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 ~~March 31,~~September 30, 2020;

☐	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.



Title of each class	Trading Symbol(s)	Name of each exchange on which registered

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:



Large accelerated filer	☐	Accelerated filer	☑

Non-accelerated filer	☐	Smaller reporting company	☐

		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 ~~May 6,~~November 5, 2020, there were ~~33,040,520~~37,065,044 shares of common stock, $0.0001 par value per share, outstanding.

Table of Contents



PART I. FINANCIAL INFORMATION			4

Item 1. Consolidated Financial Statements			4

Item ~~1. Consolidated~~2. Management’s Discussion and Analysis of Financial ~~Statements~~Condition and Results of Operations			418

Item ~~2. Management’s Discussion~~3. Quantitative and ~~Analysis of Financial Condition and Results of Operations~~Qualitative Disclosures About Market Risk			1531

Item ~~3. Quantitative~~4. Controls and ~~Qualitative Disclosures About Market Risk~~Procedures			2331

~~Item 4. Controls and Procedures~~PART II. OTHER INFORMATION			2432

~~PART II. OTHER INFORMATION~~Item 1. Legal Proceedings			2432

Item ~~1. Legal Proceedings~~1A. Risk Factors			2432

Item ~~1A. Risk Factors~~2. Unregistered Sales of Equity Securities and Use of Proceeds			2433

Item ~~2. Unregistered Sales of Equity Securities and Use of Proceeds~~6. Exhibits			2534

~~Item 6. Exhibits~~SIGNATURE			26

~~SIGNATURE~~			2735

Table of Contents

Terms

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® and 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,” “plans,” “potential,” “predicts,” “projects,” “should,” or “will,” or the negative of these terms and other similar terminology. Forward-looking statements in this report include statements about the potential impact of the COVID-19 pandemic on our business and operating ~~results,~~results; our future financial ~~performance,~~performance; product pipeline and ~~development,~~development; our business model and strategies for commercialization ~~efforts~~ and sales of commercial ~~products,~~products; regulatory ~~progression,~~progression; potential collaborations, partnerships and ~~partnerships~~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 predictions and projections about future events and trends based on our current expectations, objectives and intentions and premised on current assumptions. 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 a variety of factors, including, but not limited to: the severity and duration of the 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;~~collaborations and licensing agreements; the impact of adverse events during development, including unsuccessful field trials or developments trials or disruptions 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 licensees; our ability to make grain sales on terms acceptable to us; the timing 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 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, 2019, which was filed with the SEC on March 5, 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 are based only on information currently available to us when, and speaks only as of the date, such statement is made. Except as required by securities and other applicable laws, we do not assume any obligation to ~~update~~publicly provide revisions or ~~revise~~updates to any forward-looking ~~statement~~statements, whether as a result of new information, future developments or ~~otherwise.~~otherwise, should circumstances change.

- 2 -

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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 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), 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. Investors and others can receive notifications of new press releases posted on our 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.

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Table of Contents

PART I. ~~FINANCIAL~~FINANCIAL INFORMATION

Item 1. Financial Statements

CALYXT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Par Value and Share Amounts)

	March 31, 2020 (unaudited)			December 31, 2019			September 30, 2020 (unaudited)			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	7,385		$	58,610		$	7,170		$	58,610
Short-term investments		38,620			—			20,802			—
Restricted cash		388			388			393			388
Accounts receivable		841			1,122			2,432			1,122
Due from related parties		7			—			2			—
Inventory		3,198			2,594			5,953			2,594
Prepaid expenses and other current assets		1,594			808			1,515			808
Total current assets		52,033			63,522			38,267			63,522
Non-current restricted cash		1,045			1,040			1,041			1,040
Land, buildings, and equipment		22,902			23,212			22,823			23,212
Other non-current assets		441			324			347			324
Total assets	$	76,421		$	88,098		$	62,478		$	88,098
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,085		$	1,077		$	1,163		$	1,077
Accrued expenses		2,093			2,544			4,261			2,544
Accrued compensation		1,363			2,181			1,609			2,181
Due to related parties		554			977			481			977
Current portion of financing lease obligations		361			356			361			356
Other current liabilities		94			61			44			61
Total current liabilities		5,550			7,196			7,919			7,196
Financing lease obligations		18,194			18,244			18,022			18,244
Long-term debt								1,518			—
Other non-current liabilities		141			150			123			150
Total liabilities		23,885			25,590			27,582			25,590
Stockholders’ equity:
Common stock, $0.0001 par value; 275,000,000 shares authorized; 33,090,799 shares issued and 32,990,647 shares outstanding as of March 31, 2020, and 33,033,689 shares issued and 32,951,329 shares outstanding as of December 31, 2019		3			3
Common stock, $0.0001 par value; 275,000,000 shares authorized; 33,343,313 shares issued and 33,243,161 shares outstanding as of September 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		186,859			185,588			189,437			185,588
Common stock in treasury, at cost; 100,152 shares as of March 31, 2020, and 82,360 shares as of December 31, 2019		(1,043	)		(1,043	)
Common stock in treasury, at cost; 100,152 shares as of September 30, 2020, and 82,360 shares as of December 31, 2019								(1,043	)		(1,043	)
Accumulated deficit		(133,120	)		(122,057	)		(153,498	)		(122,057	)
Accumulated other comprehensive income (loss)		(163	)		17			(3	)		17
Total stockholders’ equity		52,536			62,508			34,896			62,508
Total liabilities and stockholders’ equity	$	76,421		$	88,098		$	62,478		$	88,098

See accompanying notes to these consolidated financial statements.

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CALYXT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited and in Thousands Except Shares and Per Share Amounts)

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2020			2019
Revenue	$	2,377		$	157		$	5,241		$	2,967		$	9,925		$	3,533
Cost of goods sold		3,884			34			7,060			3,528			16,265			3,865
Gross margin		(1,507	)		123			(1,819	)		(561	)		(6,340	)		(332	)
Operating expenses:
Research and development		2,787			2,219			2,204			3,579			7,816			8,536
Selling and supply chain		1,580			904			439			1,314			3,368			3,421
General and administrative		4,720			4,162			4,185			4,934			12,713			14,302
Management fees		62			361			68			305			172			1,117
Restructuring costs							436				—			436			—
Total operating expenses		9,149			7,646			7,332			10,132			24,505			27,376
Loss from operations		(10,656	)		(7,523	)		(9,151	)		(10,693	)		(30,845	)		(27,708	)
Interest, net		(398	)		172			(324	)		32			(568	)		296
Foreign currency transaction loss		(9	)		(24	)		(1	)		(8	)		(28	)		(35	)
Loss before income taxes		(11,063	)		(7,375	)		(9,476	)		(10,669	)		(31,441	)		(27,447	)
Income taxes		—			—			0			0			0			0
Net loss	$	(11,063	)	$	(7,375	)	$	(9,476	)	$	(10,669	)	$	(31,441	)	$	(27,447	)
Basic and diluted loss per share	$	(0.34	)	$	(0.23	)
Basic and diluted net loss per share							$	(0.29	)	$	(0.32	)	$	(0.95	)	$	(0.84	)
Weighted average shares outstanding - basic and diluted		32,988,141			32,677,944			33,200,289			32,866,467			33,076,376			32,759,194

See accompanying notes to these consolidated financial statements.

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CALYXT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited and in Thousands Except Shares Outstanding)

Three months ended
March 31, 2020

Shares
Outstanding

Common
Stock

Additional
Paid-In
Capital

Shares
in
Treasury

Accumulated
Deficit

Accumulated
Other
Comprehensive
Income (Loss)

Total
Stockholders’
Equity

Balance at December 31, 2019

32,951,329

$
3

$
185,588

$
(1,043
)

$
(122,057
)

$
17

$
62,508

Net loss

—

—

—

—

(11,063
)

—

(11,063
)
Stock based compensation

57,110

—

1,271

—

—

—

1,271

Shares withheld for net share settlement

(17,792
)

—

—

—

—

—

—

Other comprehensive loss

—

—

—

—

—

(180
)

(180
)
Balance at March 31, 2020

32,990,647

$
3

$
186,859

$
(1,043
)

$
(133,120
)

$
(163
)

$
52,536

Three months ended
March 31, 2019

Balances at December 31, 2018

32,648,893

$
3

$
176,069

$
(230
)

$
(82,445
)

$
—

$
93,397

Net loss

—

—

—

—

(7,375
)

—

(7,375
)
Stock based compensation

43,296

—

1,556

—

—

—

1,556

Issuance of common stock

—

—

125

—

—

—

125

Balances at March 31, 2019

32,692,189

$
3

$
177,750

$
(230
)

$
(89,820
)

$
—

$
87,703

~~See accompanying notes to these consolidated financial statements.~~

~~- 5 -~~

~~Table of Contents~~

~~CALYXT, INC.~~

~~CONSOLIDATED STATEMENTS OF CASH FLOWS~~

~~(Unaudited and in Thousands)~~

Three Months Ended March 31,

2020

2019

Operating activities

Net loss
$
(11,063
)

$
(7,375
)
Adjustments to reconcile net loss to net cash used by operating activities:

Depreciation and amortization

452

342

Stock-based compensation

1,271

1,556

Changes in operating assets and liabilities:

Accounts receivable

281

(124
)
Due to/from related parties

(430
)

(1,114
)
Inventory

(604
)

(379
)
Prepaid expenses and other current assets

(786
)

(629
)
Accounts payable

8

(94
)
Accrued expenses

(451
)

(397
)
Accrued compensation

(818
)

(418
)
Other current liabilities

(156
)

(428
)
Other non-current assets

(120
)

(216
)
Net cash used by operating activities

(12,416
)

(9,276
)
Investing activities

Short-term investments

(38,620
)

—

Purchases of land, buildings, and equipment

(139
)

(346
)
Net cash used by investing activities

(38,759
)

(346
)
Financing activities

Repayments of financing lease obligations

(45
)

(59
)
Proceeds from the exercise of stock options

—

125

Net cash (used) provided by financing activities

(45
)

66

Net decrease in cash, cash equivalents and restricted cash

(51,220
)

