Notes to Condensed Financial Statements
(unaudited)
1. Nature of Business
Calyxt, Inc., formerly known as Cellectis Plant Sciences, Inc. (the Company or Calyxt), was founded in 2010 and incorporated in Delaware. The Company is
headquartered in New Brighton, Minnesota. The Company is an agriculture biotechnology company focused on creating healthier specialty food ingredients and agriculturally advantageous food crops through the use of gene editing technology. The Company
changed its name from Cellectis Plant Sciences, Inc. to Calyxt, Inc. on May 4, 2015. Prior to the Companys initial public offering (IPO) on July 25, 2017, Calyxt was a wholly owned subsidiary of Cellectis S.A. (Cellectis
or Parent). As of September 30, 2017, Cellectis owns approximately 79.8% of the Companys outstanding common stock. Calyxts common stock is listed on the Nasdaq market under the ticker symbol CLXT.
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q
and Rule
8-03
of Regulation
S-X.
Accordingly,
they do not include all of the information and related notes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, all adjustments (consisting of normal
recurring adjustments) considered necessary for a fair presentation have been included in the accompanying financial statements. The results of operations for the periods ended September 30, 2017 and 2016 are not necessarily indicative of the
results that may be expected for the full year.
This interim information should be read in conjunction with the audited financial statements included in
the Companys prospectus dated July 19, 2017, which was filed with the Securities and Exchange Commission (SEC) on July 20, 2017.
Initial Public Offering
On July 25, 2017,
the Company completed an IPO of its common stock. The Company sold an aggregate of 8,050,000 shares of common stock at a price of $8.00 per share, including 1,050,000 shares of common stock pursuant to the exercise of the underwriters
option to purchase additional shares. In the aggregate, the Company received net proceeds from the IPO and exercise of the overallotment of approximately $58.0 million, after deducting underwriting discounts and commissions of
$3.1 million and offering expenses totaling approximately $3.3 million. As part of the IPO, Cellectis purchased 2,500,000 shares of common stock for a value of $20.0 million, which is included in the net proceeds of approximately
$58.0 million. The Company used $5.7 million of the proceeds from Cellectis to cover a portion of the outstanding obligations owed to Cellectis.
Stock Splits
On June 14, 2017, pursuant to
the authorization provided in a written consent in lieu of a special meeting of the Company, the Company effected a stock split of the Companys common stock at a ratio of
100-for-1
and increased the number of shares of common stock authorized for issuance to 30,000,000 by filing a Certificate of Amendment with the Secretary of State of
the State of Delaware.
On July 25, 2017, the Company amended its Amended and Restated Certificate of Incorporation to increase the authorized
capital stock of the Company to 325,000,000 shares of which 275,000,000 shares are designated common stock, par value
$0.0001, and 50,000,000 shares are
designated preferred stock, par value $0.0001.
On July 25, 2017, concurrently with the closing of the IPO, the Company effected a stock split of the
Companys common stock at a ratio of
2.45-for-1.
As a result of the stock split, each share of issued and outstanding common stock was converted into 2.45 shares of
issued and outstanding common stock without changing the par value per share.
Since the par value of the common stock remained at $0.0001 per share
subsequent to each stock split, the value of common stock recorded to the Companys balance sheets has been retroactively increased to reflect the par value of the increased number of outstanding shares, with a corresponding decrease to
additional
paid-in
capital. All share and per share data for periods occurring prior to the stock split that are included in the financial statements and related notes have been retroactively restated to
reflect the stock splits.
Liquidity
The
Companys financial statements have been prepared and presented on a basis assuming it continues as a going concern. During the years ended December 31, 2016 and 2015 and through September 30, 2017, the Company incurred losses from
operations and net cash outflows from operating activities as disclosed in the statements of operations and cash flows, respectively. At September 30, 2017, the Company had an accumulated deficit of $47.7 million and it expects to incur
losses for the immediate future. To date, the Company has been funded by capital infusions from its parent and equity financings. The Company believes that it will be able to successfully fund its operations from the net proceeds of the recently
completed IPO through mid-2019; however, there can be no assurance that it will be able to do so or that it will ever operate profitably.
8
2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, the Company evaluates its estimates, including those related to stock-based compensation and the
valuation allowance for deferred tax assets and derivatives. The Company bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances. Actual
results could differ from those estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and term deposits with original maturities of three months or less. The carrying value of these instruments
approximate fair value. The balances, at times, may exceed federally insured limits. The Company has not experienced any losses on its cash and cash equivalents.
