Cibus, Inc. - Quarter Report: 2023 March (Form 10-Q)

Explanatory Note

In an effort to regain compliance with the listing rule of the Nasdaq Capital Market requiring that the bid price of Calyxt, Inc.’s common stock be $1.00 per share or higher (Bid Price Rule), Calyxt, Inc. effected a one-for-ten reverse stock split (Reverse Stock Split) of its common stock. The Reverse Stock Split became effective on April 24, 2023, pursuant to a Certificate of Amendment to Calyxt, Inc.’s Amended and Restated Certificate of Incorporation filed with the Secretary of State of the State of Delaware. The Reverse Stock Split was reflected on the Nasdaq Capital Market beginning with the opening of trading on April 25, 2023. The par value and authorized shares of common stock and preferred stock of Calyxt, Inc. were not adjusted as a result of the Reverse Stock Split. All share and per share amounts in the consolidated financial statements and notes thereto have been retroactively adjusted for all periods presented to give effect to this Reverse Stock Split. No fractional shares were issued in connection with the Reverse Stock Split and instead, fractional shares were rounded up to the nearest whole share number.

Terms

When the terms the “Company” or “its” are used in this report, unless the context otherwise requires, those terms are being used to refer to Calyxt, Inc. When the term “Cellectis,” is used, it is being used to refer to Cellectis S.A. (société anonyme), the Company’s largest stockholder and the former majority owner of its common stock.

The Company owns the names PlantSpring, BioFactory, Plant Cell Matrix, and the abbreviation PCM. The Company also owns the trademarks Calyxt^® and Calyno^® and owns or licenses other trademarks, trade names, and service marks appearing in this Quarterly Report on Form 10-Q. The names and trademarks Cellectis^® and TALEN^®, along with any other trademarks, trade names, and service marks of Cellectis appearing in this report are the property of Cellectis. This report also contains additional trade names, trademarks, and service marks belonging to other companies. The Company does not intend its 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 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). The Company may also make forward-looking statements in other reports filed with the Securities and Exchange Commission (SEC), in materials delivered to stockholders, and in press releases. In addition, the Company’s representatives may from time-to-time make oral forward-looking statements.

The Company has 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,” “intends,” “may,” “might,” “plans,” “predicts,” “projects,” “should,” “targets,” “will,” or the negative of these terms and other similar terminology. Forward-looking statements in this report include statements about the Company’s proposed merger with Cibus Global, LLC (Cibus) and the transactions contemplated in connection with the merger (the Transactions); Calyxt’s future financial performance, including its liquidity and capital resources, cash runway and its ability to continue as a going concern; its product pipeline and development; its business model and strategies for the development, commercialization and sales of commercial products; commercial demand for its synthetic biology solutions; the development and deployment of its PlantSpring technology platform; the ability to scale production capability for its BioFactory production system; potential development agreements, partnerships, customer relationships, and licensing arrangements and their contribution to its financial results, cash usage, and growth strategies; and anticipated trends in its business. These and other forward-looking statements are predictions and projections about future events and trends based on the Company’s current expectations, objectives, and intentions and are premised on current assumptions. The Company’s 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: adverse impacts if the conditions to the closing of the Transactions are not satisfied or if consummation of the Transactions is delayed; Calyxt’s ability to realize anticipated benefits of the proposed Transactions; Calyxt’s ability to maintain its continued listing on the Nasdaq Capital Market; any adverse impact of the Company’s cost reduction measures and the proposed Transactions on its relationship with employees and third-parties, including ongoing negotiations with potential customers; the impact of increased competition, including competition from a broader array of synthetic biology companies; competition for customers, partners, and licensees and the successful execution of development and licensing agreements; disruptions at its key facilities, including disruptions impacting its BioFactory production system; changes in customer preferences and market acceptance of its products; changes in market consensus as to what attributes are required for a product to be considered “sustainable” the impact of adverse events during development, including unsuccessful pilot production of plant-based chemistries or field trials; the impact of