(9,556
)
Cash, cash equivalents and restricted cash - beginning of period

60,038

95,288

Cash, cash equivalents and restricted cash - end of period
$
8,818

$
85,732

Three months ended September 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 June 30, 2020		33,040,520		$	3	$	188,656	$	(1,043	)	$	(144,022	)	$	(41	)	$	43,553
Net loss		—			—		—		—			(9,476	)		—			(9,476	)
Stock based compensation		202,641			—		570		—			—			—			570
Issuance of common stock		—			—		211		—			—			—			211
Shares withheld for net share settlement		—			—		—		—			—			—			—
Other comprehensive income		—			—		—		—			—			38			38
Balance at September 30, 2020		33,243,161		$	3	$	189,437	$	(1,043	)	$	(153,498	)	$	(3	)	$	34,896
Three months ended September 30, 2019
Balance at June 30, 2019		32,859,700		$	3	$	180,237	$	(789	)	$	(99,223	)	$	(38	)	$	80,190
Net loss		—			—		—		—			(10,669	)		—			(10,669	)
Stock based compensation		7,713			—		2,705		—			—			—			2,705
Issuance of common stock		—			—		6		—			—			—			6
Shares withheld for net share settlement		—			—		—		(86	)		—			—			(86	)
Other comprehensive (loss)		—			—		—		—			—			(17	)		(17	)
Balance at September 30, 2019		32,867,413		$	3	$	182,948	$	(875	)	$	(109,892	)	$	(55	)	$	72,129
Nine months ended September 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 December 31, 2019		32,951,329		$	3	$	185,588	$	(1,043	)	$	(122,057	)	$	17		$	62,508
Net loss		—			—		—		—			(31,441	)		—			(31,441	)
Stock based compensation		309,624			—		3,638		—			—			—			3,638
Issuance of common stock		—			—		211		—			—			—			211
Shares withheld for net share settlement		(17,792	)		—		—		—			—			—			—
Other comprehensive loss		—			—		—		—			—			(20	)		(20	)
Balance at September 30, 2020		33,243,161		$	3	$	189,437	$	(1,043	)	$	(153,498	)	$	(3	)	$	34,896
Nine months ended September 30, 2019
Balance at December 31, 2018		32,648,893		$	3	$	176,069	$	(230	)	$	(82,445	)	$	—		$	93,397
Net loss		—			—		—		—			(27,447	)		—			(27,447	)
Stock based compensation		261,883			—		6,565		—			—			—			6,565
Issuance of common stock		—			—		314		—			—			—			314
Shares withheld for net share settlement		(43,363	)		—		—		(645	)		—			—			(645	)
Other comprehensive loss		—			—		—		—			—			(55	)		(55	)
Balance at September 30, 2019		32,867,413		$	3	$	182,948	$	(875	)	$	(109,892	)	$	(55	)	$	72,129

See accompanying notes to these consolidated financial statements.

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CALYXT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in Thousands)

	Nine Months Ended September 30,
	2020			2019
Operating activities
Net loss	$	(31,441	)	$	(27,447	)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization		1,372			1,051
Stock-based compensation		3,638			6,565
Changes in operating assets and liabilities:
Accounts receivable		(1,310	)		(1,304	)
Due to/from related parties		(498	)		(1,223	)
Inventory		(3,359	)		(2,371	)
Prepaid expenses and other current assets		(707	)		192
Accounts payable		86			127
Accrued expenses		1,717			(49	)
Accrued compensation		(572	)		478
Other current liabilities		(64	)		(743	)
Other non-current assets		140			36
Net cash used by operating activities		(30,998	)		(24,688	)
Investing activities
Purchases of land, buildings, and equipment		(1,146	)		(2,538	)
Short-term investments		(20,802	)		—
Net cash used by investing activities		(21,948	)		(2,538	)
Financing activities
Proceeds from Payroll Protection Program loan		1,518			—
Repayments of financing lease obligations		(217	)		(195	)
Proceeds from the exercise of stock options		211			314
Costs incurred related to shares withheld for net share settlement		—			(645	)
Proceeds from the sale and leaseback of land, buildings, and equipment		—			414
Net cash provided (used) by financing activities		1,512			(112	)
Net decrease in cash, cash equivalents and restricted cash		(51,434	)		(27,338	)
Cash, cash equivalents and restricted cash - beginning of period		60,038			95,288
Cash, cash equivalents and restricted cash – end of period	$	8,604		$	67,950

See accompanying notes to these consolidated financial statements.

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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, 2019, filed with the SEC on March 5, 2020. The accompanying Balance Sheet as of December 31, 2019, 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, 2019.

Short-term investments

We consider investments with more than ninety days to maturity at issuance to be short-term investments. These short-term investments are considered trading securities and are carried at fair value with any unrealized gains and losses recorded in current earnings as a component of interest, net.

Revenue Recognition

In certain instances, we may sell grain to a processor with a commitment to repurchase any soybean meal resulting from their grain crushing activity with a single net cash settlement occurring between the parties. In those instances, we recognize revenue from the sale of grain in the amount of the final net cash settlement with the processor. We also recognize revenue on our sale of the meal to our customers in accordance with our previously disclosed revenue recognition accounting policies. Costs are ascribed to grain and meal sold pursuant to the agreement with the processor.

2. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE, HEDGING ACTIVITIES, AND CONCENTRATIONS OF CREDIT RISK

~~The carrying values of~~Financial Instruments Measured at Fair Value and Financial Statement Presentation

Financial instruments including cash and cash equivalents, restricted cash, due from related parties, accounts payable, due to related parties and all other current liabilities have carrying values that approximate fair value.

We measure ~~certain assets~~short-term investments and ~~liabilities~~commodity derivative contracts at fair value on a recurring ~~basis, including short-term investments, financing lease obligations and commodity futures and options.~~basis. The accounting guidance establishes a three-tier hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value as of the measurement date as follows:

Level 1: Fair values are based on unadjusted 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 assets or liabilities in active markets or quoted prices for identical assets or liabilities in inactive markets.

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Level 3: Fair values are based on at least one significant unobservable input for the asset or liability.

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Fair Value Measurements and Financial Statement Presentation

The fair values of our ~~assets, liabilities, and derivative positions recorded~~financial instruments measured at fair value and their respective levels in the fair value hierarchy as of ~~March 31,~~September 30, 2020, and December 31, 2019, were as follows:

	March 31, 2020								March 31, 2020								September 30, 2020								September 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	$	38,620	$	—	$	—	$	38,620	$	—	$	—	$	—	$	—	$	20,802	$	—	$	—	$	20,802	$	—	$	—	$	—	$	—
Commodity futures and options		603		—		—		603		—		—		—		—
Financing lease obligations		—		—		—		—		—		15,509		—		15,509
Commodity derivative contracts																		132		—		—		132		—		—		—		—
Total	$	39,223	$	—	$	—	$	39,223	$	—	$	15,509	$	—	$	15,509	$	20,934	$	—	$	—	$	20,934	$	—	$	—	$	—	$	—

	December 31, 2019								December 31, 2019								December 31, 2019								December 31, 2019
	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:
Financing lease obligations	$	—	$	—	$	—	$	—	$	—	$	15,651	$	—	$	15,651
Commodity futures and options		62		—		—		62		—		—		—		—
Commodity derivative contracts																	$	62	$	—	$	—	$	62	$	—	$	—	$	—	$	—
Total	$	62	$	—	$	—	$	62	$	—	$	15,651	$	—	$	15,651	$	62	$	—	$	—	$	62	$	—	$	—	$	—	$	—

The non-current portion of our financing lease obligations are also considered a financial instrument, which we measure at fair value for disclosure purposes. It is a Level 2 liability and had a fair value of $15.2 million as of September 30, 2020, and a fair value of $15.7 million as of December 31, 2019.

The composition of our short-term investments ~~at March 31,~~as of September 30, 2020, and December 31, 2019 were as follows:

	As of March 31,		As of December 31,		As of September 30,		As of December 31,
In Thousands	2020		2019		2020		2019
Corporate debt securities	$	29,677	$	—	$	17,803	$	—
Commercial paper		8,943		—		2,999		—
Total	$	38,620	$	—	$	20,802	$	—

Commodity Price Risk

We enter into seed and grain production agreements (Forward Purchase Contracts) with settlement values based on commodity futures market prices. These Forward Purchase Contracts allow the counterparty to fix their sales prices at various times as defined in the contract. Because we intend to take physical delivery under the Forward Purchase Contracts, we have grain inventory we will need to sell. We ~~are also engaged in~~intend to sell these inventories at then-current market prices. As a result, when the ~~business of selling soybean oil and meal under a variety of pricing structures. We may~~Forward Purchase Contract counterparty fixes their grain prices, we enter hedging arrangements by selling futures contracts which converts our exposure to ~~either fix variable exposures or convert~~these fixed prices to floating ~~prices through~~prices. We expect to maintain these hedging relationships until such grain inventory is sold to help stabilize our margins. We do not account for these economic hedges as accounting hedges. We expect any gains or losses from these hedging arrangements to be offset by gains or losses on the grain inventories when such grain inventories are sold. We have recognized$1.1 million of commodity derivative ~~contracts.~~ losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts to floating prices for the three and nine-month periods ended September 30, 2020. As of ~~March 31,~~September 30, 2020, we held commodity contracts with a notional amount of ~~$23.6~~$15.1 million.

We ~~have~~previously designated all our commodity derivative contracts as cash flow ~~hedges.~~hedges based on the nature of our business activities under the prior go-to-market strategy. As a result, all gains or losses associated with recording those commodity derivative contracts at fair value ~~are~~were recorded as a component of accumulated other comprehensive income (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 ~~March 31,~~September 30, 2020, we expect the entire AOCI balance to be reclassified into earnings within the next ~~eight~~three months.

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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
	For the Three Months Ended March 31,					For the Three Months Ended March 31,				For the Nine Months Ended September 30,				For the Nine Months Ended September 30,
In thousands	2020			2019		2020		2019		2020		2019		2020			2019
Cash flow hedges:
Commodity derivative contracts	$	(163	)	$	—	$	14	$	—	$	8	$	—	$	(28	)	$	—
Total	$	(163	)	$	—	$	14	$	—

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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 if necessary, make changes to investments to ensure credit risk is minimized. We have not experienced any 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 management fee expenses of ~~$62,000~~ $0.1 million for the three months ended ~~March 31,~~September 30, 2020, and ~~$361,000~~$0.3 million for the ~~three~~same period in 2019. We incurred management fee expenses of $0.2 million for nine months ended ~~March 31,~~September 30, 2020, and $1.1 million for the same period in 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 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. We ~~have~~ incurred ~~$33,000 of~~nominal license and royalty fees ~~owed to Cellectis~~ for the three months ended ~~March 31,~~September 30, 2020,and 2019. We incurred license and royalty fees of $0.1 million for the nine months ended September 30, 2020, and ~~$25,000~~nominal fees for the ~~three months ended March 31,~~same period in 2019.

We have entered into various agreements with the University of Minnesota, pursuant to 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 ~~have~~ incurred ~~$12,000 of costs~~nominal expenses pursuant to these agreements for the three and nine months ended ~~March 31,~~September 30, 2020, and ~~$4,000 for the three months ended March 31,~~ 2019.

4. NET LOSS PER SHARE

Basic and diluted net loss per share was calculated using the following:

	For the Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
In Thousands, Except Share Data and Per Share Amounts	2020			2019			2020			2019			2020			2019
Net loss	$	(11,063	)	$	(7,375	)	$	(9,476	)	$	(10,669	)	$	(31,441	)	$	(27,447	)
Weighted average shares outstanding - basic and diluted		32,988,141			32,677,944		$	33,200,289		$	32,866,467		$	33,076,376		$	32,759,194
Basic and diluted loss per share	$	(0.34	)	$	(0.23	)
Basic and diluted net loss per share							$	(0.29	)	$	(0.32	)	$	(0.95	)	$	(0.84	)

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As of March 31,

2020

��
2019

Anti-dilutive stock options, restricted stock units, and performance stock units

5,328,268

4,385,595

	As of September 30,
	2020		2019
Anti-dilutive stock options, restricted stock units, and performance stock units		5,581,307		5,688,399

All outstanding stock options, restricted stock units, and ~~restricted~~performance 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.

