Cibus, Inc. - Quarter Report: 2019 June (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 30, 2019;

or

For the transition period from                     to

Commission file number 001-38161

Calyxt, Inc.

(Exact name of registrant as specified in its charter)

(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.

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:

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 August 6th, 2019, there were 32,866,100 shares of common stock, $0.0001 par value per share, outstanding.

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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.

We own the name and trademark, Calyxt® and Calyno^TM; 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 contains “forward-looking statements” made 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 “may,” “might,” “will,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue,” the negative of these terms and other comparable terminology. These forward-looking statements, which are based on our current assumptions and expectations, are subject to risks and uncertainties. Forward-looking statements in this report may include statements about our future financial performance, product pipeline and development, commercialization efforts, and growth strategies. These statements are only predictions based on our current expectations and projections about future events. Our actual results could be materially different that those expressed, implied or anticipated by the forward-looking statements.

There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements. Those factors are discussed under the caption entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2018, which was filed with the Securities and Exchange Commission (SEC) on March 12, 2019 (our Annual Report).

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

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. 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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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

CALYXT, INC.

BALANCE SHEETS

(In Thousands, Except Par Value and Share Amounts)

See accompanying notes to these financial statements.

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CALYXT, INC.

STATEMENTS OF OPERATIONS

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

See accompanying notes to these financial statements.

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CALYXT, INC.

STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited and in Thousands Except Shares Outstanding)

See accompanying notes to these financial statements.

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CALYXT, INC.

STATEMENTS OF CASH FLOWS

(Unaudited and in Thousands)

See accompanying notes to these financial statements.

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CALYXT, INC.

NOTES TO THE FINANCIAL STATEMENTS

(Unaudited)

1. BASIS OF PRESENTATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Our unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States (U.S. 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 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 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.

Certain prior year amounts have been reclassified to conform to the current year presentation.

For further information, refer to the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 12, 2019. The accompanying Balance Sheet as of December 31, 2018 was derived from the audited financial statements. This Quarterly Report on Form 10-Q should be read in conjunction with our financial statements and notes included in the Annual Report on Form 10-K for the year ended December 31, 2018.

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 recorded as 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 that take into consideration our limited operating history.

Effective January 1, 2019, we designated all seed and grain production agreements (Forward Purchase Contracts) 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 that control transfers to the customer, which is based on shipping terms. Sales include shipping and handling charges if billed to the customer and are reported net of trade promotion and other costs, including estimated allowances for returns, unsalable product, and prompt pay discounts. Sales, use, value-added and other excise taxes are not recognized in revenue. Trade promotions are recorded based on estimated participation and performance levels for offered programs at the time of sale. We generally do not allow a right of return. However, on a limited basis with prior approval, we may allow customers to return product.

We also recognize revenue from license agreements. Revenues from license agreements may consist of nonrefundable up-front payments, milestone payments, royalties, and services. In addition, we may license our technology to third parties, which may or may not be part of a license agreement.

Nonrefundable up-front payments are deferred and recognized as revenue over the term of the license agreement. If a license agreement is terminated before the original term of the agreement is fulfilled, all remaining deferred revenue is recognized at termination.

Milestone payments represent amounts received from our licensees, the receipt of which is dependent upon the achievement of certain scientific, regulatory, or commercial milestones. We recognize milestone payments when the triggering event has occurred, there are

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no further contingencies or services to be provided with respect to that event, and the counterparty has no right to refund of the payment.

Stock-Based Compensation

We measure employee stock-based awards at grant-date fair value and record compensation expense over the vesting period of the award. Prior to January 1, 2019, grants to nonemployees were previously remeasured each reporting period. Following the adoption of the new accounting pronouncement discussed below we no longer remeasure these awards as the fair value is determined on the grant date.

Recently Adopted Accounting Pronouncements

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.

Effective January 1, 2019, we adopted new accounting requirements for share-based payment transactions for acquiring goods and services from nonemployees. The adoption did not have an impact on our financial statements as each of the share-based payment awards granted to nonemployees had a measurement date upon grant, and thus no cumulative adjustment to retained earnings was required.

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

The carrying values of cash and cash equivalents, restricted cash, due from related parties, accounts payable, due to related parties, and all other current liabilities approximate fair value. The fair value of our financing lease obligations, including the current portion, are $15.7 million as of June 30, 2019, and $15.8 million as of December 31, 2018. The carrying amounts of our financing lease obligations, including the current portion, were $18.6 million as of June 30, 2019, and $18.5 million as of December 31, 2018. The fair value of our financing lease obligations was determined using discounted cash flow analysis based on market rates for similar types of borrowings. Financing lease obligations are a Level 2 liability in the fair value hierarchy.