Trade Accounts Receivable
Accounts receivable are
unsecured, are recorded at net realizable value, and do not bear interest. The Company makes judgments as to its ability to collect outstanding receivables based upon patterns of collectability, historical experience, and managements
evaluation of specific accounts and will provide an allowance for credit losses when collection becomes doubtful. The Company performs credit evaluations of its customers financial condition on an
as-needed
basis. Payment is generally due 30 days from the invoice date, and accounts past 30 days are individually analyzed for collectability. When all collection efforts have been exhausted, the account is
written off against the related allowance.
As of September 30, 2017, the Company had no trade accounts receivables. The Company considered its trade
receivables to be fully collectible at December 31, 2016; accordingly, no allowance for doubtful accounts was considered necessary.
Prepaid
Expenses and Other Current Assets
Other current assets represent prepayments, receivable for stock option exercises, R&D tax credits and deposits
made by the Company.
Property and Equipment
Property and equipment is stated at cost less accumulated depreciation. Depreciation is computed based upon the estimated useful lives of the respective
assets. Leasehold improvements are amortized using the straight-line method over the shorter of the lease term or the estimated useful life of the assets. Repairs and maintenance costs are expensed as incurred. The cost and accumulated depreciation
of property and equipment retired, or otherwise disposed of, are removed from the related accounts, and any residual values are charged to expense. Depreciation expense has been calculated using the following estimated useful lives:
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Buildings and other improvements
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1020 years
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Leasehold improvements
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Remaining lease period
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Office furniture and equipment
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57 years
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Computer equipment and software
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35 years
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Leases
The Company
entered into a sale-lease back transaction on September 6, 2017 with respect to certain real property and improvements located in Roseville, MN, whereby the Company sold the land and other improvements to a third party in exchange for approximately
$7 million in cash and the Company committed to an initial lease term of twenty years, with four options to extend the term of the Lease Agreement for five years each. The transaction also included a construction contract for the Companys new
nearly 40,000 square-foot corporate headquarters which when complete will include office, research laboratory space and outdoor growing plots.
During the
construction period, the company will initially pay annual base rent of $490 thousand until the property has been substantially completed, at which time, the lease will commence and the Company will pay annual base rent at the rate of 8% of the
total cost which based on the project plan would approximate an annual base rent of $1,480 thousand. The Lease Agreement is a net lease, whereby the Company is responsible for the other costs and expenses associated with the use of the property.
Cellectis entered into a Lease Guaranty with the landlord, whereby Cellectis has guaranteed the Companys obligations under the Lease Agreement. Cellectis guarantee of Calyxts obligations under the sale-leaseback transaction will
terminate at the end of the second consecutive calendar year in which Calyxts tangible net worth exceeds $300 million, as determined in accordance with generally accepted accounting principles.
The Company is responsible for construction cost over runs. As a result of this involvement, the Company is deemed the owner for accounting
purposes during the construction period and is required to capitalize the construction costs on the Balance Sheet. The sale of the land and structures also does not qualify for sale-leaseback accounting under ASC 840 as a result of continuing
involvement and the guarantee of the transaction by Cellectis. Under ASC 840, the continuing involvement precludes the Company from derecognizing the assets from the Balance Sheet. When the assets under construction have been
substantially completed the assets associated with the project will be capitalized and depreciated over the term of the lease.
The Company has recorded
assets under construction of $1,374 thousand and a finance obligation of $7,934 thousand as of September 30, 2017.
Long-Lived Assets
Management reviews its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset
group may not be recoverable. If the impairment tests indicate that the carrying value of the asset, or asset group is greater than the expected undiscounted cash flows to be generated by such asset or asset group, further analysis is performed to
determine the fair value of the asset or asset group. To the extent the fair value of the asset or asset group is less than its carrying value, an impairment loss is recognized equal to the amount the carrying value exceeds the fair value of the
asset or asset group. The Company generally measures fair value by considering sale prices for similar assets or asset groups, or by discounting estimated future cash flows from such assets or asset groups using an appropriate discount rate. Assets
to be disposed of are carried at the lower of their carrying value or fair value less costs to sell.
9
There have been no impairment losses recognized for the three and nine months ended September 30, 2017 or
September 30, 2016.
