UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended SeptemberJune 30, 2019;2020;
or
☐ | 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 001-38161
Calyxt, Inc.
(Exact name of registrant as specified in its charter)
|
|
|
Delaware |
| 27-1967997 |
(State or other jurisdiction of |
| (I.R.S. Employer |
incorporation or organization) |
| Identification No.) |
|
| |
2800 Mount Ridge Road |
|
|
Roseville, MN |
| 55113-1127 |
(Address of principal executive offices) |
| (Zip Code) |
(651) 683-2807
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
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Title of each class |
| Trading Symbol(s) |
| Name of each exchange on which registered |
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| ||
Common Stock (0.0001 par value) |
| CLXT |
| The NASDAQ Global Market |
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 ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant 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 such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer |
| ☐ |
| Accelerated filer |
| ☑ |
Non-accelerated filer |
| ☐ |
| Smaller reporting company |
| ☐ |
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|
| Emerging growth company |
| ☑ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ☐ Yes ☑ No
As of November 6th, 2019,August 5, 2020, there were 32,951,32933,184,336 shares of common stock, $0.0001 par value per share, outstanding.
When we use the terms “we,” “us,” the “Company,” or “our” in this report, unless the context otherwise requires, we are referring to Calyxt, Inc. When we use the term “Cellectis,” we are referring to Cellectis S.A., our majority stockholder. Cellectis is a clinical-stage biotechnological company, employing its core proprietary technologies to develop best-in-class products in the field of immune-oncology.
We own the names and trademarks for Calyxt® and Calyno®; we also own or license other trademarks, trade names and service marks of Calyxt appearing in this Quarterly Report on Form 10-Q. The name and trademark “Cellectis®”Cellectis® and “TALEN®”TALEN®, and other trademarks, trade names and service marks of Cellectis appearing in this Quarterly Report are the property of Cellectis. This Quarterly Report also contains additional trade names, trademarks and service marks belonging to other companies. We do not intend our use or display of other parties’ trademarks, trade names or service marks to imply, and such use or display should not be construed to imply, a relationship with, or endorsement or sponsorship of us by, these other parties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of the federal securities laws, including Section 27A of the Securities Act of 1933, as amended (the Securities Act), and Section 21E of the Securities Exchange Act of 1934, as amended (the Exchange Act). We may also make forward-looking statements in other reports filed with the Securities and Exchange Commission, in materials delivered to stockholders and in press releases. In addition, our representatives may from time to time make oral forward-looking statements.
We have made these forward-looking statements in reliance on the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
In some cases, you can identify these statements by forward-looking words such as “anticipates,” “believes,” “continue,” “estimates,” “expects,” “targets,” “intends,” “may,” “might,” “will,“plans,” “potential,” “predicts,” “projects,” “should,” “expects,“will,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparablesimilar terminology. These forward-looking statements, which are based on our current assumptions and expectations, are subject to risks and uncertainties. Forward-looking statements in this report may include statements about the potential impact of the COVID-19 impact on our business and operating results; our future financial performance,performance; product pipeline and development,development; our business model and strategies for commercialization effortsand sales of commercial products; regulatory progression; potential collaborations, partnerships and licensing arrangements and their contribution to our financial results, cash usage, and growth strategies.strategies; and anticipated trends in our business. These and other forward-looking statements are only predictions and projections about future events and trends based on our current expectations, objectives and projections about future events.intentions and premised on current assumptions. Our actual results could be materially different that those expressed, implied or anticipated by the forward-looking statements.
There are important factors that could cause our actual results, level of activity, performance, or achievements could be materially different than those expressed, implied, or anticipated by forward-looking statements due to differ materially froma variety of factors, including, but not limited to: the results, levelseverity and duration of activity, performancethe evolving COVID-19 pandemic and the resulting impact on macro-economic conditions; the impact of increased competition; disruptions at our key facilities; changes in customer preferences and market acceptance of our products; competition for collaboration partners and licensees and the successful execution of collaborations and licensing agreements; the impact of adverse events during development, including unsuccessful field trials or achievements expresseddisruptions in seed production; the impact of improper handling of our product candidates by unaffiliated third parties during development, such as the improper aerial spraying of our high fiber wheat product candidate; failures by third-party contractors; inaccurate demand forecasting; the effectiveness of commercialization efforts by commercial partners or implied bylicensees; our ability to make grain sales on terms acceptable to us; the forward-looking statements. Thosetiming of our grain sales; our ability to collect accounts receivable; disruptions to supply chains, including transportation and storage functions; commodity price conditions; the impact of changes or increases in oversight and regulation; disputes or challenges regarding intellectual property; proliferation and continuous evolution of new technologies; management changes; dislocations in the capital markets; and other important factors are discussed under the caption entitled “Risk Factors” in our filings with the Securities and Exchange Commission (SEC), including our Annual Report on Form 10-K for the year ended December 31, 2018,2019, which was filed with the Securities and Exchange Commission (SEC)SEC on March 12, 20195, 2020 (our Annual Report). and our subsequent reports on Forms 10-Q (including under the caption entitled “Risk Factors” in Part II, Item 1A of this Quarterly Report) and 8-K.
Any forward-looking statement made by us in this Quarterly Report isare based only on information currently available to us when, and speaks only as of the date, of this report. Wesuch statement is made. Except as required by securities and other applicable laws, we do not assume any obligation to publicly provide revisionsupdate or updates torevise any forward-looking statements after the date of this Quarterly Report, whetherstatement as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by securities and other applicable laws.otherwise.
- 2 -
Market Data
Unless otherwise indicated, information contained in this Quarterly Report concerning our industry and the markets in which we operate is based on information from various sources, including independent industry publications. In presenting this information, we have also made assumptions based on such data and other similar sources, and on our knowledge of, and our experience to date in, the potential markets for our product. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled “Risk Factors” in our Annual Report.Report and other subsequent reports on Forms 10-Q and 8-K filed with the SEC. These and other factors could cause results to differ materially from those expressed in the estimates made by the independent parties and by us.
Website Disclosure
We use our website (www.calyxt.com)(www.calyxt.com), our corporate Twitter account (@Calyxt_Inc) and our corporate LinkedIn account (https://www.linkedin.com/company/calyxt-inc) as routine channels of distribution of company information, including press releases, analyst presentations, and supplemental financial information, as a means of disclosing material non-public information and for complying with our disclosure obligations under Regulation FD. Accordingly, investors should monitor our website and our corporate Twitter and LinkedIn accounts in addition to following press releases, filings with the SEC and public conference calls and webcasts.
Additionally, we provide notifications of announcements as part of our website. Additionally, we provideInvestors and others can receive notifications of announcements as part ofnew press releases posted on our website.website by signing up for email alerts.
None of the information provided on our website, in our press releases or public conference calls and webcasts or through social media is incorporated into, or deemed to be a part of, this Quarterly Report or in any other report or document we file with the SEC, and any references to our website or our corporate Twitter and LinkedIn accounts are intended to be inactive textual references only.
- 2 -
PART I. FINANCIALFINANCIAL INFORMATION
CALYXT, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Par Value and Share Amounts)
| September 30, 2019 (unaudited) |
|
| December 31, 2018 |
| June 30, 2020 (unaudited) |
|
| December 31, 2019 |
| ||||
Assets |
|
|
|
|
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|
|
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|
|
|
Current assets: |
|
|
|
|
|
|
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|
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|
|
Cash and cash equivalents | $ | 66,434 |
|
| $ | 93,794 |
| $ | 3,875 |
|
| $ | 58,610 |
|
Short-term investments |
| 29,942 |
|
|
| — |
| |||||||
Restricted cash |
| 381 |
|
|
| 381 |
|
| 393 |
|
|
| 388 |
|
Trade accounts receivable |
| 1,304 |
|
|
| — |
| |||||||
Accounts receivable |
| 2,411 |
|
|
| 1,122 |
| |||||||
Due from related parties |
| 69 |
|
|
| 46 |
|
| 2 |
|
|
| — |
|
Inventory |
| 2,371 |
|
|
| — |
|
| 5,282 |
|
|
| 2,594 |
|
Prepaid expenses and other current assets |
| 1,109 |
|
|
| 1,301 |
|
| 1,926 |
|
|
| 808 |
|
Total current assets |
| 71,668 |
|
|
| 95,522 |
|
| 43,831 |
|
|
| 63,522 |
|
Non-current restricted cash |
| 1,135 |
|
|
| 1,113 |
|
| 1,040 |
|
|
| 1,040 |
|
Land, buildings, and equipment |
| 23,337 |
|
|
| 21,850 |
|
| 22,663 |
|
|
| 23,212 |
|
Other non-current assets |
| 270 |
|
|
| 306 |
|
| 427 |
|
|
| 324 |
|
Total assets | $ | 96,410 |
|
| $ | 118,791 |
| $ | 67,961 |
|
| $ | 88,098 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
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|
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|
|
Current liabilities: |
|
|
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|
|
|
|
|
|
|
|
|
|
|
Accounts payable | $ | 945 |
|
| $ | 818 |
| $ | 572 |
|
| $ | 1,077 |
|
Accrued expenses |
| 1,958 |
|
|
| 2,007 |
|
| 1,998 |
|
|
| 2,544 |
|
Accrued compensation and benefits |
| 1,783 |
|
|
| 1,305 |
| |||||||
Accrued compensation |
| 1,293 |
|
|
| 2,181 |
| |||||||
Due to related parties |
| 705 |
|
|
| 1,905 |
|
| 381 |
|
|
| 977 |
|
Current portion of financing lease obligations |
| 349 |
|
|
| 258 |
|
| 361 |
|
|
| 356 |
|
Other current liabilities |
| 51 |
|
|
| 711 |
|
| 44 |
|
|
| 61 |
|
Total current liabilities |
| 5,791 |
|
|
| 7,004 |
|
| 4,649 |
|
|
| 7,196 |
|
Financing lease obligations |
| 18,331 |
| �� |
| 18,227 |
|
| 18,109 |
|
|
| 18,244 |
|
Long-term debt |
| 1,518 |
|
|
| — |
| |||||||
Other non-current liabilities |
| 159 |
|
|
| 163 |
|
| 132 |
|
|
| 150 |
|
Total liabilities |
| 24,281 |
|
|
| 25,394 |
|
| 24,408 |
|
|
| 25,590 |
|
Stockholders’ equity: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value; 275,000,000 shares authorized; 32,926,312 shares issued and 32,867,413 shares outstanding as of September 30, 2019, and 32,664,429 shares issued and 32,648,893 shares outstanding as of December 31, 2018 |
| 3 |
|
|
| 3 |
| |||||||
Common stock, $0.0001 par value; 275,000,000 shares authorized; 33,140,672 shares issued and 33,040,520 shares outstanding as of June 30, 2020, and 33,033,689 shares issued and 32,951,329 shares outstanding as of December 31, 2019 |
| 3 |
|
|
| 3 |
| |||||||
Additional paid-in capital |
| 182,948 |
|
|
| 176,069 |
|
| 188,656 |
|
|
| 185,588 |
|
Common stock in treasury, at cost; 58,899 shares |
| (875 | ) |
|
| (230 | ) | |||||||
Common stock in treasury, at cost; 100,152 shares as of June 30, 2020, and 82,360 shares as of December 31, 2019 |
| (1,043 | ) |
|
| (1,043 | ) | |||||||
Accumulated deficit |
| (109,892 | ) |
|
| (82,445 | ) |
| (144,022 | ) |
|
| (122,057 | ) |
Accumulated other comprehensive loss |
| (55 | ) |
|
| — |
| |||||||
Accumulated other comprehensive income (loss) |
| (41 | ) |
|
| 17 |
| |||||||
Total stockholders’ equity |
| 72,129 |
|
|
| 93,397 |
|
| 43,553 |
|
|
| 62,508 |
|
Total liabilities and stockholders’ equity | $ | 96,410 |
|
| $ | 118,791 |
| $ | 67,961 |
|
| $ | 88,098 |
|
See accompanying notes to these consolidated financial statements.
- 3 -
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited and in Thousands Except Shares and Per Share Amounts)
| Three months ended September 30, |
|
| Nine months ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||
| 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||||||
Revenue | $ | 2,967 |
|
| $ | 27 |
|
| $ | 3,533 |
|
| $ | 234 |
| $ | 2,307 |
|
| $ | 408 |
| $ | 4,684 |
|
| $ | 566 |
|
Cost of goods sold |
| 5,321 |
|
|
| 303 |
|
| 9,205 |
|
|
| 337 |
| |||||||||||||||
Gross margin |
| (3,014 | ) |
|
| 105 |
|
| (4,521 | ) |
|
| 229 |
| |||||||||||||||
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue |
| 3,528 |
|
|
| — |
|
|
| 3,865 |
|
|
| — |
| ||||||||||||||
Research and development |
| 3,579 |
|
|
| 3,440 |
|
|
| 8,536 |
|
|
| 7,850 |
|
| 2,825 |
|
|
| 2,738 |
|
| 5,612 |
|
|
| 4,957 |
|
Selling, general and administrative |
| 6,248 |
|
|
| 3,311 |
|
|
| 17,723 |
|
|
| 9,914 |
| ||||||||||||||
Management fees and royalties |
| 305 |
|
|
| 975 |
|
|
| 1,117 |
|
|
| 1,957 |
| ||||||||||||||
Selling and supply chain |
| 1,349 |
|
|
| 1,202 |
|
| 2,929 |
|
|
| 2,107 |
| |||||||||||||||
General and administrative |
| 3,808 |
|
|
| 5,206 |
|
| 8,528 |
|
|
| 9,368 |
| |||||||||||||||
Management fees |
| 42 |
|
|
| 451 |
|
| 104 |
|
|
| 812 |
| |||||||||||||||
Total operating expenses |
| 13,660 |
|
|
| 7,726 |
|
|
| 31,241 |
|
|
| 19,721 |
|
| 8,024 |
|
|
| 9,597 |
|
| 17,173 |
|
|
| 17,244 |
|
Loss from operations |
| (10,693 | ) |
|
| (7,699 | ) |
|
| (27,708 | ) |
|
| (19,487 | ) |
| (11,038 | ) |
|
| (9,492 | ) |
| (21,694 | ) |
|
| (17,015 | ) |
Interest, net |
| 32 |
|
|
| 228 |
|
|
| 296 |
|
|
| 88 |
|
| 154 |
|
|
| 92 |
|
| (244 | ) |
|
| 264 |
|
Foreign currency transaction loss |
| (8 | ) |
|
| (12 | ) |
|
| (35 | ) |
|
| (30 | ) |
| (18 | ) |
|
| (3 | ) |
| (27 | ) |
|
| (27 | ) |
Loss before income taxes |
| (10,669 | ) |
|
| (7,483 | ) |
|
| (27,447 | ) |
|
| (19,429 | ) |
| (10,902 | ) |
|
| (9,403 | ) |
| (21,965 | ) |
|
| (16,778 | ) |
Income taxes |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
| — |
|
|
| — |
| — |
|
|
| — |
| |
Net loss | $ | (10,669 | ) |
| $ | (7,483 | ) |
| $ | (27,447 | ) |
| $ | (19,429 | ) | $ | (10,902 | ) |
| $ | (9,403 | ) | $ | (21,965 | ) |
| $ | (16,778 | ) |
Basic and diluted loss per share | $ | (0.32 | ) |
| $ | (0.23 | ) |
| $ | (0.84 | ) |
| $ | (0.65 | ) | $ | (0.33 | ) |
| $ | (0.29 | ) | $ | (0.67 | ) |
| $ | (0.51 | ) |
Weighted average shares outstanding - basic and diluted |
| 32,866,467 |
|
|
| 32,381,010 |
|
|
| 32,759,194 |
|
|
| 30,040,926 |
|
| 33,039,338 |
|
|
| 32,732,988 |
|
| 33,013,739 |
|
|
| 32,704,834 |
|
See accompanying notes to these consolidated financial statements.
