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MarketScreener Homepage  >  Equities  >  Nasdaq  >  Calyxt, Inc.    CLXT

CALYXT, INC.

(CLXT)
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CALYXT : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/05/2020 | 05:07pm EST
The following discussion and analysis of our financial condition and results of
operations should be read together with our consolidated financial statements
and related notes, which are included elsewhere in this Quarterly Report on Form
10-Q.

EXECUTIVE OVERVIEW

We are a technology company focused on delivering plant-based innovations and
solutions with substantial disruption potential across multiple industries. Our
streamlined business model comprises three go-to-market strategies. Specific
deal structure and the amount and timing of cash flows and revenues will vary
depending upon several factors, including cost to develop, size of the
opportunity, and the stage at which a partner or licensee enters the development
process. Summaries of potential revenues and cash flows of our go-to-market
strategies are as follows:

• Seed Sale Arrangements: Through purchase agreements for the direct sale of

seed, with such sales expected to generate revenue for Calyxt.

• Trait and Product Licensing Arrangements: Through licensing agreements with

downstream partners with respect to Calyxt-developed traits or products for

      negotiated upfront and milestone payments and potential royalties upon
      commercial sale of products.

• TALEN® Licensing Arrangements: Through licensing agreements with third

parties with respect to our technology for negotiated upfront and annual

fees and potential royalties upon commercial sale of products.



For TALEN® licensing and trait and product development and licensing
arrangements, we expect that our customers will primarily be seed companies,
biotechnology companies, germplasm providers, large agricultural processors,
others in the relevant crop's supply chain, and growers, who would, in each
case, utilize our technology for their own trait development in specified crops.
For seed sale arrangements, we expect that our customers will be large
agricultural processing companies, including millers and crushers, or others in
the relevant crop's supply chain, with developed agronomy infrastructure and
commercialization expertise. Across each of these go-to-market strategies, we
will seek to develop relationships with strategic customers where our product
candidates are most likely to benefit from the counterparty's deep agronomy,
product management, and commercialization expertise. Placing our products and
traits with such strategic customers will reduce our expenses and downstream
risk exposure, while allowing us to pursue diversified growth across multiple
revenue streams.

We believe that our streamlined business model with differentiated go-to-market
strategies provides a capital-efficient, lower-cost, and highly scalable
approach. Our strategy is based on focusing on our core strengths in research
and development, gene-editing, and trait development. We will continue to focus
on advancing our gene-editing technologies toward developing high value
innovations and plant-based solutions with substantial disruption potential,
while leveraging our partners and licensees to manage commercialization and the
associated costs and risks. We believe that focusing our efforts on our
gene-editing technology and trait development expertise, while contracting with
commercialization partners or licensees for downstream execution strikes a
balance where we are best positioned for cost-efficient paths to market.

Having established a proof of concept with our high oleic soybean product, we
intend to refocus our commercial efforts with respect to this product on the
sale of seed for customers' own soybean processing businesses. We also
restructured our personnel to support the execution of our streamlined business
model, including staffing adjustments related to soybean processing and product
sales. With respect to grain from the 2020 crop that we have already contracted
to purchase from growers, we intend to pursue sales of the grain to large
processing companies. We have sold nearly all of the grain from the 2019 crop to
a large processor. For these transactions our arrangement with the processor
required us to purchase and market the soybean meal resulting from the grain the
processor purchased. In these types of arrangements, we record the net
settlement with the processor for grain sold by us and meal purchased by us as
revenue, and then recognize revenue upon the sale of the meal. Cost of goods
sold are determined based on our total costs for the grain purchased and the
purchase price to us for the meal.

We are currently exploring product opportunities in alfalfa, canola, hemp, oats,
peanuts, peas, potato, pulses, soybeans, wheat, and other crops for potential
applications across a variety of industries, including food, pharmaceutical,
energy, and agriculture. Applying our streamlined business model with
differentiated go-to-market strategies, we are well positioned to nimbly develop
plant-based input solutions for specific downstream issues, including consumer
preferences, sustainability, cost, quality, and regulatory compliance. As of the
date of this report, we have eight projects at Phase I or later in our
development process across alfalfa, hemp, oats, soybeans, and wheat, and are
exploring improved protein profile and flavor in pulse crops, with several
options under consideration.

