shares of an offering may be recorded as permanent or temporary equity within our balance sheets. The fair value of warrants issued in an offering, under certain situations, may be recorded as a liability and be subject to mark-to-market adjustments on each balance sheet date based on changes in their fair value determined using the Black-Scholes valuation model. We carefully analyze our securities offerings to ensure that we record them in accordance with current accounting guidance.
As a lessee, we follow the lease accounting guidance codified in ASC 842. Under this guidance, a lease is classified as a finance lease if any of five criteria described in the guidance apply to the lease. Any lease not classified as a finance lease is classified as an operating lease with expense recognition occurring on a straight-line basis over the term of the lease. The application of this guidance requires judgment. Under ASC 842, a lease liability is recorded on the commencement date of a lease and is calculated as the present value of the remaining lease payments, using the interest rate implicit in the lease, or if that rate is not readily determinable, using the lessee's incremental borrowing rate. A right-of-use asset equal to the lease 47
liability is also recorded with adjustments made, as necessary, for lease prepayments, lease accruals, initial direct costs and lessor lease incentives that may be present within the terms of the lease. If a lease subject to ASC 842 is amended, the right-of-use asset and lease liability are adjusted, if appropriate. These mathematical calculations to comply with ASC 842 can be complex.
Comparison of the years ended
Revenue Year ended December 31, 2021 2020 Change Grant revenue
$ 614 $ 799 $ (185)Grant revenue was $614and $799for the years ended December 31, 2021and 2020, respectively. During the years ended December 31, 2021and December 31, 2020, we recognized $575and $646, respectively, from the Company's DOEsub-award with MSU and $39and $153, respectively, from short-term research grants awarded to MOI through the Canadian Industrial Research Assistance Program. We anticipate that grant revenue will decrease during the year ended December 31, 2022in comparison to the year ended December 31, 2021, as a result of lower grant appropriations of $510remaining to be earned during the final nine months of our MSU sub-award that ends in September 2022. We currently cannot assess whether additional U.S.or Canadian government research grants will be awarded to us during 2022. Our forecast related to grant revenue is subject to change, however, should we receive new grants or if our ability to earn revenue from our existing grant is negatively impacted by the COVID-19 pandemic. Operating Expenses Year ended December 31, 2021 2020 Change Research and development expenses $ 6,201 $ 5,361 $ 840General and administrative expenses 6,105 5,047 1,058 Total operating expenses $ 12,306 $ 10,408 $ 1,898
Research and development costs
Research and development expense increased by
$840, or 16%, from $5,361during the year ended December 31, 2020to $6,201during the year ended December 31, 2021. The 2021 increase is primarily due to higher employee compensation and benefits expense of $574and higher crop field trial and research services expense of $420. More specifically, the increase in employee compensation and benefits is due to a $305increase in stock-based compensation expense (a non-cash expense) related to employee stock awards issued during 2021 and a $179increase in employee payroll and insurance benefits resulting from hiring additional research staff during the year ended December 31, 2021. We also incurred $88in employee recruiting and relocation expenses during the year in connection with hiring the new staff. Crop field trial expenses increased by $271during the year ended December 31, 2021as a result of our expanded Camelina field trials conducted in the U.S., Canadaand Argentina. We also increased third-party research services by $139during the year ended December 31, 2021, primarily as a result of DNA sequencing analysis required for regulatory purposes. During the year ended December 31, 2020, we incurred a charge of $141for the write-off of leasehold improvements and office furniture used in our research and development operations as a consequence of amending our Woburn, Massachusettslease to return excess space to the landlord. We did not incur similar charges during the year ended December 31, 2021. Based on current planning and forecasting, we anticipate that our research and development expenses during the year ended December 31, 2022will increase to levels above expenses incurred during the year ended December 31, 2021as we continue our efforts to develop Camelina plant varieties for the following markets; feedstock oil for renewable diesel, PHA bioplastic, omega-3 oil for nutraceuticals and aquaculture and protein meal for animal feed. Our forecast related to research and development expense is subject to change and may be impacted by our ability to raise additional cash to support our planned operations, the potential impact of the COVID-19 pandemic or the advent of new third-party 48
collaborations or other business opportunities that may alter our plans.