- 4 -
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited and in Thousands Except Shares Outstanding)
Three months ended September 30, 2019 | Shares Outstanding |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Shares in Treasury |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Loss |
|
| Total Stockholders’ Equity |
| |||||||||||||||||||||||||||||||||||
Balances at June 30, 2019 |
| 32,859,700 |
|
| $ | 3 |
|
| $ | 180,237 |
|
| $ | (789 | ) |
| $ | (99,223 | ) |
| $ | (38 | ) |
| $ | 80,190 |
| ||||||||||||||||||||||||||||
Three months ended June 30, 2020 |
| Shares Outstanding |
|
| Common Stock |
|
| Additional Paid-In Capital |
|
| Shares in Treasury |
|
| Accumulated Deficit |
|
| Accumulated Other Comprehensive Income (Loss) |
|
| Total Stockholders’ Equity |
| ||||||||||||||||||||||||||||||||||
Balance at March 31, 2020 |
|
| 32,990,647 |
|
| $ | 3 |
|
| $ | 186,859 |
|
| $ | (1,043 | ) |
| $ | (133,120 | ) |
| $ | (163 | ) |
| $ | 52,536 |
| |||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,902 | ) |
|
| — |
|
|
| (10,902 | ) | |||||||||||||||||||||||||||
Stock based compensation |
|
| 49,873 |
|
|
| — |
|
|
| 1,797 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,797 |
| |||||||||||||||||||||||||||
Other comprehensive income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 122 |
|
|
| 122 |
| |||||||||||||||||||||||||||
Balance at June 30, 2020 |
|
| 33,040,520 |
|
| $ | 3 |
|
| $ | 188,656 |
|
| $ | (1,043 | ) |
| $ | (144,022 | ) |
| $ | (41 | ) |
| $ | 43,553 |
| |||||||||||||||||||||||||||
Three months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Balances at March 31, 2019 |
|
| 32,692,189 |
|
| $ | 3 |
|
| $ | 177,750 |
|
| $ | (230 | ) |
| $ | (89,820 | ) |
| $ | — |
|
| $ | 87,703 |
| |||||||||||||||||||||||||||
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,669 | ) |
|
| — |
|
|
| (10,669 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (9,403 | ) |
|
| — |
|
|
| (9,403 | ) |
Stock based compensation |
| 7,713 |
|
|
| — |
|
|
| 2,705 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,705 |
|
|
| 210,874 |
|
|
| — |
|
|
| 2,304 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 2,304 |
|
Issuance of common stock |
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
|
| — |
|
|
| 183 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 183 |
|
Shares withheld for net share settlement |
| — |
|
|
| — |
|
|
| — |
|
|
| (86 | ) |
|
| — |
|
|
| — |
|
|
| (86 | ) |
|
| (43,363 | ) |
|
| — |
|
|
| — |
|
|
| (559 | ) |
|
| — |
|
|
| — |
|
|
| (559 | ) |
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (17 | ) |
|
| (17 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38 | ) |
|
| (38 | ) |
Balance at September 30, 2019 |
| 32,867,413 |
|
| $ | 3 |
|
| $ | 182,948 |
|
| $ | (875 | ) |
| $ | (109,892 | ) |
| $ | (55 | ) |
| $ | 72,129 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Nine months ended September 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Balances at June 30, 2019 |
|
| 32,859,700 |
|
| $ | 3 |
|
| $ | 180,237 |
|
| $ | (789 | ) |
| $ | (99,223 | ) |
| $ | (38 | ) |
| $ | 80,190 |
| |||||||||||||||||||||||||||
Six months ended June 30, 2020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Balance at December 31, 2019 |
|
| 32,951,329 |
|
| $ | 3 |
|
| $ | 185,588 |
|
| $ | (1,043 | ) |
| $ | (122,057 | ) |
| $ | 17 |
|
| $ | 62,508 |
| |||||||||||||||||||||||||||
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (21,965 | ) |
|
| — |
|
|
| (21,965 | ) | |||||||||||||||||||||||||||
Stock based compensation |
|
| 106,983 |
|
|
| — |
|
|
| 3,068 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,068 |
| |||||||||||||||||||||||||||
Shares withheld for net share settlement |
|
| (17,792 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |||||||||||||||||||||||||||
Other comprehensive loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (58 | ) |
|
| (58 | ) | |||||||||||||||||||||||||||
Balance at June 30, 2020 |
|
| 33,040,520 |
|
| $ | 3 |
|
| $ | 188,656 |
|
| $ | (1,043 | ) |
| $ | (144,022 | ) |
| $ | (41 | ) |
| $ | 43,553 |
| |||||||||||||||||||||||||||
Six months ended June 30, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
Balances at December 31, 2018 |
| 32,648,893 |
|
| $ | 3 |
|
| $ | 176,069 |
|
| $ | (230 | ) |
| $ | (82,445 | ) |
| $ | — |
|
| $ | 93,397 |
|
|
| 32,648,893 |
|
| $ | 3 |
|
| $ | 176,069 |
|
| $ | (230 | ) |
| $ | (82,445 | ) |
| $ | — |
|
| $ | 93,397 |
|
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,447 | ) |
|
| — |
|
|
| (27,447 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (16,778 | ) |
|
| — |
|
|
| (16,778 | ) |
Stock based compensation |
| 261,883 |
|
|
| — |
|
|
| 6,565 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,565 |
|
|
| 254,170 |
|
|
| — |
|
|
| 3,860 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 3,860 |
|
Issuance of common stock |
| — |
|
|
| — |
|
|
| 314 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 314 |
|
|
| — |
|
|
| — |
|
|
| 308 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 308 |
|
Shares withheld for net share settlement |
| (43,363 | ) |
|
| — |
|
|
| — |
|
|
| (645 | ) |
|
| — |
|
|
| — |
|
|
| (645 | ) |
|
| (43,363 | ) |
|
| — |
|
|
| — |
|
|
| (559 | ) |
|
| — |
|
|
| — |
|
|
| (559 | ) |
Other comprehensive loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (55 | ) |
|
| (55 | ) |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (38 | ) |
|
| (38 | ) |
Balance at September 30, 2019 |
| 32,867,413 |
|
| $ | 3 |
|
| $ | 182,948 |
|
| $ | (875 | ) |
| $ | (109,892 | ) |
| $ | (55 | ) |
| $ | 72,129 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Three months ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Balances at June 30, 2018 |
| 32,336,106 |
|
| $ | 3 |
|
| $ | 172,730 |
|
| $ | — |
|
| $ | (66,494 | ) |
| $ | — |
|
| $ | 106,239 |
| ||||||||||||||||||||||||||||
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (7,483 | ) |
|
| — |
|
|
| (7,483 | ) | ||||||||||||||||||||||||||||
Stock based compensation |
| 127,301 |
|
|
| — |
|
|
| 1,476 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,476 |
| ||||||||||||||||||||||||||||
Balance at September 30, 2018 |
| 32,463,407 |
|
| $ | 3 |
|
| $ | 174,206 |
|
| $ | — |
|
| $ | (73,977 | ) |
| $ | — |
|
| $ | 100,232 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Nine months ended September 30, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Balances at December 31, 2017 |
| 27,718,780 |
|
| $ | 3 |
|
| $ | 112,021 |
|
| $ | — |
|
| $ | (54,548 | ) |
| $ | — |
|
| $ | 57,476 |
| ||||||||||||||||||||||||||||
Net loss |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (19,429 | ) |
|
| — |
|
|
| (19,429 | ) | ||||||||||||||||||||||||||||
Stock based compensation |
| 687,127 |
|
|
| — |
|
|
| 5,144 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,144 |
| ||||||||||||||||||||||||||||
Issuance of common stock |
| 4,057,500 |
|
|
| — |
|
|
| 57,041 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 57,041 |
| ||||||||||||||||||||||||||||
Balance at September 30, 2018 |
| 32,463,407 |
|
| $ | 3 |
|
| $ | 174,206 |
|
| $ | — |
|
| $ | (73,977 | ) |
| $ | — |
|
| $ | 100,232 |
| ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||
Balances at June 30, 2019 |
|
| 32,859,700 |
|
| $ | 3 |
|
| $ | 180,237 |
|
| $ | (789 | ) |
| $ | (99,223 | ) |
| $ | (38 | ) |
| $ | 80,190 |
|
See accompanying notes to these consolidated financial statements.
- 5 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited and in Thousands)
| Nine months ended September 30, |
| Six Months Ended June 30, |
| ||||||||||
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss | $ | (27,447 | ) |
| $ | (19,429 | ) | $ | (21,965 | ) |
| $ | (16,778 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation |
| 1,051 |
|
|
| 727 |
| |||||||
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
| |||||||
Depreciation and amortization |
| 904 |
|
|
| 689 |
| |||||||
Stock-based compensation |
| 6,565 |
|
|
| 3,016 |
|
| 3,068 |
|
|
| 3,860 |
|
Unrealized foreign exchange gain |
| — |
|
|
| 12 |
| |||||||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade accounts receivable |
| (1,304 | ) |
|
| — |
| |||||||
Accounts receivable |
| (1,289 | ) |
|
| (810 | ) | |||||||
Due to/from related parties |
| (1,223 | ) |
|
| 576 |
|
| (598 | ) |
|
| (1,156 | ) |
Inventory |
| (2,371 | ) |
|
| — |
|
| (2,688 | ) |
|
| (111 | ) |
Prepaid expenses and other assets |
| 192 |
|
|
| (341 | ) | |||||||
Prepaid expenses and other current assets |
| (1,118 | ) |
|
| (169 | ) | |||||||
Accounts payable |
| 127 |
|
|
| 355 |
|
| (505 | ) |
|
| (423 | ) |
Accrued expenses |
| (49 | ) |
|
| 880 |
|
| (546 | ) |
|
| (14 | ) |
Accrued compensation and benefits |
| 478 |
|
|
| 70 |
| |||||||
Other accrued liabilities |
| (743 | ) |
|
| 518 |
| |||||||
Accrued compensation |
| (888 | ) |
|
| (67 | ) | |||||||
Other current liabilities |
| (93 | ) |
|
| (513 | ) | |||||||
Other non-current assets |
| 36 |
|
|
| 16 |
|
| 59 |
|
|
| (378 | ) |
Net cash used by operating activities |
| (24,688 | ) |
|
| (13,600 | ) |
| (25,659 | ) |
|
| (15,870 | ) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of land, buildings and equipment |
| (2,538 | ) |
|
| (830 | ) | |||||||
Short-term investments |
| (29,942 | ) |
|
| — |
| |||||||
Purchases of land, buildings, and equipment |
| (517 | ) |
|
| (1,319 | ) | |||||||
Net cash used by investing activities |
| (2,538 | ) |
|
| (830 | ) |
| (30,459 | ) |
|
| (1,319 | ) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs incurred related to the issuance of stock |
| — |
|
|
| (222 | ) | |||||||
Proceeds from issuance of common stock |
| — |
|
|
| 57,706 |
| |||||||
Proceeds from Payroll Protection Act loan |
| 1,518 |
|
|
| — |
| |||||||
Repayments of financing lease obligations |
| (195 | ) |
|
| — |
|
| (130 | ) |
|
| (122 | ) |
Proceeds from the exercise of stock options |
| 314 |
|
|
| 2,128 |
|
| — |
|
|
| 308 |
|
Costs incurred related to shares withheld for net share settlement |
| (645 | ) |
|
| — |
|
| — |
|
|
| (559 | ) |
Proceeds from the sale and leaseback of land, buildings, and equipment |
| 414 |
|
|
| — |
|
| — |
|
|
| 217 |
|
Net cash (used) provided by financing activities |
| (112 | ) |
|
| 59,612 |
| |||||||
Net (decrease) increase in cash, cash equivalents and restricted cash |
| (27,338 | ) |
|
| 45,182 |
| |||||||
Net cash provided (used) by financing activities |
| 1,388 |
|
|
| (156 | ) | |||||||
Net decrease in cash, cash equivalents and restricted cash |
| (54,730 | ) |
|
| (17,345 | ) | |||||||
Cash, cash equivalents and restricted cash - beginning of period |
| 95,288 |
|
|
| 56,664 |
|
| 60,038 |
|
|
| 95,288 |
|
Cash, cash equivalents and restricted cash - end of period | $ | 67,950 |
|
| $ | 101,846 |
| $ | 5,308 |
|
| $ | 77,943 |
|
See accompanying notes to these consolidated financial statements.
- 6 -
CALYXT, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Our unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP or GAAP) for interim financial information and with the rules and regulations of the Securities and Exchange Commission (SEC) applicable to interim financial statements. In our opinion, the accompanying consolidated financial statements reflect all adjustments necessary for a fair presentation of our statements of financial position, results of operations and cash flows for the periods presented but they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. Except as otherwise disclosed herein, these adjustments consist of normal recurring items. Operating results for interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole or any other interim period.
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses, and the related disclosures at the date of the consolidated financial statements and during the reporting period. Actual results could materially differ from these estimates.
Certain prior year amounts have been reclassified to conform to the current year presentation.
For further information, refer to the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 20182019 filed with the SEC on March 12, 2019.5, 2020. The accompanying Balance Sheet as of December 31, 20182019 was derived from the audited consolidated financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with our consolidated financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2018.2019.
Inventory
Inventories are recorded at the lower of cost or net realizable value and include all costs of seed production and grain we purchase as well as costs to store, transport and process the grain into finished products. Consideration we receive from growers when they purchase seed is recorded as a reduction of inventory.Short-term investments
We evaluate inventory balances for obsolescence on a regular basis using projected selling prices for our products, market prices for the underlying agricultural markets, the age of products and other factors that take into consideration our limited operating history.
Priorconsider investments with more than ninety days to the commercialization of our High Oleic Soybean Oil and High Oleic Soybean Meal in the three months ended March 31, 2019, we expensed all costs associated with purchasing, storing, transporting and processing grain (Grain Costs) as research and development (R&D) expense.
Forward Purchase Contracts
We enter into seed and grain production agreements (Forward Purchase Contracts) with seed producers and growers. The seed contracts often require us to pay prices for the seed producedmaturity at an exchange-traded price of grain plus a premium. The grower contracts are linked to a commodity futures market prices with the grower having the option to fix their price with us throughout the term of the agreement. These contracts allow for delivery of grain to us at harvest if so specified when the agreement is executed, otherwise delivery occurs on a date that we elect through August 31 of the following year. In all periods prior to January 1, 2019, we considered Forward Purchase Contractsissuance to be derivativesshort-term investments. These short-term investments are considered trading securities and recorded the contractsare carried at fair market value with changes in value reflected in earnings as R&D expense.
Effective January 1, 2019, we designated all Forward Purchase Contracts as normal purchases and as a result no longer consider these agreements to be derivatives. As of that date any mark-to-market gains or losses associated with those contracts were fixed and were reflected in inventory upon our purchase of the underlying grain. As of September 30, 2019, we had purchased all of the underlying grain and all previously recordedunrealized gains and losses had been reflectedrecorded in inventory.current earnings as a component of interest, net.