Fair Value of Financial Instruments
Pursuant to the requirements of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 820,
Fair Value
Measurement
,
the Companys financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:
Level 1
Financial instruments with unadjusted quoted prices listed on active market exchanges.
Level 2
Financial instruments lacking unadjusted, quoted prices from active market exchanges, including
over-the-counter
traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms, as well as directly
or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3
Financial
instruments that are not actively traded on a market exchange. This category includes situations in which there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or
valuation techniques.
The Company has derivative instruments that are classified as Level 2. The Company does not have any financial instruments
classified as Level 3, and there were no movements between these categories during the nine months ended September 30, 2017 or September 30, 2016.
Forward Purchase Contracts and Derivatives
The Company
enters into supply agreements for grain and seed production with settlement values based on commodity market futures pricing. The Company accounts for these derivative financial instruments utilizing the authoritative guidance in ASC Topic 815,
Derivatives and Hedging
. Realized gains and losses from derivative contracts are recorded as research and development (R&D) expenses as a result of breeding contract activity. The fair value for forward purchase contracts is estimated
based on exchange-quoted prices.
Unrealized gains and losses on all derivative contracts are recorded in other current assets or other current
liabilities on the balance sheet at fair value. The gains and losses recorded by the Company are not significant for the three and nine months ended September 30, 2017 or 2016.
The table below summarizes the carrying value of derivative instruments as of September 30, 2017 and December 31, 2016.
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Derivatives not
designated as hedging
instruments
under
ASC Topic 815
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Asset Derivatives
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Liability Derivatives
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Balance Sheet Location
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Fair Value
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Balance Sheet Location
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Fair Value
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September 30,
2017
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|
December 31,
2016
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|
September 30,
2017
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December 31,
2016
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(in thousands)
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(in thousands)
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(in thousands)
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(in thousands)
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Forward purchase contracts
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Prepaid expenses and
other current assets
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$
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3
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$
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9
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Accrued liabilitiescurrent
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$
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5
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$
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19
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Total derivatives
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$
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3
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$
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9
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$
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5
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$
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19
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10
Patents
The
Company expenses patent costs, including related legal costs, as incurred and records such costs within selling, general and administrative expenses in the statements of operations.
Revenue Recognition
The Company enters into R&D
agreements that may consist of nonrefundable
up-front
payments, milestone payments, royalties, and R&D Services. In addition, the Company may license its technology to third parties, which may be part of
the R&D agreements.
For agreements that contain multiple elements, each element within a multiple-element arrangement is accounted for as a separate
unit of accounting provided the following criteria are met: the delivered products or services have value to the customer on a stand-alone basis and, for an arrangement that includes a general right of return relative to the delivered products or
services, delivery, or performance of the undelivered product or service is considered probable and is substantially controlled by the Company. The Company considers a deliverable to have stand-alone value if the product or service is sold
separately by the Company or another vendor or could be resold by the customer. Further, the Companys revenue arrangements do not include a general right of return relative to the delivered products.
Nonrefundable
up-front
payments are deferred and recognized as revenue over the period of the R&D agreement. If an
R&D agreement is terminated before the original term of the agreement is fulfilled, all the remaining deferred revenue is recognized at the date of termination.
Milestone payments represent amounts received from the Companys R&D partners, the receipt of which is dependent upon the achievement of certain
scientific, regulatory, or commercial milestones. The Company recognizes milestone payments when the triggering event has occurred, there are no further contingencies or services to be provided with respect to that event, and the counterparty has no
right to refund of the payment. The triggering event may be scientific results achieved by the Company or another party to the arrangement, regulatory approvals, or the marketing of products developed under the arrangement.
Royalty revenue arises from the Companys contractual entitlement to receive a percentage of product sales revenues achieved by counterparties. Royalty
revenue is recognized on an accrual basis in accordance with the terms of the agreement when sales can be determined reliably and there is reasonable assurance that the receivables from outstanding royalties will be collected.
License revenue from licenses that were granted to third parties is recognized ratably over the period of the license agreements. Revenue from R&D
services is recognized over the period the R&D services are performed.
Cost of Revenue
Cost of revenue relates to the performance of services or contract research and consists of direct external expenses relating to projects and internal costs,
including overhead allocated on a full-time equivalent basis.