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improper handling of its product candidates during development; failures by third-party contractors; inaccurate demand forecasting or milestone and royalty payment projections; the effectiveness of commercialization efforts by commercial partners or licensees; disruptions to supply chains, including raw material inputs for its BioFactory; 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; changes in macroeconomic and market conditions, including inflation, supply chain constraints, and rising interest rates; dislocations in the capital markets and challenges in accessing liquidity and the impact of such liquidity challenges on the Company’s ability to execute on its business plan; and other important factors discussed in Part I, Item 1A, “Risk Factors” of its Annual Report on Form 10-K/A for the year ended December 31, 2022, which was filed with the SEC on March 3, 2023 (its Annual Report) and its subsequent reports on Forms 10-Q and 8-K filed with the SEC, which should be considered an integral part of Item 2, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

Any forward-looking statements made by the Company in this Quarterly Report on Form 10-Q are based only on currently available information and speak only as of the date of this report. Except as otherwise required by securities and other applicable laws, the Company does 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.

Market Data

Unless otherwise indicated, information contained in this Quarterly Report on Form 10-Q concerning the Company’s industry and the markets in which it operates is based on information from various sources, including independent industry publications. In presenting this information, the Company has also made assumptions based on such data and other similar sources, and on its knowledge of, and its experience to date in, the potential markets for its product. The industry in which the Company operates 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 the 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 the Company.

Website Disclosure

The Company uses its website (www.calyxt.com), its corporate Twitter account (@Calyxt_Inc) and its 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 its disclosure obligations under Regulation FD. Accordingly, investors should monitor its website and its corporate Twitter and LinkedIn accounts in addition to following press releases, filings with the SEC, and public conference calls and webcasts.

Additionally, the Company provides notifications of announcements as part of its website. Investors and others can receive notifications of new press releases posted on the Company’s website by signing up for email alerts.

None of the information provided on the Company’s website, in its 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 on Form 10-Q or in any other report or document it files with the SEC, and any references to its website or its corporate Twitter and LinkedIn accounts are intended to be inactive textual references only.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of the Company’s financial condition and results of operations should be read together with its consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q and with its Annual Report on Form 10-K/A for the year ended December 31, 2022, including the Consolidated Financial Statements and Notes incorporated therein. The Company uses the term “compounds” to describe compounds, molecules, and plant-based chemistries interchangeably.

EXECUTIVE OVERVIEW

Calyxt is a plant-based synthetic biology company. The Company leverages its proprietary PlantSpring^™ technology platform to engineer plant metabolism to produce innovative, high-value, and sustainable materials and products for use in helping customers meet their sustainability targets and financial goals. The Company’s primary focus and commercialization strategy is on engineering synthetic biology solutions through its PlantSpring platform for manufacture using its proprietary and differentiated BioFactory^™ production system for a diverse base of target customers across an expanded group of end markets including the cosmeceutical, nutraceutical, and pharmaceutical industries. The Company also seeks to commercialize its PlantSpring technology platform by licensing elements of the platform and historically developed traditional agriculture seed-trait product candidates, as well as selectively developing product candidates for customers in traditional agriculture.

The Company is an early-stage company and has incurred net losses since its inception. As of March 31, 2023, the Company had an accumulated deficit of $217.5 million. The Company’s net losses were $5.4 million for the three months ended March 31, 2023. The Company expects 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.

Historically, the Company’s expenses in connection with the execution of its long-term business plan have been primarily driven by:

BUSINESS UPDATE

Merger Agreement and Interim Funding

On September 22, 2022, the Company announced that the Board had begun evaluating potential strategic alternatives to maximize shareholder value, including financing alternatives, merger, reverse merger, other business combinations, sale of assets, licensing, or other transactions.