Revenue Recognition – Product Sales
We recognize sales revenue at the point in time that control transfers to the customer, which is based on shipping terms. Sales include shipping and handling charges if billed to the customer and are reported net of trade promotion and other costs, including estimated allowances for returns, unsalable product and prompt pay discounts. Sales, use, value-added and other excise taxes are not recognized in revenue. Trade promotions are recorded based on estimated participation and performance levels for offered programs at the time of sale. We generally do not allow a right of return. However, on a limited basis with prior approval, we may allow customers to return product.
- 7 -
Revenue Recognition – Out-licensing of Technology
We recognize revenue from license agreements. Revenues from license agreements may consist of nonrefundable up-front payments, milestone payments, royalties and services. In addition, we may license our technology to third parties, which may or may not be part of a license agreement.
Nonrefundable up-front payments are deferred and recognized as revenue over the term of the license agreement. If a license agreement is terminated before the original term of the agreement is fulfilled, all remaining deferred revenue is recognized at termination.
Milestone payments represent amounts received from our licensees, the receipt of which is dependent upon the achievement of certain scientific, regulatory or commercial milestones. We recognize milestone payments when the triggering event has occurred, there are no further contingencies or services to be provided with respect to that event, and the counterparty has no right to refund of the payment.
Stock-Based Compensation
We measure employee stock-based awards at grant date fair value and record compensation expense over the vesting period of the award. Prior to January 1, 2019, grants to nonemployees were previously remeasured each reporting period. Following the adoption on January 1, 2019, of the new accounting pronouncement discussed below, we no longer remeasure these awards as the fair value is determined on the grant date.
Recently Adopted Accounting Pronouncements
Effective January 1, 2019, we adopted new accounting requirements for recognition of revenue from contracts with customers. We adopted these requirements using the cumulative effect approach. The adoption did not have an impact on our financial statements.
Effective January 1, 2019, we adopted new accounting requirements for share-based payment transactions for acquiring goods and services from nonemployees. The adoption did not have an impact on our financial statements as each of the share-based payment awards granted to nonemployees had a measurement date upon grant, and thus no cumulative adjustment to retained earnings was required.
2. FINANCIAL INSTRUMENTS, FAIR VALUE, HEDGING ACTIVITIES, AND CONCENTRATIONS OF CREDIT RISK
The carrying values of cash and cash equivalents, restricted cash, due from related parties, accounts payable, due to related parties and all other current liabilities approximate fair value. The
We measure certain assets and liabilities at fair values of ourvalue on a recurring basis, including short-term investments, financing lease obligations includingand commodity futures and options. The accounting guidance establishes a three-tier hierarchy, which prioritizes the current portion, are $15.8 millioninputs used in the valuation methodologies in measuring fair value as of September 30, 2019, and $15.8 millionthe measurement date as of December 31, 2018. The carrying amounts of our financing lease obligations, including the current portion, were $18.7 million as of September 30, 2019, and $18.5 million as of December 31, 2018. The fair value of our financing lease obligations was determined using discounted cash flow analysisfollows:
Level 1: Fair values are based on market ratesunadjusted quoted prices in active trading markets for identical assets and liabilities.
Level 2: Fair values are based on observable quoted prices other than those in Level 1, such as quoted prices for similar typesassets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.
Level 3: Fair values are based on at least one significant unobservable input for the asset or liability.
- 7 -
Fair Value Measurements and Financial Statement Presentation
As described in Note 1 to these financial statements our Forward Purchase Contracts are no longer carried at fair value.
The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of SeptemberJune 30, 20192020 and December 31, 2018,2019, were as follows:
| September 30, 2019 |
|
| September 30, 2019 |
| June 30, 2020 |
| June 30, 2020 |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Fair Values of Assets |
|
| Fair Values of Liabilities |
| Fair Values of Assets |
| Fair Values of Liabilities |
| ||||||||||||||||||||||||||||||||||||||||||||||||||||
In Thousands | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||||||||||
Other items reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments | $ | 29,942 |
|
| $ | — |
|
| $ | — |
|
| $ | 29,942 |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| |||||||||||||||||||||||||||||||
Commodity futures and options | $ | 216 |
|
| $ | — |
|
| $ | — |
|
| $ | 216 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| 836 |
|
|
| — |
|
|
| — |
|
|
| 836 |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
| |
Financing lease obligations |
| — |
|
|
|
|
|
|
| — |
|
|
| — |
| — |
|
|
| 15,364 |
|
|
| — |
|
|
| 15,364 |
| ||||||||||||||||||||||||||||||||
Total | $ | 216 |
|
| $ | — |
|
| $ | — |
|
| $ | 216 |
|
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| $ | 30,778 |
|
| $ | — |
|
| $ | — |
|
| $ | 30,778 |
| $ | — |
|
| $ | 15,364 |
|
| $ | — |
|
| $ | 15,364 |
|
| December 31, 2019 |
| December 31, 2019 |
| ||||||||||||||||||||||||||
| Fair Values of Assets |
| Fair Values of Liabilities |
| ||||||||||||||||||||||||||
In Thousands | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Other items reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing lease obligations | $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | — |
| $ | — |
|
| $ | 15,651 |
|
| $ | — |
|
| $ | 15,651 |
|
Commodity futures and options |
| 62 |
|
|
| — |
|
|
| — |
|
|
| 62 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Total | $ | 62 |
|
| $ | — |
|
| $ | — |
|
| $ | 62 |
| $ | — |
|
| $ | 15,651 |
|
| $ | — |
|
| $ | 15,651 |
|
- 8 -
TableThe composition of Contentsour short-term investments at June 30, 2020 and December 31, 2019 were as follows:
December 31, 2018 |
|
| December 31, 2018 |
| |||||||||||||||||||||||||||
Fair Values of Assets |
|
| Fair Values of Liabilities |
| |||||||||||||||||||||||||||
In Thousands | Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||||||
Other items reported at fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward Purchase Contracts (a) | $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 248 |
|
| $ | — |
|
| $ | 248 |
|
Total | $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 248 |
|
| $ | — |
|
| $ | 248 |
|
| As of June 30, |
|
| As of December 31, |
| ||
In Thousands | 2020 |
|
| 2019 |
| ||
Corporate debt securities | $ | 23,951 |
|
| $ | — |
|
Commercial paper |
| 5,991 |
|
|
| — |
|
Total | $ | 29,942 |
|
| $ | — |
|
(a) The fair value for Forward Purchase Contracts were previously estimated based on commodity futures market prices.
Commodity Price Risk
We enter into Forwardseed and grain production agreements (Forward Purchase Contracts for grainContracts) with settlement values based on commodity futures market prices. These Forward Purchase Contracts allow ourthe counterparty to fix their salesales prices to us at various times as defined in the contract. We are also engaged in the business of selling soybean oil and meal under a variety of pricing structures. We may enter into hedging arrangements to either fix variable exposures or convert fixed prices to floating prices through the use of commodity derivative contracts. As of SeptemberJune 30, 2019,2020, we held commodity contracts with a notional amount of $5.1$15.7 million.
We have designated all of our commodity derivative contracts as cash flow hedges. As a result, all gains or losses associated with recording commodity derivative contracts at fair value are recorded as a component of accumulated other comprehensive gainincome (loss) (AOCI). We reclassify amounts from AOCI to cost of goods sold when we sell the underlying products to which those hedges relate. As of SeptemberJune 30, 2019,2020, we expect the entire AOCI balance to be reclassified into earnings within the next ninefive months.
Certain amounts related to our hedging activities are as follows:
| Amount of Gain (Loss) Recognized in AOCI |
|
|
|
| Amount of Gain (Loss) Reclassified to Earnings |
| Amount of Gain (Loss) Recognized in AOCI |
|
| Amount of Gain (Loss) Reclassified to Earnings |
| ||||||||||||||||||||
| September 30, |
|
| December 31, |
|
|
|
| Nine months ended September 30, |
| For the Six Months Ended June 30, |
|
| For the Six Months Ended June 30, |
| |||||||||||||||||
In thousands | 2019 |
|
| 2018 |
|
|
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Cash flow hedges: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commodity contracts | $ | (55 | ) |
| $ | — |
|
|
|
| $ | (22 | ) |
| $ | — |
| |||||||||||||||
Commodity derivative contracts | $ | (102 | ) |
| $ | — |
|
| $ | 44 |
|
| $ | — |
| |||||||||||||||||
Total | $ | (55 | ) |
| $ | — |
|
|
|
| $ | (22 | ) |
| $ | — |
| $ | (102 | ) |
| $ | — |
|
| $ | 44 |
|
| $ | — |
|
- 8 -
Foreign Exchange Risk
Foreign currency fluctuations affect our foreign currency cash flows related primarily to payments to Cellectis. Our principal foreign currency exposure is to the euro. We do not hedge these exposures, and we do not believe that the current level of foreign currency risk is significant to our operations.
Concentrations of Credit Risk
We invest our cash, cash equivalents and restricted cash in highly liquid securities and investment funds and until late December 2019, also held deposits at a financial institution that exceeded insured limits. In the first quarter of 2020, we diversified this risk by shifting our investments to a diverse portfolio of short-dated, high investment-grade securities we classify as short-term investments that are recorded at fair value in our consolidated financial statements. We ensure the credit risk in this portfolio is in accordance with our internal policies and hold deposits at financial institutions that may exceed insured limits. We evaluate the credit-worthiness of these institutions in determining theif necessary, make changes to investments to ensure credit risk associated with these deposits.is minimized. We have not experienced any losses on these deposits.counterparty credit losses.
3. RELATED-PARTY TRANSACTIONS
We have several agreements that govern our relationship with Cellectis, some of which require us to make payments to Cellectis. Pursuant to our management services agreement with Cellectis, we incurred nominal management fee expenses of $305,000 for the three months ended SeptemberJune 30, 2019,2020, and $1.0$0.5 million for the same period in 2018.2019. We incurred management fee expenses of $1.1$0.1 million for the ninesix months ended SeptemberJune 30, 20192020, and $2.0$0.8 million for the same period in 2018.2019.
Cellectis has also guaranteed the lease agreement for our headquarters. Cellectis’ guarantee of our obligations under the lease will terminate at the end of the second consecutive calendar year in which our tangible net worth exceeds $300.0$300 million.
TALEN® is our primary gene-editing technology, and it is the foundation of our technology platform. TALEN® technology was invented by researchers at the University of Minnesota and Iowa State University and exclusively licensed to Cellectis. We obtained an exclusive license for the TALEN® technology for commercial use in plants from Cellectis. We also license other technology from Cellectis. We owe Cellectis royalties on any revenue we generate from sales of products less certain amounts as defined in the license agreement, as well as a percentage of any sublicense revenues. WithWe incurred nominal license and royalty fees for the exceptionthree months ended June 30, 2020and 2019. We incurred license and royalty fees of a one-time payment made to$0.1 million for the six months ended June 30, 2020, and nominal fees for the same period in 2019.
We have entered into various agreements with the University of
- 9 -
Minnesota, relatedpursuant to our commercialization of High Oleic Soybeans,which we have been granted both exclusive and non-exclusive license agreements that carry annual license fees, milestone payments, royalties, and associated legal fees. These agreements primarily relate to gene-editing tools, enabling technologies and germplasm. We incurred nominal license fees underexpenses pursuant to these agreements for the three and ninesix months ended SeptemberJune 30, 20192020 and 2018.2019.
4. NET LOSS PER SHARE
Basic and diluted loss per share was calculated using the following:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands, Except Share Data and Per Share Amounts | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||||||
Net loss | $ | (10,669 | ) |
| $ | (7,483 | ) |
| $ | (27,447 | ) |
| $ | (19,429 | ) | $ | (10,902 | ) |
| $ | (9,403 | ) | $ | (21,965 | ) |
| $ | (16,778 | ) |
Weighted average shares outstanding—basic and diluted |
| 32,866,467 |
|
|
| 32,381,010 |
|
|
| 32,759,194 |
|
|
| 30,040,926 |
| ||||||||||||||
Weighted average shares outstanding - basic and diluted | $ | 33,039,338 |
|
| $ | 32,732,988 |
| $ | 33,013,739 |
|
| $ | 32,704,834 |
| |||||||||||||||
Basic and diluted loss per share | $ | (0.32 | ) |
| $ | (0.23 | ) |
| $ | (0.84 | ) |
| $ | (0.65 | ) | $ | (0.33 | ) |
| $ | (0.29 | ) | $ | (0.67 | ) |
| $ | (0.51 | ) |
|
|
|
|
| As of September 30, |
| |||||
|
|
|
|
|
| 2019 |
|
|
| 2018 |
|
Anti-dilutive stock options, restricted stock units and performance stock units |
|
|
|
|
| 5,688,399 |
|
|
| 4,235,535 |
|
|
|
|
| As of June 30, |
| |||||
|
|
|
| 2020 |
|
| 2019 |
| ||
Anti-dilutive stock options, restricted stock units, and performance stock units |
|
|
|
| 5,140,153 |
|
|
| 5,592,441 |
|
All outstanding stock options, restricted stock units, and restrictedperformance stock units are excluded from the calculation since they are anti-dilutive.
We have not used the treasury method in determining the number of anti-dilutive stock options and restricted stock units in the table above.
- 9 -
5.STOCK-BASED COMPENSATION
We use broad-based stock plans to attract and retain highly qualified officers and employees and to help ensure that management’s interests are aligned with those of our shareholders. We have also granted equity-based awards to directors, nonemployees, and certain employees of Cellectis.
In December 2014, we adopted the Calyxt, Inc. Equity Incentive Plan (2014 Plan), which allowed for the grant of stock options, and in June 2017, we adopted the 2017 Omnibus Plan (2017 Plan), which allowed for the grant of stock options, performance shares and other types of equity awards.
As of SeptemberJune 30, 2019, 2,074,6542020, 2,064,594 shares were registered and available for grant under effective registration statements, while 2,585,6102,893,117 shares were available for grant in the form of stock options, restricted stock, restricted stock units, and performance stock units under the 2017 Plan. Stock-based awards currently outstanding also include awards granted under the 2014 Plan, under which no further awards willcan be granted.
Stock Options
The estimated fair values of stock options granted, and the assumptions used for the Black-Scholes option pricing model were as follows:
| Nine months ended September 30, |
| Six Months Ended June 30, |
| ||||||||||
2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| |||||
Estimated fair values of stock options granted | $ | 10.70 |
|
| $ | 9.57 |
| $ | 5.19 |
|
| $ | 10.61 |
|
Assumptions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Risk-free interest rate | 1.9% - 2.5% |
|
| 2.2% - 2.8% |
|
| 1.7 | % |
| 1.9%-2.5% |
| |||
Expected volatility | 77.9% - 78.9% |
|
| 40.9% - 57.2% |
|
| 77.4 | % |
| 77.9%-78.9% |
| |||
Expected term (in years) | 6.8 – 10.0 years |
|
| 5.6 – 10.0 years |
|
| 6.9 |
|
| 6.8-10.0 |
|
- 10 -
We estimate the fair value of each option on the grant date or other measurement dates if applicable using a Black-Scholes option-pricing model, which requires us to make predictive assumptions regarding future stock price volatility, employee exercise behavior and dividend yield. The risk-free interest rate for periods during the expected term of the options is based on the U.S.United States Treasury zero-coupon yield curve in effect at the date of grant. We estimate our future stock price volatility using the historical volatility of comparable public companies over the expected term of the option. Our expected term represents the period of time that options granted are expected to be outstanding determined using the simplified method. We have 0t paid dividends on our common stock and we do not nor do we expectcurrently plan to pay any cash dividends forin the foreseeable future.