General and administrative expenses
General and administrative expenses were
$6,105and $5,047for the fiscal years ended December 31, 2021and December 31, 2020, respectively. The increase of $1,058, or 21%, was primarily due to increased employee compensation and benefits, higher consulting fees for Camelina business development activities and higher premiums paid for directors and officers ("D&O") liability insurance. These increases in expense were partially offset by lower legal fees during the year ended December 31, 2021. Employee compensation and benefits increased by $738, from $2,024during the year ended December 31, 2020to $2,762during the year ended December 31, 2021, and was primarily the result of a $631increase in stock-based compensation expense related to stock awards issued during 2021 and a $125increase in employee payroll and benefits from hiring additional staff. Consulting fees increased by $268during the year ended December 31, 2021in comparison to the year ended December 31, 2020and was the result of engaging outside parties to assist with early stage business development activities for our Camelina plant varieties. Business insurance costs increased by $145during the year ended December 31, 2021and were driven by higher D&O premiums affecting the insurance markets. Investor relations expense also increased by $86during the year ended December 31, 2021due to costs associated with our efforts to communicate the Company's strategic direction. Legal fees decreased by $214during the year ended December 31, 2021, reflective of a lower level of legal service activity. Based on current planning and forecasting, we anticipate that our general and administrative expenses during the year ended December 31, 2022will increase to levels above expenses incurred during the year ended December 31, 2021. The change will primarily be the result of increased business development and seed operations activities for our Camelina plant varieties, including increases in employee compensation and benefits expense from recent and planned future personnel hiring, seed scale up operations and other early stage commercial activities. Our forecast related to general and administrative expense is subject to change and may be impacted by our ability to raise additional cash to support our plans, the potential impact of the COVID-19 pandemic or the advent of new third-party collaborations or other business opportunities that could alter our plans. Other Income (Expense), net Year ended December 31, 2021 2020 Change Gain on investment in related party $ 700$ - $ 700Change in fair value of warrants - (957) 957 Loan forgiveness income - 333 (333) Other income (expense), net (3) 83 (86) Total other income (expense), net $ 697 $ (541) $ 1,238
Gain on investment in
During 1999, the Company entered into a technology sublicense agreement with
Tepha, Inc.("Tepha"), a privately held company engaged in the development of medical products. At the time the sublicense was executed, a director of Yield10 was also the president, chief executive officer and a director of Tepha. Three other members of Yield10's board of directors also served on the board of directors of Tepha, of which one continued to serve until completion of the merger discussed below. Yield10 received 648,149 shares of Series A Convertible Preferred Stock of Tepha ("Tepha Shares") during 2002 as consideration for outstanding license payments due to Yield10 totaling $700. During 2005, the Company determined the value of the Tepha Shares was impaired resulting in their write off through a charge to other income (expense). The sublicense agreement with Tepha ended in 2016. In May 2021, the board of directors of Tepha approved and authorized the merger of Tepha with Becton Dickinson Global Holdings, Inc.("Becton Dickinson"). On July 26, 2021, we received cash consideration of $700in exchange for the surrender of our Tepha Shares upon the closing of the sale of Tepha to BectonDickinson. We recorded the $700as a gain on investment in related party within other income (expense) for the year ended December 31, 2021.
Change in fair value of warrants
The fair value of the liability classified warrants issued in our
November 2019securities offerings was subject to mark-to-market adjustment on subsequent balance sheet dates. On January 15, 2020, we remeasured the fair value of the warrant liability in connection with the Company's 1-for-40 reverse stock split, recording a loss from the change in fair value of $957. The reverse stock split increased the number of shares of common stock available for issuance resulting in reclassification of the warrant liability to equity.
Loan forgiveness income
April 2020, we received $333in loan proceeds through the Paycheck Protection Program Flexibility Act ("PPP Loan"), established pursuant to the CARES Act. During our fiscal quarter ended September 30, 2020, we utilized the entire PPP Loan amount for expenses that met the qualifications for loan forgiveness and recorded the full amount of the loan within other income (expense) within our consolidated statement of operations.