On January 13, 2023, the Company, Cibus, and certain other parties thereto entered into the Merger Agreement. Pursuant to the Merger Agreement, following the Transactions, Calyxt will be organized in an “Up-C” structure and re-named “Cibus, Inc.”, Calyxt will act as the managing member of Cibus, and its only material asset will consist of common units of Cibus. If the Transactions are completed, the business of Cibus will continue as the primary business of the combined organization and the current equity holders of Cibus will own a substantial majority of the issued and outstanding common stock of the Company.

The closing of the Transactions is subject to the approval of Calyxt’s stockholders, the approval of Cibus’ members, the receipt of required regulatory approvals (to the extent applicable), and satisfaction of other customary closing conditions. The closing is currently expected to occur in the second quarter of 2023. Additional information regarding the Transactions is included in Calyxt’s registration statement on Form S-4 initially filed with the SEC on February 14, 2023, as amended on April 14, 2023.

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Pursuant to the Merger Agreement, beginning at the earlier of March 15, 2023, and the date Calyxt’s unrestricted cash balance first drops below $1.5 million, Calyxt could request, and Cibus agreed to provide, an unsecured, interest-free revolving line of credit of up to $3.0 million in cash, which amount may be increased to $4.0 million if Cibus elects to extend the outside date (as defined in the Merger Agreement) to June 30, 2023. Funds can be drawn by Calyxt in $0.5 million increments and may only be used to fund operating expenses incurred in the ordinary course of business consistent with past practice and consistent with the negative covenants in the Merger Agreement. The full outstanding balance of the Interim Funding will be reduced to zero in connection with the closing of the Transactions, if consummated. The full outstanding balance of the Interim Funding will be forgiven by Cibus if the Merger Agreement is terminated for any reason under certain conditions, as detailed in the Merger Agreement. The Interim Funding is subject to acceleration in connection with certain bankruptcy events. As of March 31, 2023, the Company had received $1.0 million of Interim Funding from Cibus. Subsequent to March 31, 2023, and prior to the filing date of this Form 10-Q, the Company received another $0.5 million of Interim Funding from Cibus.

If, for any reason, the Transactions are not completed, the Company will reconsider its available alternatives at such time and could pursue one of the following courses of action, which the Company currently believes to be the most likely alternatives:

Current Operational Focus

Prior to the announcement of the Transactions, the Company’s primary focus was on the development of synthetic biology products for its customers using its BioFactory production system. In light of the proposed Transactions and recent capital resource constraints, the Company has substantially scaled back its operations and has focused its current business activities on ensuring it has cash sufficient to achieve a closing of the proposed Transactions. Accordingly, Calyxt’s management has implemented cost reduction and other cash-focused measures, including reduction of capital expenditures, headcount reductions, and renegotiation or termination of professional services agreements. To conserve cash, Calyxt has also strategically evaluated its arrangements with suppliers and service providers and has, in several instances, transitioned such relationships to lower cost alternative providers.

In limiting operations to core activities, the Company has focused its continuing operations on:

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The Company has suspended non-core activities, such as efforts toward the development and integration of AIML and the initiation, development, and commercialization of additional synthetic biology products, or chemistries, beyond those involved in the continuing operations identified above.

RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF RESULTS

The Company’s largest shareholder is Cellectis. As of March 31, 2023, Cellectis owned 48.2 percent of the Company’s issued and outstanding common stock.

Cellectis has certain contractual rights as well as rights pursuant to the Company’s certificate of incorporation and bylaws, in each case, for so long as it maintains threshold beneficial ownership levels in the Company’s shares. See “Risk Factors—Although Cellectis and its affiliates hold less than a majority of the Company’s outstanding common stock, Cellectis possesses certain rights that prevent other stockholders from influencing significant decisions” of the Company’s Annual Report on Form 10-K/A for the year ended December 31, 2022.