Research and Development
R&D expenses represent costs incurred for the development of various products using licensed gene editing technology, including expenses allocated to
Calyxt by Cellectis. R&D expenses consist primarily of salaries and related costs of the Companys scientists,
in-licensing
of technology, consumables, property and equipment depreciation, and fees
paid to third-party consultants. All research and development costs are expensed as incurred.
In the normal course of business, Calyxt enters into
R&D contracts with third parties whereby Calyxt performs R&D of certain gene traits for the third party. The Company has entered into various multiyear arrangements in which Calyxt performs the R&D of the gene technology and the third
parties generally have primary responsibility for any commercialization of the technology. These arrangements are performed with no guarantee of either technological or commercial success.
The Company
in-licenses
certain technology from third-parties that is a component of ongoing research and product
development. The Company expenses
up-front
license fees upon contracting due to the uncertainty of future commercial value, as well as expensing any ongoing annual fees when incurred. Related-party
in-licensing
expense was $4 thousand and $10 thousand for the three months ended September 30, 2017 and 2016, respectively. Related-party
in-licensing
expense
was $31 thousand and $33 thousand for the nine months ended September 30, 2017 and 2016, respectively. Third-party
in-licensing
expenses were $3 thousand and $46 thousand for the three
months ended September 30, 2017 and 2016, respectively. Third-party
in-licensing
expenses were $122 thousand and $385 thousand for the nine months ended September 30, 2017 and 2016,
respectively.
11
Foreign Currency Transactions
Transactions in foreign currencies are remeasured into the Companys functional currency, U.S. dollars, at the exchange rates effective at the transaction
dates. Assets and liabilities denominated in foreign currencies at the reporting date are remeasured into the functional currency using the exchange rate effective at that date. The resulting exchange gains or losses are recorded in the statements
of operations under selling, general, and administrative expenses.
Income Taxes
Current income taxes are recorded based on statutory obligations for the current operating period for the jurisdictions in which the Company has operations.
Deferred taxes are provided on an asset and liability method, whereby deferred tax assets are recognized for deductible temporary differences and
deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of
enactment.
The tax effects from an uncertain tax position can be recognized in the financial statements only if the position is more likely than not to
be sustained on audit, based on the technical merits of the position. Calyxt recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position
following an audit. For tax positions meeting the more-likely
than-not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50% likelihood of being
realized upon settlement with the relevant tax authority. The Company is subject to income taxes in U.S. federal and state jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal and state income tax examinations by tax
authorities for years ending prior to 2013. In the event of any future tax assessments, the Companys accounting policy is to record the income taxes and any related interest or penalties as current income tax expense on the statements of
operations.
Recent Accounting Pronouncements
In May
2014, the FASB issued Accounting Standards Update (ASU)
2014-09,
Revenue from Contracts with Customers,
which creates ASC Topic 606,
Revenue from Contracts with Customers,
and supersedes the
revenue recognition requirements in ASC Topic 605,
Revenue Recognition.
The guidance in ASU
2014-09
and subsequently issued amendments ASU
2016-08,
Revenue
from Contracts with Customers: Principal versus Agent Considerations (Reporting Revenue Gross versus Net)
;
ASU
2016-10,
Revenue from Contracts with Customers: Identifying Performance Obligations
and Licensing;
and ASU
2016-12,
Revenue from Contracts with Customers: Narrow-Scope Improvements and Practical Expedients,
outlines a comprehensive model for all entities to use in accounting for
revenue arising from contracts with customers, as well as required disclosures. Entities have the option of using either a full retrospective or modified approach to adopt the new guidance. For public entities, certain
not-for-profit
entities, and certain employee benefit plans, the new revenue standard is effective for annual periods beginning after December 15, 2017, including
interim periods within that reporting period. For all other entities, the new revenue standard is effective for annual periods beginning after December 15, 2018, and interim periods within annual periods beginning after December 15, 2019.
Early adoption is permitted. The Company is evaluating the impact of adopting this pronouncement.
In November 2015, the FASB issued ASU
2015-17,
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.
The amendment simplifies the presentation of deferred income taxes. Instead of separating deferred income tax liabilities and
assets into current and
non-current
amounts in a classified statement of financial position, the amendments in this update require that deferred tax liabilities and assets be classified as
non-current
in a classified statement of financial position. For public entities, ASU
2015-17
is effective for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. For
non-public
entities, ASU
2015-17
is effective for annual periods beginning after December 15, 2017, and interim
periods within annual periods beginning after December 15, 2018. Adoption of this standard did not have a material impact on the Companys financial statements as all net deferred tax assets are fully reserved.
