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Table of Contents

 

 

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, 2021;

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                     to

Commission file number 001-38161

 

 

Calyxt, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

27-1967997

(State or other jurisdiction of

 

(I.R.S. Employer

incorporation or organization)

 

Identification No.)

 

 

 

2800 Mount Ridge Road

 

 

Roseville, MN

 

55113-1127

(Address of principal executive offices)

 

(Zip Code)

 

(651) 683-2807

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered 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, 2021, there were 37,200,473 shares of common stock, $0.0001 par value per share, outstanding.

 

 


Table of Contents

 

 

 

 

 

 


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 biotechnology company employing its core proprietary technologies to develop best-in-class products in the field of immuno-oncology.

We own the names and trademarks 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 names and trademarks “Cellectis®” and “TALEN®”, and other trademarks, trade names, and service marks of Cellectis appearing in the Company’s Annual Report on Form 10-K are the property of Cellectis. This Quarterly Report on Form 10-Q 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 U.S. 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,” “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; our future financial performance; product pipeline and development; our business model and principal strategy for commercialization and sales of commercial products; regulatory progression; potential collaborations, partnerships and licensing arrangements and their contribution to our financial results, cash usage, and growth 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 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 heading “Risk Factors” in our filings with the Securities and Exchange Commission (SEC), included in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2020, which was filed with the SEC on March 4, 2021 (our Annual Report) and our subsequent reports on Forms 10-Q and 8-K filed with the SEC.

 

Any forward-looking statements made by us in this Quarterly Report on Form 10-Q are based only on information currently available to us and speaks only as of the date of this report. Except as otherwise required by securities and other applicable laws, we do not assume any obligation to publicly provide revisions or updates to any forward-looking statements, whether as a result of new information, future developments or otherwise, should circumstances change, except as otherwise required by law.

 

- 2 -


Table of Contents

 

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.

- 3 -


Table of Contents

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CALYXT, INC.

CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Par Value and Share Amounts)

 

 

March 31, 2021

(unaudited)

 

 

December 31,

2020

 

Assets

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

16,386

 

 

$

17,299

 

Short-term investments

 

3,045

 

 

 

11,698

 

Restricted cash

 

393

 

 

 

393

 

Accounts receivable

 

1,354

 

 

 

4,887

 

Inventory

 

4,532

 

 

 

1,383

 

Prepaid expenses and other current assets

 

3,347

 

 

 

3,930

 

Total current assets

 

29,057

 

 

 

39,590

 

Non-current restricted cash

 

597

 

 

 

597

 

Land, buildings, and equipment

 

22,549

 

 

 

22,860

 

Other non-current assets

 

225

 

 

 

280

 

Total assets

$

52,428

 

 

$

63,327

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

$

959

 

 

$

929

 

Accrued expenses

 

3,058

 

 

 

2,891

 

Accrued compensation

 

1,764

 

 

 

1,950

 

Due to related parties

 

114

 

 

 

766

 

Current portion of financing lease obligations

 

372

 

 

 

364

 

Other current liabilities

 

45

 

 

 

45

 

Total current liabilities

 

6,312

 

 

 

6,945

 

Financing lease obligations

 

17,780

 

 

 

17,876

 

Long-term debt

 

1,518

 

 

 

1,518

 

Other non-current liabilities

 

1,213

 

 

 

113

 

Total liabilities

 

26,823

 

 

 

26,452

 

Stockholders’ equity:

 

 

 

 

 

 

 

Common stock, $0.0001 par value; 275,000,000 shares authorized; 37,263,339 shares issued and 37,163,187 shares outstanding as of March 31, 2021, and 37,165,196 shares issued and 37,065,044 shares outstanding as of December 31, 2020

 

4

 

 

 

4

 

Additional paid-in capital

 

203,565

 

 

 

204,807

 

Common stock in treasury, at cost; 100,152 shares as of March 31, 2021, and December 31, 2020

 

(1,043

)

 

 

(1,043

)

Accumulated deficit

 

(176,921

)

 

 

(166,893

)

Total stockholders’ equity

 

25,605

 

 

 

36,875

 

Total liabilities and stockholders’ equity

$

52,428

 

 

$

63,327

 

 

See accompanying notes to these consolidated financial statements.