Our current product development pipeline is as follows:

                                     - 18 -

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                                                                    TARGET
                                          TARGET COMMERCIAL      GO-TO-MARKET
   CROP                TRAIT                PLANTING YEAR          STRATEGY
  Alfalfa      Improved Digestibility            2021                Trait
   Wheat             High Fiber                  2022                Seed
  Soybean    High Oleic, Low Linolenic           2023                Seed
                       (HOLL)
   Hemp          Marketable Yield2               2023           Seed and Trait
   Hemp      Low THC for Food, Fiber, &          2024           Seed and Trait
                   Therapeutics2
    Oat            Cold Tolerant2                2026           Seed and Trait
  Soybean          Improved HOLL                 2026                Seed
  Soybean       High Saturated Fat2              2026           Seed and Trait
   Pulse    Improved Protein Profile and         2027                Trait
                       Flavor

1 The agronomic and functional quality of our product candidates and the timing of development are subject to a variety of factors and risks, which are described in our filings with the Securities and Exchange Commission.

2 These projects were advanced from Discovery to Phase I of our development process during the third quarter of 2020.


We are also actively negotiating agreements with potential partners with respect
to specific opportunities for which development activity would only commence
upon reaching a commercial agreement. These projects are not included in the
preceding table.

As previously reported, during the first quarter of 2020, we were notified that
a significant portion of our high fiber wheat plants were lost in field trials
due to improper aerial chemical applications by unaffiliated third parties. As a
result of the crop destruction, the number of cultivars was reduced, which
represents a significant reduction in the genetic potential of the wheat
germplasm that carries the high fiber trait. The harvested wheat, which is
currently undergoing validation testing, may prove to be of lesser agronomic and
functional quality than initially anticipated, and launch size and regulatory
timelines may be adversely affected. We are pursuing available avenues of
recourse against the unaffiliated third parties involved in the initial crop
loss as well as the adverse impact upon the surviving germplasm lines.

We are an early-stage company and have incurred net losses since our inception.
As of September 30, 2020, we had an accumulated deficit of $153.5 million. Our
net losses were $31.4 million for the nine months ended September 30, 2020.

We expect to continue to incur significant expenses and operating losses for the
next several years. Those expenses and losses may fluctuate significantly from
quarter-to-quarter and year-to-year. We expect that our expenses will be driven
by:

• continuing to advance the R&D of our current and future products;

• conducting additional breeding and field trials of our current and future

products;

• seeking regulatory and marketing approvals for our products;

• acquiring or in-licensing other products, technologies, germplasm, or other

biological material;

• maintaining, protecting, expanding, and defending our intellectual property

portfolio;

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

• seeking to attract and retain new and existing skilled personnel;

• identifying strategic partners and licensees and negotiating agreements under

the applicable go-to-market strategy;

• restructuring our infrastructure to support the execution of our streamlined

business model;

• short-term soybean product commercialization expenses as we advance the

product to a seed sale go-to-market strategy;

• addressing the impacts of the ongoing novel coronavirus (COVID-19) pandemic,

including implementing our expense reduction efforts and seeking to bolster

our liquidity position considering changing business needs and uncertain

macro-economic conditions; and

• experiencing any delays or encountering issues with any of the above,

including due to COVID-19 and its impacts.

OUR RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF OUR RESULTS

We are a majority-owned subsidiary of Cellectis. As of September 30, 2020, Cellectis owned 68.3% of our issued and outstanding common stock. Following completion of the registered direct offering of our common stock on October 20, 2020, Cellectis owned 64.7% of our issued and 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. As a result, such historical financial
information may not reflect the financial condition, results of operations or
cash flows we would have achieved as a stand-alone company and not a subsidiary
of Cellectis during such historical periods. Effective with the end of the third
quarter of 2019 we have internalized nearly all the services Cellectis
previously provided. Cellectis has also guaranteed the lease of our headquarters
facility.

                                     - 19 -

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Cellectis has certain contractual rights as well as rights pursuant to our certificate of incorporation and bylaws, in each case, as long as it maintains threshold beneficial ownership levels in our shares.


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

FINANCIAL OPERATIONS OVERVIEW

Revenue


For the three and nine months ended September 30, 2020, we recognized revenue
from the sales of high oleic soybean grain, oil, and meal as well as sales of
our first hemp product. We do not currently recognize revenue from seed
transactions because of the grower's commitment to sell their crop to us. We
benefit from the cash upon payment and defer the net profit on the seed to
inventory and recognize that benefit when the grower delivers grain to us.