Option strike prices are set at 100 percent or more of the closing share price on the date of grant, and generally vest over six years following the grant date. Options generally expire 10 years after the date of grant.
Information on stock option activity is as follows:
Options Exercisable |
|
| Weighted- Average Exercise Price Per Share |
|
| Options Outstanding |
|
| Weighted- Average Exercise Price Per Share |
| Options Exercisable |
|
| Weighted- Average Exercise Price Per Share |
|
| Options Outstanding |
|
| Weighted- Average Exercise Price Per Share |
| |||||||||
Balance as of December 31, 2018 |
| 1,278,038 |
|
| $ | 7.45 |
|
|
| 3,201,887 |
|
| $ | 10.67 |
| |||||||||||||||
Balance as of December 31, 2019 |
| 1,789,567 |
|
| $ | 8.73 |
|
|
| 4,481,359 |
|
| $ | 11.73 |
| |||||||||||||||
Granted |
|
|
|
|
|
|
|
|
| 1,490,000 |
|
|
| 14.45 |
|
|
|
|
|
|
|
|
|
| 60,000 |
|
|
| 7.30 |
|
Exercised |
|
|
|
|
|
|
|
|
| (86,952 | ) |
|
| 3.61 |
|
|
|
|
|
|
|
|
|
| — |
|
|
| — |
|
Forfeited or expired |
|
|
|
|
|
|
|
|
| (163,809 | ) |
|
| 13.79 |
|
|
|
|
|
|
|
|
|
| (357,531 | ) |
|
| 15.03 |
|
Other activity |
|
|
|
|
|
|
|
|
| 12,495 |
|
|
| 13.29 |
| |||||||||||||||
Balance as of September 30, 2019 |
| 1,638,228 |
|
| $ | 8.20 |
|
|
| 4,453,621 |
|
| $ | 11.95 |
| |||||||||||||||
Balance as of June 30, 2020 |
| 2,028,498 |
|
| $ | 9.33 |
|
|
| 4,183,828 |
|
| $ | 11.39 |
|
Stock-based compensation expense related to stock option awards wasis as follows:
| Three months ended |
|
| Nine months ended | |||||||||||||||||||||||||||
| September 30, |
|
| September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Stock-based compensation expense | $ | 1,885 |
|
| $ | (78) |
|
| $ | 4,162 |
|
| $ | 1,126 |
| $ | 1,246 |
|
| $ | 1,508 |
|
| $ | 2,252 |
|
| $ | 2,277 |
|
The- 10 -
At June 30, 2020, options outstanding and exercisable had an aggregate intrinsic value of options outstanding and exercisable at September 30, 2019 was $2.1$1.3 million and the weighted average remaining contractual term was 8.1 years as of that date.6.6 years.
Net cash proceeds from the exercise of stock options less shares used for minimum withholding taxes and the intrinsic value of options exercised were as follows:
| Three months ended |
|
| Nine months ended |
| ||||||||||||||||||||||||
| September 30, |
|
| September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||||||
Net cash proceeds | $ | 6 |
|
| $ | 887 |
|
| $ | 314 |
|
| $ | 2,128 |
| $ | — |
|
| $ | 183 |
| $ | — |
|
| $ | 308 |
|
Intrinsic value of options exercised | $ | 13 |
|
| $ | 1,257 |
|
| $ | 893 |
|
| $ | 6,416 |
| $ | — |
|
| $ | 527 |
| $ | — |
|
| $ | 880 |
|
As of SeptemberJune 30, 2019,2020, unrecognized compensation expense related to non-vested stock options was $14.9$9.0 million. This expense will be recognized over 5852 months on average.
Restricted Stock Units
Units settled in stock subject to a restricted period may be granted under the 2017 Plan. Restricted stock units generally vest and become unrestricted over five years after the date of grant.
- 11 -
Information on restricted stock unit activity is as follows:
Number of Restricted Stock Units Outstanding |
|
| Weighted- Average Grant Date Fair Value |
| Number of Restricted Stock Units Outstanding |
|
| Weighted- Average Grant Date Fair Value |
| |||||
Unvested balance at December 31, 2018 |
| 1,051,414 |
|
| $ | 10.15 |
| |||||||
Unvested balance at December 31, 2019 |
| 813,526 |
|
| $ | 10.31 |
| |||||||
Granted |
| 100,000 |
|
|
| 12.48 |
|
| — |
|
|
| — |
|
Vested |
| (216,173 | ) |
|
| 8.34 |
|
| (117,389 | ) |
|
| 9.97 |
|
Forfeited |
| (12,130 | ) |
|
| 13.39 |
|
| (51,479 | ) |
|
| 10.59 |
|
Unvested balance at September 30, 2019 |
| 923,111 |
|
| $ | 10.55 |
| |||||||
Unvested balance at June 30, 2020 |
| 644,658 |
|
| $ | 10.35 |
|
The total grant-date fair value of restricted stock unit awards that vested wasis as follows:
| Three months ended |
|
| Nine months ended | |||||||||||||||||||||||||
| September 30, |
|
| September 30, | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 | 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Grant-date fair value | $ | 392 |
|
| $ | 40 |
|
| $ | 1,803 |
|
| $ | 1,791 | $ | 660 |
|
| $ | 1,279 |
|
| $ | 1,170 |
|
| $ | 1,411 |
|
Stock-based compensation expense related to restricted stock units wasis as follows:
| Three months ended |
|
| Nine months ended | ||||||||||||||||||||||||||
| September 30, |
|
| September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Stock-based compensation expense | $ | 706 |
|
| $ | 667 |
|
| $ | 2,289 |
|
| $ | 1,890 |
| $ | 441 |
|
| $ | 796 |
|
| $ | 596 |
|
| $ | 1,583 |
|
We treat stock-based compensation awards granted to employees of Cellectis as deemed dividends. We recorded deemed dividends as follows:
| Three months ended |
|
| Nine months ended | |||||||||||||||||||||||||
| September 30, |
|
| September 30, | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 | 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Deemed dividends from grants to Cellectis employees | $ | 296 |
|
| $ | 415 |
|
| $ | 1,072 |
|
| $ | 1,790 | $ | 198 |
|
| $ | 366 |
|
| $ | 422 |
|
| $ | 777 |
|
As of SeptemberJune 30, 2019,2020, unrecognized compensation expense related to restricted stock units was $3.5$2.1 million. This expense will be recognized over 4737 months on average.
- 11 -
Performance Stock Units
In June 2019, we granted 311,667 performance stock units under the 2017 Plan to three executive officers. The performance stock units will vest at 50%, 100% or 120% of the shares under the award at the end of a three-year performance period based upon increases in the value of our common stock from the grant price of $12.48. The performance stock units will be settled in restricted stock upon vesting, with restrictions on transfer lapsing on the second anniversary of the restricted stock issuance date.
The estimated fair values of performance stock units granted, and the assumptions used for the Monte Carlo simulation pricing model were as follows:
| Nine months ended September 30, 2019 | |
Estimated fair values of performance stock units granted | $ | 7.06 |
Assumptions: |
|
|
Risk-free interest rate | 1.71% | |
Expected volatility | 75.0% | |
Expected term (in years) | 3.0 years |
Stock-based compensation expense related to performance stock unit awards was $114,000 for the three and nine months ended September 30, 2019.units is as follows:
- 12 -
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
In Thousands | 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Stock-based compensation expense | $ | 110 |
|
| $ | — |
|
| $ | 220 |
|
| $ | — |
|
As of SeptemberJune 30, 2019,2020, unrecognized compensation expense related to performance stock units was $2.1 million and$1.8 million. This expense will be recognized over 57 months.
Cellectis Equity Incentive Plan
Prior to 2018, Cellectis granted stock options to our employees. Compensation costs related to these grants have been recognized in the statements of operations with a corresponding credit to stockholders’ equity representing Cellectis’ capital contribution to us. The fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing model.
We recognized a reduction in stock-based compensation expense related to Cellectis’ grants of $96,000 for the three48 months ended September 30, 2018, and $107,000 for the nine months ended September 30, 2018. Expenses in 2019 were de minimus.on average.
6. INCOME TAXES
We provide for a valuation allowance when it is more likely than not that we will not realize a portion of the deferred tax assets. We have established a full valuation allowance for deferred tax assets due to the uncertainty that enough taxable income will be generated in the taxing jurisdiction to utilize the assets. Therefore, we have not reflected any benefit of such deferred tax assets in the accompanying consolidated financial statements.
As of SeptemberJune 30, 2019,2020, there were no material changes to what we disclosed regarding tax uncertainties or penalties as of December 31, 2018.2019.
7. LEASES, OTHER COMMITMENTS, AND CONTINGENCIES
Litigation and Claims
We are not currently a party to any material pending legal proceeding.
Leases
We lease our headquarters facility, office equipment, and other items. Our headquarters lease involved the sale of land and improvements to a third party who then constructed the facility. This lease is considered a financing lease.
We also have an equipment financing arrangement that is considered a financing lease. This arrangement has a term of four years for each draw. We were required to deposit cash into a restricted account in an amount equal to the future rent payments required by the lease. As of SeptemberJune 30, 20192020, this restricted cash totaled $1.5$1.4 million. We have the option to request the return of excess collateral annually in December.December, and the amount we expect to receive is reflected as a current asset.
Rent expense from operating leases was as follows:
| Three months ended |
|
| Nine months ended | |||||||||||||||||||||||||
| September 30, |
|
| September 30, | Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 | 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||||||
Rent expense from operating leases | $ | 22 |
|
| $ | 12 |
|
| $ | 91 |
|
| $ | 171 | $ | 23 |
|
| $ | 20 |
|
| $ | 47 |
|
| $ | 69 |
|
Other Commitments
As of SeptemberJune 30, 2019,2020, we have committednoncancelable commitments to purchase grain from farmers and seed from growers at dates throughout 2020 and 2021 aggregating $32.7$34.2 million based on current commodity futures market prices, other payments to growers, and estimated yields per acre. This amount is not recorded in the consolidated financial statements because we have not taken delivery of the grain as of SeptemberJune 30, 2019.2020. If growers do not plant our soybeans, we allow the grain production contacts to be cancelled. Therefore, we do not include commitments to purchase grain as noncancelable commitment until the corresponding seed is planted.
- 12 -
8. EMPLOYEE BENEFIT PLAN
We provide a 401(k) defined contribution plan for all regular full-time employees who have completed three months of service. We match employee contributions up to certain amounts and those matching contributions vest immediately. Our expense was $58,000 for the three months ended September 30, 2019 and $28,000 for the same period in 2018. Our expense was $163,000 for the nine months ended September 30, 2019 and $104,000 for the same period in 2018.
- 13 -
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
In Thousands | 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Employee benefit plan expenses | $ | 78 |
|
| $ | 49 |
|
| $ | 198 |
|
| $ | 105 |
|
Certain balance sheet amounts are as follows:
| As of September 30, |
|
| As of December 31, |
| ||
In Thousands | 2019 |
|
| 2018 |
| ||
Inventory: |
|
|
|
|
|
|
|
Raw materials, net of seed benefit | $ | 1,988 |
|
| $ | — |
|
Work-in-process |
| 343 |
|
|
| — |
|
Finished goods |
| 40 |
|
|
| — |
|
Total | $ | 2,371 |
|
| $ | — |
|
| As of June 30, |
|
| As of December 31, |
| ||
In Thousands | 2020 |
|
| 2019 |
| ||
Accounts Receivable: |
|
|
|
|
|
|
|
Accounts receivable | $ | 1,458 |
|
| $ | 1,247 |
|
Accounts receivable – extended payment terms |
| 1,188 |
|
|
| — |
|
Allowance for doubtful accounts |
| (235 | ) |
|
| (125 | ) |
Total | $ | 2,411 |
|
| $ | 1,122 |
|
Several of our growers have elected to extend their payment terms with us. In exchange for these extensions, we have the right to deduct the amount we are owed from the payment we make upon the purchase of their grain.
| As of June 30, |
|
| As of December 31, |
| ||
In Thousands | 2020 |
|
| 2019 |
| ||
Inventory: |
|
|
|
|
|
|
|
Raw materials | $ | 4,326 |
|
| $ | 2,211 |
|
Work-in-process |
| 553 |
|
|
| 272 |
|
Finished goods |
| 403 |
|
|
| 111 |
|
Total | $ | 5,282 |
|
| $ | 2,594 |
|
Certain statements of operations amounts are as follows:
| Three months ended September 30, |
|
| Nine months ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||||||
Stock compensation expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development | $ | 461 |
|
| $ | (106 | ) |
| $ | 1,240 |
|
| $ | 985 |
| $ | 488 |
|
| $ | 539 |
| $ | 807 |
|
| $ | 779 |
|
Selling, general and administrative |
| 2,244 |
|
|
| 695 |
|
|
| 5,325 |
|
|
| 2,031 |
| ||||||||||||||
Selling and supply chain |
| 151 |
|
|
| 165 |
|
| (100 | ) |
|
| 228 |
| |||||||||||||||
General and administrative |
| 1,158 |
|
|
| 1,600 |
|
| 2,361 |
|
|
| 2,853 |
| |||||||||||||||
Total | $ | 2,705 |
|
| $ | 589 |
|
| $ | 6,565 |
|
| $ | 3,016 |
| $ | 1,797 |
|
| $ | 2,304 |
| $ | 3,068 |
|
| $ | 3,860 |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| Three Months Ended June 30, |
| Six Months Ended June 30, |
| ||||||||||||||||||||
In Thousands | 2019 |
|
| 2018 |
|
| 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| 2020 |
|
| 2019 |
| ||||||||
Interest, net: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Interest expense | $ | (374 | ) |
| $ | (349 | ) |
| $ | (1,114 | ) |
| $ | (901 | ) | $ | (371 | ) |
| $ | (370 | ) | $ | (743 | ) |
| $ | (740 | ) |
Interest income |
| 406 |
|
|
| 577 |
|
|
| 1,410 |
|
|
| 989 |
|
| 525 |
|
|
| 462 |
|
| 499 |
|
|
| 1,004 |
|
Total | $ | 32 |
|
| $ | 228 |
|
| $ | 296 |
|
| $ | 88 |
| $ | 154 |
|
| $ | 92 |
| $ | (244 | ) |
| $ | 264 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 13 -
Certain statements of cash flows amounts are as follows:
| As of September 30, |
| |||||
In Thousands | 2019 |
|
| 2018 |
| ||
Cash, cash equivalents and restricted cash: |
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 66,434 |
|
| $ | 101,796 |
|
Restricted cash, current |
| 381 |
|
|
| 50 |
|
Non-current restricted cash |
| 1,135 |
|
|
| — |
|
Total | $ | 67,950 |
|
| $ | 101,846 |
|
| As of June 30, |
| |||||
In Thousands | 2020 |
|
| 2019 |
| ||
Cash, cash equivalents, restricted cash, and short-term investments: |
|
|
|
|
|
|
|
Cash and cash equivalents | $ | 3,875 |
|
| $ | 76,434 |
|
Restricted cash |
| 1,433 |
|
|
| 1,509 |
|
Total cash, cash equivalents, and restricted cash: |
| 5,308 |
|
|
| 77,943 |
|
Short-term investments |
| 29,942 |
|
|
| — |
|
Total cash, cash equivalents, restricted cash, and short-term investments: | $ | 35,250 |
|
| $ | 77,943 |
|
| Nine months ended September 30, |
| Six Months Ended June 30, |
| ||||||||||
In Thousands | 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid | $ | 1,108 |
|
| $ | 856 |
| $ | 732 |
|
| $ | 737 |
|
|
|
|
|
|
|
|
| |||||||
| Nine months ended September 30, |
| ||||||||||||
In Thousands | 2019 |
|
| 2018 |
| |||||||||
Supplemental investing and financing transactions: |
|
|
|
|
|
|
| |||||||
Non-cash additions to land, buildings, and equipment | $ | 414 |
|
| $ | 6,849 |
| |||||||
Offering costs in accounts payable and accrued liabilities | $ | — |
|
| $ | 443 |
| |||||||
Non-cash addition to financing lease obligations | $ | 18 |
|
| $ | — |
|
- 14 -
We operate in a single reportable segment, food ingredients.agricultural products. Our current commercial focus is North America. Our major product categories are High Oleic Soybean Oilhigh oleic soybean oil and High Oleic Soybean Meal.high oleic soybean meal.