- 4 -


Table of Contents

CALYXT, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Revenue

$

4,402

 

 

$

2,377

 

Cost of goods sold

 

6,745

 

 

 

3,884

 

Gross margin

 

(2,343

)

 

 

(1,507

)

Operating expenses:

 

 

 

 

 

 

 

Research and development

 

3,050

 

 

 

2,787

 

Selling, general, and administrative

 

4,258

 

 

 

6,298

 

Management fees and royalties

 

30

 

 

 

62

 

Total operating expenses

 

7,338

 

 

 

9,147

 

Loss from operations

 

(9,681

)

 

 

(10,654

)

Interest, net

 

(346

)

 

 

(398

)

Non-operating expenses

 

(1

)

 

 

(11

)

Loss before income taxes

 

(10,028

)

 

 

(11,063

)

Income taxes

 

 

 

 

 

Net loss

$

(10,028

)

 

$

(11,063

)

Basic and diluted net loss per share

$

(0.27

)

 

$

(0.34

)

Weighted average shares outstanding - basic and diluted

 

37,136,338

 

 

 

32,988,141

 

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

 

5,013,780

 

 

 

5,328,268

 

 

See accompanying notes to these consolidated financial statements.

- 5 -


Table of Contents

CALYXT, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited and in Thousands Except Shares Outstanding)

 

Three months ended

March 31, 2021

 

Shares

Outstanding

 

 

Common

Stock

 

 

Additional

Paid-In

Capital

 

 

Shares

in

Treasury

 

 

Accumulated

Deficit

 

 

Accumulated

Other

Comprehensive

Income

 

 

Total

Stockholders’

Equity

 

Balance at December 31, 2020

 

 

37,065,044

 

 

$

4

 

 

$

204,807

 

 

$

(1,043

)

 

$

(166,893

)

 

$

 

 

$

36,875

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(10,028

)

 

 

 

 

 

(10,028

)

Stock-based compensation

 

 

 

 

 

 

 

 

(1,450

)

 

 

 

 

 

 

 

 

 

 

 

(1,450

)

Issuance of common stock

 

 

98,143

 

 

 

 

 

 

208

 

 

 

 

 

 

 

 

 

 

 

 

208

 

Shares withheld for net share settlement

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2021

 

 

37,163,187

 

 

$

4

 

 

$

203,565

 

 

$

(1,043

)

 

$

(176,921

)

 

$

-

 

 

$

25,605

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

 

 

 

 

 

 

1,271

 

 

 

 

 

 

 

 

 

 

 

 

1,271

 

Issuance of common stock

 

 

57,110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

See accompanying notes to these consolidated financial statements.

- 6 -


Table of Contents

CALYXT, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited and in Thousands)

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Operating activities

 

 

 

 

 

 

 

Net loss

$

(10,028

)

 

$

(11,063

)

Adjustments to reconcile net loss to net cash used by operating activities:

 

 

 

 

 

 

 

Depreciation and amortization

 

585

 

 

 

452

 

Stock-based compensation

 

(1,450

)

 

 

1,271

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

3,533

 

 

 

281

 

Due to/from related parties

 

(652

)

 

 

(430

)

Inventory

 

(3,149

)

 

 

(604

)

Prepaid expenses and other current assets

 

583

 

 

 

(786

)

Accounts payable

 

30

 

 

 

8

 

Accrued expenses

 

167

 

 

 

(451

)

Accrued compensation

 

(186

)

 

 

(818

)

Other non-current liabilities

 

1,100

 

 

 

(9

)

Other

 

50

 

 

 

(89

)

Net cash used by operating activities

 

(9,417

)

 

 

(12,238

)

Investing activities

 

 

 

 

 

 

 

Sales and (purchases) of short-term investments, net

 

8,653

 

 

 

(38,620

)

Purchases of land, buildings, and equipment

 

(269

)

 

 

(317

)

Net cash provided by (used by) investing activities

 

8,384

 

 

 

(38,937

)

Financing activities

 

 

 

 

 

 

 

Repayments of financing lease obligations

 

(88

)

 

 

(45

)

Proceeds from the exercise of stock options

 

208

 

 

 

 

Net cash provided by (used by) financing activities

 

120

 

 

 

(45

)

Net decrease in cash, cash equivalents, and restricted cash

 

(913

)

 

 

(51,220

)

Cash, cash equivalents, and restricted cash - beginning of period

 

18,289

 

 

 

60,038

 

Cash, cash equivalents, and restricted cash – end of period

$

17,376

 

 

$

8,818

 

 

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, 2020, filed with the SEC on March 4, 2021. The accompanying Balance Sheet as of December 31, 2020, 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, 2020.