Fair Value Measurements and Financial Statement Presentation

As described in Note 1 to these financial statements our Forward Purchase Contracts are no longer carried at fair value.

The fair values of our assets, liabilities, and derivative positions recorded at fair value and their respective levels in the fair value hierarchy as of June 30, 2019 and December 31, 2018, were as follows:

(a) The fair value for Forward Purchase Contracts were previously estimated based on commodity futures market prices.

Commodity Price Risk

We enter into Forward Purchase Contracts for grain with settlement values based on commodity futures market prices These Forward Purchase Contracts allow our counterparty to fix their sale prices to us at various times as defined in the contract. We may enter into

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hedging arrangements to either fix variable exposures or converting fixed prices to floating prices through the use of commodity derivative contracts. At June 30, 2019, we had entered into commodity contracts with a notional amount of $1.8 million.

We have designated all of our commodity derivative contracts as cash flow hedges. As a result, all gains or losses associated with recording commodity derivative contracts at fair value are recorded as a component of accumulated other comprehensive income (AOCI). We reclassify amounts from AOCI to cost of goods sold when we sell the underlying products to which those hedges relate. As of June 30, 2019, we expect the entire AOCI balance to be reclassified into earnings within the next 12 months.  

Certain amounts related to our hedging activities are as follows:

Foreign Exchange Risk

Foreign currency fluctuations affect our foreign currency cash flows related to payments to 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 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 Cellectis provides to us. We perform Cellectis’ U.S. operations payroll services. We incurred management fee expenses of $0.5 million for the three months ended June 30, 2019 and $0.4 million for the same period in 2018. We incurred management fee expenses of $0.8 million for the six months ended June 30, 2019 and $1.0 for the same period in 2018.

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. 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 also license other 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. With the exception of a one-time payment made to the University of Minnesota related to our commercialization of High Oleic Soybeans, we have incurred nominal license fees under these agreements in in the three and six month periods ended June 30, 2019 and 2018.

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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.

We have not used the treasury method in determining the number of anti-dilutive stock options and restricted stock units in the table above.

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).

As of June 30, 2019, 2,006,505 shares were registered and available for grant under effective registration statements, while 2,444,581 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:

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.

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Information on stock option activity follows:

Stock-based compensation expense related to stock option awards was $1.5 million for the three months ended June 30, 2019 and $1.4 million for the three months ended June 30, 2018. Stock-based compensation expense related to stock option awards was $2.3 million for the six months ended June 30, 2019, and $1.0 million for the six months ended June 30, 2018. The aggregate intrinsic value of options outstanding and exercisable at June 30, 2019 was $9.3 million and the weighted average remaining contractual term was 8.4 years as of that date.

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:

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.

Information on restricted stock unit activity follows:

The total grant-date fair value of restricted stock unit awards that vested was $1.3 million and $1.4 million for the three and six months ended June 30, 2019, and $1.5 million for three and six months ended June 30, 2018. Stock-based compensation expense related to restricted stock unit awards was $0.8 million and $1.6 million for the three and six months ended June 30, 2019, and $0.9 million and $1.2 million for the three and six months ended June 30, 2018

We treat stock-based compensation awards granted to employees of Cellectis as deemed dividends. We recorded deemed dividends of $0.4 million and $0.8 million for the three and six months ended June 30, 2019, and $0.7 million and $1.4 million for the three and six months ended June 30, 2018.

As of June 30, 2019, unrecognized compensation expense related to non-vested stock options and restricted stock units was $22.4 million. This expense will be recognized over 61 months on average for stock options and over 42 months on average for restricted stock units.

Performance Stock Units

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On June 28, 2019, we granted 311,667 performance stock units to three executive officers. The performance stock units will vest as to 50%, 100% or 120% of the shares at the end of a three-year performance period based upon the increases in our common stock from the starting price of $12.48. The awards vest on a linear basis between vesting percentages during specified periods within the three-year performance period. If vested, the performance stock units will be settled in restricted stock with restrictions lapsing on the two-year anniversary of the date of issuance. 

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 June 30, 2018 and $0.2 million for the six months ended June 30, 2018. Expenses in 2019 were de minimus.

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 June 30, 2019 there were no material changes to what we disclosed regarding tax uncertainties or penalties as of December 31, 2018.

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 finance lease.