Cost of Goods Sold and Inventory


Prior to 2019, our cost of goods sold represented immaterial costs associated
with our out-licensing activities. Costs we incurred associated with the
purchasing, storing, transporting and processing grain, net of proceeds of seed
sales (Grain Costs), were expensed as R&D. Beginning during the first quarter of
2019, we began to capitalize all Grain Costs into inventory. This affects the
year-over-year comparability of cost of goods sold, gross margins, and R&D
expenses. For the three months ended September 30, 2019, the impact of Grain
Costs expensed as R&D in 2018 totaled $2.8 million, and for the nine months
ended September 30, 2019, the impact of Grain Costs expensed as R&D in 2018
totaled $3.3 million.

Cost of goods sold also includes crush and refining losses that are expensed as
incurred since they do not add to the value of the finished products. All other
grain and qualifying risk management costs, net of the benefit from our seed
activity, are capitalized to inventory and relieved to cost of goods sold as the
high oleic soybean grain, oil, and meal is sold. Any valuation adjustments to
inventory are recognized as incurred. Gains and losses resulting from commodity
derivative contracts sold to convert our fixed price grain inventories and fixed
price Forward Purchase Contracts to floating prices are recorded in current
period cost of goods sold. Because we expect to sell grain at market prices, the
economic effects of the hedges being recognized currently are expected to be
fully offset when we sell the grain in a future period.

Research and Development Expense

Research and development (R&D) expenses consist of the costs of performing activities to discover and develop products and advance our intellectual property. We recognize R&D expenses as they are incurred.


Excluding the Grain Costs expensed as R&D mentioned above, our R&D expenses
consist primarily of employee-related costs for our R&D personnel, fees for
contractors who support product development and breeding activities, expenses
for trait validation, purchasing material and supplies for our laboratories,
licensing, facilities, regulatory, and other costs associated with owning and
operating our own laboratories. R&D expenses also include costs to write and
support the research for filing patents.

Selling and Supply Chain Expense


Selling and Supply Chain (S&SC) expenses consist primarily of employee-related
expenses for marketing and selling our products, acreage acquisition, managing
the supply chain and business development, as well as costs to market our
products and an allocation of facility and information technology expenses.

General and Administrative Expense


General and administrative (G&A) expenses consist primarily of employee-related
expenses for our executive, legal, intellectual property, information
technology, finance, and human resources functions. Other G&A expenses include
facility and information technology expenses not otherwise allocated to R&D or
S&SC expenses, professional fees for auditing, tax and legal services, expenses
associated with maintaining patents, consulting costs and other costs of our
information systems.

Interest, net

Interest, net is comprised of interest income resulting from investments of cash
and cash equivalents and short-term investments, any unrealized gains and losses
on short-term investments, and interest expense on our financing lease
obligations. It is also driven by balances, yields, and timing of financing
activities.

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Anticipated Changes Between Revenues and Costs


As we execute upon our streamlined business model with differentiated
go-to-market strategies, we expect the composition of our revenues and costs to
evolve. Future cash and revenue-generating opportunities are expected to
primarily arise from seed sales, product development activities, and licensing
arrangements. Under licensing arrangements, revenues are expected to be royalty
payments upon the commercial sale of products.

Because our strategy is based on focusing on our core strengths in research and
development, gene-editing, and trait development, we expect R&D expenses to be
the primary area of increase in our expenses. At the same time, because our
streamlined business model relies on third parties assuming responsibility for
agronomy infrastructure, product management, and commercialization, we expect
that S&SC expense will decline substantially as the new models are fully
implemented.

Due to changes in our cash balance and the current interest rate environment, we
expect interest, net to decrease in the balance of 2020 as compared to the same
period in 2019.

Recent Developments - COVID-19 Update


As previously reported, our operations in Minnesota are classified as critical
sector work under the State of Minnesota's COVID-19 executive orders.
Accordingly, most of our laboratory workers have continued to work onsite at our
headquarters throughout the pandemic, and our R&D programs and seed distribution
activities have not experienced material delays. In accordance with our COVID-19
Preparedness Plan, Minnesota executive order requirements, and CDC guidelines,
we have implemented health and safety measures for the protection of our onsite
workers and have maintained remote work arrangements for our non-laboratory
personnel.