 

Net Loss Per Share

All anti-dilutive stock options, restricted stock units, and performance stock units are excluded from the calculation of net loss per share. Due to our net loss position for the three months ended March 31, 2021 and March 31, 2020, all of our outstanding stock options, restricted stock units, and performance stock units are considered anti-dilutive and excluded from the calculation of net loss per share. Accordingly, the treasury method was not used in determining the number of anti-dilutive stock options and restricted stock units.

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

Financial Instruments Measured at Fair Value and Financial Statement Presentation

Financial instruments including cash and cash equivalents, restricted cash, accounts payable, and all other current liabilities have carrying values that approximate fair value. We measure short-term investments and commodity derivative contracts at fair value on a recurring 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.

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 financial instruments measured at fair value and their respective levels in the fair value hierarchy as of March 31, 2021, and December 31, 2020, were as follows:

 

 

March 31, 2021

 

March 31, 2021

 

 

Fair Values of Assets

 

Fair Values of Liabilities

 

In Thousands

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Other items reported at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

$

3,045

 

 

$

 

 

$

 

 

$

3,045

 

$

 

 

$

 

 

$

 

 

$

 

Commodity derivative contracts

 

266

 

 

 

 

 

 

 

 

 

266

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

3,311

 

 

$

 

 

$

 

 

$

3,311

 

$

 

 

$

 

 

$

 

 

$

 

 

 

December 31, 2020

 

December 31, 2020

 

 

Fair Values of Assets

 

Fair Values of Liabilities

 

In Thousands

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Other items reported at fair value:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Short-term investments

$

11,698

 

 

$

 

 

$

 

 

$

11,698

 

$

 

 

$

 

 

$

 

 

$

 

Commodity derivative contracts

 

467

 

 

 

 

 

 

 

 

 

467

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

12,165

 

 

$

 

 

$

 

 

$

12,165

 

$

 

 

$

 

 

$

 

 

$

 

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 $15.1 million as of March 31, 2021, and a fair value of $15.2 million as of December 31, 2020.

The composition of our short-term investments as of March 31, 2021, and December 31, 2020 were as follows:

 

 

As of March 31,

 

 

As of December 31,

 

In Thousands

2021

 

 

2020

 

Corporate debt securities

$

3,045

 

 

$

11,698

 

 

Commodity Price Risk

We enter into seed and grain production agreements with settlement values based on commodity futures market prices (Forward Purchase Contracts). 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 intend to sell these inventories at then-current market prices. As a result, when the Forward Purchase Contract counterparty fixes their grain prices, we enter hedging arrangements by selling futures contracts which converts our exposure to these fixed prices to floating 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. As of March 31, 2021, we have $3.0 million of unrealized commodity derivative losses from hedging contracts sold to convert our fixed price grain inventories and fixed price Forward Purchase Contracts to floating prices. As of March 31, 2021, we held commodity contracts with a notional amount of $10.4 million.

We previously designated all our commodity derivative contracts as cash flow 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 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. For the three months ended March 31, 2020, we reclassified an immaterial amount from AOCI to cost of goods sold, and there were no such reclassifications in the same period in 2021.

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.

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Concentrations of Credit Risk

We invest our cash, cash equivalents, and restricted cash in highly liquid securities and investment funds. We diversify this risk by allocating 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 nominal management fee expenses for the three months ended March 31, 2021 and March 31, 2020.   

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 nominal license and royalty fees for the three months ended March 31, 2021 and March 31, 2020.  

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 incurred nominal expenses pursuant to these agreements for the three months ended March 31, 2021 and March 31, 2020.

4. 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, restricted stock units, performance stock units and other types of equity awards.