In addition, Cellectis has guaranteed the lease agreement for the Company’s headquarters. However, the Company previously agreed to indemnify Cellectis for any obligations under this guaranty, effective upon Cellectis’ ownership falling to 50 percent or less of the Company’s outstanding common stock. Accordingly, the Company’s indemnification obligation was triggered in October 2022.

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

FINANCIAL OPERATIONS OVERVIEW

Revenue

Revenue is recognized from sales of products, from licenses of technology, and from product development activities for customers.

Cost of Goods Sold

Cost of goods sold are recognized as products are sold. There are minimal costs of goods sold associated with the Company’s technology licensing activities.

Research and Development Expense

The Company’s R&D expense primarily consist of employee-related costs for personnel who research and develop its product candidates, fees for contractors who support product development activities, purchasing material and supplies for its laboratories, licensing, an allocation of facility and information technology expenses, and other costs associated with owning and operating its own laboratories and pilot BioFactory capabilities. This includes the costs of performing activities to discover and develop products and advance the Company’s PlantSpring technology platform, including its intellectual property portfolio. BioFactory expenses from lab through pilot, unless incurred related to a specific product sold to a customer, are also classified as R&D expense. R&D expenses also include costs to write and support the research for filing patents. The Company recognizes R&D expenses as they are incurred.

Selling, General, and Administrative Expense

SG&A expenses consist primarily of employee-related expenses for selling and licensing the Company’s products and employee-related expenses for its executive, legal, intellectual property, information technology, finance, and human resources functions. Other SG&A expenses include facility and 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 the Company’s information systems, and costs to market its 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, issuance costs associated with the Common Warrants, and interest expense incurred related to financing lease obligations. It is also driven by balances, yields, and timing of financing and other capital raising activities.

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Non-operating income (expenses)

Non-operating income (expenses) are expenses that are not directly related to ongoing operations and are primarily comprised of gains and losses from the mark-to-market of Common Warrants, gain from a legal settlement, costs related to the completion of the Transactions, foreign exchange-related transactions, and disposals of land, buildings, and equipment.

Revenues and Costs

To the extent any revenue is generated under the Company’s current business model, such revenue would derive from product development activities for customers for both the BioFactory production system and agricultural production and technology licensing arrangements. Any such cash and revenue- generating opportunities associated with these activities would be expected to primarily arise from up-front and milestone payments, annual license fees, and royalties. If, and when, the BioFactory begins to produce products for customers, it is anticipated that such revenues would grow and surpass revenues from other sources.

During the course of discussions with Cibus regarding, and following the execution of, the Merger Agreement, Calyxt has streamlined and focused its business activities on preserving cash sufficient to achieve a closing of the Transactions. Accordingly, Calyxt has taken additional steps to streamline its operations and to reduce its operating expenses, while focusing on a limited scope of core projects. While these projects are important for Calyxt’s overall product development pipeline, none of these projects is expected to generate material revenue in the near term. While the Company continuously implemented cost reduction measures including not filling open positions throughout 2022, the principal impact of these actions affects results of operations beginning in early 2023 following the reduction in employees from 48 to 28 in January 2023. As of March 31, 2023, the Company had 25 full time employees.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2023, COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2022

A summary of the Company’s results of operations for the three months ended March 31, 2023, and 2022 follows:

Revenue, Cost of Goods Sold, and Gross Profit

Revenues and gross profit were nominal in the first quarter of 2023 and 2022. Revenue in the first quarter of 2023 and 2022 was primarily associated with the Company’s agreement with a large food ingredient manufacturer to develop a palm oil alternative. The $10 thousand increase in revenue and gross profit was due to a change made to the estimated completion date of the contract in the first quarter of 2022.

Research and Development Expense

R&D expense was $2.2 million in the first quarter of 2023, a decrease of $0.7 million, or 25 percent, from the first quarter of 2022. The decrease was primarily driven by the reduction in headcount year-over-year and other cost reduction initiatives.

