NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
1.
BASIS OF PRESENTATION
Our unaudited interim financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. In our opinion, the accompanying 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. 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.
The preparation of the 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 financial statements and during the reporting period. Actual results could materially differ from these estimates.
For further information, refer to the audited financial statements and notes thereto included in our Annual Report filed with the Securities
and Exchange Commission (SEC) on March 12, 2019. The accompanying Balance Sheet as of December 31, 2018 was derived from the audited financial statements but it does not include all disclosures required by U.S. GAAP for a full set of
financial statements. This Form 10-Q should be read in conjunction with the Companys financial statements and notes included in the Annual Report on Form 10-K filed on March 12, 2019, as referenced above. We are only highlighting in this
Form 10-Q the material changes from our disclosures in our Annual Report.
Inventory
Inventories are recorded at the lower of cost or net realizable value and include all costs of seed production and grain we purchase as well as
costs to transport and process the grain into finished products. Consideration we receive from our growers to purchase seed is reduction in the cost of inventory.
We evaluate inventory balances for obsolescence quarterly using projected selling prices for our products, market prices for the underlying
agricultural markets, the age of products, and other factors considering our limited operating history.
Effective January 1, 2019,
we designated all seed and grain production agreements as normal purchases and as a result no longer consider these agreements to be accounting derivatives. As a result, we no longer reflect these agreements at fair value. As of that date, any
mark-to-market gains or losses were frozen on our balance sheet and will be reflected in inventory upon delivery as part of the cost of the associated grain.
Prior to the commercialization of our High Oleic Soybean Products in late February 2019, we expensed all costs associated with the production
of seed and acquisition of grain, net of proceeds from seed sales, as research and development (R&D) expense.
Revenue Recognition
We recognize sales revenue at the point in time control transfers to the customer, which is based on shipping terms. Sales include shipping and
handling charges if billed to the customer and are reported net of trade promotion and other costs, including estimated allowances for returns, unsalable product, and prompt pay discounts. Sales, use, value-added and other excise taxes are not
recognized in revenue. Trade promotions are recorded based on estimated
- 9 -
participation and performance levels for offered programs at the time of sale. We generally do not allow a right of return. However, on a limited case-by-case basis with prior approval, we may
allow customers to return product.
We also recognize revenue from R&D agreements and license agreements. Revenues from R&D
agreements may consist of nonrefundable up-front payments, milestone payments, royalties, and services. In addition, we may license our technology to third parties, which may or may not be part of an R&D agreement.
Nonrefundable up-front payments are deferred and recognized as revenue over the term of the R&D agreement. If an R&D agreement is
terminated before the original term of the agreement is fulfilled, all remaining deferred revenue is recognized at termination.
Milestone
payments represent amounts received from our R&D partners, the receipt of which is dependent upon the achievement of certain scientific, regulatory, or commercial milestones. We recognize milestone payments when the triggering event has
occurred, there are no further contingencies or services to be provided with respect to that event, and the counterparty has no right to refund of the payment.
Stock-Based Compensation
We
measure employee stock-based awards at grant-date fair value and record compensation expense over the vesting period of the award. Grants to nonemployees were previously remeasured each reporting period. Following the adoption of the new accounting
pronouncement as discussed below, as of January 1, 2019, we no longer remeasure these awards as the fair value is determined on the grant date
Recently Adopted Accounting Pronouncements
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 financial statements.
In the first quarter
of 2019, we adopted new accounting requirements for share-based payment transactions for acquiring goods and services from nonemployees. The adoption did not have an impact on our financial statements as each of the share-based payment awards
granted to nonemployees had a measurement date upon grant, and thus no cumulative adjustment to retained earnings was required.
2.
FINANCIAL INSTRUMENTS, FAIR VALUE, AND CONCENTRATIONS OF CREDIT RISK
The carrying values of cash and cash
equivalents, restricted cash, due from related parties, accounts payable, due to related parties, and all other current liabilities approximate fair value. The fair value of our financing lease obligations, including the current portion, are $15.6
million as of March 31, 2019, and $15.8 million as of December 31, 2018. The carrying amounts of our financing lease obligations, including the current portion, were $18.4 million as of March 31, 2019, and $18.5 million as of
December 31, 2018. The fair value of our financing lease obligations was determined using discounted cash flow analysis based on market rates for similar types of borrowings. Financing lease obligations are a Level 2 liability in the fair value
hierarchy.