On February 19, 2021, James Blome ceased serving as our Chief Executive Officer. We recorded a benefit to earnings from a $2.5 million recapture of non-cash stock compensation expense from the forfeiture of certain of Mr. Blome’s unvested stock options, restricted stock units, and performance stock units.

As of March 31, 2021, 1,902,128 shares were registered and available for grant under effective registration statements, while 6,202,032 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 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:

 

 

Three Months Ended March 31,

 

 

2021

 

 

2020

 

Estimated fair values of stock options granted

$

5.85

 

 

$

5.19

 

Assumptions:

 

 

 

 

 

 

 

Risk-free interest rate

 

0.6

%

 

 

1.7

%

Expected volatility

 

85.0

%

 

 

77.4

%

Expected term (in years)

5.7 - 6.2

 

 

 

6.9

 

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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 employee exercise behavior, future stock price volatility, and dividend yield. Our expected term represents the period that options granted are expected to be outstanding determined using the simplified method. We estimate our future stock price volatility using the historical volatility of comparable public companies over the expected term of the option. We estimate the risk-free interest rate based on the United States Treasury zero-coupon yield curve at the date of grant for the expected term of the option. We do not nor do we expect to pay dividends.

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

 

Balance as of December 31, 2020

 

2,347,663

 

 

$

10.15

 

 

 

4,621,173

 

 

$

10.30

 

Granted

 

 

 

 

 

 

 

 

 

270,800

 

 

 

8.07

 

Exercised

 

 

 

 

 

 

 

 

 

(56,372

)

 

 

3.71

 

Forfeited or expired

 

 

 

 

 

 

 

 

 

(456,450

)

 

 

10.03

 

Balance as of March 31, 2021

 

2,369,997

 

 

$

10.38

 

 

 

4,379,151

 

 

$

10.27

 

 

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

 

 

Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Stock-based compensation expense

$

(396

)

 

$

1,006

 

 

As of March 31, 2021, options outstanding and exercisable had an aggregate intrinsic value of $2.2 million and the weighted average remaining contractual term was 6.0 years.

 

Net cash proceeds from the exercise of stock options less shares used for minimum withholding taxes and the intrinsic value of options exercised were as follows:

 

 

Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Net cash proceeds

$

208

 

 

$

 

Intrinsic value of options exercised

$

331

 

 

$

 

 

As of March 31, 2021, unrecognized compensation expense related to non-vested stock options was $6.9 million. This expense will be recognized over 30 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 three to 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

 

Unvested balance at December 31, 2020

 

547,807

 

 

$

9.49

 

Granted

 

68,000

 

 

 

8.05

 

Vested

 

(27,386

)

 

 

9.18

 

Forfeited

 

(126,178

)

 

 

12.89

 

Unvested balance at March 31, 2021

 

462,243

 

 

$

8.37

 

 

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

 

 

Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Grant-date fair value

$

251

 

 

$

510

 

 

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

 

 

Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Stock-based compensation expense

$

(749

)

 

$

155

 

 

As of March 31, 2021, unrecognized compensation expense related to restricted stock units was $1.7 million. This expense will be recognized over 27 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,

 

In Thousands

2021

 

 

2020

 

Deemed dividends from grants to Cellectis employees

$

79

 

 

$

224

 

 

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. During the three months ended March 31, 2021, we recognized a benefit from the forfeiture of 166,667 performance stock units held by Mr. Blome, our former chief executive officer.

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

 

 

Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Stock-based compensation expense

$

(305

)

 

$

110

 

 

As of March 31, 2021, unrecognized compensation expense related to performance stock units was $0.7 million. This expense will be recognized over 39 months on average.

5. 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.

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As of March 31, 2021, there were no material changes to what we disclosed regarding tax uncertainties or penalties as of December 31, 2020.

6. 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, 2021, restricted cash totaled $1.0 million. We have the option to request the return of excess collateral annually in 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,

 

In Thousands

2021

 

 

2020

 

Rent expense from operating leases

$

13

 

 

$

24

 

 

Other Commitments

As of March 31, 2021, we have noncancelable commitments to purchase grain and seed from growers at dates throughout 2021 aggregating $11.7 million based on current commodity futures market prices, other payments to growers, and estimated yields per acre. This commitment is not recorded in the consolidated financial statements because we have not taken delivery of the seed or grain as of March 31, 2021.