11. LONG-TERM DEBT
Our long-term debt is comprised of a $1.5 million promissory note pursuant to the Paycheck Protection Program (the “Paycheck Protection Program loan”) established by the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) implemented by the U.S. Small Business Administration (“SBA”). We received the funds under the Paycheck Protection Program loan on April 19, 2020. The Paycheck Protection Program loan matures in April 2022 and bears interest at a per annum rate of 1.00%. The Paycheck Protection Program loan may be prepaid at any time prior to maturity with 0 prepayment penalties.
The Paycheck Protection Program loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the Paycheck Protection Program loan and accrued interest may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the Paycheck Protection Program. In order to be eligible for forgiveness, the proceeds of the Paycheck Protection Program loan must be applied to certain eligible expenses, including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, with not more than 40% of the amount applied to non-payroll costs.
We have applied the proceeds from the Paycheck Protection Program loan toward qualifying expenses and intend to apply for forgiveness of the full principal amount and all accrued interest. No assurance can be given that we will be granted forgiveness of the Paycheck Protection Program loan in whole or in part.
12. SUBSEQUENT EVENTS
On August 4, 2020, we approved an advancement of our soybean products to a streamlined business model. The impact of the advancement included the elimination of positions related to soybean processing and product sales, resulting in aggregate cash charges of approximately $0.6 million for severance and other related payments, and we expect to record a $0.9 million recapture of non-cash stock compensation expense from forfeitures of un-vested awards. We expect to incur $0.5 million of additional cash charges over the next twelve months as we exit processing and transportation contracts. Contracted grain purchases and sales and the wind down of other contractual obligations are expected to take approximately 12 months.
- 1514 -
Item 2. Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read together with our consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” in our Annual Report on Form 10-K filed on March 12, 2019.
EXECUTIVE OVERVIEW
We are a plant-based technology company focused on healthy food ingredients. We leverage proprietary intellectual property,delivering plant-based innovations and solutions with substantial disruption potential across multiple industries. Our streamlined business model comprises three go-to-market strategies. Specific deal structure and the amount and timing of cash flows will vary depending upon several factors, including cost to develop, size of the opportunity, and the stage at which a partner or licensee enters the development process. Summaries of our technical expertise,go-to-market strategies are as follows:
• | TALEN® Licensing Arrangements: Through licensing agreements with third parties with respect to our technology, including our TALEN® technology, for negotiated upfront and annual fees and potential royalties upon commercial sale of products. |
• | Trait and Product Licensing Arrangements: Through licensing agreements with downstream partners with respect to Calyxt-developed traits or products for negotiated upfront and milestone payments and potential royalties upon commercial sale of products. |
• | Seed Sale Arrangements: Through purchase agreements for the direct sale of seed, with such sales expected to generate revenue for Calyxt. |
For TALEN®, trait, and for certain products an end-to-end identity-preservedproduct licensing arrangements, we expect that our customers will primarily be seed companies, biotechnology companies, germplasm providers, large agricultural processors, others in the crops’ relevant supply chain, and growers, who would, in each case, utilize our technology for their own trait development in specified crops. For seed sale arrangements, we expect that our customers will be large agricultural processing companies, including millers and crushers, or others in the relevant crop’s supply chain, in each case with developed agronomy infrastructure and commercialization expertise. Across each of these approaches, we will seek to deliverdevelop relationships with strategic customers where our product candidates are most likely to benefit from deep agronomy, product management, and commercialization expertise. Placing our products and traits with such strategic customers will reduce our expenses and downstream risk exposure, while allowing us to pursue diversified growth across multiple revenue streams.
We believe that our streamlined business model with differentiated go-to-market strategies provides a capital-efficient, lower-cost, and highly scalable approach. Our strategy is based on focusing on our missioncore strengths in research and development, gene-editing, and trait development. We will continue to focus on advancing our gene-editing technologies toward developing high value innovations and plant-based solutions with substantial disruption potential, while leveraging our partners and licensees to manage commercialization and the associated costs and risks. We believe that focusing our efforts on our gene-editing technology and trait development expertise, while contracting with commercialization partners or licensees for downstream execution strikes a balance where we are best positioned for cost-efficient paths to market.
Having established a proof of “Making the Food You Love a Healthier Choice™”.
In addition to revenues fromconcept with our first products, a High Oleic Soybean Oil and High Oleic Soybean Meal, we also are developing additional products thathigh oleic soybean product, we intend to commercialize including otherrefocus our commercial efforts with respect to this product on the sale of seed for customers’ own soybean products, wheat products, an alfalfa product,processing businesses. With respect to grain from the 2020 crop that we have already contracted to purchase from farmers, we intend to pursue sales to large processing companies and products in other crops including hemp, oats, canola, peas, alfalfa, peanutshave sold 300,000 bushels to a large processor, for which it will retain the rights to process and potatoes.sell the resulting soybean oil, while we will purchase and market the resulting soybean meal. We are also restructuring our personnel infrastructure to support the execution of our streamlined business model, including through the elimination of positions related to soybean processing and product sales.
We are currently exploring other revenue-generating activities including technology licensing, collaborations, R&D activitiesproduct opportunities in alfalfa, canola, hemp, oats, peanuts, peas, potato, pulses, soybeans, wheat, and other value capture modelscrops for potential applications across a variety of industries, including food, pharmaceutical, energy, and agriculture. Applying our technology platform.streamlined business model with differentiated go-to-market strategies, we are well positioned to nimbly develop plant-based input solutions for specific downstream issues, including consumer preferences, sustainability, cost, quality, and regulatory compliance.
- 15 -
As of the date of this report, we have 8 projects at the Discovery stage or later in development across alfalfa, hemp, oats, soybeans, and wheat, and are exploring improved protein profile and flavor in pulse crops, with several options under consideration.
Our current product development pipeline is as follows:
CROP | TRAIT | TARGET COMMERCIAL PLANTING YEAR | TARGET GO-TO-MARKET STRATEGY |
Alfalfa | Improved Digestibility | 2021 | Trait |
Wheat | High Fiber | 2022 | Seed |
Soybean | High Oleic, Low Linolenic (HOLL) | 2023 | Seed |
Hemp | Marketable Yield | 2023 | Seed and Trait |
Hemp | Low THC for Food, Fiber, & Therapeutics | 2024 | Seed and Trait |
Oat | Gluten-free and Cold Tolerant | 2026 | Seed and Trait |
Soybean | Improved HOLL | 2026 | Seed |
Soybean | High Saturated Fat | 2026 | Seed and Trait |
Pulse | Improved Protein Profile and Flavor | 2027 | Trait |
We are also actively negotiating agreements with potential partners with respect to specific opportunities for which development activity would only commence upon reaching a commercial agreement. These projects are not included in the preceding table.
As previously reported, during the first quarter of 2020, we were notified that a significant portion of our high fiber wheat plants were lost in field trials due to improper aerial chemical applications by unaffiliated third parties. As a result of the crop destruction, the number of cultivars was reduced, which represents a significant reduction in the genetic potential of the wheat germplasm that carries the high fiber trait. The harvested wheat, which is currently undergoing validation testing, may prove to be of lesser agronomic and functional quality than initially anticipated, and launch size and regulatory timelines may be adversely affected. We are pursuing available avenues of recourse against the unaffiliated third parties involved in the initial crop loss as well as the adverse impact upon the surviving germplasm lines.
In the second quarter of 2020, our HOLL soybean was deemed a non-regulated article under the “Am I Regulated?” process by Biotechnology Regulatory Services of the Animal and Plant Health Inspection Service, an agency of the United States Department of Agriculture. This product represents our second-generation high oleic soybean.
Late in the second quarter of 2020, we released our non-edited hemp germplasm by selling plants directly to a grower, driving several thousands of dollars of revenue. This project leveraged our plant breeding expertise to quickly purify and stabilize key varieties of a partner’s germplasm. While not significant to our financial results, this successful project enabled the gathering of valuable insights and data, and it is expected to serve as the base germplasm for the development of other hemp projects expected to launch beginning in 2023.
We are an early-stage company and have incurred net losses since our inception. As of SeptemberJune 30, 20192020, we had an accumulated deficit of $109.9$144.0 million. Our net losses were $10.7$22.0 million including $2.7 million of non-cash stock compensation costs for the threesix months ended SeptemberJune 30, 2019 and $27.4 million, including $6.6 million of non-cash stock compensation costs for the nine months ended September 30, 2019. Non-cash stock compensation expense, and cash expenses incurred to purchase and process grain, to compensate our employees, to fund our R&D programs and to support ongoing operations are the primary drivers of our net loss.2020.
We expect to continue to incur significant expenses and operating losses for the next several years. Those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. We expect that our expenses will be driven by our:by:
building out additional sales, marketing and distribution capabilities, including relationships across our supply chain, to commercialize products that have completed the development process;
• | continuing to advance the R&D of our current and future products; |
• | conducting additional breeding and field trials of our current and future products; |
• | seeking regulatory and marketing approvals for our products; |
• | acquiring or in-licensing other products, technologies, germplasm, or other biological material; |
• | maintaining, protecting, expanding, and defending our intellectual property portfolio; |
• | making royalty and other payments under any in-license agreements; |
• | seeking to attract and retain new and existing skilled personnel; |
• | identifying strategic partners and licensees and negotiating agreements under the applicable go-to-market strategy; |
• | restructuring our infrastructure to support the execution of our streamlined business model; |
• | short-term soybean product commercialization expenses as we advance the product to a seed sale go-to-market strategy; |
• | addressing the impacts of the ongoing novel coronavirus (“COVID-19”) pandemic, including implementing our expense reduction efforts and seeking to bolster our liquidity position in light of changing business needs and uncertain macro-economic conditions; and |
- 16 -
securing manufacturing arrangements for commercial production;
continuing to advance the R&D of our current and future products;
seeking to identify and validate additional products;
acquiring or in-licensing other products, technologies, germplasm or other biological material;
seeking regulatory and marketing approvals for our products;
making royalty and other payments under any in-license agreements;
maintaining, protect, expand and defend our intellectual property portfolio;
seeking to attract and retain new and existing skilled personnel;
investing in our infrastructure to support the scale-up of the business; and
experiencing any delays or encounter issues with any of the above.
• | experiencing any delays or encountering issues with any of the above, including due to COVID-19 and its impacts. |
OUR RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF OUR RESULTS
We are a majority-owned subsidiary of Cellectis. As of SeptemberJune 30, 20192020, Cellectis owned 69.1%68.7% of our outstanding common stock.
Our historical financial information reflects expense allocations for certain support functions that were provided on a centralized basis pursuant to a management services agreement. As a result, such historical financial information may not reflect the financial condition, results of operations or cash flows we would have achieved as a stand-alone company and not a subsidiary of Cellectis during such historical periods. Effective with the end of the third quarter of 2019 we have internalized nearly all of the services Cellectis previously provided. Cellectis has also guaranteed the lease of our headquarters facility.
Cellectis has certain contractual rights as well as rights pursuant to our certificate of incorporation and bylaws, in each case, as long as it maintains threshold beneficial ownership levels in our shares.
We hold an exclusive worldwide license in plants to keyfrom Cellectis that broadly covers the use of engineered nucleases for plant gene editing. This intellectual property owned by Cellectis.covers methods to edit plant genes using “chimeric restriction endonucleases,” which include TALEN®, CRISPR/Cas9, zinc finger nucleases, and some types of meganucleases.
FINANCIAL OPERATIONOPERATIONS OVERVIEW
Revenue
- 16 -
Revenues are recognized as described in our Accounting Policies in the Notes to our financial statements in Item 1. For the three and six months ended SeptemberJune 30, 2019,2020, we recognized revenue from the sales of High Oleic Soybean Oilhigh oleic soybean oil and High Oleic Soybean Meal.meal as well as sales of our first hemp product. We do not currently recognize revenue from seed transactions because of the grower’s commitment to sell their crop to us. We benefit from the cash upon payment and defer the net profit on the seed to inventory and recognize that benefit when the products are sold. We are also exploring additional revenue-generating opportunities including technology licensing, collaborations, R&D activities and other value capture models for our technology platform.grower delivers grain to us.
Cost of Goods Sold and Inventory
Prior to 2019, our cost of goods sold represented immaterial costs associated with our out-licensing activities. Costs we incurred associated with the production of seedpurchasing, storing, transporting and all Grain Costs,processing grain, net of proceeds of seed sales (Grain Costs), were expensed toas R&D. FollowingBeginning during the commercializationfirst quarter of our High Oleic Soybean Oil2019, we began to capitalize all Grain Costs into inventory. This affects the year-over-year comparability of cost of goods sold, gross margins and High Oleic Soybean Meal inR&D expenses. For the three months ended March 31,June 30, 2019 we no longer expense Grain Costs expensed as R&D. In&D totaled $0.4 million, and for the threesix months ended SeptemberJune 30, 2018 we incurred $1.1 million of2019, Grain Costs that were expensed as R&D. In the nine months ended September 30, 2018 we incurred $1.6 million of Grain Costs that were expensed as R&D. These amounts affect the quarter-over-quarter comparability of R&D expenses.totaled $0.5 million.
Cost of goods sold also includes crush and refining losses that are expensed as incurred since they do not add to the value of the finished products. All other grain and risk management costs, net of the benefit from our seed activity, are capitalized to inventory and relieved to cost of goods sold as the High Oleic Soybean Oilhigh oleic soybean oil and High Oleic Soybean Mealmeal is sold. Any valuation adjustments to inventory are recognized as incurred.
Research and Development Expense
R&DResearch and development (R&D) expenses consist of the costs of performing activities to discover and develop products.products and advance our intellectual property. We recognize R&D expenses as they are incurred. Prior to commercialization of our first product in
Excluding the three months ended March 31, 2019, we reported Grain Costs as R&D expenses.
Beginning in 2019,mentioned above, our R&D expenses consist primarily of employee-related costs for our R&D personnel, costs, fees for contractors who support product development and breeding activities, expenses for trait validation, purchasing material and supplies for our laboratories, andlicensing, facilities, regulatory, and other costs associated with owning and operating our own laboratories.
Our R&D efforts are central to our business and account for a significant portion of our operating expenses. We expect that our R&D expenses will increase as we expand our product development efforts, accessalso include costs to write and develop additional technologies and hire additional personnel.support the research for filing patents.
Selling and Supply Chain Expense
Selling and Supply Chain (S&SC) expenses consist primarily of employee-related expenses for marketing and selling our products, acreage acquisition, managing the supply chain and business development, as well as costs to market our products and an allocation of facility and information technology expenses.