- 10 -
Fair Value Measurements and Financial Statement Presentation
As a result of the designation made on January 1, 2019, as described in Note 1 to these financial statements, our forward purchase
contracts are no longer carried at fair value.
The fair values of our assets, liabilities, and derivative positions recorded at fair
value and their respective levels in the fair value hierarchy as of December 31, 2018, were as follows:
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December 31, 2018
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December 31, 2018
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Fair Values of Assets
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Fair Values of Liabilities
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In Thousands
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|
Level 1
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Level 2
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|
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Level 3
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Total
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Level 1
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Level 2
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Level 3
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Total
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Other items reported at fair value:
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Forward Purchase Contracts (a)
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$
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-
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$
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1
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|
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$
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-
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|
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$
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1
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|
|
$
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-
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|
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$
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248
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|
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$
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-
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|
|
$
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248
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Total
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$
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-
|
|
|
$
|
1
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|
|
$
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-
|
|
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$
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1
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|
|
$
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-
|
|
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$
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248
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|
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$
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-
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|
|
$
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248
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|
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(a)
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The fair value for forward purchase contracts is estimated based on commodity futures market prices.
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Commodity Price Risk
We enter into purchase agreements for grain with settlement values based on commodity futures market prices. These agreements allow our
counterparty to fix their sale prices to us at various times as defined in the contract. We do not currently hedge these floating or fixed rate exposures.
Foreign Exchange Risk
Foreign
currency fluctuations affect our foreign currency cash flows related to payments to our Cellectis and third-party purchases. Our principal foreign currency exposure is to the euro. We do not currently 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 short-term highly liquid investments and hold deposits at financial institutions
that may exceed insured limits. We evaluate the credit worthiness of these institutions in determining the risk associated with these deposits. We have not experienced any losses on these deposits.
3. RELATED-PARTY TRANSACTIONS
We have several agreements that govern our relationship with Cellectis. Pursuant to our management services agreement with Cellectis, we also
pay management fees for services they provide, primarily information technology, legal, human resources, finance and accounting, and communications services. We perform Cellectis U.S. operations payroll services. We incurred management fee
expenses of $0.4 million for the three months ended March 31, 2019, and $0.6 million for the three months ended March 31, 2018.
- 11 -
Cellectis also has guaranteed our headquarters lease agreement. Cellectis guarantee of our
obligations under the sale-leaseback transaction will terminate at the end of the second consecutive calendar year in which our tangible net worth exceeds $300 million. We also license key technology from Cellectis and owe them royalties on any
revenue we generate from sales of product as well as a percentage of any sublicense revenues we generate. Any amounts borrowed from Cellectis bear floating-rate interest at a rate of 12-month Euribor plus five percent per annum.
TALEN technology was invented by researchers at the University of Minnesota and Iowa State University and exclusively licensed to Cellectis. We
obtained from Cellectis an exclusive license for the TALEN technology for commercial use in plants. TALEN technology is the primary gene-editing technology used by us today. We incurred nominal license fees under these agreements in the three-month
periods ended March 31, 2019 and 2018.
4. NET LOSS PER SHARE
Basic and diluted loss per share were calculated using the following:
All outstanding stock options and restricted stock units are excluded from the calculation since they are anti-dilutive.
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Three months ended March 31,
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In Thousands, Except Share Data and Per Share Amounts
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2019
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2018
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Net loss
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$
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(7,375)
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$
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(4,370)
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Average number of common sharesbasic and diluted EPS
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|
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32,677,944
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|
|
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27,851,162
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|
|
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Loss per sharebasic and diluted
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|
$
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(0.23)
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|
|
$
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(0.16)
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|
|
|
|
|
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|
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2019
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|
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2018
|
|
|
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Anti-dilutive stock options and restricted stock units
|
|
|
4,385,595
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|
|
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4,917,164
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|
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|
We have not used the treasury method in determining the number of anti-dilutive stock options and restricted
stock units in the table above.
- 12 -
5.