In February 2016, the FASB issued ASU
2016-02,
Leases (Topic 842).
The guidance requires that lessees recognize
assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. The amendment also requires disclosures designed to give financial statement users information on the amount, timing,
and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. For public entities,
not-for-profit
entities, or
employee benefit plans, ASU
2016-02
is effective for annual periods beginning after December 15, 2018, and interim periods within those annual periods. For all other entities, ASU
2016-02
is effective for annual periods beginning after December 15, 2019, and interim periods within annual periods beginning after December 15, 2020. Entities are required to use a modified retrospective
approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. Early adoption is permitted. The Company is evaluating the impact of adopting this pronouncement.
12
In March 2016, the FASB issued ASU
2016-09,
CompensationStock
Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting
. This ASU eliminates the additional
paid-in
capital (APIC) pool concept and requires that excess tax benefits and tax
deficiencies be recorded in the statement of operations when awards are settled. The ASU also addresses simplifications related to statement of cash flows classification, accounting for forfeitures, and minimum statutory tax withholding
requirements. For public entities, ASU
2016-09
is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For all other entities, ASU
2016-09
is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Adoption of this standard did not have a material
impact on the Companys financial statements.
In May 2017, the FASB issued
ASU 2017-09,
Compensation
Stock Compensation (Topic
718): Scope of Modification Accounting
, which clarifies when to account for a change to the terms or conditions of a share-based payment award as a
modification. Under the new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as a result of the change in terms or conditions. It is
effective prospectively for the annual period ending December 31, 2018 and interim periods within that annual period. Early adoption is permitted. The Company is currently evaluating the impact of adopting this standard on the consolidated
financial statements and disclosures, but does not expect it to have a significant impact.
3. Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, and trade
accounts receivable. The Company also has concentrations of revenue with certain customers.
Cash and cash equivalents concentration
The
Company holds cash balances at financial institutions that, at times, may exceed federally insured limits. The Company evaluates the creditworthiness of these financial institutions in determining the risk associated with these deposits. Calyxt has
not experienced any losses on such accounts.
Trade accounts receivable concentration
At September 30, 2017, the Company had no trade
accounts receivable. At December 31, 2016, one customer accounted for 100% of trade accounts receivable.
Revenue concentration
For the
three and nine months ended September 30, 2017, three customers accounted individually for 12.6%, 19.5% and 63.0% and 64.2%, 8.0% and 25.8% of revenue, respectively. For the three and nine months ended September 30, 2016, four customers
accounted individually for 16.2%, 18.6%, 27.5% and 35.5% and 15.0%, 22.9%, 25.4% and 32.8% of revenue, respectively.
4. Property and Equipment
Property and equipment consists of the following:
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(Amounts in Thousands)
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September 30,
2017
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December 31,
2016
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Land
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$
|
5,690
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|
$
|
5,690
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|
Buildings and other improvements
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|
4,414
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|
|
4,304
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|
Leasehold improvements
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|
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169
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|
|
|
169
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|
Office furniture and equipment
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|
|
1,673
|
|
|
|
1,506
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|
Computer equipment and software
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20
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20
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Assets under construction
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1,374
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37
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|
13,340
|
|
|
|
11,726
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|
Less accumulated depreciation
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(1,146
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)
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(732
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)
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Property and equipment, net
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$
|
12,194
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|
$
|
10,994
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As of September 30, 2017, the Company recorded $1,374 thousand in assets under construction which consists of site
improvements and architect fees related to phase two of the corporate headquarter plan related to a sale-leaseback transaction. At the completion of construction, the completed asset will be capitalized and depreciated over the term of the lease.
13
Depreciation expense was $146 thousand and $81 thousand for the three months ended September 30,
2017 and 2016, respectively. Depreciation expense was $414 thousand and $150 thousand for the nine months ended September 30, 2017 and 2016, respectively.
5. Related-Party Transactions
Due from related parties
consists of receivables due from another subsidiary of the Parent related to payroll services provided by Calyxt to the other subsidiary.
Due to related
parties consists of cash advances, license fees, amounts owed under the intercompany management agreement, and interest charged on outstanding amounts. Amounts due to the Parent that are included in due to related parties on the balance sheet bear
interest at a rate of the European Interbank Offered Rate for 12 months (EURIBOR 12) plus 5% per annum. All interest expense in the statements of operations relates to interest accruing on amounts due to the Parent.