During the third quarter, supply chain disruptions did not have a material
impact on our operations. however, a resurgence of the COVID-19 pandemic (as is
currently occurring in some states), governmental response measures, and
resulting disruptions could rapidly offset such improvements. Moreover, the
effects of the COVID-19 pandemic on the financial markets remain substantial and
broader economic uncertainties persist, which may make obtaining capital
challenging and have exacerbated the risk that such capital, if available, may
not be available on terms acceptable to us. There continues to be significant
uncertainty relating to the COVID-19 pandemic and its impact, and many factors
could affect our results and operations, including, but not limited to, those
discussed under the caption "Risk Factors" in the reports we file with the SEC.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE THREE MONTHS ENDED SEPTEMBER 30, 2019


A summary of our results of operations for the three months ended September 30,
2020, and 2019 follows:



                                            Three Months Ended September 30,
                                     2020         2019        $ Change       % Change
Revenue                            $  5,241$   2,967$   2,274             77 %
Cost of goods sold                    7,060         3,528         3,532            100 %
Gross margin                         (1,819 )        (561 )      (1,258 )          224 %
Research and development expense      2,204         3,579        (1,375 )          (38 )%
Selling and supply chain expense        439         1,314          (875 )          (67 )%
General and administrative expense    4,185         4,934          (749 )          (15 )%
Management fees and royalties            68           305          (237 )          (78 )%
Restructuring costs                     436             -           436              -
Interest, net                          (324 )          32          (356 )        (1113 )%
Other income and expense                 (1 )          (8 )           7            (88 )%
Net loss                           $ (9,476 )$ (10,669 )$   1,193            (11 )%
Net loss per share                 $  (0.29 )$   (0.32 )$    0.03             (9 )%
Adjusted EBITDA                    $ (7,070 )$  (8,887 )$   1,817            (20 )%




Revenue

Revenue increased by $2.3 million, or 77 percent, from the third quarter of 2019
to $5.2 million in the third quarter of 2020. The revenue growth was driven by
15 basis points of volume and 64 basis points of pricing, both partially offset
by 2 basis points of unfavorable product mix as we sold more meal in 2020 as a
percent of total revenue than the prior period. Most oil revenue in 2020 was
from a single customer purchasing our oil to be used as a plant-based
alternative to synthetic fluids, and we expect to fulfill their remaining orders
in the fourth quarter of 2020.

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Cost of Goods Sold


Cost of goods sold increased by $3.5 million from the third quarter of 2019 to
$7.1 million in the third quarter of 2020. The increase in cost of goods sold
reflects the higher volume of product sold, the impact of lower costs associated
with products sold in 2019 because $2.8 million of Grain Costs were previously
expensed as R&D, $1.1 million of commodity derivative losses from hedging
contracts sold to convert our fixed price grain inventories and fixed price
Forward Purchase Contracts from fixed to floating prices, consistent with how we
expect to sell the grain, and a $0.2 million increase in the net realizable
value adjustment to period-end inventories. These increases were partially
offset by lower product costs and the benefits resulting from the advancement of
our soybean product line go-to-market strategy.

Gross Margin


Gross margin was a negative $1.8 million, or a negative 35 percent, in the third
quarter of 2020, a decrease of $1.2 million, or a negative 16 percent, from the
third quarter of 2019. The decline in gross margin in the third quarter of 2020
reflects the impact of lower costs associated with products sold in 2019 because
$2.8 million of Grain Costs were previously expensed as R&D, $1.1 million of
commodity derivative losses from hedging contracts sold to convert our fixed
price grain inventories and fixed price Forward Purchase Contracts from fixed to
floating prices, consistent with how we expect to sell the grain, and a $0.2
million increase in the net realizable value adjustment to period-end
inventories. These increases were partially offset by lower product costs and
the benefits resulting from the advancement of our soybean product line
go-to-market strategy.

Gross margin, as adjusted, was negative $1.3 million, or negative 24 percent, in
the third quarter of 2020, as compared to negative $2.5 million, or negative 86
percent, in the third quarter of 2019. The improvement was driven by higher
selling prices, lower product costs, and the benefits resulting from the
advancement of our soybean product line go-to-market strategy.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of gross margin, as adjusted, and a reconciliation of gross margin, the most comparable GAAP measure, to gross margin, as adjusted.