STOCK-BASED COMPENSATION
We use broad-based stock plans to attract and retain highly qualified officers and employees and to help ensure that managements
interests are aligned with those of our shareholders. We have also granted equity-based awards to nonemployees and certain employees of Cellectis.
In December 2014, we adopted the Calyxt, Inc. Equity Incentive Plan (the 2014 Plan), which allows for the grant of stock options, and in June
2017, we adopted the 2017 Omnibus Plan (the 2017 Plan).
As of March 31, 2019, 896,478 shares were registered and available for grant
under effective registration statements, while, 4,159,660 shares were available for grant in the form of stock options, restricted stock, and restricted stock units under the 2017 Plan. Stock-based awards currently outstanding also include some
granted under the 2014 Plan, under which no further awards will 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:
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Three months ended March 31,
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2019
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2018
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|
|
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Estimated fair values of stock options granted
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$
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9.45
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$
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10.39
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Assumptions:
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Risk-free interest rate
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2.5%
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2.5% - 2.7%
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Expected volatility
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78.9%
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|
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40.9% - 53.7%
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Expected term (in years)
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|
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6.9 years
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6.5 9.2 years
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We estimate the fair value of each option on the grant date or other measurement date if applicable using a
Black-Scholes option-pricing model, which requires us to make predictive assumptions regarding future stock price volatility, employee exercise behavior and dividend yield. The risk-free interest rate for periods during the expected term of the
options is based on the U.S. Treasury zero-coupon yield curve in effect at the time of grant. We estimate our future stock price volatility using the historical volatility of comparable public companies over the expected term of the option. Our
expected term represents the period of time that options granted are expected to be outstanding determined using the simplified method. We have not nor do we expect to pay dividends for the foreseeable future.
Option strike prices are set at 100 percent or more of the closing share price on the date of grant, and generally vest over six years
following the grant date. Options generally expire 10 years after the date of grant.
Information on stock option activity follows:
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Options
Exercisable
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Weighted-
Average
Exercise
Price Per
Share
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Options
Outstanding
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Weighted-
Average
Exercise
Price Per
Share
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|
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Balance as of December 31, 2018
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1,278,038
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$
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7.45
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|
|
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3,201,887
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$ 10.67
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Granted
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180,000
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|
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13.01
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Exercised
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(34,402
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)
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3.63
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Forfeited or expired
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(2,205
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)
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13.29
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Balance as of March 31, 2019
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|
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1,340,631
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|
|
$
|
7.59
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|
|
|
3,345,280
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|
|
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$ 10.87
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Stock-based compensation expense related to stock option awards was $0.8 million for the three months
ended March 31, 2019, and $0.1 million for the three months ended March 31, 2018. The aggregate intrinsic value of options outstanding and exercisable at March 31, 2019, was $23.3 million and the weighted average remaining
contractual term was 8.0 years as of that date.
- 13 -
Net cash proceeds from the exercise of stock options less shares used for minimum withholding
taxes and the intrinsic value of options exercised were as follows:
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Three months ended March 31,
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In Thousands
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2019
|
|
|
2018
|
|
|
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Net cash proceeds
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$
|
125
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|
|
$
|
714
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|
|
|
Intrinsic value of options exercised
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|
$
|
353
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|
|
$
|
3,260
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|
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Restricted Stock Units
Units settled in stock subject to a restricted period may be granted to key employees under the 2017 Plan. Restricted stock units generally
vest and become unrestricted over five years after the date of grant.
Information on restricted stock unit activity follows:
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|
|
|
|
|
|
|
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Number of
Restricted Stock
Units Outstanding
|
|
|
Weighted-Average
Grant Date Fair
Value
|
|
|
|
Unvested balance at December 31, 2018
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|
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1,051,414
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|
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$
|
10.15
|
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Vested
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|
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(8,894
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)
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|
|
14.91
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Unvested balance at March 31, 2019
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1,042,520
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|
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$
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9.64
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The total grant-date fair value of restricted stock unit awards that vested was $0.1 million for three
months ended March 31, 2019, and zero for three months ended March 31, 2018.
As of March 31, 2019, unrecognized
compensation expense related to non-vested stock options and restricted stock units was $10.2 million. This expense will be recognized over 51 months on average for stock options and over 45 months on average for restricted stock units,
assuming no change in the remeasurement value of grants made to non-employees in this calculation.