The Company has a management agreement with the Parent, in which the Company pays the Parent a monthly fee for certain services provided by the Parent, which
include general sales and administration functions, accounting functions, research and development, legal advice, human resources, and information technology. The Company recorded expenses associated with the management agreement of
$466 thousand and $430 thousand for the three months ended September 30, 2017 and 2016, respectively. For the three months ended September 30, 2017 and 2016, the Company classified $414 thousand and $385 thousand,
respectively, as a component of sales, general, and administrative expenses, while $52 thousand and $45 thousand, respectively, were classified as a component of R&D expenses. The Company recorded expenses associated with the
management agreement of $1,361 and $1,343 thousand for the nine months ended September 30, 2017 and 2016, respectively. For the nine months ended September 30, 2017 and 2016, the Company classified $1,244 thousand and
$1,207 thousand, respectively, as a component of sales, general, and administrative expenses, while $117 thousand and $136 thousand, respectively, were classified as a component of R&D expenses.
The Parent entered into a Lease Guaranty with the Landlord, whereby the Parent has guaranteed the Companys obligations under the Lease Agreement.
Cellectis guarantee of Calyxts obligations under the sale-leaseback transaction will terminate at the end of the second consecutive calendar year in which Calyxts tangible net worth exceeds $300 million, as determined in
accordance with generally accepted accounting principles.
TALEN technology was invented by researchers at the University of Minnesota and Iowa State
University and exclusively licensed to Cellectis. Calyxt obtained from Cellectis an exclusive license to the technology for commercial use in plants. TALEN technology is the primary gene-editing technology used by Calyxt today. The Company will be
required to pay a royalty to Cellectis on future sales for the licensing of the technology.
6. Accrued Liabilities
As of September 30, 2017, and December 31, 2016, respectively, the Company had accrued liabilities of $636 thousand and $363 thousand,
which consist of unrecognized income related to construction tax incentives and miscellaneous operating expenses.
7. Net Loss per Share
Basic earnings per share is computed based on the net loss allocable to common stockholders for each period, divided by the weighted average number of common
shares outstanding. All outstanding stock options are excluded from the calculation since they are anti-dilutive. Due to the existence of net losses for the three- and nine-month periods ended September 30, 2017 and 2016, basic and diluted loss
per share were the same.
8. Stock-Based Compensation
Calyxt, Inc. Equity Incentive Plan
The Company adopted
the Calyxt, Inc. Equity Incentive Plan, or the Existing Plan, which allows for the grant of stock options to attract and retain highly qualified employees. In June 2017, the Company also adopted an omnibus incentive plan, or the Omnibus Plan, under
which the Company granted stock options and restricted stock units to certain of our employees, nonemployees, and certain employees and nonemployees of the Parent.
The options granted under the Existing Plan and the Omnibus Plan were only exercisable upon a triggering event or initial public offering as defined by the
plan. Accordingly, with the completion of the IPO on July 25, 2017, the Company recognized compensation expense of $5.6 million for stock options granted under the plans for the three and nine month periods ended September 30, 2017.
The stock options issued under the plans had an exercise price equal to the estimated fair value of the stock at the grant date.
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The following table presents stock-based compensation expense included in the Companys condensed statements
of operations (in thousands) for stock options and restricted stock unit awards under the plans:
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Three Months Ended September 30
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Nine Months Ended September 30
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2017
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2016
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2017
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2016
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Stock-based compensation expense for:
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Employee stock options
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$
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3,891
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$
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$
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3,891
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$
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Employee restricted stock units
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706
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1,141
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Nonemployee stock options
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4,209
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4,209
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Nonemployee restricted stock units
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385
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393
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$
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9,191
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$
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$
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9,634
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$
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Three Months Ended September 30
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Nine Months Ended September 30
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2017
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2016
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2017
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2016
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Stock-based compensation expense in operating expenses:
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Selling, general and administrative
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$
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4,539
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$
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$
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4,961
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$
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Research and development
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4,652
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4,673
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$
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9,191
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$
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$
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9,634
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$
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The Company treats stock-based compensation awards granted to employees of the Parent as dividends, which are recorded
quarterly. The Company recorded $2,769 and $2,838 thousand in a deemed dividend to the Parent in the three and nine months ended September 30, 2017 for restricted stock units and stock options granted to employees of the Parent.