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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 ~~March 31,~~September 30, 2020, ~~1,976,394~~1,223,547 shares were registered and available for grant under effective registration statements, while ~~2,770,295~~3,905,316 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 can 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:

	Three Months Ended March 31,						Nine Months Ended September 30,
	2020			2019			2020		2019
Estimated fair values of stock options granted	$	5.19		$	9.45		$	3.32	$	10.70
Assumptions:
Risk-free interest rate		1.7	%		2.5	%	0.3%-1.7%		1.9%-2.5%
Expected volatility		77.4	%		78.9	%	77.4%-81.2%		77.9%-78.9%
Expected term (in years)		6.9			6.9		6.0-10.0		6.8-10.0

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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 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 that options granted are expected to be outstanding determined using the simplified method. We have ~~not~~0t paid dividends on our common stock and we do not currently plan to pay any cash dividends in 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 three to 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, 2019		1,789,567	$	8.73		4,481,359		$	11.73		1,789,567	$	8.73		4,481,359		$	11.73
Granted						60,000			7.30						800,265			4.78
Exercised															(58,575	)		3.60
Forfeited or expired						(235,894	)		15.61						(568,907	)		14.92
Balance as of March 30, 2020		1,890,357	$	8.97		4,305,465		$	11.46
Balance as of September 30, 2020											2,216,755	$	9.94		4,654,142		$	10.34

Stock-based compensation expense related to stock option awards is as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Stock-based compensation expense	$	1,006	$	768	$	187	$	1,885	$	2,439	$	4,162

~~At March 31,~~As of September 30, 2020, options outstanding and exercisable had noan aggregate intrinsic value of $1.8 million and the weighted average remaining contractual term was ~~6.6~~7.5 years.

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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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Net cash proceeds	$	—	$	125	$	211	$	6	$	211	$	314
Intrinsic value of options exercised	$	—	$	353	$	179	$	13	$	179	$	893

As of ~~March 31,~~September 30, 2020, unrecognized compensation expense related to non-vested stock options was ~~$10.6~~$8.7 million. This expense will be recognized over 5632 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.

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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, 2019		813,526		$	10.31		813,526		$	10.31
Granted							105,633			4.55
Vested		(51,973	)		9.80		(242,002	)		9.38
Forfeited		(50,417	)		10.45		(61,659	)		10.80
Unvested balance at March 31, 2020		711,136		$	10.33
Unvested balance at September 30, 2020							615,498		$	9.83

The total grant-date fair value of restricted stock unit awards that vested is as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Grant-date fair value	$	510	$	133	$	1,079	$	392	$	2,270	$	1,803

Stock-based compensation expense related to restricted stock units is as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Stock-based compensation expense	$	155	$	787	$	269	$	706	$	865	$	2,289

As of September 30, 2020, unrecognized compensation expense related to restricted stock units was $2.4 million. This expense will be recognized over 26 months on average.

We treat stock-based compensation awards granted to employees of Cellectis as deemed dividends. We recorded deemed dividends as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Deemed dividends from grants to Cellectis employees	$	224	$	411	$	581	$	296	$	1,003	$	1,072

~~As of March 31, 2020, unrecognized compensation expense related to restricted stock units was $2.5 million. This expense will be recognized over 43 months on average.~~

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.

Stock-based compensation expense related to performance stock units is as follows:

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Stock-based compensation expense	$	110	$	—	$	114	$	114	$	334	$	114

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As of ~~March 31,~~September 30, 2020, unrecognized compensation expense related to performance stock units was ~~$1.9~~$1.6 million. This expense will be recognized over 5145 months on average.

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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 ~~March 31,~~September 30, 2020, there were no material changes to what we disclosed regarding tax uncertainties or penalties as of December 31, 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 ~~March 31,~~September 30, 2020, ~~this~~ restricted cash totaled $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 March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Rent expense from operating leases	$	24	$	49	$	24	$	22	$	71	$	91

Other Commitments

As of ~~March 31,~~September 30, 2020, we have noncancelable commitments to purchase grain from farmers and seed from growers at dates throughout 2020 and 2021 aggregating ~~$9.2~~$30.8 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 ~~March 31,~~September 30, 2020. If growers do not plant our soybeans, we allow the grain production ~~contacts~~contracts to be cancelled. Therefore, we do not include commitments to purchase grain as noncancelable commitment until the corresponding seed is planted.

8. EMPLOYEE BENEFIT PLAN

We provide a 401(k) defined contribution plan for all regular full-time employees who have completed ~~three~~two months of service. We match employee contributions up to certain amounts and those matching contributions vest immediately.

	Three Months Ended March 31,				Three Months Ended September 30,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019		2020		2019
Employee benefit plan expenses	$	120	$	56	$	63	$	58	$	261	$	163

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9. SUPPLEMENTAL INFORMATION

Certain balance sheet amounts are as follows:

As of March 31,

As of December 31,

In Thousands
2020

2019

Inventory:

Raw materials
$
2,535

$
2,211

Work-in-process

445

272

Finished goods

218

111

Total
$
3,198

$
2,594

	As of September 30,		As of December 31,
In Thousands	2020		2019
Accounts Receivable:
Accounts receivable	$	1,074	$	1,247
Receivables from growers		1,358		—
Allowance for doubtful accounts		—		(125	)
Total	$	2,432	$	1,122

We carry receivables related to amounts we are owed by growers from their purchases of seed. These amounts reduce the cost of the grain we ultimately purchase from the grower and are repaid either on current terms or on an extended payment basis. If a grower has elected extended payment terms they will pay a higher price per unit and grant us the right to deduct the amount we are owed from the payment we make upon the purchase of their grain. As of September 30, 2020, $1.2 million of the receivable from growers were on extended payment terms. As of December 31, 2019, this amount was 0.

	As of September 30,		As of December 31,
In Thousands	2020		2019
Inventory:
Raw materials	$	4,097	$	2,211
Work-in-process		341		272
Finished goods		1,515		111
Total	$	5,953	$	2,594

Certain statements of operations amounts are as follows:

	Three Months Ended March 31,					Three Months Ended September 30,					Nine Months Ended September 30,
In Thousands	2020			2019		2020			2019		2020			2019
Stock compensation expense:
Research and development	$	319		$	241	$	(84	)	$	461	$	723		$	1,240
Selling and supply chain		(251	)		63		(372	)		263		(472	)		491
General and administrative		1,203			1,286		1,026			1,981		3,387			4,834
Total	$	1,271		$	1,590	$	570		$	2,705	$	3,638		$	6,565

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
In Thousands	2020			2019			2020			2019			2020			2019
Interest, net:
Interest expense	$	(372	)	$	(370	)	$	(369	)	$	(374	)	$	(1,112	)	$	(1,114	)
Interest income		(26	)		542			45			406			544			1,410
Total	$	(398	)	$	172		$	(324	)	$	32		$	(568	)	$	296

Certain statements of cash flows amounts are as follows:

	As of March 31, 2020				As of September 30,
In Thousands	2020		2019		2020		2019
Cash, cash equivalents, restricted cash, and short-term investments:
Cash and cash equivalents	$	7,385	$	84,231	$	7,170	$	66,434
Restricted cash		1,433		1,501		1,434		1,516
Total cash, cash equivalents, and restricted cash:		8,818		85,732
Total cash, cash equivalents, and restricted cash						8,604		67,950
Short-term investments		38,620		—		20,802		—
Total cash, cash equivalents, restricted cash, and short-term investments:	$	47,438	$	85,732
Total cash, cash equivalents, restricted cash, and short-term investments					$	29,406	$	67,950

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	Three Months Ended March 31,				Nine Months Ended September 30,
In Thousands	2020		2019		2020		2019
Supplemental cash flow information:
Interest paid	$	367	$	365	$	1,097	$	1,108

10. SEGMENT INFORMATION

We operate in a single reportable segment, agricultural products. Our current commercial focus is North America. Our major product categories are high oleic soybean grain, oil, and ~~high oleic soybean~~ meal.

11. ~~SUBSEQUENT EVENTS~~LONG-TERM DEBT

~~On April 19, 2020, we received~~Our long-term debt is comprised of a ~~$1,517,500 loan under~~$1.5 million promissory note pursuant to the Paycheck Protection Program ~~implemented under~~(the Paycheck Protection Program loan) established by the Coronavirus Aid, Relief, and Economic Security ~~(CARES) Act.~~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 ~~has~~matures in April 2022 and bears interest at a ~~term of two years, an interest~~per annum rate of ~~one percent~~1.00%. The Paycheck Protection Program loan may be prepaid at any time prior to maturity with no0 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 ~~payable~~may be forgiven in whole or in part by applying for ~~six months and is forgivable if certain employee and compensation levels are maintained~~forgiveness pursuant to the CARES Act and the ~~proceeds are used~~Paycheck Protection Program. In order to be eligible for ~~qualifying purposes. After~~forgiveness, the ~~initial six-month deferral period, the loan requires monthly payments of principal and interest until maturity with respect to any portion~~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 on October 21, 2020, applied for forgiveness of the full principal amount and all accrued interest. No assurance can be given that iswe will be granted forgiveness of the Paycheck Protection Program loan in whole or in part.

12. RESTRUCTURING COSTS

On August 4, 2020, we approved the advancement of our soybean products to a streamlined go-to-market strategy. The impact of the advancement included staffing adjustments related to soybean processing and product sales, as well as the gradual exit of all supply chain contractual commitments that are not ~~forgiven.~~associated with the ongoing soybean seed go-to-market strategy. In the three months ended September 30, 2020, we recorded $0.4 million of cash charges forseverance and other related payments, and we also recorded a $0.9 million recapture benefit of non-cash stock compensation expense from the forfeiture or modification of unvested stock awards. We expect to record up to $0.3 million of severance and other related payments through the second quarter of 2021. We have not incurred any other material costs from the disposal of any assets or contractual terminations as of September 30, 2020. We expect to incur an additional $0.6 million of transitional expenses as we wind down the prior go-to-market strategy. Contracted grain purchases, subsequent sales of grain, and the wind down of other contractual obligations on-track to be completed in late 2021.

The following table presents the restructuring and severance cost liabilities as of September 30, 2020:

	As of September 30,
In Thousands	2020
Balance at June 30, 2020	$	—
Charged to expense		436
Cash payments		(175	)
Balance as of September 30, 2020	$	261

The September 30, 2020, liability balance of $0.3 million as well as up to an additional $0.3 million of severance and other related expenses yet to be recorded are expected to be paid through the second quarter of fiscal 2021.