We treat stock-based compensation
awards granted to employees of Cellectis as deemed dividends. We recorded deemed dividends of $0.4 million for the three months ended March 31, 2019, and $0.7 million for the three months ended March 31, 2018.
Cellectis Equity Incentive Plan
Prior to 2018 Cellectis granted stock options to our employees. Compensation costs related to these grants have been recognized in the
statements of operations with a corresponding credit to stockholders equity, representing Cellectis capital contribution to us. The fair value of each stock option was estimated at the grant date using the Black-Scholes option pricing
model.
We recognized stock-based compensation expense related to Cellectis grants of $0.1 million for the three months ended
March 31, 2018. Expenses in 2019 were immaterial.
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 financial statements.
As of March 31, 2019, there were no material changes to what we disclosed regarding
tax uncertainties or penalties as of December 31, 2018.
- 14 -
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. The lease term is twenty years and we hold four five-year options to extend the lease.
Rent expense from all operating leases was $49 thousand for three months ended 2019, and $81 thousand for three months ended 2018.
Sale-Leaseback of Equipment
In
December 2018 we consummated a sale-leaseback transaction with a third party to finance equipment. The lease has a term of four years and we may add up to $1.1 million of future equipment purchases to the financing agreement. We were required to
deposit cash into a restricted account in an amount equal to the future rent payments required by the lease. At March 31, 2019, this restricted cash totaled $1.5 million.
Other Commitments
As of
March 31, 2019, we have committed to purchase grain from farmers at dates throughout 2019 and 2020 aggregating $19.7 million using commodity futures market prices, other payments to growers and estimated yields per acre. This amount is not
recorded in the financial statements because we have not taken delivery of the grain as of that date.
8. EMPLOYEE BENEFIT PLAN
We provide a 401(k) defined contribution plan for all regular full-time employees who have completed three months of service. We match
employee contributions up to certain amounts and those matching contributions vest immediately. Our expense was $56 thousand for the three months ended March 31, 2019, and $49 thousand for the three months ended March 31, 2018.
9. SUPPLEMENTAL INFORMATION
Certain statements of
operations amounts are as follows:
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|
|
|
|
|
|
|
|
|
Three months ended March 31,
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In Thousands
|
|
2019
|
|
|
2018
|
|
|
|
Stock compensation expense:
|
|
|
|
|
|
|
|
|
Research and development
|
|
$
|
240
|
|
|
$
|
(437)
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|
Selling, general and administrative
|
|
|
1,316
|
|
|
|
369
|
|
|
|
Total
|
|
$
|
1,556
|
|
|
$
|
(68)
|
|
|
|
|
|
|
|
Three months ended March 31,
|
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In Thousands
|
|
2019
|
|
|
2018
|
|
|
|
Interest expense
|
|
$
|
(370)
|
|
|
$
|
(235)
|
|
Interest income
|
|
|
542
|
|
|
|
167
|
|
|
|
Interest, net
|
|
$
|
172
|
|
|
$
|
(68)
|
|
|
|
- 15 -
Certain statements of cash flows amounts are as follows:
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|
|
|
|
|
|
|
|
|
|
As of March 31,
|
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In Thousands
|
|
2019
|
|
|
2018
|
|
|
|
Cash, cash equivalents and restricted cash:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
84,231
|
|
|
$
|
50,703
|
|
Restricted cash, current
|
|
|
381
|
|
|
|
-
|
|
Non-current restricted cash
|
|
|
1,120
|
|
|
|
-
|
|
|
|
Total
|
|
$
|
85,732
|
|
|
$
|
50,703
|
|
|
|
|
|
|
|
As of March 31,
|
|
|
|
|
In Thousands
|
|
2019
|
|
|
2018
|
|
|
|
Non-cash additions to land, buildings and equipment
|
|
$
|
-
|
|
|
$
|
4,529
|
|
Deferred cost in accounts payable and accrued liabilities
|
|
|
-
|
|
|
$
|
417
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
4,946
|
|
|
|
10. Segment Information
We operate in a single reportable segment, food ingredients. Our current commercial focus is North America. Our major product categories are
High Oleic Soybean Oil and High Oleic Soybean Meal.
- 16 -