- 17 -
General and Administrative Expense
Selling, generalGeneral and administrative (SG(G&A) expenses consist primarily of employee-related expenses for our executive, selling, acreage acquisition, supply chain, business development, legal, intellectual property, information technology, finance, and human resources functions. Other SGG&A expenses include facility-related costsfacility and information technology expenses not otherwise allocated to R&D or S&SC expenses, professional fees for auditing, tax and legal services, expenses associated with obtaining and maintaining patents, consulting costs and other costs of our information systems.
We expect that our SG&A expenses will increase as we continue to invest in sales, quality and food safety for those products that we commercialize on our own. We expect growth in all other costs in SG&A to moderate going forward as we believe we have the necessary foundation to grow and scale up our business.
- 17 -
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2018
We achieved record revenues in the three months ended September 30, 2019, from selling High Oleic Soybean Oil and High Oleic Soybean Meal. Our cost of goods sold and gross margins on these revenues do not include Grain Costs that we expensed as R&D in 2018. We also continued to progress products through our pipeline development process and brought on sales and marketing resources to drive additional revenue.
A summary of our results of operations for the three months ended September 30, 2019 and 2018 follows:
| Three months ended September 30, |
| |||||||||||||
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
Revenue | $ | 2,967 |
|
| $ | 27 |
|
| $ | 2,940 |
|
|
| 10888.9 | % |
Cost of goods sold |
| 3,528 |
|
|
| — |
|
|
| 3,528 |
|
| nm |
| |
Research and development expense |
| 3,579 |
|
|
| 3,440 |
|
|
| 139 |
|
|
| 4.0 | % |
Selling, general and administrative expense |
| 6,248 |
|
|
| 3,311 |
|
|
| 2,937 |
|
|
| 88.7 | % |
Management fees and royalties |
| 305 |
|
|
| 975 |
|
|
| (670 | ) |
|
| (68.7 | )% |
Interest, net |
| 32 |
|
|
| 228 |
|
|
| (196 | ) |
|
| (86.0 | )% |
Other income and expense |
| (8 | ) |
|
| (12 | ) |
|
| 4 |
|
|
| (33.3 | )% |
Net loss | $ | (10,669 | ) |
| $ | (7,483 | ) |
| $ | (3,186 | ) |
|
| 42.6 | % |
Adjusted EBITDA | $ | (6,905 | ) |
| $ | (6,382 | ) |
| $ | (523 | ) |
|
| 8.2 | % |
Revenue and Cost of Goods Sold
Revenue increased $2.9 million driven by increased sales volumes of our High Oleic Soybean Oil and High Oleic Soybean Meal. We continued to expand distribution of High Oleic Soybean Oil in the foodservice channel. We sold out of all High Oleic Soybean Meal that we produced in the period. Cost of goods sold increased $3.5 million reflecting the cost of product sold in the period and an adjustment to the net realizable value of our inventories that reflects the higher costs we have experienced at this early stage of commercialization.
Research and Development Expense
R&D expenses increased $139,000. The increase was driven by higher non-cash stock compensation expense of $567,000, a reversal of payroll tax benefits that are no longer realizable of $536,000 and the addition of personnel. R&D expenses for the three months ended September 30, 2018 also included $1.1 million of Grain Costs we incurred prior to our commercialization earlier in 2019, which affects the comparability of R&D expenses year over year.
Selling, General and Administrative Expense
SG&A expenses increased $2.9 million driven by a $1.6 million increase in non-cash stock compensation expense, increased personnel costs of $880,000 and an increase in professional fee expenses of $455,000. The increases in personnel expenses and professional fees are partially offset by the benefits of internalizing certain services previously provided by Cellectis as described below.
Management Fees and Royalties
Management fees and royalties declined by $670,000 as we internalized certain services previously provided by Cellectis including legal and communications.
Interest, net
Interest, net is the resultcomprised of interest income resulting from investments of cash and cash equivalents partially offset byand short-term investments, any unrealized gains and losses on short-term investments, and interest expense on our financing lease obligations. It is also driven by balances, yields, and timing of our capital raises and financing activities. Interest, net declined by $196,000 from lower yields on investments, less cash to invest
Anticipated Changes Between Revenues and higher financing lease obligation balances.Costs
Net Loss
Net loss increased by $3.2 million driven by increases in non-cash stock compensation expensesAs we execute upon our streamlined business model with differentiated go-to-market strategies, we expect the composition of $2.1 millionour revenues and costs associatedto evolve. Future cash and revenue-generating opportunities are expected to primarily arise from seed sales and licensing arrangements. Under licensing arrangements, revenues would comprise upfront and milestone payments as well as royalty payments upon commercial sale of products.
Because our strategy is based on focusing on our core strengths in research and development, gene-editing, and trait development, we expect R&D expenses to increase moderately. At the same time, because our streamlined business model relies on third parties assuming responsibility for agronomy infrastructure, product management, and commercialization, we expect that S&SC expense will reduce substantially as the new models are fully implemented.
Recent Developments – COVID-19 Update
As previously reported, our operations in Minnesota are classified as critical sector work under the State of Minnesota’s COVID-19 executive orders. Accordingly, most of our laboratory workers have continued to work onsite at our headquarters throughout the pandemic, and our R&D programs and seed distribution activities have not experienced material delays. In accordance with launching our first productsCOVID-19 Preparedness Plan, Minnesota executive order requirements, and CDC and WHO guidelines, we have implemented health and safety measures for the protection of our onsite workers and have maintained remote work arrangements for our non-laboratory personnel.
During the second quarter, supply chain disruptions did not have a material impact on our operations although our financial results and operations were negatively impacted by price, demand and supply dislocations, and our previously reported responsive actions. Over the course of the second quarter, initial supply and demand dislocations for premium oil and meal have generally moderated, led by the premium oil industrial market segment. Although still impacted by food service and food manufacturing segment disruptions, broader supply and demand normalization trends have contributed to substantial price recovery in 2019.the premium oil and meal markets. Notwithstanding these improvements, a resurgence of the COVID-19 pandemic (as is currently occurring in some states), governmental response measures, and resulting disruptions could rapidly offset such improvements. Moreover, the effects of the COVID-19 pandemic on the financial markets remain substantial and broader economic uncertainties persist, which may make obtaining capital challenging and have exacerbated the risk that such capital, if available, may not be available on terms acceptable to us. There continues to be significant uncertainty relating to the COVID-19 pandemic and its impact, and many factors could affect our results and operations, including, but not limited to, those discussed under the caption “Risk Factors” in the reports we file with the SEC.
As previously reported, since before the onset of the COVID-19 pandemic, we have been exploring additional revenue-generating opportunities, including licensing and other value capture models for our technology platform and have committed to evaluate our go-to-market strategy for product candidates on a case-by-case basis in order to pursue the most efficient paths to value creation.
- 18 -
Adjusted Earnings Before Interest, Taxes, DepreciationThe downstream demand disruptions and Amortizationpricing volatility caused by the COVID-19 pandemic reinforced the potential benefits of our strategic trajectory toward more streamlined, lower cost, and more capital-efficient upstream-focused go-to-market strategies. Moreover, the crush schedule cancellations that we took in response to the COVID-19 pandemic provided an evaluation point for our soybean product go-to-market strategy.
Adjusted Earnings Before Interest, Taxes, DepreciationRESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2019
A summary of our results of operations for the three months ended June 30, 2020 and Amortization (Adjusted EBITDA) decreased2019 follows:
| Three Months Ended June 30, |
| |||||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
Revenue | $ | 2,307 |
|
| $ | 408 |
|
| $ | 1,899 |
|
|
| 465 | % |
Cost of goods sold |
| 5,321 |
|
|
| 303 |
|
|
| 5,018 |
|
|
| 1656 | % |
Gross margin |
| (3,014 | ) |
|
| 105 |
|
|
| (3,119 | ) |
|
| (2970 | %) |
Research and development expense |
| 2,825 |
|
|
| 2,738 |
|
|
| 87 |
|
|
| 3 | % |
Selling and supply chain expense |
| 1,349 |
|
|
| 1,202 |
|
|
| 147 |
|
|
| 12 | % |
General and administrative expense |
| 3,808 |
|
|
| 5,206 |
|
|
| (1,398 | ) |
|
| (27 | %) |
Management fees and royalties |
| 42 |
|
|
| 451 |
|
|
| (409 | ) |
|
| (91 | %) |
Interest, net |
| 154 |
|
|
| 92 |
|
|
| 62 |
|
|
| 67 | % |
Other income and expense |
| (18 | ) |
|
| (3 | ) |
|
| (15 | ) |
|
| 500 | % |
Net loss | $ | (10,902 | ) |
| $ | (9,403 | ) |
| $ | (1,499 | ) |
|
| 16 | % |
Adjusted EBITDA | $ | (6,509 | ) |
| $ | (6,627 | ) |
| $ | 118 |
|
|
| (2 | %) |
Revenue
Revenue increased by $523,000$1.9 million, or 465 percent, from the second quarter of 2019 to $2.3 million in the second quarter of 2020. The revenue growth was driven by increased personnel costs,487 basis points of volume growth and 16 basis points of favorable product mix as the costswe sold more oil in 2020 as a percent of commercializationtotal revenue than in 2019, were largelyboth partially offset by reductions37 basis points of pricing, primarily the result of lower meal prices than the prior period. High oleic soybean meal was 79 percent of revenue in the period, compared to 89 percent a year ago. Most oil revenue in 2020 was from a single customer purchasing our oil to be used as a plant-based alternative to synthetic fluids, and we expect to fulfill their remaining orders over the next three months.
Cost of Goods Sold
Cost of goods sold increased by $5.0 million from the second quarter of 2019 to $5.3 million in the second quarter of 2020. The increase in cost of goods sold reflects an increase in the cost of product sold in the period as a result of higher sales volumes, the impact of lower costs associated with products sold in 2019 because Grain Costs were previously expensed as R&D, and a $3.2 million net realizable value adjustment to inventoriesbased on expected selling prices, grain processing costs, and a significant amount of excess seed produced for 2020 plantings.
Gross Margin
Gross margin, as reported, was a negative $3.0 million, or a negative 131 percent, in the second quarter of 2020, a decrease of $3.1 million from the second quarter of 2019. The decrease in gross margin in the second quarter of 2020 reflects the higher costs we have experienced during the high oleic soybean product’s proof of concept period. The primary driver for gross margin, as reported, was the net realizable value adjustment to inventories of $3.2 million, as described above for cost of goods sold. The year over year comparability is also affected by $0.4 million of Grain Costs expensed as R&D prior to the commercialization of our first products in early 2019, which resulted in those margins being higher than they would have been had those costs been recognized in cost of goods sold in 2019 instead of R&D expense in 2018.
During the period, gross margins were impacted by the effect of the COVID-19 pandemic and our responsive measures. The increase in negative gross margin percentage related to lower sales volumes and lower average selling prices, while the prices that we pay per bushel for processing, storage and transport of grain remained fixed.
Gross margin, as adjusted, was negative $0.8 million, or negative 34 percent, in the second quarter of 2020, as compared to negative $0.3 million, or negative 69 percent, in the second quarter of 2019. The improvement was driven by higher oil prices and favorable product mix, partially offset by lower meal prices and higher grain costs and processing expenses.
- 19 -
See below under the heading “Use of Non-GAAP Financial Information” for a discussion of Adjusted EBITDAgross margin, as adjusted, and a reconciliation of such measure togross margin, the most comparable GAAP measure, calculated under U.S. GAAP.
RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2019 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2018
Similar to the three-month results discussed above, we achieved record revenues in the nine months ended September 30, 2019 from selling High Oleic Soybean Oil and High Oleic Soybean Meal. Our cost of goods sold and gross margins on these revenues do not include Grain Costs we expensedmargin, as R&D in 2018. We also continued to progress products through our pipeline development process and brought on sales and marketing resources to drive additional revenue.
A summary of our results of operations for the nine months ended September 30, 2019 and 2018 follows:
| Nine months ended September 30, |
| |||||||||||||
| 2019 |
|
| 2018 |
|
| $ Change |
|
| % Change |
| ||||
Revenue | $ | 3,533 |
|
| $ | 234 |
|
| $ | 3,299 |
|
|
| 1409.8 | % |
Cost of goods sold |
| 3,865 |
|
|
| — |
|
|
| 3,865 |
|
| nm |
| |
Research and development expense |
| 8,536 |
|
|
| 7,850 |
|
|
| 686 |
|
|
| 8.7 | % |
Selling, general and administrative expense |
| 17,723 |
|
|
| 9,914 |
|
|
| 7,809 |
|
|
| 78.8 | % |
Management fees and royalties |
| 1,117 |
|
|
| 1,957 |
|
|
| (840 | ) |
|
| (42.9 | )% |
Interest, net |
| 296 |
|
|
| 88 |
|
|
| 208 |
|
|
| 236.4 | % |
Other income and expense |
| (35 | ) |
|
| (30 | ) |
|
| (5 | ) |
|
| 16.7 | % |
Net loss | $ | (27,447 | ) |
| $ | (19,429 | ) |
| $ | (8,018 | ) |
|
| 41.3 | % |
Adjusted EBITDA | $ | (18,692 | ) |
| $ | (15,035 | ) |
| $ | (3,657 | ) |
|
| 24.3 | % |
Revenue and Cost of Goods Sold
Revenue increased $3.3 million driven by increased sales volumes of our High Oleic Soybean Oil and High Oleic Soybean Meal. We continued to expand distribution of High Oleic Soybean Oil in the foodservice channel. We sold out of all High Oleic Soybean Meal we produced in the period. Cost of goods sold increased $3.9 million reflecting the cost of product sold in the period and an adjustment to the net realizable value of our inventories that reflects the higher costs we have experienced at this early stage of commercialization.adjusted.
Research and Development Expense
R&D expenses increased $686,000. The increase wasby $0.1 million to $2.8 million, driven by higher non-cash stock compensation expense of $255,000, a net reversal of payroll tax benefits that are no longer realizable of $411,000 and the addition of personnel. R&Dincremental professional service expenses for the nine months ended September 30, 2018 also included $1.6 million of Grain Costs we incurred priorrelated to new patent filings to bolster our commercialization in the three months ended March 31, 2019, which affects the comparability of R&D expenses year over year.intellectual property portfolio.
Selling and Supply Chain Expense
S&SC expenses increased by $0.1 million to $1.3 million, driven by additional personnel costs.
General and Administrative Expense
SGG&A expenses increased $7.8decreased by $1.4 million to $3.8 million, driven by a $3.4decreases in Section 16 officer transition expenses of $0.5 million increase in personnel costs, a $3.3and $0.4 million increase inless non-cash stock compensation expense and an increase in professional fee expenses of $1.4 million. The increases in personnel expenses and professional fees are partially offset by the benefits of internalizing certain services previously provided by Cellectis as described below.expenses.
Management Fees and Royalties
Management fees and royalties declineddecreased by $840,000$0.4 million as we previously internalized certain services previously provided by Cellectis, including investor relations, information technology, human resources, legal, and communications.
- 19 -
Interest, net is the result of interest income resulting from investments of cash and cash equivalents, partially offset by interest expense on our financing lease obligations. It is driven by balances, yields and timing of our capital raises and financing activities. Interest, net increased by $208,000 from higher$0.1 million, driven by lower yields and lower cash balances, partially offset by $0.4 million of unrealized gains on short-term investments.
Due to changes in our cash balance and the current interest rate environment, we expect interest, net to decrease in the balance of 2020 as compared to the same period in 2019.