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13. SUBSEQUENT EVENT

On October 20, 2020, we completed a $15.0 million equity financing transaction through an SEC-registered, direct offering of our common stock pursuant to our existing Form S-3 shelf registration statement filed with the SEC on August 13, 2019. The net proceeds of the offering were $14.0 million, after deducting placement and agent fees and estimated offering expenses.

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Item 2. M~~anagement’s~~Management’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.

EXECUTIVE OVERVIEW

We are a technology company focused on 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 and revenues 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 potential revenues and cash flows of our go-to-market strategies are as follows:

•

Seed Sale Arrangements: Through purchase agreements for the direct sale of seed, with such sales expected to generate revenue for Calyxt.

•

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.

•

TALEN® Licensing Arrangements: Through licensing agreements with third parties with respect to our technology for negotiated upfront and annual fees and potential royalties upon commercial sale of products.

For TALEN® licensing and trait and product development and licensing arrangements, we expect that our customers will primarily be seed companies, biotechnology companies, germplasm providers, large agricultural processors, others in the relevant crop’s 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, with developed agronomy infrastructure and commercialization expertise. Across each of these go-to-market strategies, we will seek to develop relationships with strategic customers where our product candidates are ~~healthy~~most likely to benefit from the counterparty’s deep agronomy, product management, and ~~sustainable.~~ 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 core 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 concept with our high oleic soybean product, we intend to ~~bring these products~~refocus our commercial efforts with respect to ~~market one~~this product on the sale of ~~two ways. First, through an integrated~~seed for customers’ own soybean processing businesses. We also restructured our personnel to support the execution of our streamlined business model, ~~where~~including staffing adjustments related to soybean processing and product sales. With respect to grain from the 2020 crop that we ~~leverage third party assets in~~have already contracted to purchase from growers, we intend to pursue sales of the ~~agricultural supply chain~~grain to ~~process grains~~large processing companies. We have sold nearly all of the grain from the 2019 crop to a large processor. For these transactions our arrangement with the processor required us to purchase and ~~sell~~market the soybean meal resulting ~~products. Second, through collaboration~~from the grain the processor purchased. In these types of arrangements, ~~or license agreements~~we record the net settlement with ~~third parties. In a collaboration arrangement, we expect to jointly develop products~~the processor for grain sold by us and ~~to receive payments~~meal purchased by us as revenue, and then recognize revenue upon the sale of the meal. Cost of goods sold are determined based on our total costs for the ~~use of our innovations, upon~~grain purchased and the ~~achievement of development milestones, and from royalties upon commercial sale of products. We also have an option~~purchase price to ~~monetize our technology platform by strategically licensing our innovations to others. We expect to use~~us for the integrated business model in soybeans and wheat and collaborate or license in all other crops. We may also choose to collaborate in wheat and soybeans to increase margins and reduce our need for working capital. meal.

We are currently exploring product opportunities in alfalfa, canola, hemp, oats, peanuts, peas, potato, pulses, soybeans, wheat, and other ~~crops.~~crops for potential applications across a variety of industries, including food, pharmaceutical, energy, and agriculture. Applying our 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. As of ~~March 31, 2020, there were 18~~the date of this report, we have eight projects at ~~the Discovery stage~~Phase I or later in our development process across alfalfa, ~~canola,~~ hemp, oats, ~~potatoes,~~ soybeans, and ~~wheat.~~wheat, and are exploring improved protein profile and flavor in pulse crops, with several options under consideration.

~~Early~~Our current product development pipeline is as follows:

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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 Yield²	2023	Seed and Trait
Hemp	Low THC for Food, Fiber, & Therapeutics²	2024	Seed and Trait
Oat	Cold Tolerant²	2026	Seed and Trait
Soybean	Improved HOLL	2026	Seed
Soybean	High Saturated Fat²	2026	Seed and Trait
Pulse	Improved Protein Profile and Flavor	2027	Trait

¹The agronomic and functional quality of our product candidates and the timing of development are subject to a variety of factors and risks, which are described in our filings with the Securities and Exchange Commission.

² These projects were advanced from Discovery to Phase I of our development process during the third quarter of 2020.

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 ~~second~~preceding table.

As previously reported, during the first quarter of 2020, we ~~advanced~~were notified that a significant portion of our ~~first hemp project~~high fiber wheat plants were lost in field trials due to improper aerial chemical applications by unaffiliated third parties. As a result of the ~~commercialization phase~~crop destruction, the number of ~~development. This project,~~cultivars was reduced, which ~~did not use gene editing, leveraged our plant breeding expertise to quickly purify and stabilize key varieties of~~represents a ~~partner’s germplasm. We expect to launch the product~~significant reduction in the ~~near term. While not expected~~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 ~~significant to revenue, this successful project enabled~~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 ~~gathering of valuable insights and data that will benefit~~unaffiliated third parties involved in the ~~development of other hemp projects which are expected to launch beginning in 2023.~~initial crop loss as well as the adverse impact upon the surviving germplasm lines.

We are an early-stage company and have incurred net losses since our inception. As of ~~March 31,~~September 30, 2020, we had an accumulated deficit of ~~$133.1~~$153.5 million. Our net losses were ~~$11.1~~$31.4 million for the ~~three~~nine months ended ~~March 31,~~September 30, 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:

~~continuing to advance the R&D of our current and future products;~~

•	continuing to advance the R&D of our current and future products;

~~conducting additional breeding and field trials 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;~~

•	seeking regulatory and marketing approvals for our products;

~~acquiring or in-licensing other products, technologies, germplasm, or other biological material;~~

•	acquiring or in-licensing other products, technologies, germplasm, or other biological material;

~~maintaining, protecting, expanding, and defending our intellectual property portfolio;~~

•	maintaining, protecting, expanding, and defending our intellectual property portfolio;

~~making royalty and other payments under any in-license agreements;~~

•	making royalty and other payments under any in-license agreements;

~~seeking to attract and retain new and existing skilled personnel;~~

•	seeking to attract and retain new and existing skilled personnel;

~~securing manufacturing arrangements for commercial production;~~

•	identifying strategic partners and licensees and negotiating agreements under the applicable go-to-market strategy;

~~building out additional sales, marketing, and distribution capabilities, including relationships across our supply chain, to commercialize products that have completed the development process;~~

•	restructuring our infrastructure to support the execution of our streamlined business model;

~~investing in our infrastructure to support the scale-up of the business;~~

•	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 modified crush strategy and seeking to bolster our liquidity position in light of changing business needs and uncertain macro-economic conditions; and~~

•	addressing the impacts of the ongoing novel coronavirus (COVID-19) pandemic, including implementing our expense reduction efforts and seeking to bolster our liquidity position considering changing business needs and uncertain macro-economic conditions; and

~~experiencing any delays or encountering issues with any of the above, including due to COVID-19 and its impacts.~~

•	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 ~~March 31,~~September 30, 2020, Cellectis owned ~~68.8%~~ 68.3% of our issued and outstanding common stock. Following completion of the registered direct offering of our common stock on October 20, 2020, Cellectis owned 64.7% of our issued and 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 the services Cellectis previously provided. Cellectis has also guaranteed the lease of our headquarters facility.

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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.

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We hold an exclusive license from Cellectis that broadly covers the use of engineered nucleases for plant gene editing. This intellectual property covers methods to edit plant genes using “chimeric restriction endonucleases,” which include TALEN^®, CRISPR/Cas9, zinc finger nucleases, and some types of meganucleases.

FINANCIAL OPERATIONS OVERVIEW

Revenue

For the three and nine months ended ~~March 31,~~September 30, 2020, we recognized revenue from the sales of high oleic soybean grain, oil, and ~~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 grower delivers grain to us. ~~We are also exploring additional revenue-generating opportunities including collaborations, licensing, R&D activities, and other value capture models for our technology platform.~~

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 purchasing, storing, transporting and processing grain, net of proceeds of seed sales (Grain Costs), were expensed as R&D. Beginning during the first quarter of 2019, we began to capitalize all Grain Costs into inventory. This affects the year-over-year comparability of ~~costs~~cost of goods sold, gross margins, and R&D expenses. For the three months ended ~~March 31,~~September 30, 2019, the impact of Grain Costs expensed as R&D in 2018 totaled ~~$149,000.~~$2.8 million, and for the nine months ended September 30, 2019, the impact of Grain Costs expensed as R&D in 2018 totaled $3.3 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 qualifying 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 grain, oil, and meal is sold. Any valuation adjustments to inventory are recognized as incurred. Gains and losses resulting from commodity derivative contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts to floating prices are recorded in current period cost of goods sold. Because we expect to sell grain at market prices, the economic effects of the hedges being recognized currently are expected to be fully offset when we sell the grain in a future period.

Research and Development Expense

Research and development (R&D) expenses consist of the costs of performing activities to discover and develop products and advance our intellectual property. We recognize R&D expenses as they are incurred.

Excluding the Grain Costs expensed as R&D mentioned above, our R&D expenses consist primarily of employee-related costs for our R&D personnel, fees for contractors who support product development and breeding activities, expenses for trait validation, purchasing material and supplies for our laboratories, licensing, facilities, regulatory, and other costs associated with owning and operating our own laboratories. R&D expenses also include costs to write and 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.

General and Administrative Expense

General and administrative (G&A) expenses consist primarily of employee-related expenses for our executive, legal, intellectual property, information technology, finance, and human resources functions. Other G&A expenses include facility 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 maintaining patents, consulting costs and other costs of our information systems.

Interest, net

Interest, net is comprised of interest income resulting from investments of cash and cash equivalents and 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 financing activities.

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Anticipated Changes Between Revenues and Costs

As we execute upon our streamlined business model with differentiated go-to-market strategies, we expect the composition of our revenues and costs to evolve. Future cash and revenue-generating opportunities are expected to primarily arise from seed sales, product development activities, and licensing arrangements. Under licensing arrangements, revenues are expected to be royalty payments upon the 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 be the primary area of increase in our expenses. 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 decline substantially as the new models are fully implemented.

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.

Recent Developments – COVID-19 Update

As ~~a company operating within the food supply chain,~~previously reported, our operations in Minnesota are classified as critical sector work under the State of ~~Minnesota “stay at home”~~Minnesota’s COVID-19 executive ~~order adopted in response to the COVID-19 pandemic, which became effective on March 27, 2020. While~~orders. Accordingly, most of our laboratory workers ~~remain~~have continued to work onsite at our headquarters ~~we transitioned all other employees to remote work arrangements.~~throughout the pandemic, and our R&D programs and seed distribution activities have not experienced material delays. In accordance with ~~the~~our COVID-19 Preparedness Plan, Minnesota executive order requirements, and CDC ~~and WHO~~ guidelines, we ~~also~~ have implemented health and safety measures for the protection of our onsite ~~workers.~~

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~~Despite the~~workers and have maintained remote work arrangements for ~~many of~~ our ~~employees, we have continued much of our operations in R&D and in seed distribution and sale. As of~~non-laboratory personnel.