Equity instruments issued to non-employees include RSUs and options to purchase shares of the Companys common stock. These RSUs and options vest over a
certain period during which services are provided. The Company expenses the fair market value of the awards over the period in which the related services are received. Unvested awards are remeasured to fair value until they vest.
Stock Options
The following table summarizes stock
option activity for the nine months ended September 30, 2017:
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Number of
Shares
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Weighted-
Average
Exercise Price
Per Share
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Aggregate
Intrinsic
Value (in
thousands)
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Weighted-
Average
Remaining
Contractual
Life
(in years)
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Outstanding at December 31, 2016
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1,930,600
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$
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4.45
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9.1
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Granted
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2,120,347
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$
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13.29
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Exercised
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(43,130
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$
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4.14
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Canceled
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(20,825
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$
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5.85
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Outstanding at September 30, 2017
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3,986,992
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$
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9.15
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$
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61,172
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9.1
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Exercisable at September 30, 2017
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1,193,700
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$
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5.21
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$
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23,010
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8.3
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At September 30, 2017, the total unrecognized stock-based compensation expense related to
non-vested
stock options is approximately $6.7 million, which is expected to be recognized over a weighted-average period of 4.3 years.
The Company had 1,159,914 stock options that vested upon the completion of the IPO. The stock-based compensation expense related to these awards that was
recorded upon the consummation of this offering was $5.6 million.
The fair value of each stock option is estimated using the Black-Scholes option
pricing model at each measurement date. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates, volatility of the
stock price, and expected dividends. The awards currently outstanding were granted with vesting terms between two and six years. Certain awards contained a 25% acceleration vesting clause upon a triggering event or initial public offering as defined
in the Existing Plan.
The Company has not historically paid cash dividends to its stockholders and currently does not anticipate paying any cash
dividends in the foreseeable future. As a result, the Company has assumed a dividend yield of 0%. The risk-free interest rate is based upon the rates of U.S. Treasury bills with a term that approximates the expected life of the option. The Company
uses the simplified method, or the lattice method when appropriate, to reasonably estimate the expected life of its option awards. Expected volatility is based upon the volatility of comparable public companies.
The following table provides the assumptions used in the Black-Scholes model for the stock option awards:
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Expected dividend yield
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0%
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Risk-free interest rate
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1.25% - 2.31%
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Expected volatility
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27.4% - 45.1%
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Expected life (in years)
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1.22 10.00
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Restricted Stock Units
The following table summarizes the activity of restricted stock units:
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Number of
Restricted Stock
Units Outstanding
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Weighted-Average
Grant Date Fair
Value
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Unvested balance at December 31, 2016
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$
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Granted
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1,452,333
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$
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8.00
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Vested
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(39,200
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)
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Unvested balance at September 30, 2017
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1,413,133
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$
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8.00
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As of September 30, 2017, the Company had approximately $8.5 million of unrecognized stock-based compensation
expense related to restricted stock units that is expected to be recognized over a weighted-average period of 5.1 years.
Parent Awards
The Companys Parent granted stock options to employees of Calyxt. Compensation costs related to the grant of the Parent company awards to Calyxts
employees has been recognized in the statements of operations with a corresponding credit to stockholders equity, representing the Parents capital contribution to the Company. The fair value of each stock option is estimated at the grant
date using the Black-Scholes option pricing model. The fair value of stock options under the Black-Scholes model requires management to make assumptions regarding projected employee stock option exercise behaviors, risk-free interest rates,
volatility of the Companys stock price, and expected dividends.
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The following table provides the range of assumptions used in the Black-Scholes model for the Parent awards:
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Expected dividend yield
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0%
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Risk-free interest rate
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2.16% - 2.31%
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Expected volatility
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37.5% - 42.3%
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Expected life (in years)
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7.43 10.00
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In 2015 the Companys Parent granted to certain consultants of Calyxt warrants to purchase Cellectis stock in exchange
for services provided to the Company. The Company recorded the fair value of the warrants as a dividend paid to the Parent in exchange for the warrants issued to consultants.