We also have an equipment financing line that is considered a financing lease. The lease has a term of four years and following our $0.2 million draw down in the three month period ending June 30, 2019, we may add up to $0.9 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 June 30, 2019, this restricted cash totaled $1.5 million.

Rent expense from operating leases was $20,000 for the three months ended June 30, 2019, and was $78,000 for the three months ended June 30, 2018. Rent expense was expense $69,000 for the six months ended June 30, 2019, and was $160,000 during the six months ended June 30, 2018.

Other Commitments

As of June 30, 2019, we have committed to purchase grain from farmers at dates throughout 2019 and 2020 aggregating $19.0 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 $49,000 for the three months ended June 30, 2019 and $27,000 for the same period in 2018. Our expense was $105,000 for the six months ended June 30, 2019, and $76,000 for the six months ended June 30, 2018.

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9. SUPPLEMENTAL INFORMATION

Certain balance sheet amounts are as follows:

Certain statements of operations amounts are as follows:

Certain statements of cash flows amounts are as follows:

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.

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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 financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q. Our actual results could differ materially from those anticipated in the forward-looking statements included in this discussion as a result of certain factors, including, but not limited to, those discussed in “Risk Factors” in our Annual Report on Form 10-K filed on March 12, 2019.

EXECUTIVE OVERVIEW

We are a healthy food ingredient company. We leverage proprietary intellectual property, our technical expertise, and an end-to-end supply chain toward our mission of “Making the Food You Love a Healthier Choice™”.

Using our proprietary technologies and expertise, including TALEN gene-editing technology exclusively licensed to us in the field of agriculture, we develop food crops with targeted traits quickly and more cost effectively than traditional methods. Our technologies enable precise cuts to DNA in a single plant cell. This allows us to use the plant’s natural repair machinery to make our desired genome edit and regenerate the single cell into a full plant that includes this gene edit. We believe that we are able to identify a consumer need and develop a product from “concept to fork” in cycles as short as six years by utilizing these proprietary technologies.

We believe that we are well-positioned to address consumer preferences that are evolving to demand healthier, more nutritionally rich foods. To bring our consumer-centric products to the marketplace, we intend to repurpose and leverage existing supply chain capacity by contracting, tolling or partnering with players in the existing supply chain, such as seed production companies, seed distributors, farmers, crushers, millers, and refiners. We expect this will allow us to apply our resources to maximizing innovation and product development while minimizing our capital expenditures and overhead. We intend to strategically out-license our intellectual property to maximize our market opportunity.

Our first commercial products are oil and meal derived from a High Oleic Soybean designed to produce a healthier oil that has increased heat stability with zero grams of trans fat per serving. We completed our first sales of our High Oleic Soybean Oil and High Oleic Soybean Meal in the first quarter of 2019. Among our other product candidates are other soybean products and a High Fiber Wheat.

Our current commercial focus is North America. This may expand over time to other geographies, subject to customer demand and regulatory requirements, among other factors. We also intend to explore the ability to add value through our existing product candidates once they are commercialized by combining traits in the same crop, which may allow us to deliver products with additional benefits without adding significant cost.

We are an early-stage company and have incurred net losses since our inception. As of June 30, 2019, we had an accumulated deficit of $99.2 million. Our net losses were $9.4 million for the three months ended June 30, 2019 and $7.6 million for the three months ended June 30, 2018. Costs incurred in connection with our R&D programs and to compensate our employees, including non-cash stock compensation expense, are the primary drivers of our net loss. As we continue to develop our product pipeline, we expect to continue to incur significant expenses and increasing operating losses for the foreseeable future and those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year. We expect that our expenses will increase substantially as we:

As of June 30, 2019, we had cash, cash equivalents and restricted cash of $77.9 million. While we achieved commercialization in the first quarter of 2019, we do not expect to generate significant revenue from product sales unless and until we are able to fully commercialize our High Oleic Soybean products and one or more other current or future product candidates, which may take a number of years and is subject to significant uncertainty. See “Capital Resources.”

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OUR RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF OUR RESULTS

We are a majority-owned subsidiary of Cellectis. As of June 30, 2019, Cellectis owned 69.1% of our outstanding common stock.

Our historical financial information reflects expense allocations for certain support functions that were provided on a centralized basis pursuant to a management services agreement. Cellectis has also guaranteed the lease of our headquarters facility. As a result, our historical financial information may not reflect the financial condition, results of operations or cash flows we would have achieved as a standalone company and not a subsidiary of Cellectis during the periods presented.

Cellectis also has certain contractual rights as long as it maintains threshold beneficial ownership levels in our shares.