During the ~~date of this report, our R&D programs and seed distribution activities have not experienced any material delays.~~

Our seed production takes place primarily in the United States and its territories with contra season production also occurring in Argentina. Third party warehousing for seed storage and our limited number of processing partners (~~e.g.~~, storage, transportation, crushers and refiners) are located in the Upper Midwest region of the United States. Our operations team has been working with our seed production, warehousing and processing partners and with our logistics partners to manage and mitigate the impact of supply chain disruptions. To date, third quarter, supply chain disruptions ~~have~~did not ~~had~~have a material impact on our operations. ~~However,~~however, 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.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2019

A summary of our results of operations for the three months ended September 30, 2020, and 2019 follows:

	Three Months Ended September 30,
	2020			2019			$ Change			% Change
Revenue	$	5,241		$	2,967		$	2,274			77	%
Cost of goods sold		7,060			3,528			3,532			100	%
Gross margin		(1,819	)		(561	)		(1,258	)		224	%
Research and development expense		2,204			3,579			(1,375	)		(38	)%
Selling and supply chain expense		439			1,314			(875	)		(67	)%
General and administrative expense		4,185			4,934			(749	)		(15	)%
Management fees and royalties		68			305			(237	)		(78	)%
Restructuring costs		436			—			436			—
Interest, net		(324	)		32			(356	)		(1113	)%
Other income and expense		(1	)		(8	)		7			(88	)%
Net loss	$	(9,476	)	$	(10,669	)	$	1,193			(11	)%
Net loss per share	$	(0.29	)	$	(0.32	)	$	0.03			(9	)%
Adjusted EBITDA	$	(7,070	)	$	(8,887	)	$	1,817			(20	)%

Revenue

Revenue increased by $2.3 million, or 77 percent, from the third quarter of 2019 to $5.2 million in the third quarter of 2020. The revenue growth was driven by 15 basis points of volume and 64 basis points of pricing, both partially offset by 2 basis points of unfavorable product mix as we sold more meal in 2020 as a percent of total revenue than the prior period. 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 in the fourth quarter of 2020.

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Cost of Goods Sold

Cost of goods sold increased by $3.5 million from the third quarter of 2019 to $7.1 million in the third quarter of 2020. The increase in cost of goods sold reflects the higher volume of product sold, the impact of lower costs associated with products sold in 2019 because $2.8 million of Grain Costs were previously expensed as R&D, $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain, and a $0.2 million increase in the net realizable value adjustment to period-end inventories. These increases were partially offset by lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.

Gross Margin

Gross margin was a negative $1.8 million, or a negative 35 percent, in the third quarter of 2020, a decrease of $1.2 million, or a negative 16 percent, from the third quarter of 2019. The decline in gross margin in the third quarter of 2020 reflects the impact of lower costs associated with products sold in 2019 because $2.8 million of Grain Costs were previously expensed as R&D, $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain, and a $0.2 million increase in the net realizable value adjustment to period-end inventories. These increases were partially offset by lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.

Gross margin, as adjusted, was negative $1.3 million, or negative 24 percent, in the third quarter of 2020, as compared to negative $2.5 million, or negative 86 percent, in the third quarter of 2019. The improvement was driven by higher selling prices, lower product costs, and the benefits resulting from the advancement of our soybean product line go-to-market strategy.

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 decreased by $1.4 million to $2.2 million, driven by a decrease in stock compensation expense of $0.5 million from the recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards. The same period in 2019 also included $0.5 million of expense to write off R&D tax credits that were no longer realizable.

Selling and Supply Chain Expense

S&SC expenses decreased by $0.9 million to $0.4 million, driven by a decrease in stock compensation expense of $0.6 million from the recapture of non-cash stock compensation expense from the forfeiture of unvested stock awards, partially offset by higher year-over-year compensation expenses.

General and Administrative Expense

G&A expenses decreased by $0.7 million to $4.2 million, driven by a decrease in stock compensation expense of $1.0 million and lower personnel costs of $0.5 million, partially offset by an increase in insurance costs.

Management Fees

Management fees decreased by $0.2 million as we previously internalized certain services provided by Cellectis, including investor relations, information technology, human resources, legal, and communications.

Restructuring Costs

Restructuring costs include the impact of severance and other expenses resulting from the action we initiated in August 2020 to advance our soybean product line go-to-market strategy.

Interest, net

Interest, net decreased by $0.4 million, driven by lower yields and lower cash balances.

Net Loss

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Net loss was $9.5 million in the third quarter of 2020, an improvement of $1.2 million from the third quarter of 2019. The improvement was driven by a reduction in non-cash stock compensation expenses of $2.1 million, partially offset by a decline in gross margins of $1.2 million, and $0.4 million of restructuring costs. The same period in 2019 also included $0.5 million of expense to write off R&D tax credits that were no longer realizable.

Adjusted net loss was $9.3 million in the third quarter of 2020, an improvement of $2.6 million from the third quarter of 2019, driven by the benefits resulting from the advancement of our soybean product line go-to-market strategy.

See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted net loss and a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.

Net Loss Per Share

Net loss per share was $0.29 in the third quarter of 2020, an improvement of $0.03 per share from the third quarter of 2019, driven by the change in net loss.

Adjusted net loss per share was $0.28 in the third quarter of 2020, an improvement of $0.08 per share from the third quarter of 2019, driven by the change in adjusted net loss.

See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted net loss per share and a reconciliation of net loss per share, the most comparable GAAP measure, to adjusted net loss per share.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Adjusted EBITDA loss was $7.1 million in the third quarter of 2020, an improvement of $1.8 million from the third quarter of 2019.

See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted EBITDA and a reconciliation of net loss, the most comparable GAAP measure, to adjusted EBITDA.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2019

A summary of our results of operations for the nine months ended September 30, 2020, and 2019 follows:

	Nine Months Ended September 30,
	2020			2019			$ Change			% Change
Revenue	$	9,925		$	3,533		$	6,392			181	%
Cost of goods sold		16,265			3,865			12,400			321	%
Gross margin		(6,340	)		(332	)		(6,008	)		1810	%
Research and development expense		7,816			8,536			(720	)		(8	)%
Selling and supply chain expense		3,368			3,421			(53	)		(2	)%
General and administrative expense		12,713			14,302			(1,589	)		(11	)%
Management fees and royalties		172			1,117			(945	)		(85	)%
Restructuring costs		436			—			436			—
Interest, net		(568	)		296			(864	)		(292	)%
Other income and expense		(28	)		(35	)		7			(20	)%
Net loss	$	(31,441	)	$	(27,447	)	$	(3,994	)		15	%
Net loss per share	$	(0.95	)	$	(0.84	)	$	(0.11	)		13	%
Adjusted EBITDA	$	(21,827	)	$	(21,182	)	$	(645	)		3	%

Revenue

Revenue increased by $6.4 million, or 181 percent, from the first nine months of 2019 to $9.9 million in the first nine months of 2020. The revenue growth was driven by 132 basis points of volume, 47 basis points of pricing, and 2 basis points of favorable product mix as we sold more oil in 2020 as a percentage of total revenue than in 2019. 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 in the fourth quarter of 2020.

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Cost of Goods Sold

Cost of goods sold increased by $12.4 million from the first nine months of 2019 to $16.3 million in the first nine months of 2020. The increase in cost of goods sold reflects the higher volume of product sold, $4.4 million of net realizable value adjustments to period-end inventories including write-downs of excess seed produced for 2020 plantings, the impact of lower costs associated with products sold in 2019 because $3.3 million of Grain Costs were previously expensed as R&D, and $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventory and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain. These increases were partially offset by lower product costs and the benefits resulting from the advancement of our soybean product line go-to-market strategy.

Gross Margin

Gross margin was a negative $6.3 million, or a negative 64 percent, in the first nine months of 2020, an increase of $6.0 million from the first nine months of 2019, driven by a $4.4 million net realizable value adjustment to period-end inventories including write-downs of excess seed produced for 2020 plantings, the impact of lower costs associated with products sold in 2019 because $3.3 million of Grain Costs were previously expensed as R&D, and $1.1 million of commodity derivative losses from hedging contracts sold to convert our fixed price grain inventory and fixed price Forward Purchase Contracts from fixed to floating prices, consistent with how we expect to sell the grain. These increases were partially offset by higher selling prices, lower product costs, and benefits from the advancement of our soybean product line go-to-market strategy.

Gross margin, as adjusted, was a negative $3.2 million, or negative 33 percent, in the first nine months of 2020 compared to negative $2.8 million, or negative 81 percent, in the same period in 2019. The improvement, on a percentage basis, was driven by higher selling prices, lower product costs, and savings from the advancement of our soybean product line go-to-market strategy.

Research and Development Expense

R&D expenses decreased by $0.7 million to $7.8 million driven by lower non-cash stock compensation expense of $0.5 million primarily from a recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards. The same period in 2019 also included $0.4 million of expense to write off research and development tax credits that were no longer realizable.

Selling and Supply Chain Expense

S&SC expenses decreased by $0.1 million to $3.4 million, driven by a decrease in non-cash stock compensation expense of $1.0 million primarily from a recapture of non-cash stock compensation expense from the forfeiture of unvested stock awards and lower marketing and travel expenses, partially offset by additional ~~or enhanced COVID-19 related closures, or increased disruptions~~personnel costs.

General and Administrative Expense

G&A expenses decreased by $1.6 million to $12.7 million, driven by a decrease in non-cash stock compensation of $1.4 million as a result of fewer awards issued and lower award values, and lower personnel costs of $1.4 million, partially offset by an increase in insurance costs.

Management Fees

Management fees decreased by $0.9 million as we previously internalized certain services provided by Cellectis, including investor relations, information technology, human resources, legal, and communications.

Restructuring Costs

Restructuring costs include the impact of severance and other expenses resulting from ~~existing COVID-19 related preventive measures, could further disrupt~~the action we initiated in August 2020 to advance our ~~supply chains, particularly with respect to transportation across borders or outside~~soybean product line go-to-market strategy.

Interest, net

Interest, net decreased by $0.9 million, driven by lower yields and lower cash balances.

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Net Loss

Net loss was $31.4 million in the ~~Upper Midwest.~~

~~We currently target sales~~first nine months of 2020, an increase of $4.0 million from the first nine months of 2019, driven by a $6.0 million decrease in gross margin following the launch of our high oleic soybean ~~oil~~products and the higher costs we experienced during the product’s proof of concept period, a $0.9 decrease in interest, net, and $0.4 million of restructuring costs, offset by $2.9 million of lower non-cash stock compensation expenses as a result of a recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards, as well as the impact from fewer awards issued and lower award values, and a $0.6 million decrease in Section 16 officer transition expenses. The same period in 2019 also included $0.4 million of expense to ~~foodservice, food manufacturing, animal nutrition,~~write off R&D tax credits that were no longer realizable.

Adjusted net loss was $28.3 million in the first nine months of 2020, an improvement of $0.2 million from the first nine months of 2019.