Net Loss
Net loss increased by $8.0was $10.9 million in the second quarter of 2020, an increase of $1.5 million from the second quarter of 2019, driven by increasesa $3.1 million decrease in non-cash stock-basedgross margin following the launch of our high oleic soybean products and the higher costs we experienced during the product’s proof of concept period, which includes the write-down of inventories to net realizable value, partially offset by decreases in G&A expenses from $0.5 million of lower Section 16 officer transition, $0.4 million of lower stock compensation expenses of $3.5and a $0.4 million and costs associated with launching our first productsdecrease in 2019.management fees.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Adjusted EBITDA decreased by $3.7loss was $6.5 million driven by increased personnel costs, asin the costssecond quarter of commercialization in 2019 were largely offset by reductions in Grain Costs expensed as R&D in 2018. 2020, a decrease of $0.1 million from the second quarter of 2019.
See below under the heading “Use of Non-GAAP Financial Information” for a discussion of Adjustedadjusted EBITDA and a reconciliation of such measure to net loss, the most comparable measure calculated under U.S. GAAP.
- 20 -
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2019
A summary of our results of operations for the six months ended June 30, 2020 and 2019follows:
| Six Months Ended June 30, |
| |||||||||||||
| 2020 |
|
| 2019 |
|
| $ Change |
|
| % Change |
| ||||
Revenue | $ | 4,684 |
|
| $ | 566 |
|
| $ | 4,118 |
|
|
| 728 | % |
Cost of goods sold |
| 9,205 |
|
|
| 337 |
|
|
| 8,868 |
|
|
| 2631 | % |
Gross margin |
| (4,521 | ) |
|
| 229 |
|
|
| (4,750 | ) |
|
| (2074) | % |
Research and development expense |
| 5,612 |
|
|
| 4,957 |
|
|
| 655 |
|
|
| 13 | % |
Selling and supply chain expense |
| 2,929 |
|
|
| 2,107 |
|
|
| 822 |
|
|
| 39 | % |
General and administrative expense |
| 8,528 |
|
|
| 9,368 |
|
|
| (840 | ) |
|
| (9) | % |
Management fees and royalties |
| 104 |
|
|
| 812 |
|
|
| (708 | ) |
|
| (87) | % |
Interest, net |
| (244 | ) |
|
| 264 |
|
|
| (508 | ) |
|
| (192) | % |
Other income and expense |
| (27 | ) |
|
| (27 | ) |
|
| — |
|
|
| 0 | % |
Net loss | $ | (21,965 | ) |
| $ | (16,778 | ) |
| $ | (5,187 | ) |
|
| 31 | % |
Adjusted EBITDA | $ | (14,757 | ) |
| $ | (12,295 | ) |
| $ | (2,462 | ) |
|
| 20 | % |
Revenue
Revenue increased by $4.1 million, or 728 percent, from the first six months of 2019 to $4.7 million in the first six months of 2020. The revenue growth was driven by 751 basis points of volume growth and 19 basis points of favorable product mix as we sold more oil in 2020 as a percentage of total revenue than in 2019, both partially offset by 42 basis points of pricing, primarily the result of lower meal prices compared to the same period in 2019. High oleic soybean meal was 82 percent of revenue in the period, compared to 89 percent a year ago. Most oil revenue in 2020 was from a single customer purchasing our oil to be used as a plant-based alternative to synthetic fluids, and we expect to fulfill their remaining orders over the next three months.
Cost of Goods Sold
Cost of goods sold increased by $8.9 million from the first six months of 2019 to $9.2 million in the first six months of 2020. The increase in cost of goods sold reflects an increase in the cost of product sold in the period as a result of higher sales volumes, the impact of lower costs associated with products in 2019 because Grain Costs were previously expensed as R&D, and a $4.2 million net realizable value adjustment to inventories based on expected selling prices, grain processing costs, and a significant amount of excess seed produced for 2020 plantings.
Gross Margin
Gross margin, as reported, was a negative $4.5 million, or a negative 97 percent, in the first six months of 2020, a decrease of $4.8 million from the first six months of 2019. The decrease in gross margin in the first six months of 2020 reflects the higher costs we have experienced during the high oleic soybean product’s proof of concept period. The primary driver for gross margin, as reported, was the net realizable value adjustment to inventories of $4.2 million, as described above for cost of goods sold. The year over year comparability is also affected by $0.5 million of Grain Costs expensed as R&D prior to the commercialization of our first products in early 2019, which resulted in those margins being higher than they would have been had those costs been recognized in cost of goods sold in 2019 instead of R&D expense in 2018.
During the period, gross margins were impacted by the effect of the COVID-19 pandemic and our responsive measures. The increase in negative gross margin percentage related to lower sales volumes and lower average selling prices, while the prices that we pay per bushel for processing, storage and transport of grain remained fixed.
Gross margin, as adjusted, was negative $2.0 million, or negative 42 percent, in the six months ended June 30, 2020 compared to negative $0.3 million, or negative 54 percent, in the same period in 2019. The improvement was driven by higher oil prices and favorable product mix, partially offset by lower meal prices and higher grain costs and processing expenses.
See below under the heading “Use of Non-GAAP Financial Information” for a discussion of gross margin, as adjusted, and a reconciliation of gross margin, the most comparable GAAP measure, to gross margin, as adjusted.
Research and Development Expense
R&D expenses increased by $0.7 million to $5.6 million, driven by incremental professional service expenses related to new patent filings to bolster our intellectual property portfolio, increased experimental seed expenses, and higher personnel costs..
- 21 -
Selling and Supply Chain Expense
S&SC expenses increased by $0.8 million to $2.9 million, driven by additional personnel costs, including $0.3 million of Section 16 officer transition expenses.
General and Administrative Expense
G&A expenses decreased by $0.8 million to $8.5 million, driven by a decrease in non-cash stock compensation of $0.5 million and lower Section 16 officer transition expenses of $0.3 million.
Management Fees
Management fees decreased by $0.7 million as we previously internalized certain services provided by Cellectis, including investor relations, information technology, human resources, legal, and communications.
Interest, net
Interest, net decreased by $0.5 million, driven by lower yields and lower cash balances.
Due to changes in our cash balance and the current interest rate environment, we expect interest, net to decrease in the balance of 2020 as compared to the same period in 2019.
Net Loss
Net loss was $22.0 million in the first six months of 2020, an increase of $5.2 million from the first six months of 2019, driven by a $4.8 million decrease in gross margin following the launch of our high oleic soybean products and the higher costs we experienced during the product’s proof of concept period, which includes the write-down of inventory to net realizable value and $0.5 million of incremental professional service and personnel costs, partially offset by $0.8 million of lower non-cash stock compensation expenses across G&A and S&SC and a $0.5 million decline in interest, net.
Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)
Adjusted EBITDA loss was $14.8 million in the first six months of 2020, an increase of $2.5 million from the first six months of 2019.
See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted EBITDA and a reconciliation of such measure to net loss, the most comparable measure calculated under U.S. GAAP.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
As of SeptemberJune 30, 2019,2020, we had a total of $35.3 million of cash, cash equivalents, short-term investments, and restricted cashcash. Short-term investments consist of $68.0 million.corporate debt securities and commercial paper with more than 90 days to maturity at issuance. All of these amounts are convertible to cash within 90 days with the exception of $1.4except for $1.0 million of restricted cash associated with our financing leases. Current liabilities were $5.8$4.6 million at SeptemberJune 30, 2019.2020. Accordingly, we have cash, and cash equivalents and short-term investments sufficient to fund all short-term obligations as of that date.
We incurred losses from operations of $22.0 million for the six months ended June 30, 2020, and $16.8 million for the six months ended June 30, 2019. As of June 30, 2020, we had an accumulated deficit of $144.0 million and expect to continue to incur losses in the future.
Cash Flows from Operating Activities
| Nine months ended September 30, |
| Six Months Ended June 30, |
| ||||||||||
In Thousands | 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Net loss | $ | (27,447 | ) |
| $ | (19,429 | ) | $ | (21,965 | ) |
| $ | (16,778 | ) |
Depreciation |
| 1,051 |
|
|
| 727 |
| |||||||
Depreciation and amortization |
| 904 |
|
|
| 689 |
| |||||||
Stock-based compensation |
| 6,565 |
|
|
| 3,016 |
|
| 3,068 |
|
|
| 3,860 |
|
Unrealized foreign exchange gain |
| — |
|
|
| 12 |
| |||||||
Changes in operating assets and liabilities |
| (4,857 | ) |
|
| 2,074 |
|
| (7,666 | ) |
|
| (3,641 | ) |
Net cash used by operating activities | $ | (24,688 | ) |
| $ | (13,600 | ) | $ | (25,659 | ) |
| $ | (15,870 | ) |
- 22 -
Net cash used by operating activities increased by $11.1$9.8 million, driven by a higherthe increase in our net loss that included costs associated with High Oleic Soybean Oilof $5.2 million, a $4.0 million increase in cash flows used by operating assets and High Oleic Soybean Meal that we sold, additional personnel we hired and increased professional services expenses, as well as an increase of $3.7 million in accounts receivable and inventory following the commercialization of our first products earlier in 2019. These uses of cash were partially offset byliabilities—primarily, an increase in inventory of $2.6 million, and $0.8 million of lower non-cash stock compensation expenses of $3.5 million.expense.
WeBased on the cost-saving actions we are implementing in response to the COVID-19 pandemic, we expect future increases in cash used byflows from operating activities to be driven primarily by increasesimprove over the balance of 2020 as compared to the first quarter 2020. In addition, we expect cash usage to improve in the second half of 2020 as we execute on our working capitalstreamlined business model, including with respect to the sale of soybean that we have already contracted to purchase, and realize lower cash usage as a result of the commercialization of our first products and additional products, since we have largely completed investing in our general and administrative expenses required to scale the organization.related headcount reductions.
Cash Flows from Investing Activities
Nine months ended September 30, |
| Six Months Ended June 30, |
| |||||||||||
In Thousands | 2019 |
|
| 2018 |
| 2020 |
|
| 2019 |
| ||||
Purchases of land, building, and equipment | $ | (2,538 | ) |
| $ | (830 | ) | |||||||
Purchases of land, buildings, and equipment | $ | (517 | ) |
| $ | (1,319 | ) | |||||||
Short-term investments |
| (29,942 | ) |
|
| — |
| |||||||
Net cash used by investing activities | $ | (2,538 | ) |
| $ | (830 | ) | $ | (30,459 | ) |
| $ | (1,319 | ) |
Net cash used by investing activities increased by $1.7$29.1 million, driven by our purchases of laboratory equipment following the build outshort-term investments as part of our new headquarters facility that was completed in 2018 as well as for equipment to support the expansion of our R&D pipeline.risk diversification strategy.
- 20 -
We expect future capital expendituresnet cash used by investing activities in the second half of 2020 to be focused on further building out our laboratory facilities andcomparable to invest in projects to optimize the operating costs within our supply chain. We expect for these expenditures to remain relatively constant over time.first six months of the year.
Cash Flows from Financing Activities
| Nine months ended September 30, |
| Six Months Ended June 30, |
| ||||||||||
| 2019 |
|
|
| 2018 |
| 2020 |
|
| 2019 |
| |||
Costs incurred related to the issuance of stock | $ | — |
|
| $ | (222 | ) | |||||||
Proceeds from common stock issuance |
| — |
|
|
| 57,706 |
| |||||||
Proceeds from Paycheck Protection Program loan | $ | 1,518 |
|
| $ | — |
| |||||||
Repayments of financing lease obligations |
| (195 | ) |
|
| — |
|
| (130 | ) |
|
| (122 | ) |
Proceeds from the exercise of stock options |
| 314 |
|
|
| 2,128 |
|
| — |
|
|
| 308 |
|
Costs incurred related to shares withheld for net share settlement |
| (645 | ) |
|
| — |
|
| — |
|
|
| (559 | ) |
Proceeds from the sale and leaseback of land, buildings and equipment |
| 414 |
|
|
| — |
| |||||||
Net cash (used) provided by financing activities | $ | (112 | ) |
| $ | 59,612 |
| |||||||
Proceeds from the sale and leaseback of land, buildings, and equipment |
| — |
|
|
| 217 |
| |||||||
Net cash provided (used) by financing activities | $ | 1,388 |
|
| $ | (156 | ) |
Net cash provided by financing activities decreasedincreased by $59.7$1.5 million, reflectingdriven by the proceeds from our follow-on offeringa Paycheck Protection Program loan executed in the nine-month period ended September 30, 2018, as well as a decrease in the proceeds from stock option exercises. We also made payments to satisfy statutory income tax withholding requirements relating to the net share settlement upon the vestingsecond quarter of restricted stock units. These decreases were partially offset by a net increase of $219,000 of proceeds from financing leases.2020.
We expect net cash provided (used) by financing activities to continue to finance our purchasesbe comprised primarily of capital equipment and will also seek out other sourcesrepayments of financing to support our business activities.lease obligations and proceeds from the sale and leaseback of land, buildings, and equipment for the balance of 2020.
CAPITAL RESOURCES
Taking into accountConsidering our anticipated cash burn rate, anticipated expense reduction efforts, and our expectations regarding an effective advancement of our go-to-market soybean strategy and anticipated cash receipts from our product development efforts with partners, we believe our cash, cash equivalents, short-term investments, and restricted cash as of SeptemberJune 30, 20192020 will be sufficientenough to fund our operations for at least the next twelve months and into mid-2021. The period of time through which our financial resources will be adequate to support our operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors, which are described in our Annual Report.
Operating Capital Requirements2022.
For the ninesix months ended SeptemberJune 30, 2019,2020, we had generated $3.5$4.7 million in revenues from product sales. We anticipate that we will continue to generate losses for the next several years before revenue is sufficientenough to support our operating capital requirements.
Until we can generate substantial cash flow, we expect to finance a portion of future cash needs through cash on hand, and public or private equity or debt financings, government or other third-party funding, and licensing arrangements. However, additionalcommercialization activities, which may result in various types of revenue streams from future licensees, including upfront and milestone payments, annual license fees, or royalties.
Our financing needs are subject to change depending on, among other things, the success of our product development efforts, the effective execution of our streamlined business model, our revenue, and our efforts to effectively manage expenses. The effects of the COVID-19 pandemic on the financial markets and broader economic uncertainties may make obtaining capital through equity or debt financings more challenging and have exacerbated the risk that such capital, if available, may not be available on reasonable terms, if at all. If we are unable to raise additional capital in sufficient amounts or on terms acceptable to us,us.
In response to current economic conditions, we may have to significantly delay, scale back or discontinuepostponed non-essential capital expenditures and undertaken other efficiency efforts. In addition, the development or commercialization of one or more of our products. Failure to receive additional funding could cause us to cease operations,headcount reductions undertaken in part or in full. If we raise additional funds through the issuance of additional debt or equity securities, it could result in dilution to our existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of our common shares. Any of these events could significantly harmconnection with our business model advancement will contribute to our
- 23 -
cost-saving initiatives. We will continue to review our operating expenses and to take actions that support efficient operations, financial conditionflexibility, and prospects.optimized liquidity.
CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES
Except for commitments to purchase grain from farmers inAs of June 30, 2020, and 2021, which increased our contractual commitments to $63.8 million as of September 30, 2019, there were no material changes in our commitments under contractual obligations as disclosed in our Annual Report.Report, except that our forward purchase contracts, which consist of commitments to purchase grain and seed, have decreased to $34.2 million from $50.9 million. During the second quarter of 2020, we also entered into a Paycheck Protection Program loan for $1.5 million.