In addition, we hold an exclusive, worldwide license in plants to key intellectual property owned by Cellectis.

RESULTS OF OPERATIONS FOR THREE MONTHS ENDED JUNE 30, 2019 AND 2018

In the three months ended June 30, 2019, we continued to sell our first products, High Oleic Soybean Oil and High Oleic Soybean Meal. We continued to incur costs associated with commercialization, including expanding our supply chain. Upon achieving commercialization, we started capitalizing purchases of grain as inventory.

A summary of our results of operations for the three months ended June 30, 2019 and 2018 follows:

Revenue and Cost of Goods Sold

Revenue increased $0.2 million in the three months ended June 30, 2019, compared to the same period a year ago. The increase in revenue was driven by the commercialization of our first products, High Oleic Soybean Oil and High Oleic Soybean Meal. Cost of goods sold in the three months ended June 30, 2019, reflect supply chain costs associated with the processing and transportation of grain we purchased prior to commercialization as well as certain costs incurred to process and handle grain following commercialization as not all costs in our supply chain are capitalizable to inventory. During the three months ended June 30, 2019, we also recorded a reserve of $82,000 for seed returns.

Prior to commercialization in the first quarter of 2019 we expensed all costs associated with our High Oleic Soybean as R&D expense. As a result, our current period cost of goods sold are less on a unit basis than what we expect them to be now that we have reached commercialization, and current margins are not representative of future margins.

Research and Development Expenses

The decrease in the three months ended June 30, 2019 was due to a $0.8 million decrease non-cash stock compensation expense partially offset by an increase in cash expenses associated with additional staff.  

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Selling and General, and Administrative Expenses

Selling and General and Administrative expenses increased $2.4 million in the three months ended June 30, 2019, compared to the same period a year ago. The increase was due to an additional $1.6 million in compensation and benefits associated with additional personnel, including contractors, to support the commercialization of our High Oleic Soybeans products in sales and supply chain and an increase in non-cash stock compensation expense of $0.8 million. Professional services expenses were slightly down year over year.

Interest, net

Interest, net is the result of interest income resulting from investments of cash and cash equivalents, partially offset by interest expense on our financing lease obligations. It is also driven by balances, yields, and timing of our capital raises and financing activities.

RESULTS OF OPERATIONS FOR SIX MONTHS ENDED JUNE 30, 2019 AND 2018

A summary of our results of operations for the six months ended June 30, 2019 and 2018 follows:

Revenue and Cost of Goods Sold

Revenue increased $0.4 million in the six months ended June 30, 2019, compared to the same period a year ago. The increase in revenue was driven by the same activity discussed above during the three months ended June 30, 2019.

Research & Development

The $0.5 million increase in the six months ended June 30, 2019, compared to the same period a year ago was primarily due to increased expenses of $0.7 million related to additional staff partially offset by a decrease in non-cash stock compensation expense of $0.2 million.

Selling and General and Administrative Expenses

Selling and General and Administrative expenses increased $4.9 million in the six months ended June 30, 2019, compared to the same period a year ago. The increase was driven by an additional $3.2 million in expenses related to the addition of personnel, including contractors, to support the commercialization of our High Oleic Soybean products in sales and supply chain and an increase in non-cash stock compensation expense of $1.7 million.

Interest, net

Interest, net is the result of interest income resulting from investments of cash and cash equivalents, partially offset by interest expense on our financing lease obligations. It is driven by balances, yields, and timing of our capital raises and financing activities.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

As of June 30, 2019, we had cash, cash equivalents and restricted cash of $77.9 million.

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We incurred losses from operations of $17.0 million for the six months ended June 30, 2019, and $11.8 million for the six months ended June 30, 2018. As of June 30, 2019, we had an accumulated deficit of $99.2 million and we expect to incur losses for the foreseeable future.

Cash Flows from Operating Activities

Net cash used by operating activities was $15.9 million for the six months ended June 30, 2019, compared to net cash used by operating activities for the six months ended June 30, 2018 of $8.8 million. The change was largely due to expenses related to increased headcount and professional fees associated with expanding our commercial infrastructure and investing in our R&D pipeline, including purchasing grain.

Cash Flows from Investing Activities

Net cash used by investing activities was $1.3 million for the six months ended June 30, 2019, compared to net cash used by investing activities for the six months ended June 30, 2019 in the amount of $0.5 million. The increase was due to purchases of lab equipment and furniture and fixtures for our new headquarters facility.

Cash Flows from Financing Activities