 

7. SUPPLEMENTAL INFORMATION

Certain balance sheet amounts are as follows:

 

 

As of March 31,

 

 

As of December 31,

 

In Thousands

2021

 

 

2020

 

Accounts Receivable:

 

 

 

 

 

 

 

Accounts receivable

$

1,107

 

 

$

4,317

 

Receivables from growers

 

247

 

 

 

570

 

Allowance for doubtful accounts

 

 

 

 

 

Total

$

1,354

 

 

$

4,887

 

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 March 31, 2021 and December 31, 2020 all of the receivables from growers were on extended payment terms.

Certain statements of operations amounts are as follows:

 

 

Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Stock compensation expense:

 

 

 

 

 

 

 

Research and development

$

392

 

 

$

319

 

Selling, general, and administrative

 

(1,842

)

 

 

952

 

Total

$

(1,450

)

 

$

1,271

 

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Three Months Ended March 31,

 

In Thousands

2021

 

 

2020

 

Interest, net:

 

 

 

 

 

 

 

Interest expense

$

(360

)

 

$

(372

)

Interest income

 

14

 

 

 

(26

)

Total

$

(346

)

 

$

(398

)

 

Certain statements of cash flows amounts are as follows:

 

 

As of March 31,

 

In Thousands

2021

 

 

2020

 

Cash, cash equivalents, restricted cash, and short-term investments:

 

 

 

 

 

 

 

Cash and cash equivalents

$

16,386

 

 

$

7,385

 

Restricted cash

 

393

 

 

 

388

 

Non-current restricted cash

 

597

 

 

 

1,045

 

Total cash, cash equivalents, and restricted cash

 

17,376

 

 

 

8,818

 

Short-term investments

 

3,045

 

 

 

38,620

 

Total

$

20,421

 

 

$

47,438

 

 

8. 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 seed, grain, oil, and meal. In the three months ended March 31, 2021 we only sold grain. In the three months ended March 31, 2020, we only sold oil and meal.

9. LONG-TERM DEBT  

Our long-term debt is comprised of a $1.5 million promissory note pursuant to the Paycheck Protection Program (the Paycheck Protection Program loan) established by the Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) implemented by the U.S. Small Business Administration (SBA). We received the funds under the Paycheck Protection Program loan on April 19, 2020. The Paycheck Protection Program loan matures in April 2022 and bears interest at a per annum rate of one percent. The Paycheck Protection Program loan may be prepaid at any time prior to maturity with no prepayment penalties. The Paycheck Protection Program loan contains customary events of default relating to, among other things, payment defaults and breaches of representations and warranties. Subject to certain conditions, the Paycheck Protection Program loan and accrued interest may be forgiven in whole or in part by applying for forgiveness pursuant to the CARES Act and the Paycheck Protection Program. In order to be eligible for forgiveness, the proceeds of the Paycheck Protection Program loan must be applied to certain eligible expenses, including payroll costs, interest on certain mortgage obligations, rent payments on certain leases, and certain qualified utility payments, with not more than 40 percent of the amount applied to non-payroll costs.

 

We have applied the proceeds from the Paycheck Protection Program loan toward qualifying expenses. On October 21, 2020, as modified December 29, 2020, we applied for forgiveness of the full principal amount and all accrued interest, and on April 8, 2021, we were notified by the SBA that the full amount of our Paycheck Protection Program loan had been forgiven. We expect to record income in the second quarter of 2021 for the full amount of the loan and the associated accrued interest.

 

 

 

 

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Item 2. 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 and with our 2020 Form 10-K, including the Consolidated Financial Statements and Notes incorporated therein.

 

EXECUTIVE OVERVIEW

 

We are a technology company focused on delivering plant-based innovations and solutions with substantial disruption potential across multiple industries. We are a leader in gene editing with exclusive access to proprietary TALEN® technology for use in plants, which we used to successfully commercialize the first gene edited food product in the United States. We have a robust development pipeline that spans multiple crops and that is focused on several important trends, including functional nutrition, regenerative agriculture, sustainability, plant-based protein, animal nutrition, and industrial uses.