Interest income (expense), net
Other income (expense) for the years ended
December 31, 2021and December 31, 2020was derived primarily from investment income earned from the Company's cash equivalents and investments offset by interest expense and investment management fees incurred during the year. Investment income recorded from U.S.federal treasury notes was negligible during the year ended December 31, 2021due to their insignificant yield rates.
Cash and capital resources
Since our inception, we have incurred significant expenses related to our research, development and commercialization efforts. With the exception of 2012, we have recorded annual losses since the Company's initial founding, including our fiscal year ended
December 31, 2021. As of December 31, 2021, we had an accumulated deficit of $386,131. Our total unrestricted cash, cash equivalents and short-term investments as of December 31, 2021, totaled $15,990as compared to $9,702at December 31, 2020. As of December 31, 2021, we had no outstanding debt. Our cash, cash equivalents and short-term investments at December 31, 2021, were held for working capital purposes. As of December 31, 2021, we had restricted cash of $264, which consisted of $229held in connection with the lease agreement for our Woburn, Massachusettsfacility and $35held in connection with our corporate credit card program. Investments are made in accordance with our corporate investment policy, as approved by our Board of Directors. The primary objective of this policy is to preserve principal, and consequently, investments are limited to high quality corporate debt, U.S. Treasurybills and notes, money market funds, bank debt obligations, municipal debt obligations and asset-backed securities. The policy establishes maturity and concentration limits, and liquidity requirements. As of December 31, 2021, we were in compliance with this policy.
Material cash needs
We currently anticipate net cash usage of
$12,000to $12,500to fund operations during 2022, including our expanded research and development activities and our preparations for the future commercial launch of our Camelina products. We require cash to fund our working capital needs, to purchase capital assets, to pay our lease obligations and other operating costs. The primary sources of our liquidity have historically included equity financings, government research grants and income earned on cash equivalents and short-term investments. We routinely enter into contractual commitments with third parties to support our operating activities. The more significant of these commitments includes real estate operating leases for our office, laboratory and greenhouse facilities located in the U.S.and Canada. In addition, we typically enter into annual premium funding arrangements through our insurance broker that allows us to spread the payment of our directors and officers liability and other business insurance premiums over the terms of the policies. Our material commitments also include annual arrangements with third party growers located in North and South Americafor the execution of crop trials and seed scale-up activities to further our trait development goals and to progress the commercial development of our Camelina plant varieties. The aggregate cost of these contracted crop activities is substantial. From time-to-time, we also enter into exclusive research licensing and collaboration arrangements with third parties for the development of intellectual property related to trait development. These long-term agreements typically include initial licensing payments and future contingent milestone payments associated with regulatory 50
filings and approvals; and potential royalty payments based on future product sales. Typically, these license agreements contain early termination provisions in the terms of the respective agreements.
The Company does not have any off-balance sheet arrangements as defined in Section 303(b) of Regulation SK of the Securities Exchange Act of 1934.
Continuity of exploitation
We follow the guidance of ASC Topic 205-40, Presentation of Financial Statements-Going Concern, in order to determine whether there is substantial doubt about our ability to continue as a going concern for one year after the date our financial statements are issued. Based on our current cash forecast, we expect that our present capital resources will not be sufficient to fund our planned operations for at least that period of time, which raises substantial doubt as to the Company's ability to continue as a going concern. This forecast of cash resources is forward-looking information that involves risks and uncertainties, and the actual amount of expenses could vary materially and adversely as a result of a number of factors. Our ability to continue operations after our current cash resources are exhausted will depend upon our ability to obtain additional financing through, among other sources, public or private equity financing, secured or unsecured debt financing, equity or debt bridge financing, warrant holders' ability and willingness to exercise the Company's outstanding warrants, additional government research grants or collaborative arrangements with third parties, as to which no assurances can be given. We do not know whether additional financing will be available on terms favorable or acceptable to us when needed, if at all. If additional funds are not available when required, we will be forced to curtail our research efforts, explore strategic alternatives and/or wind down our operations and pursue options for liquidating our remaining assets, including intellectual property and equipment. If we issue equity or debt securities to raise additional funds, (i) the Company may incur fees associated with such issuance, (ii) our existing stockholders will experience dilution from the issuance of new equity securities, (iii) the Company may incur ongoing interest expense and be required to grant a security interest in Company assets in connection with any debt issuance, and (iv) the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. In addition, utilization of our net operating loss and research and development credit carryforwards may be subject to significant annual limitations under Section 382 of the Internal Revenue Code of 1986 due to ownership changes resulting from future equity financing transactions. If we raise additional funds through collaboration, licensing or other similar arrangements, it may be necessary to relinquish valuable rights to our potential products or proprietary technologies or grant licenses on terms that are not favorable to the Company.