The Company recognized stock-based compensation expense related to its Parents grants of stock options and warrants to Calyxt employees and consultants
of $98 thousand and $212 thousand for the three-month periods ended September 30, 2017 and 2016, respectively. The Company recognized stock-based compensation expense related to its Parents grants of stock options and warrants
to Calyxt employees and consultants of $347 thousand and $807 thousand for the nine-month periods ended September 30, 2017 and 2016, respectively. The following table summarizes the stock-based compensation expense for Parent awards
(in thousands), which was recognized in the Companys statements of operations:
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Three Months Ended September 30
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Nine Months Ended September 30
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2017
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2016
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2017
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2016
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Stock-based compensation expense in operating expenses:
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Selling, general and administrative
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$
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2
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$
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5
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$
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7
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$
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17
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Research and development
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96
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207
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340
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790
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$
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98
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$
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212
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$
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347
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$
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807
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9. Income Taxes
The
Company provides for a valuation allowance when it is more likely than not that it will not realize a portion of the deferred tax assets. The Company has 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, the Company has not reflected any benefit of such deferred tax assets in the accompanying financial statements.
As of September 30, 2017, there were no material changes to what the Company disclosed regarding tax uncertainties or penalties as of December 31,
2016.
10. Commitments and Contingencies
Litigation and Claims
Various legal actions, proceedings,
and claims (generally, matters) are pending or may be instituted or asserted against the Company. The Company accrues for matters when losses are deemed probable and reasonably estimable. Any resulting adjustments, which could be
material, are recorded in the period the adjustments are identified. The Company has not identified any legal matters needing to be recorded or disclosed as of September 30, 2017.
Leases
The Company leases the existing office space
under an amended
non-cancelable
operating lease that expires in May 2018. Rent expense is recognized using the straight-line method over the term of the lease. In addition to minimum lease payments, the office
lease requires payment of a proportionate share of real estate taxes and building operating expenses. Total rent expense was $65 thousand and $63 thousand for three months ended September 30, 2017 and 2016, respectively. Total rent
expense was $195 thousand and $206 thousand for nine months ended September 30, 2017 and 2016, respectively.
Future minimum lease
commitments as of September 30, 2017 are as follows (in thousands):
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2017
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$
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56
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2018 and beyond
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94
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Total
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$
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150
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Sale Leaseback
In
September 2017, the Company entered into a twenty year sale-leaseback transaction for a property that will be the Companys new corporate headquarters. The Company is deemed the owner for accounting purposes and the lease will be
treated as a capital lease.
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Under the Lease Agreement, the Company will initially pay annual base rent of $490 thousand until the
construction is substantially complete. Occupancy is expected to be on or about May 1, 2018 at which time the Company will pay an annual base rent of 8% of the total project cost. Based on the initial costs of the project, the Company will pay
an estimated annual base rent of $1,480 thousand.
Obligations to Cellectis
As of September 30, 2017, the Company had short-term Parent obligations of $3.3 million consisting of amounts owed under the intercompany management
agreement for services provided by Cellectis and costs incurred by Cellectis on behalf of the Company.
Forward Purchase Commitments
The Company has forward purchase commitments with growers to purchase seed and grain at future dates in the amount of approximately $1.6 million that are
estimated based on anticipated yield and expected price. This amount is not recorded in the financial statements because the company has not taken delivery of the seed and grain.
11. Employee Benefit Plan
The Company provides a 401(k)
defined contribution plan (the Plan) for participation by all regular fulltime employees who have completed three months of service. The Plan provides for a matching contribution equal to 100% of the amount of the employees salary deduction up
to 3% of the salary per employee and an additional 50% match from 3% to 5% of salary. Employees rights to the Companys matching contributions vest immediately. Company contributions to the Plan totaled $22 thousand and
$17 thousand for the three months ended September 30, 2017 and 2016, respectively. Company contributions to the Plan totaled $67 thousand and $49 thousand for the nine months ended September 30, 2017 and 2016, respectively.
12. Segment and Geographic Information
The Company
has one operating and reportable segment, R&D of plant gene editing. The Company derives substantially all of its revenue from R&D contracts related to plant gene editing located in the US.
13. Subsequent Event
As reported in Note 2, the Company
consummated a sale-leaseback transaction, including a Lease Agreement, with respect to the Companys lease of certain real property and improvements. Cellectis entered into a Lease Guaranty with the landlord, whereby Cellectis has guaranteed
the Companys obligations under the Lease Agreement. On November 10, 2017, the Company agreed to indemnify Cellectis for any obligations incurred by Cellectis under the Lease Guaranty. This indemnification agreement will become effective at
such time as Cellectis owns 50% or less of the Companys outstanding common stock.
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