 

Our capital-efficient business model comprises three differentiated go-to-market strategies, as follows:

 

Trait Development and Licensing Arrangements: Through development and licensing agreements with downstream partners with respect to traits we develop in exchange for negotiated upfront, milestone, or annual payments and potential royalties upon the licensees’ commercial sale of products.

 

Seed Sale Arrangements: Through agreements for traited seed we have produced.

 

Technology Licensing Arrangements: Through technology licensing agreements with third parties in exchange for negotiated upfront and annual payments, and potential royalties upon the licensees’ commercial sale of products.

 

While we will opportunistically engage in arrangements under each of these strategies, we have determined to pursue trait development and licensing arrangements with respect to all of the products currently under development.

 

For technology and trait 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. We will seek to develop relationships with strategic customers where our product candidates are most likely to benefit from the counterparty’s deep agronomy, product management, and commercialization expertise. Placing our products and traits with such strategic customers will reduce our expenses and downstream risk exposure, while allowing us to pursue diversified growth across multiple revenue streams.

 

We believe that our primary focus on trait development and licensing provides a capital-efficient, lower-cost, and highly scalable approach. Our strategy is based on focusing on our core strengths in research and development, including gene editing, plant breeding, and trait development. We will continue to focus on advancing our 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 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.

 

We are currently exploring product and partnership opportunities in various crops for potential applications across a variety of industries, including food, nutraceuticals, energy, and agriculture. Focusing primarily on our trait development and licensing 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 the date of this report, we have eight projects in later stage development, including two in Phase 3.

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A summary of our product development as of March 31, 2021 is as follows:

PRODUCT1

DEVELOPMENT PHASE

CROP

TARGET COMMERCIAL PLANTING YEAR

Improved Digestibility

Phase 3

Alfalfa

2021

High Fiber

Phase 3

Wheat

2023

High Oleic, Low Linolenic (HOLL)

Phase 2

Soybean

2023

Marketable Yield

Phase 1

Hemp

2023

Low THC for Food, Fiber, & Nutraceutical

Phase 1

Hemp

2024

Winter (Cold Tolerant)

Phase 1

Oat

2026

High Saturated Fat

Phase 1

Soybean

2026

Enhanced Protein Flavor

Phase 1

Soybean

2027

1 The 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 Part I, Item 1A, “Risk Factors” of our 2020 Form 10-K.

During the quarter we stopped development of our improved oil HOLL product, which was being developed with a target of higher HOLL oil content that was intended to reduce costs per pound of oil under our prior go-to-market strategy. During the quarter, we also determined to pursue trait development and licensing arrangements as our baseline go-to-market strategy. While we will opportunistically engage in seed sale arrangements, our intention is to license all products under development as traits. We intend to move our current high oleic soybean product to this go-to-market strategy in 2022 and we are currently in discussions with potential licensors. This transition further reduces our capital requirements for these products and is expected to deliver high margin royalty revenue streams when those traits are commercialized by the licensors in future years.

 

Select Recent Achievements and Developments:

 

Completed preliminary composition analysis of our next generation soybean product’s fatty acid profile. We intend to partner with third parties to bring this product to market as an alternative to other premium oilseeds.

 

Achieved the successful completion of transformation of the hemp genome. The ability to transform hemp will enable further advancements, including trait delivery, gene editing, and advanced plant breeding, and is expected to accelerate hemp variety development.

 

Executed new seed sale agreement with an affiliate of a current grain customer, a continuation of the relationship established through their purchases of grain.  

 

Sold more than 50 percent of the 2020 grain crop to Archers Daniels Midland (ADM), with the remaining grain projected to be sold throughout 2021 under existing contracts.

 

Promoted Sarah Reiter to Chief Business Officer, effective May 1, 2021. In this role Ms. Reiter will be responsible for all our commercial activities including finding partners for the development and commercialization of our traits and products, and she will also be responsible for communications activities, including corporate communications, public relations, and product marketing.