See below under the heading “Use of Non-GAAP Financial Information” for a discussion of adjusted net loss and ~~industrial market segments. The COVID-19 pandemic has~~a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.

Net Loss Per Share

Net loss per share was $0.95 in the first nine months of 2020, an increase of $0.11 per share from the third quarter of 2019, driven by the change in net loss.

Adjusted net loss per share was $0.86 in the first nine months of 2020, an improvement of $0.01 per share from the third quarter of 2019, driven by the change in adjusted net loss.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Adjusted EBITDA loss was $21.8 million for the first nine months of 2020, an increase of $0.6 million from the first nine 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 September 30, 2020, we had a ~~significant adverse impact on~~total of $29.4 million of cash, cash equivalents, short-term investments, and restricted cash. Short-term investments consist of corporate debt securities and commercial paper with more than 90 days to maturity at issuance. All these amounts are convertible to cash within 90 days except for $1.0 million of restricted cash associated with our financing leases. Current liabilities were $7.9 million as of September 30, 2020. Accordingly, we have cash, cash equivalents and short-term investments sufficient to fund all short-term obligations as of that date.

We incurred losses from operations of $30.8 million for the ~~food industry, which has substantially reduced food industry demand~~nine months ended September 30, 2020, and $27.7 million for ~~vegetable oils. Accordingly, beginning~~the nine months ended September 30, 2019. As of September 30, 2020, we had an accumulated deficit of $153.5 million and expect to continue to incur losses in the ~~last weeks~~future.

Cash Flows from Operating Activities

	Nine Months Ended September 30,
In Thousands	2020			2019
Net loss	$	(31,441	)	$	(27,447	)
Depreciation and amortization		1,372			1,051
Stock-based compensation		3,638			6,565
Changes in operating assets and liabilities		(4,567	)		(4,857	)
Net cash used by operating activities	$	(30,998	)	$	(24,688	)

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Net cash used by operating activities increased by $6.3 million, driven by the increase in our net loss of $4.0 million and a decrease in non-cash stock compensation of $3.0 million.

We expect cash used by operating activities in the fourth quarter of 2020 to be higher than in the first nine months of the ~~first~~year driven by an expected increase in working capital associated with grain we are required to purchase in the period.

Cash Flows from Investing Activities

	Nine Months Ended September 30,
In Thousands	2020			2019
Purchases of land, buildings, and equipment	$	(1,146	)	$	(2,538	)
Short-term investments		(20,802	)		—
Net cash used by investing activities	$	(21,948	)	$	(2,538	)

Net cash used by investing activities increased by $19.4 million, driven by our purchases of short-term investments as part of our risk diversification strategy.

We expect net cash used for purchases of land, buildings, and equipment in the fourth quarter of 2020 ~~and continuing into the second quarter 2020, we have experienced lower demand for our high oleic soybean oil, corresponding~~to be comparable to the ~~overall lowering~~first nine months of ~~demand~~the year, and cash used for ~~all vegetable oils. In addition, excess supply~~purchases of ~~vegetable oil has~~short-term investments to stabilize following our capital raise in the fourth quarter.

Cash Flows from Financing Activities

	Nine Months Ended September 30,
In Thousands	2020			2019
Proceeds from Paycheck Protection Program loan	$	1,518		$	—
Repayments of financing lease obligations		(217	)		(195	)
Proceeds from the exercise of stock options		211			314
Costs incurred related to shares withheld for net share settlement		—			(645	)
Proceeds from the sale and leaseback of land, buildings, and equipment		—			414
Net cash provided (used) by financing activities	$	1,512		$	(112	)

Net cash provided by financing activities increased by $1.6 million, driven ~~lower prices,~~by the Paycheck Protection Program loan proceeds.

We expect net cash provided (used) by financing activities in the fourth quarter of 2020 to be comprised of $14.0 million of net proceeds from our capital raise in October 2020, partially offset by repayments of financing lease obligations at the same rate as in prior quarters.

CAPITAL RESOURCES

Considering factors including our cash raised in October 2020, our anticipated cash burn rate, expense reduction efforts, advancement of our go-to-market soybean strategy, and cash receipts from our product development efforts with partners, we believe our ~~high oleic soybean oil may~~cash, cash equivalents, short-term investments, and restricted cash as of September 30, 2020, will be ~~particularly impacted by lower pricing within~~enough to fund our operations for at least the ~~premium oil category. Looking forward, we expect prices for premium oil to remain low~~next twelve months and ~~demand for vegetable oil to remain depressed,~~ into the second half of 2022.

For the nine months ended September 30, 2020, ~~and possibly beyond.~~

we generated $9.9 million in revenues from product sales. We ~~currently target sales of~~anticipate that we will continue to generate losses for the next several years before revenue is enough to support our high oleic soybean meal to dairy, poultry, and pork producers. On April 28, 2020, President Trump signed an executive order directing the Department of Agriculture to ensure meat and poultry processors in the U.S. continue operations uninterrupted to the maximum extent possible. Nevertheless, the COVID-19 pandemic has impacted protein processing facilities, with several processing facilities temporarily closing or suspending operations, which is impacting the upstream operations in the industry. The COVID-19 impact on protein supply is likely to have a corresponding impact on the demand for our high oleic soybean meal. Looking forward, we expect prices for soybean meal to remain low and, depending on herd sizes, soybean meal demand may also be depressed, into the second half of 2020 and possibly beyond.

In response to changing demand, pricing pressure and uncertainty among our customers and target customers caused by the COVID-19 pandemic, we have adjusted our short-term crush strategy and have canceled crushes scheduled for late May, June and July 2020. This change avoids storage costs for oil and is expected to shift product sales efforts into the second half of 2020, when potentially customer demand may partially recover depending on the timing and extent of resumption of normal operating activities among our customers. We are also accelerating the purchase of the remaining 2019 grain crop, which was originally expected to be purchased before August 31, 2020, enabling us to take advantage of the lower prices currently available and reduce our ultimate cash outlay for that grain.capital requirements.

Until we can generate substantial cash flow, we expect to finance a portion of future cash needs through cash on hand, public or private equity or debt financings, government or other third-party funding, ~~various payments we may receive from future collaborators in product development~~ and commercialization activities, which may result in various types of revenue streams from future licensees, including upfront and ~~licensing arrangements.~~ 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 terms acceptable to us.

In response to current economic conditions, we have ~~taken~~postponed non-essential capital expenditures and ~~expect~~undertaken other efficiency efforts. In addition, the headcount reductions undertaken in connection with our business model advancement will contribute to our cost-saving initiatives. We will continue to review our operating expenses and to take ~~in the future~~ actions ~~to increase our~~that support efficient operations, financial flexibility, and optimized liquidity. We have commenced a review of operating expenses and have postponed non-essential capital expenditures. Additionally, on April 19, 2020, we received a $1,517,500 loan under the Payroll Protection Program under the CARES Act, which will be applied during this period of economic uncertainty to payroll and other qualifying fixed costs. As a result of these actions and our anticipated reductions in cash expenditures, we expect our monthly cash usage to decrease beginning April 2020 and decrease overall for the balance of 2020 as compared to 2019 and our previous expectations. With these actions, we expect our current cash runway to now extend to late 2021. We ~~continue to evaluate additional strategies to further reduce our cash usage.~~

We will also continue to evaluate our operations and adjust based on the safety of our employees, demand signals, the health of our supply chain and distribution network, and government mandates and local orders.

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Our actual results, level of activity, performance or achievements could be materially different from those anticipated in the forward-looking statements included in this discussion of the COVID-19 pandemic and its impacts as a result of certain factors, including, but not limited to, those discussed under the caption “Risk Factors” in our Annual Report and our subsequent reports on Forms 10-Q (including under the caption entitled “Risk Factors” in this Quarterly Report) and 8-K.

~~RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2019~~

~~A summary of our results of operations for the three months ended March 31, 2020 and 2019 follows:~~

Three Months Ended March 31,

2020

2019

$ Change

% Change

Revenue
$
2,377

$
157

$
2,220

1,414.0
%
Cost of goods sold

3,884

34

3,850

11,323.5
%
Gross margin

(1,507
)

123

(1,630
)

Research and development expense

2,787

2,219

568

25.6
%
Selling and supply chain

1,580

904

676

74.8
%
General and administrative expense

4,720

4,162

558

13.4
%
Management fees and royalties

62

361

(299
)

(82.8
)%
Interest, net

(398
)

172

(570
)

(331.4
)%
Other income and expense

(9
)

(24
)

15

(62.5
)%
Net loss
$
(11,063
)

$
(7,375
)

$
(3,688
)

50.0
%
Adjusted EBITDA
$
(8,247
)

$
(5,672
)

$
(2,575
)

45.4
%

~~Revenue~~

Revenue increased by $2.2 million, or 1,414%, to $2.4 million. The significantly lower revenue in the three months ended March 31, 2019 reflects the fact that we commercialized our first products, high oleic soybean oil and high oleic soybean meal, in the three months ended March 31, 2019. The revenue growth was driven by 1,440 basis points of pound or ton volume growth, and 44 basis points of favorable product mix as we sold more oil in 2020 as a percent of total revenue than in 2019, both partially offset by 70 basis points of pricing, primarily the result of lower meal prices than a year ago. High oleic soybean meal was 87 percent of revenue in the period, compared to 92 percent a year ago. Most of the oil revenue in the first quarter 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 six months. Despite the revenue increase, we began experiencing softness in demand for our high oleic soybean oil in the last two weeks of the first quarter 2020

Due to the impact of the COVID-19 pandemic, we generally expect a decrease in demand for our high oleic soybean oil and potentially for our high oleic soybean meal, as well as decreases in the average selling prices for these products, for at least the second quarter and potentially into the third quarter 2020 or longer until our foodservice and food manufacturing customers and other potential customers experience normalized demand and the protein processing supply chain resumes normalized operations.

~~Costs of Goods Sold~~

~~Cost of goods sold increased $3.9 million reflecting the cost of product sold in the period and a $1.1 million net realizable value adjustment against our inventories.~~

~~Due to the impact of the COVID-19 pandemic, we generally expect cost of goods sold to decrease proportionate to expected decreases in revenue.~~

~~Gross Margin~~

Gross margin as reported decreased by $1.6 million to a negative $1.5 million. The decrease in gross margin in the first quarter 2020 reflects the higher costs we have experienced at this early stage of commercialization of our high oleic soybean products. Gross margin, as adjusted, a non-GAAP measure, was negative $1.2 million, or negative 49 percent, as compared to negative $1.5 million, or negative 63 percent, as reported under GAAP.