OFF BALANCE SHEET OBLIGATIONS
As of SeptemberJune 30, 2019,2020, we do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
CRITICAL ACCOUNTING POLICIES
The preceding discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements and the related disclosures, which have been prepared in accordance with U.S. GAAP. The preparation of these consolidated financial statements
- 21 -
requires us to make estimates, assumptions, and judgments that affect the reported amounts in our consolidated financial statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the policies discussed in Note 1, Basis of Presentation and Summary of Significant Accounting Policies, are the most critical to an understanding of our financial condition and results of operations because they require us to make estimates, assumptions and judgments about matters that are inherently uncertain.
Except as disclosed in Note 1, BasisAs of Presentation and Summary of Significant Accounting Policies,June 30, 2020, there have been no significant changes to our critical accounting policies disclosure reported in “Critical Accounting Estimates” in our Annual Report.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Effective January 1, 2019, we adopted new accounting requirements for share-based payment transactions for acquiring goods and services from nonemployees. The adoption did not have an impact on our consolidated financial statements as each of the share-based payment awards granted to nonemployees had a measurement date upon grant, and thus no cumulative adjustment to retained earnings was required.
In August 2017, the Financial Accounting Standards Board (FASB) issuedfirst quarter of 2019, we adopted new accounting requirements for recognition of revenue from contracts with customers. We adopted these requirements using the cumulative effect approach. The adoption did not have an impact on our consolidated financial statements.
In the first quarter of 2019, we adopted new hedge accounting requirements. The new standard amends the hedge accounting recognition and presentation requirements tothat better align an entity’saligned our risk management activities and financial reporting. The new standard also simplifies the application of hedge accounting guidance. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018, and interim periods within those annual periods, which for us is the first quarter of fiscal 2020. Early adoption is permitted. We dodid not expect this guidance to have anya material impact on our consolidated financial statements.
In February 2016, the FASB issued new accounting requirements for accounting, presentation and classification of leases. This will result in most leases being capitalized as a right of use asset with a related liability on our balance sheets. The requirements of the new standard are effective for annual reporting periods beginning after December 15, 2018,2020, and interim periods within those annual periods, which for us is the first quarter of 20202021 because we are an emerging growth company. We are in the process of analyzing the impact of this standard on our results of operations and financial position.
In June 2016, the FASB issued new accounting requirements on how to account for credit losses on most financial assets and certain other instruments. This will require the estimation of lifetime expected credit losses and corresponding recognition of allowance for losses on trade and other receivables, loans, and other instruments held at amortized cost. The ASU requires certain recurring disclosures and is effective for annual periods, and interim periods within those annual periods, beginning on or after December 15, 2019.2023. We are in the process of analyzing the impact of this standard on our results of operations.
USE OF NON-GAAP FINANCIAL INFORMATION
To supplement our unauditedaudited financial results prepared in accordance with GAAP, we present Adjusted EBITDA, which is not a measure defined by GAAP. We define Adjusted EBITDA as net loss excluding interest, net, income tax expense, depreciation and amortization expense, stock-based compensation, payroll tax benefitshave prepared certain non-GAAP measures that include or exclude special items. These non-GAAP measures are no longer realizable, section 16 officer transition expenses and forward purchase contract gains and losses. We provide in the table below a reconciliation of Net Loss to Adjusted EBITDA, which is the most directly comparable GAAP financial measure.
Adjusted EBITDA is not meant to be considered in isolation or as a substitute for financial information presented in accordance with GAAP and Adjusted EBITDA should be viewed as supplemental and in addition to Net Loss.our financial information presented in accordance with GAAP. Investors are cautioned that there are material limitations associated with the use of non-GAAP financial measures, which exclude charges that have an effect on our reported financial results.measures. In addition, other companies may report Adjusted EBITDA or similarly titled measures, but calculate them differently, which reduces
- 24 -
their usefulness as a comparative measure. Management utilizes these non-GAAP metrics as performance measures in evaluating and making operational decisions regarding our business.
We present gross margin, as adjusted, a non-GAAP measure that includes the effects of high oleic soybean products sold with no associated cost of goods sold because those costs were expensed as R&D in a prior period and that also includes the impact of any net realizable value adjustments to inventories occurring in the period, which would otherwise have been recorded as an adjustment to value in a prior period or would have been recorded in a future period as the underlying products are sold.
We provide in the table below a reconciliation of gross margin, as adjusted, to gross margin, which is a most directly comparable GAAP financial measure. We provide gross margin, as adjusted because we believe that this non-GAAP financial metric provides investors with useful supplemental information at this stage of commercialization as the amounts being adjusted affect the period to period comparability of our gross margins and financial performance.
The table below presents a reconciliation of gross margin to gross margin, as adjusted:
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| ||||||||||
In Thousands | 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Gross margin (GAAP measure) | $ | (3,014 | ) |
| $ | 105 |
|
| $ | (4,521 | ) |
| $ | 229 |
|
Gross margin percentage |
| (131 | )% |
|
| 26 | % |
|
| (97 | )% |
|
| 40 | % |
Adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grain costs expensed as R&D |
| — |
|
|
| (386 | ) |
|
| — |
|
|
| (535 | ) |
Net realizable value adjustment to inventories |
| 2,221 |
|
|
| — |
|
|
| 2,555 |
|
|
| — |
|
Gross margin, as adjusted | $ | (793 | ) |
| $ | (281 | ) |
| $ | (1,966 | ) |
| $ | (306 | ) |
Gross margin percentage, as adjusted |
| (34 | )% |
|
| (69 | )% |
|
| (42 | )% |
|
| (54 | )% |
We present adjusted EBITDA, a non-GAAP measure, and define it as net loss excluding interest, net, income tax expense, depreciation and amortization expenses, stock-based compensation expenses, Section 16 officer transition expenses, research and development payroll tax credits that are no longer realizable, Grain Costs expensed as R&D and net realizable value adjustments to inventories.
We provide in the table below a reconciliation of adjusted EBITDA to net loss, which is the most directly comparable GAAP financial measure. Because Adjustedadjusted EBITDA excludes non-cash items and discrete or infrequently occurring items, we believe that Adjustedadjusted EBITDA provides investors with useful supplemental information about the operational performance of our business and facilitates comparison of our financial results between periods where certain items may vary significantly independent of our business performance. Moreover, our presentation of Adjusted EBITDA enhances transparency because our management team utilizes this metric in evaluating and making operational decisions regarding our business.
The table below presents a reconciliation of Net Lossnet loss to Adjustedadjusted EBITDA:
- 22 -
| Three months ended September 30, | |||||
In Thousands |
| 2019 |
|
|
| 2018 |
Net Loss (GAAP measure) | $ | (10,669) |
|
| $ | (7,483) |
Non-GAAP adjustments: |
|
|
|
|
|
|
Stock-based compensation |
| 2,705 |
|
|
| 589 |
Interest, net |
| (32) |
|
|
| (228) |
Income tax expense |
| — |
|
|
| — |
Depreciation & amortization |
| 362 |
|
|
| 356 |
Payroll tax benefits that are no longer realizable |
| 536 |
|
|
| (40) |
Section 16 officer transition expenses |
| 193 |
|
|
| 374 |
Loss on Forward Purchase Contracts |
| — |
|
|
| 50 |
Adjusted EBITDA | $ | (6,905) |
|
| $ | (6,382) |
| Nine months ended September 30, |
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| |||||||||||||||
In Thousands |
| 2019 |
|
|
| 2018 |
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Net Loss (GAAP measure) | $ | (27,477) |
|
| $ | (19,429) |
| $ | (10,902 | ) |
| $ | (9,403 | ) |
| $ | (21,965 | ) |
| $ | (16,778 | ) |
Non-GAAP adjustments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation |
| 6,565 |
|
|
| 3,016 | ||||||||||||||||
Interest, net |
| (296) |
|
|
| (88) |
|
| (154 | ) |
|
| (92 | ) |
|
| 244 |
|
|
| (264 | ) |
Income tax expense |
| — |
|
|
| — |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Depreciation & amortization |
| 1,051 |
|
|
| 727 | ||||||||||||||||
Payroll tax benefits that are no longer realizable |
| 411 |
|
|
| (48) | ||||||||||||||||
Depreciation and amortization |
|
| 452 |
|
|
| 342 |
|
|
| 904 |
|
|
| 689 |
| ||||||
Stock-based compensation expenses |
|
| 1,797 |
|
|
| 2,304 |
|
|
| 3,068 |
|
|
| 3,860 |
| ||||||
Grain Costs expensed as R&D |
|
| — |
|
|
| (386 | ) |
|
| — |
|
|
| (535 | ) | ||||||
Net realizable value adjustment to inventories |
|
| 2,221 |
|
|
| — |
|
|
| 2,555 |
|
|
| — |
| ||||||
Section 16 officer transition expenses |
| 1,054 |
|
|
| 374 |
|
| 77 |
|
|
| 671 |
|
|
| 437 |
|
|
| 859 |
|
Loss on Forward Purchase Contracts |
| — |
|
|
| 413 | ||||||||||||||||
Research and development payroll tax credit |
|
| — |
|
|
| (63 | ) |
|
| — |
|
|
| (126 | ) | ||||||
Adjusted EBITDA | $ | (18,692) |
|
| $ | (15,035) |
| $ | (6,509 | ) |
| $ | (6,627 | ) |
| $ | (14,757 | ) |
| $ | (12,295 | ) |
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our primary exposures to market risk are commodity price and interest rate sensitivity.
For quantitative and qualitative disclosures about market risk that affect us, see “Quantitative and Qualitative Disclosures About Market RiskRisk” in Item 7A of Part II of the Annual Report. We enter into supply agreements for grain we purchase with prices based on commodity futures market prices. Those contracts are not considered derivatives and their prices float until fixed by the counterparty. Prior to prices being fixed we may enter into hedging arrangements to reduce the riskThere have been no material changes in prices couldinformation that would have on our purchase pricebeen provided in the context of Item 3 from the end of the grain. Basedpreceding year until June 30, 2020. However, the Company does provide risk
- 25 -
management discussion in various places in this Quarterly Report on our positions, asForm 10-Q, primarily in Note 2. Financial Instruments, Fair Value, Hedging Activities, and Concentrations of September 30, 2019, a 10 percent increase in commodity futures market prices would have a $1.2 million decrease in our financial condition, and a 10 percent decrease in commodity futures market prices would have a $1.0 million increase in our financial condition.Credit Risk.
Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective as of SeptemberJune 30, 2019.2020.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the three months ended SeptemberJune 30, 2019,2020, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.
- 2326 -
We are not a party to any material pending legal proceeding as of SeptemberJune 30, 2019.2020. From time to time, we may be involved in legal proceedings arising in the ordinary course of business.
The most significant risk factors applicable to Calyxt are described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2019 and in Part II, Item 1A “Risk Factors” of our Quarterly Report on Form 10-Q for the three months ended March 31, 2020. There werehave been no material changes infrom the risk factors in the period covered by this report. See the discussion of risk factorspreviously disclosed in our Annual Report.Report and our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, except for the additional risk factors set forth below. You should carefully consider the risk factors included in our Annual Report, our Quarterly Report on Form 10-Q for the three months ended March 31, 2020, and below in connection with Part I, Item 2, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”
We intend to license certain product candidates that we develop and, in some cases, our TALEN® technology to third parties and will be dependent on them to successfully commercialize these product candidates or product candidates developed with our technology.
In addition to our seed sale go-to-market strategy, we intend to license certain product candidates that we develop to third parties for commercialization and sale under their own brands. In addition, we may out-license our TALEN® technology to permit third parties to develop specific traits in specific crops. Our licensee customers will primarily be global food processing companies, but may also include seed companies, biotechnology companies, germplasm providers, and growers. Once we license a product candidate to a customer, they will typically oversee its commercialization. Where we license TALEN® technology to a customer, they will typically oversee its development and commercialization. In both cases, our ability to achieve milestone payments or generate royalties will not be within our direct control.
We have an exclusive license for our primary gene-editing technology, TALEN®, for commercial use in plants from Cellectis and also license other technology from Cellectis and the University of Minnesota. Accordingly, the economic terms of our partnership and licensing agreements will need to take into account royalty payments that we are required to make to our licensors on revenue we generate under our partnership agreements and license arrangements.
If our licensees are delayed or unsuccessful in their development and commercialization efforts, as applicable, or if they fail to devote sufficient time and resources to support the marketing and selling efforts of those products, we may not receive milestone and/or royalty payments as expected and our financial results could be harmed. Further, if these licensee customers fail to market licensed products or products developed with our licensed technology at prices that will achieve or sustain market acceptance for those products, our royalty revenues could be further harmed.
Some of the licenses we may grant to our licensing partners may be exclusive, which could limit further licensing or partnership opportunities.
Some of the licenses we may grant to our licensing partners with respect to certain product candidates or for the development of specific traits in identified crops using our TALEN® technology may be exclusive within specified jurisdictions, so long as our licensing partners comply with the terms of the license agreements. That means that once a product candidate is licensed to a licensing partner, we may be generally prohibited from licensing that product candidate to any other third party. Similarly, once TALEN® technology is licensed for a specific trait in a specific crop, we may be generally prohibited from licensing our TALEN® technology to any other third party for purposes of developing the same trait in the same crop or from using our TALEN® technology ourselves to develop the same trait in the same crop. The limitations imposed by such exclusive licenses could prevent us from expanding our business and increasing our product development initiatives with new licensing partners, both of which could adversely affect our business and results of operations.
- 2427 -
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In the six months ended June 30, 2020, the Company repurchased shares of stock as follows in connection with the payment of taxes upon vesting of restricted stock previously issued to employees:
Issuer Purchases of Equity Securities
Period |
| Total number of shares purchased |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced programs |
|
| Approximate dollar value of shares that may yet be purchased under the programs |
| ||||
January 1, 2020 – January 31, 2020 |
|
| 17,752 |
|
| $ | 7.01 |
|
|
| — |
|
| $ | — |
|
February 1, 2020 – February 29, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
March 1, 2020 – March 31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
April 1, 2020 – April 30, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — | |
May 1, 2020 – May 31, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
June 1, 2020 – June 30, 2020 |
|
| — |
|
| $ | — |
|
|
| — |
|
| $ | — |
|
Total |
|
| 17,752 |
|
| $ | 7.01 |
|
|
| — |
|
| $ | — |
|
- 28 -
| (a) | Index of Exhibits |
Exhibit Number |
| Description | |
3.1 |
|
| |
|
| ||
10.1*† | |||
10.2*† | Form of Stock Option Agreement pursuant to the Calyxt, Inc. 2017 Omnibus Incentive Plan | ||
10.3*† | Form of Restricted Stock Unit Agreement pursuant to the Calyxt, Inc. 2017 Omnibus Incentive Plan |
| |
31.1* |
|
| |
31.2* |
|
| |
32* |
|
| |
101.INS* |
| Inline XBRL Instance Document |
|
101.SCH* |
| Inline XBRL Taxonomy Extension Schema Document |
|
101.CAL* |
| Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
101.DEF* |
| Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
101.LAB* |
| Inline XBRL Taxonomy Extension Label Linkbase Document |
|
101.PRE* |
| Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
104* |
|
|
*Filed herewith
†Indicates management contract or compensatory plan
- 2529 -
Pursuant to the requirements of the Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 6, 2019.August 5, 2020.
CALYXT, INC. | |||
|
|
| |
| |||
By: |
| /s/ James A. Blome | |
Name: |
| James A. Blome | |
Title: |
| Chief Executive Officer (Principal Executive Officer) | |
|
| ||
By: |
| /s/ William F. Koschak | |
Name: |
| William F. Koschak | |
Title: |
| Chief Financial Officer (Principal Financial and Accounting Officer) |
- 2630 -