 

Appointed world-renowned plant-biochemistry experts to new Scientific Advisory Board chaired by our Co-Founder Dan Voytas, Ph.D. Appointees include including Anne Osbourn, Ph.D., Group Leader at the John Innes Center; Elizabeth Sattely, Ph.D., HHMI Investigator and Associate Professor of Chemical Engineering at Stanford University; and Paul Bernasconi, Ph.D., Former Global Function Head for Molecular Biology at BASF Biosciences. The Calyxt Scientific Advisory Board will focus on the identification of high value targets for development and commercialization.

 

On February 19, 2021, James Blome ceased serving as our Chief Executive Officer. Mr. Blome was entitled to compensation and benefits as part of this termination without cause, and in the first quarter of 2021 we recorded $2.3 million of cash expense for separation-related payments as well as an additional non-cash charge of $0.1 million from the acceleration of expense recognition of sign-on bonus paid to Mr. Blome in a prior period. The cash payments to Mr. Blome will be made over a period of 24 months, which began in March 2021. We recorded a benefit to earnings from a $2.5 million recapture of non-cash stock compensation expense from the forfeiture of certain of Mr. Blome’s unvested stock options, restricted stock units, and performance stock units.

 

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We are an early-stage company and have incurred net losses since our inception. As of March 31, 2021, we had an accumulated deficit of $176.9 million. Our net losses were $10.0 million for the three months ended March 31, 2021. 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;

conducting additional breeding and field trials of our current and future products;

seeking regulatory and marketing approvals for our products;

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

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

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

seeking to attract and retain new and existing skilled personnel;

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

addressing the impacts of the ongoing COVID-19 pandemic, including implementing 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.

 

OUR RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF OUR RESULTS

We are a majority-owned subsidiary of Cellectis. As of March 31, 2021, Cellectis owned 64.5% of our issued and outstanding common stock. Cellectis has certain contractual rights as well as rights pursuant to our certificate of incorporation and bylaws, in each case, as long as it maintains threshold beneficial ownership levels in our shares.

We hold an exclusive 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.

Cellectis has also guaranteed the lease of our headquarters facility.

FINANCIAL OPERATIONS OVERVIEW

Revenue

For the three months ended March 31, 2021, we recognized revenue from the sales of high oleic soybean seed grain.

Cost of Goods Sold and Inventory

Certain grain costs, net of the benefit from our seed activity, are capitalized to inventory. Additional costs or benefits are recognized as incurred. Any valuation adjustments to inventory are recognized as incurred. Until the fourth quarter of 2020, cost of goods sold included crush and refining losses that are expensed as incurred since they do not add to the value of the finished products. 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.

Our R&D expenses consist primarily of employee-related costs for personnel who research and develop our product candidates, fees for contractors who support product development and breeding activities, expenses for trait validation, purchasing material and supplies for our laboratories, licensing, an allocation of facility and information technology expenses, 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, General, and Administrative Expense

Selling, general, and administrative (SG&A) expenses consist primarily of employee-related expenses for selling and licensing our products and employee-related expenses for our executive, legal, intellectual property, information technology, finance, and human resources functions. In periods prior to 2021, these expenses also included employee-related and other expenses for selling soybean oil and meal, soybean acreage acquisition, and managing the soybean product supply chain. Other SG&A expenses include facility and

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information technology expenses not otherwise allocated to R&D expenses, professional fees for auditing, tax and legal services, expenses associated with maintaining patents, consulting costs and other costs of our information systems, and costs to market our products.

Interest, net

Interest, net is comprised of interest income resulting from investments of cash and cash equivalents, short-term investments, 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 and other capital raising activities.

Non-operating expenses

 

Non-operating expenses are expenses that are not directly related to our ongoing operations and are primarily comprised of gains and losses from foreign exchange-related transactions and disposals of land, buildings, and equipment.

Anticipated Changes Between Revenues and Costs

As we execute upon our streamlined business model, 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, trait development and licensing activities, and licensing arrangements. Under trait development and licensing activities, revenues are expected to arise from up-front, annual or milestone, and royalty payments upon the licensees’ commercial sale of products. Under licensing arrangements, revenues are expected to arise from up-front, annual, and royalty payments upon the licensees’ 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 SG&A expense will decline as the new models are fully implemented.

Recent Developments – COVID-19 Update

 

As previously reported, our operations in Minnesota are classified as critical