Due to the impact of the COVID-19 pandemic, we generally expect to have a lower negative gross margins on a dollar basis if revenue does not occur at the levels previously expected, and we expect negative gross margins percentages to increase due to lower selling

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~~volumes, lower average selling prices, the fixed prices we pay per bushel to process, store and transport grain, partially offset by lower prices paid for grain.~~

~~Research and Development Expense~~

~~R&D expenses increased $568,000 driven by $284,000 of additional personnel costs, $123,000 of incremental professional fees, and $78,000 of higher non-cash stock compensation expenses.~~

~~At this time, we do not expect the COVID-19 pandemic to materially affect R&D expenses as these activities are continuing substantially as planned.~~

~~Selling and Supply Chain Expense~~

S&SC expenses increased $676,000 driven by the build out of our S&SC team following initial commercialization and includes $879,000 of additional personnel costs, including $273,000 of Section 16 officer transition expenses, and $123,000 incremental allocated expenses for facilities and information technology expenses, partially offset by $314,000 of lower non-cash stock compensation expenses due to the forfeiture of awards.

Due to the impact of the COVID-19 pandemic, we generally expect a decrease in S&SC expenses due to decreased sales and decreased marketing costs. Additionally, we will be targeting S&SC expense as part of our overall expense reduction efforts in response to the COVID-19 pandemic, which we expect to reduce S&SC expenses for the balance of 2020, as compared to the first quarter 2020.

~~General and Administrative Expense~~

~~G&A expenses increased $558,000 driven by $392,000 of incremental professional services expenses, as well as increased depreciation expense.~~

We will be targeting G&A expense as part of our overall expense reduction efforts in response to the COVID-19 pandemic, which we expect to reduce G&A expenses for the balance of 2020, as compared to the first quarter 2020.

~~Management Fees~~

Management fees declined by $299,000 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 $570,000 driven by unrealized losses on short-term investments, lower yields on investments, and less cash to invest.~~

Due to the current interest rate environment, which reflects lower interest rate yields and reduced cash balances, over the remainder 2020 and after taking into consideration potential changes in value of our short-term investments and the planned reductions in expenses mentioned above, we expect interest, net to decrease in the balance of 2020 as compared to the same period in 2019, and to be higher than the level experienced in the first quarter of 2020.

~~Net Loss~~

Net loss increased by $3.7 million driven by a $1.6 million decrease in gross margins following the launch of our high oleic soybean products, reflecting the early stage of our business, $1.1 million of additional personnel costs largely attributed to the build out of our S&SC team, a $570,000 decrease in interest, net; and $474,000 of incremental professional fees, partially offset by $285,000 of lower non-cash stock compensation expenses.

~~Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)~~

~~Adjusted EBITDA, a non-GAAP measure, decreased by $2.6 million, driven by the changes in gross margin and R&D, S&SC, and G&A expenses described above.~~

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 United States GAAP.

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~~LIQUIDITY AND CAPITAL RESOURCES~~

~~Liquidity~~

As of March 31, 2020, we had a total of $47.4 million of cash, cash equivalents, short-term investments, and restricted cash. Short-term investments consist of corporate debt securities and commercial paper with more than 90 days to maturity at issuance. All these amounts are convertible to cash within 90 days except for $1.0 million of restricted cash associated with our financing leases. Current liabilities were $5.6 million at March 31, 2020. Accordingly, we have cash, cash equivalents and short-term investments sufficient to fund all short-term obligations as of that date.

We incurred losses from operations of $11.1 million for the three months ended March 31, 2020, and $7.4 million for the three months ended March 31, 2019. As of March 31, 2020, we had an accumulated deficit of $133.1 million and expect to incur losses for the foreseeable future.

~~Diversification of Counterparty Credit Risk~~

In the first quarter of 2020, we diversified our concentrated credit risk by shifting our uninsured deposits 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 if necessary, make changes to investments to ensure credit risk is minimized. We have not experienced any counterparty credit losses. The impact of this diversification was to shift balances from Cash & Cash Equivalents to Short-term Investments on our consolidated balance sheet.

~~Cash Flows from Operating Activities~~

Three Months Ended March 31,

In Thousands
2020

2019

Net loss
$
(11,063
)

$
(7,375
)
Depreciation and amortization

452

342

Stock-based compensation

1,271

1,556

Changes in operating assets and liabilities

(3,076
)

(3,799
)
Net cash used by operating activities
$
(12,416
)

$
(9,276
)

Net cash used by operating activities increased $3.1 million driven by the increase in our net loss of $3.7 million and $285,000 of lower non-cash stock compensation expense, partially offset by a $723,000 decrease in cash flows provided by operating assets and liabilities, primarily the result of the higher cash payments to suppliers and related parties in the three months ended March 31, 2019.

~~Based on the actions we expect to take in response to the COVID-19 pandemic, we expect cash flows from operating activities to improve over the balance of 2020 as compared to the first quarter 2020.~~

~~Cash Flows from Investing Activities~~

Three Months Ended March 31,

In Thousands
2020

2019

Purchases of land, building, and equipment
$
(139
)

$
(346
)
Short-term investments

(38,620
)

—

Net cash used by investing activities
$
(38,759
)

$
(346
)

~~Net cash used by investing activities increased $38.4 million driven by our purchases of short-term investments as part of our risk diversification strategy.~~

~~Cash Flows from Financing Activities~~

Three Months Ended March 31,

In Thousands
2020

2019

Repayments of financing lease obligations
$
(45
)

$
(59
)
Proceeds from the exercise of stock options

—

125

Net cash (used) provided by financing activities
$
(45
)

$
66

~~Net cash provided by financing activities decreased $111,000 driven by lower proceeds from the exercise of stock options.~~

~~CAPITAL RESOURCES~~

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Considering our anticipated cash burn rate and anticipated expense reduction efforts, we believe our cash, cash equivalents, short-term investments, and restricted cash as of March 31, 2020 will be enough to fund our operations for at least the next twelve months and into late 2021.

For the three months ended March 31, 2020, we generated $2.4 million in revenues from product sales. We anticipate that we will continue to generate losses for the next several years before revenue is enough 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, various types of payments we may receive from future collaborators in product development and commercialization activities, potentially including royalties and other recurring payment streams, and licensing arrangements.

Our financing needs are subject to change depending on, among other things, the success of our product development efforts, 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 terms acceptable to us.

In response to current economic conditions, we have taken and expect to take in the future actions to increase our financial flexibility and liquidity. We have commenced a review of operating expenses and have postponed non-essential capital expenditures. Additionally, on April 19, 2020, we received a $1,517,500 loan under the Payroll Protection Program under the CARES Act, which will be applied during this period of economic uncertainty to payroll and other qualifying fixed costs.

CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES

As of ~~March 31,~~September 30, 2020, 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 $30.8 million from $50.9 million.

OFF BALANCE SHEET OBLIGATIONS

As of ~~March 31,~~September 30, 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 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.

As of ~~March 31,~~September 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 the first 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 that better aligned our risk management activities and financial reporting. The adoption did not have a 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

~~- 20 -~~

~~Table of Contents~~

standard are effective for annual reporting periods beginning after December 15, ~~2020,~~2021, and interim periods within those annual periods, which for us is the first quarter of ~~2021~~2022 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, 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 audited financial results prepared in accordance with GAAP, we have prepared certain non-GAAP measures that include or exclude special items. These non-GAAP measures are not meant to be considered in isolation or as a substitute for financial information presented in accordance with GAAP and should be viewed as supplemental and in addition to 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. In addition, other companies may report similarly titled measures, but calculate them differently, which reduces their usefulness as a comparative measure. Management utilizes these non-GAAP metrics as performance measures in evaluating and making operational decisions regarding our business.

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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~~Grain Costs expensed as R&D in a prior period, excludes the effects of commodity derivatives entered into to hedge the change in value of fixed price grain inventories and ~~that also includes~~fixed price Forward Purchase Contracts as the expected impact from these contracts will be fully offset when the underlying grain is sold, and excludes the impact of any net realizable value adjustments to ~~our~~ 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 athe 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 March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
In Thousands	2020			2019			2020			2019			2020			2019
Gross margin (GAAP measure)	$	(1,507	)	$	123		$	(1,819	)	$	(561	)	$	(6,340	)	$	(332	)
Gross margin percentage		(63	)%		78	%		(35	)%		(19	)%		(64	)%		(9	)%
Adjustments:
Grain costs expensed as R&D		—			(149	)		—			(2,814	)		—			(3,349	)
Mark to market loss								1,107			—			1,107			—
Net realizable value adjustment to inventories		334			—			(555	)		832			2,000			832
Gross margin, as adjusted	$	1,174		$	(25	)	$	(1,267	)	$	(2,543	)	$	(3,233	)	$	(2,849	)
Gross margin percentage, as adjusted		(49	)%		(16	)%		(24	)%		(86	)%		(33	)%		(81	)%

We present adjusted net loss, a non-GAAP measure, and define it as net loss including the effects of Grain Costs expensed as R&D in a prior period, and excluding the effects of commodity derivatives entered into to hedge the change in value of fixed price grain inventories and fixed price Forward Purchase Contracts as the expected impact from these contracts will be fully offset when the underlying grain is sold, 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, Section 16 officer transition expenses, R&D payroll tax credits that are no longer realizable, restructuring costs, and the recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards associated with staffing adjustments made as part of the advancement of our soybean business model.

We provide in the table below a reconciliation of adjusted net loss to net loss, which is the most directly comparable GAAP financial measure. We provide adjusted net loss 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 net losses and financial performance.

The table below presents a reconciliation of net loss to adjusted loss:

	Three Months Ended September 30,						Nine Months Ended September 30,
In Thousands	2020			2019			2020			2019
Net loss (GAAP measure)	$	(9,476	)	$	(10,669	)	$	(31,441	)	$	(27,447	)
Non-GAAP adjustments:
Grain Costs expensed as R&D		—			(2,814	)		—			(3,349	)
Mark to market loss		1,107			—			1,107			—
Net realizable value adjustment to inventories		(555	)		832			2,000			832
Section 16 officer transition expenses		56			193			493			1,052
Research and development payroll tax credit		—			536			—			410
Restructuring costs		436			—			436			—
Recapture of non-cash stock compensation		(906	)		—			(906	)		—
Adjusted net loss		(9,338	)		(11,922	)		(28,311	)		(28,502	)

We present adjusted net loss per share, a non-GAAP measure, and define it as net loss per share including the effects of Grain Costs expensed as R&D in a prior period, and excluding the effects of commodity derivatives entered into to hedge the change in value of fixed price grain inventories and fixed price Forward Purchase Contracts as the expected impact from these contracts will be fully offset when the underlying grain is sold, any net realizable value adjustments to inventories occurring in the period, which would otherwise

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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, Section 16 officer transition expenses, R&D payroll tax credits that are no longer realizable, restructuring costs, and the recapture of non-cash stock compensation expense from the forfeiture and modification of unvested stock awards associated with staffing adjustments made as part of the advancement of our soybean business model.

We provide in the table below a reconciliation of adjusted net loss per share to net loss per share, which is the most directly comparable GAAP financial measure. We provide adjusted net loss per share 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 net losses per share and financial performance.