Use of cash for the 2021 financial year
Net cash used in operating activities was
$9,253during the year ended December 31, 2021, compared to net cash used by operating activities during 2020 of $8,659. Net cash used by operations during the year ended December 31, 2021primarily reflects the net loss of $11,031, cash payments made to reduce the Company's lease liabilities of $457and our payment of 2020 bonus compensation of $460during early 2021. Non-cash charges offsetting a portion of the net loss include depreciation and amortization expense of $220, stock-based compensation expense of $1,675, our 401(k) stock matching contribution expense of $112and non-cash lease expense of $358resulting from amortization of our right-of-use assets. The net cash usage for operating activities during the year ended December 31, 2020of $8,659was primarily the result of the Company's net loss of $10,206, cash payments to reduce the Company's lease liabilities of $601and our payment of 2019 bonus compensation of $344. Non-cash charges offsetting a portion of the net loss included depreciation and amortization expense of $182, a loss recorded from our revaluation of the Company's warrant liability of $957, forgiveness of our PPP Loan of $333, losses from the write-off of fixed assets of $206, stock-based compensation expense of $739, our 401(k) stock matching contribution expense of $109and non-cash lease expense of $429. Net cash of $4,578was used in investing activities during the year ended December 31, 2021, compared to net cash used in investing activities during 2020 of $645. During the year ended December 31, 2021, the Company purchased $10,639in short-term investments, primarily U.S. Treasurynotes and federal agency bonds. Also during 2021, $6,250of our short-term investments matured and converted to cash. During the year ended December 31, 2020, we purchased $9,279in similar short-term investments and investments totaling $8,700matured and converted to cash. Net cash of $15,746was provided by financing activities during the year ended December 31, 2021, compared to net cash provided by financing activities of $7,279during the year ended December 31, 2020. During the year ended December 31, 2021, the Company completed a public offering of 1,040,000 shares of its common stock at a price of $12.25per share, receiving proceeds of $12,740before issuance costs of $747. Also during 2021, a total of 481,973 Series A and 51
Series B warrants issued in the Company's
November 2019securities offering were exercised by warrant holders, providing $3,856in cash proceeds. During the year ended December 31, 2020, we completed a public offering of 951,835 shares of our common stock at a public offering price of $4.25per share, for gross proceeds of $4,045. Concurrent with this public offering, we completed a separate private placement offering of 396,450 shares of our common stock to certain existing shareholders at the same $4.25price as the public offering noted above. Gross proceeds from this private placement were $1,685. Issuance costs incurred for the concurrent offerings totaled $425. During the year ended December 31, 2020, we also recorded cash proceeds of $1,658from the exercise of 207,296 warrants and we received cash proceeds of $333from the forgiven PPP loan issued through the CARES Act. Related Party Transactions During 1999, the Company entered into a technology sublicense agreement with Tepha, a related party engaged in the development of medical products. Yield10 received 648,149 shares of Series A Convertible Preferred Stock of Tepha during 2002 as consideration for outstanding license payments due to Yield10 totaling $700. In July 2021, Tepha merged with Becton Dickinson and we received cash consideration of $700in exchange for the surrender of our Tepha Shares.
Recent changes in accounting standards
For a discussion of recent accounting standards, please read Note 2, Summary of significant accounting policies, to our consolidated financial statements included in this report.
© Edgar Online, source