VERENIUM CORP

On March 23, 2012, the Company entered into an agreement with DSM for the purchase of the Company’s oilseed processing business and concurrently entered into a license agreement, a supply agreement and a transition services agreement with DSM. Under the license agreement, the Company issued a license for its alpha-amylase product and xylanase enzyme product to DSM both for use in the food and beverage markets. The Company retains the rights to use the alpha-amylase and xylanase products outside of the food and beverage markets. In turn, DSM licensed to the Company the intellectual property purchased by DSM in the transaction and the intellectual property that the Company had previously licensed to BP Biofuels North America LLC (“BP”) under a license agreement with BP. The supply agreement also requires the continued manufacture by the Company of the purchased oilseed processing product and the licensed alpha-amylase and xylanase products for sale to DSM with minimum quantities. The Company may be obligated to share in cost overruns or increases, in whole or in part, in connection with the manufacturing.

The Comerica Line allows the Company to borrow up to $5.9 million against certain eligible foreign and domestic receivables and will cover an existing $1.6 million letter of credit commitment to the Company’s landlord. The Credit Facility also immediately freed up $1.6 million in restricted cash which had previously secured the letter of credit. Subject to certain exceptions, all borrowings under the Credit Facility are secured by substantially all of the Company’s accounts receivable and inventory. As of June 30, 2013, the Company had a $1.6 million letter of credit and no borrowings outstanding under the Credit Facility.

^{Grain processing sales increased 28%, or $0.6 million, for the three months ended June 30, 2013, as compared to the same period in 2012, primarily attributed to an increase in sales of Fuelzyme® alpha-amylase from new customers and trial opportunities. Grain processing sales decreased 14%, or $0.8 million, for the six months ended June 30, 2013, as compared to the same period in 2012, primarily attributed to a decrease in sales of Veretase®} alpha-amylase as a result of the license granted to DSM in the first quarter of 2012 and all subsequent revenue reflected as contract manufacturing revenue, timing of orders from our distributor in Europe, and a decrease in sales of Fuelzyme alpha-amylase reflecting adverse business conditions in the corn ethanol industry due largely to reduced demand for gasoline and therefore ethanol, and the resulting low industry operating rates and idling of some capacity.

In this environment, production rate reductions and plant suspensions or closures have negatively impacted our business. While we have been encouraged by some recent improvement in industry conditions we expect industry conditions could continue to impact revenue growth for our grain processing product line. Though we have experienced increased competitive pressure and delays or extensions of trials which consequently has affected the timing of new customer adoptions, we expect to grow through market share gain by offering economic benefits to prospective customers as demonstrated during trials of our products in their plants, and through sales of new products from our pipeline. Our ability to grow Fuelzyme alpha-amylase revenues will be heavily dependent upon maintaining current customer volumes and growing market share through new customer adoption.

Product and contract manufacturing gross profit increased 1% to $4.9 million and 4% to $9.6 million for the three and six months ended June 30, 2013 compared to the same periods in 2012. Gross margin improved to 36% and 37% of product and contract manufacturing revenue for the three and six months ended June 30, 2013 compared to 33% and 35% for the same periods of 2012. The increase in our product and contract manufacturing gross profit was primarily due to improved manufacturing yields. Gross margins are dependent upon the mix of product sales as the cost of product and contract manufacturing revenue varies from product to product. We typically experience lower margins in the early stages of commercial production for our newer enzyme products, as we optimize the manufacturing process for each particular product.