The table below presents a reconciliation of net loss per share to adjusted net loss per share:

	Three Months Ended September 30,						Nine Months Ended September 30,
In Thousands	2020			2019			2020			2019
Net loss per share (GAAP measure)	$	(0.29	)	$	(0.32	)	$	(0.95	)	$	(0.84	)
Non-GAAP adjustments:
Grain Costs expensed as R&D		—			(0.09	)		—			(0.10	)
Mark to market loss		0.03			—			0.03			—
Net realizable value adjustment to inventories		(0.01	)		0.03			0.06			0.03
Section 16 officer transition expenses		0.01			0.01			0.02			0.03
Research and development payroll tax credit		—			0.01			—			0.01
Restructuring costs		0.01			—			0.01			—
Recapture of non-cash stock compensation		(0.03	)		—			(0.03	)		—
Adjusted net loss per share		(0.28	)		(0.36	)		(0.86	)		(0.87	)

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, the effects of commodity derivatives entered into to hedge the change in value of fixed price grain inventories and fixed price Forward Purchase Contracts as the expected impact from these contracts will be fully offset when the underlying grain is sold, 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, Section 16 officer transition expenses, ~~research and development~~R&D payroll tax credits that are no longer realizable, and restructuring costs; and including the effects of Grain Costs expensed as R&D ~~and net realizable value adjustments to inventories.~~in a prior period.

We provide in the table below a reconciliation of adjusted EBITDA to net loss, which is the most directly comparable GAAP financial measure. Because adjusted EBITDA excludes non-cash items and discrete or infrequently occurring items, we believe that adjusted 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.

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The table below presents a reconciliation of net loss to adjusted EBITDA:

	Three Months Ended March 31,						Three Months Ended September 30,						Nine Months Ended September 30,
In Thousands	2020			2019			2020			2019			2020			2019
Net Loss (GAAP measure)	$	11,063		$	(7,375	)
Net loss (GAAP measure)							$	(9,476	)	$	(10,669	)	$	(31,441	)	$	(27,447	)
Non-GAAP adjustments:
Interest, net		398			(172	)		324			(32	)		568			(296	)
Income tax expense	—			—				—			—			—			—
Depreciation and amortization		452			342			468			362			1,372			1,051
Stock-based compensation expenses		1,271			1,556			570			2,705			3,638			6,565
Grain Costs expensed as R&D	—				(149	)		—			(2,814	)		—			(3,349	)
Mark to market loss								1,107			—			1,107			—
Net realizable value adjustment to inventories		334		—				(555	)		832			2,000			832
Section 16 officer transition expenses		360			188			56			193			493			1,052
Research and development payroll tax credit	—				(63	)		—			536			—			410
Restructuring costs								436			—			436			—
Adjusted EBITDA	$	(8,247	)	$	(5,672	)	$	(7,070	)	$	(8,887	)	$	(21,827	)	$	(21,182	)

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

~~For quantitative and qualitative disclosures about~~Our primary exposure to market risk is commodity price sensitivity. Following our decision to advance our soybean go-to-market strategy in the third quarter of 2020, our exposure to changes in commodity prices changed significantly. We are now primarily susceptible to changes in commodity market prices that ~~affect us, see “Quantitative~~could impact the selling price for our grain inventories, which are carried at our historical cost. Prior to our purchase, we also have market exposure associated with our fixed price Forward Purchase Contracts. In the normal course of business, we manage our exposure to changes in market prices by entering commodity hedges to convert fixed price grain inventories and ~~Qualitative Disclosures About Market Risk” in Item 7A of Part II~~fixed price Forward Purchase Contracts to floating market prices. By executing these hedging strategies, we can closely match the expected economic terms of the ~~Annual Report. There~~grain sale with the market. In a rising market these positions will result in losses, and in a falling market these positions will result in gains once any losses, if any, are recaptured. At sale the gains or losses on the commodity derivatives will be realized and be fully offset by gains or losses on the grain inventories. Based on our positions as of September 30, 2020, a 10 percent increase in commodity futures market prices would have a $1.6 million decrease in our financial condition, and a 10 percent decrease in commodity futures market prices would have a $1.6 million increase in our financial condition.

Outside of the market risk related to commodity price risk sensitivity, there have been no material changes in information that would have been provided in the context of Item 3 from the end of the preceding year until ~~March 31,~~September 30, 2020. However, ~~the Company does~~we do provide risk management discussion in various places in this Quarterly Report on Form 10-Q, primarily in Note 2. Financial Instruments, Fair Value, Hedging Activities, and Concentrations of 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 ~~March 31,~~September 30, 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 ~~March 31,~~September 30, 2020, that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to any material pending legal proceeding as of ~~March 31,~~September 30, 2020. From time to time, we may be involved in legal proceedings arising in the ordinary course of business.

Item 1A. Risk Factors

~~The most significant~~There have been no material changes in risk factors ~~applicable to Calyxt are described~~in the period covered by this report. See the discussion of risk factors in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, ~~2019. There have been no material changes from the risk factors previously disclosed~~2019, and in Part II, Item 1A “Risk Factors” of our ~~Annual~~Quarterly Report on Form ~~10-K, except~~10-Q for the additional risk factor set forth below. You should carefully consider the risk factors included in our Annual Report and below in connection with Part I, Item 2, “Management’s Discussion and Analysis of Financial Conditions and Results of Operations.”six months ended June 30, 2020.

The extent to which the COVID-19 pandemic and resulting deterioration of worldwide economic conditions adversely impact our business, financial condition, and operating results will depend on future developments, which are difficult to predict.

As a result of the COVID-19 pandemic, governmental authorities have implemented and are continuing to implement numerous and rapidly evolving measures to try to contain the virus, such as travel bans and restrictions, limits on gatherings, quarantines, shelter-in-place orders, and business shutdowns. In response to the COVID-19 pandemic and in accordance with governmental orders, we have also modified our business practices and implemented proactive measures to protect the health and safety of employees, including restricting employee travel, requiring remote work arrangements for non-laboratory employees, implementing social distancing and enhanced sanitary measures in our headquarters, and cancelling attendance at events and conferences. Many of the suppliers, vendors and service providers on whom we rely have made similar modifications. There is no certainty that such measures will be sufficient to mitigate the risks posed by, or the impacts and disruptions of, the COVID-19 pandemic.

As a result of the COVID-19 pandemic and government actions to contain it, related volatility in the financial markets and deterioration of national and global economic conditions, we could experience material adverse operational and financial impacts, including:

Prolonged, significant reductions in demand for our products resulting from continued or worsening operational disruptions among our food industry customers and/or protein producer customers, excess inventories in the markets in which our products compete, and aggressive pricing for alternative, non-premium products. Challenging economic circumstances continuing after the immediate crisis subsides may also adversely impact our customers, resulting in prolonged decreased demand, overall lower customer spending, or potential inability to pay for previously purchased products.

Disruptions and delays to our R&D pipeline resulting from a shutdown of our headquarters due to expanded governmental restrictions or illness among our laboratory personnel as a result of COVID-19, increased absenteeism among laboratory employees, or delays with respect to raw materials necessary for our R&D activities.

Interruptions or delays in seed production or grain processing resulting from supply chain disruptions, including as a result of restrictions or disruptions to transportation (such as reduced availability of air transport, port closures and increased border controls or closures) or operational disruptions at warehousing, storage, crushing and/or refining facilities.

Overall reduced operational productivity resulting from challenges associated with remote work arrangements, limited resources available to our employees (particularly with respect to our sales employees whose in-person access to our customers and customer prospects has been significantly limited), and increased cybersecurity risks as a result of remote access to our information systems.

Constraints on financing opportunities resulting from dislocations in the capital markets, which may make it too costly or difficult for us to pursue public or private equity or debt financings on acceptable terms.

The degree to which COVID-19 impacts our business and results will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the severity, duration and geographic spread of the outbreak, and the global, national and regional actions to contain the virus and address its impact, including travel restrictions imposed, business closures or business disruption.

The resumption of normal business operations after interruptions caused by COVID-19 may be delayed or constrained by lingering effects of COVID-19 on us or our suppliers, third-party service providers, counterparties in ~~collaboration arrangement or licenses,~~ ~~and/or customers. Even after the COVID-19 outbreak has subsided, Calyxt may experience material and adverse impacts on its~~

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~~business, operating results and financial condition as a result of the global economic impact of COVID-19 outbreak, including any recession that has occurred or may occur in the future.~~

The impact of COVID-19 may also exacerbate other risks discussed in Item 1A. Risk Factors in our Annual Report on Form 10-K, any of which could have a material effect on us. This situation is changing rapidly and additional impacts may arise that we are not aware of currently.

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

In the ~~three~~nine months ended ~~March 31,~~September 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		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		—	$	—		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										—	$	—		—	$	—
July 1, 2020 – July 31, 2020										—	$	—		—	$	—
August 1, 2020 – August 31, 2020										—	$	—		—	$	—
September 1, 2020 – September 30, 2020										—	$	—		—	$	—
Total		17,752	$	7.01		—	$	—		17,752	$	7.01		—	$	—

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Item 6. 6. Exhibits

(a)

Index of Exhibits

Exhibit Number		Description
3.1		Amended and Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q filed on September 1, 2017)
3.2		Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 of the Company’s Quarterly Report on Form 10-Q filed with the SEC on May 7, 2018)
10.1*		Form of Securities Purchase Agreement, dated as of October 16, 2020, by and among Calyxt, Inc. and the Purchasers party thereto
31.1*		Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act
31.2*		Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Exchange Act
32*		Certification of the Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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*		~~Cover~~The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, has been formatted ~~as XBRL and contained~~ in ~~Exhibit 101~~Inline IXBRL

*Filed herewith

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~~SIGNATURE~~SIGNATURE

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 ~~May 6,~~November 5, 2020.


	CALYXT, INC.

~~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)

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Three months ended March 31, 2020	Shares Outstanding			Common Stock		Additional Paid-In Capital		Shares in Treasury			Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Total Stockholders’ Equity
Balance at December 31, 2019		32,951,329		$	3	$	185,588	$	(1,043	)	$	(122,057	)	$	17		$	62,508
Net loss		—			—		—		—			(11,063	)		—			(11,063	)
Stock based compensation		57,110			—		1,271		—			—			—			1,271
Shares withheld for net share settlement		(17,792	)		—		—		—			—			—			—
Other comprehensive loss		—			—		—		—			—			(180	)		(180	)
Balance at March 31, 2020		32,990,647		$	3	$	186,859	$	(1,043	)	$	(133,120	)	$	(163	)	$	52,536


Three months ended March 31, 2019
Balances at December 31, 2018		32,648,893		$	3	$	176,069	$	(230	)	$	(82,445	)	$	—		$	93,397
Net loss		—			—		—		—			(7,375	)		—			(7,375	)
Stock based compensation		43,296			—		1,556		—			—			—			1,556
Issuance of common stock		—			—		125		—			—			—			125
Balances at March 31, 2019		32,692,189		$	3	$	177,750	$	(230	)	$	(89,820	)	$	—		$	87,703

	As of March 31,
	2020		��	2019
Anti-dilutive stock options, restricted stock units, and performance stock units		5,328,268			4,385,595