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Selling, General, and Administrative Expense

SG&A expense was $2.3 million in the first quarter of 2023, a decrease of $0.9 million, or 28 percent, from the first quarter of 2022. The decrease was driven by the reduction in headcount year-over-year and other cost reduction initiatives.

Interest, net

Interest, net was nominal in the first quarter of 2023 and 2022. The increase in expense was driven by a full quarter of amortization of financing costs associated with the issuance of common stock warrants in the first quarter of 2023 compared to a partial quarter of amortization in the first quarter of 2022, partially offset by a lower financing lease obligations balance.

Non-operating income (expenses)

Non-operating income (expenses) were expense of $0.9 million in the first quarter of 2023, an increase in expense of $1.4 million, or 287 percent, from the first quarter of 2022. The increase in expense was driven by $1.3 million of mark-to-market loss on the Company’s Common Warrants, which increased in value due to an increase in stock price, as well as $0.8 million of costs associated with the Transactions. These expenses were partially offset by $0.8 million of gain contingency associated with the final payment to the Company for settlement of a legal matter with one of the Company’s technology vendors regarding alleged intellectual property infringement.

Net Loss

Net loss was $5.4 million in the first quarter of 2023, an improvement of $0.2 million, or 4 percent, from the first quarter of 2022. The improvement in net loss was driven by the improvement in R&D and SG&A expenses partially offset by the increase in Non-operating income (expenses) discussed above.

Net Loss Per Share

Net loss per share was $1.09 in the first quarter of 2023, an improvement of $0.25 per share, or 19 percent, from the first quarter of 2022. The improvement in net loss per share was driven by the improvement in net loss and a year-over-year increase in weighted average shares outstanding.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company’s primary sources of liquidity are its cash and cash equivalents. As of March 31, 2023, the Company had $2.1 million of cash and cash equivalents. Current liabilities were $4.2 million as of March 31, 2023.

The Company’s current cash and cash equivalents, when combined with Interim Funding available from Cibus, are sufficient to cover the Company’s current liabilities as of March 31, 2023. See above under the heading “Business Update—Merger Agreement and Interim Funding” for additional details regarding the Interim Funding. The Company’s liquidity funds its non-discretionary cash requirements and its discretionary spending. The Company has contractual obligations related to recurring business operations, primarily related to lease payments for its headquarters and laboratory facilities. The Company’s principal discretionary cash spending is for capital expenditures, short-term working capital payments, and professional and other transaction-related expenses incurred as the Company pursues additional financing and evaluates potential alternative transactions.

The Company incurred net losses of $5.4 million for the three months ended March 31, 2023. As of March 31, 2023, the Company had an accumulated deficit of $217.5 million and expects to continue to incur losses in the future.

Cash Flows from Operating Activities

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Net cash used by operating activities was $2.4 million in the first quarter of 2023, an improvement of $4.0 million, or 63 percent, from the first quarter of 2022. The improvement was driven by a $2.1 million decrease in cash used by operating liabilities, primarily related to severance and bonus payments made in the first quarter of 2022, a $1.3 million unrealized gain from the increase in value of the Common Warrants, a $0.2 million decrease in net loss discussed above, and a $0.3 million increase in non-cash stock compensation, primarily the result of higher forfeiture amounts of stock awards in the first quarter of 2022.

The Company expects cash used by operating activities in 2023 to be lower than 2022 driven by the reduction in operating expenses, partially offset by non-operating expenses consisting primarily of costs associated with the Transactions.

Cash Flows from Investing Activities

There was no net cash provided or used by investing activities in the first quarter of 2023, a decrease in cash used by investing activities of $0.5 million, or 100 percent, from the first quarter of 2022. The decrease in cash used by investing activities used was driven by the decision to conserve cash and place capital projects on hold in anticipation of the completion of the Transactions.

The Company expects cash used for purchases of land, buildings, and equipment in 2023 to be lower than in 2022, driven by its reduced operational focus.

Cash Flows from Financing Activities