Research and Development Expense


R&D expenses decreased by $1.4 million to $2.2 million, driven by a decrease in
stock compensation expense of $0.5 million from the recapture of non-cash stock
compensation expense from the forfeiture and modification of unvested stock
awards. The same period in 2019 also included $0.5 million of expense to write
off R&D tax credits that were no longer realizable.

Selling and Supply Chain Expense


S&SC expenses decreased by $0.9 million to $0.4 million, driven by a decrease in
stock compensation expense of $0.6 million from the recapture of non-cash stock
compensation expense from the forfeiture of unvested stock awards, partially
offset by higher year-over-year compensation expenses.

General and Administrative Expense


G&A expenses decreased by $0.7 million to $4.2 million, driven by a decrease in
stock compensation expense of $1.0 million and lower personnel costs of $0.5
million, partially offset by an increase in insurance costs.

Management Fees

Management fees decreased by $0.2 million as we previously internalized certain services provided by Cellectis, including investor relations, information technology, human resources, legal, and communications.

Restructuring Costs


Restructuring costs include the impact of severance and other expenses resulting
from the action we initiated in August 2020 to advance our soybean product line
go-to-market strategy.

Interest, net

Interest, net decreased by $0.4 million, driven by lower yields and lower cash balances.


Net Loss

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Net loss was $9.5 million in the third quarter of 2020, an improvement of $1.2
million from the third quarter of 2019. The improvement was driven by a
reduction in non-cash stock compensation expenses of $2.1 million, partially
offset by a decline in gross margins of $1.2 million, and $0.4 million of
restructuring costs. The same period in 2019 also included $0.5 million of
expense to write off R&D tax credits that were no longer realizable.

Adjusted net loss was $9.3 million in the third quarter of 2020, an improvement
of $2.6 million from the third quarter of 2019, driven by the benefits resulting
from the advancement of our soybean product line go-to-market strategy.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted net loss and a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.

Net Loss Per Share

Net loss per share was $0.29 in the third quarter of 2020, an improvement of $0.03 per share from the third quarter of 2019, driven by the change in net loss.

Adjusted net loss per share was $0.28 in the third quarter of 2020, an improvement of $0.08 per share from the third quarter of 2019, driven by the change in adjusted net loss.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted net loss per share and a reconciliation of net loss per share, the most comparable GAAP measure, to adjusted net loss per share.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Adjusted EBITDA loss was $7.1 million in the third quarter of 2020, an improvement of $1.8 million from the third quarter of 2019.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted EBITDA and a reconciliation of net loss, the most comparable GAAP measure, to adjusted EBITDA.

RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2020 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 2019


A summary of our results of operations for the nine months ended September 30,
2020, and 2019 follows:



                                             Nine Months Ended September 30,
                                     2020          2019        $ Change       % Change
Revenue                            $   9,925$   3,533$   6,392            181 %
Cost of goods sold                    16,265         3,865        12,400            321 %
Gross margin                          (6,340 )        (332 )      (6,008 )         1810 %
Research and development expense       7,816         8,536          (720 )           (8 )%
Selling and supply chain expense       3,368         3,421           (53 )           (2 )%
General and administrative expense    12,713        14,302        (1,589 )          (11 )%
Management fees and royalties            172         1,117          (945 )          (85 )%
Restructuring costs                      436             -           436              -
Interest, net                           (568 )         296          (864 )         (292 )%
Other income and expense                 (28 )         (35 )           7            (20 )%
Net loss                           $ (31,441 )$ (27,447 )$  (3,994 )           15 %
Net loss per share                 $   (0.95 )$   (0.84 )$   (0.11 )           13 %
Adjusted EBITDA                    $ (21,827 )$ (21,182 )$    (645 )            3 %


Revenue

Revenue increased by $6.4 million, or 181 percent, from the first nine months of
2019 to $9.9 million in the first nine months of 2020. The revenue growth was
driven by 132 basis points of volume, 47 basis points of pricing, and 2 basis
points of favorable product mix as we sold more oil in 2020 as a percentage of
total revenue than in 2019. Most oil revenue in 2020 was from a single customer
purchasing our oil to be used as a plant-based alternative to synthetic fluids,
and we expect to fulfill their remaining orders in the fourth quarter of 2020.

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Cost of Goods Sold


Cost of goods sold increased by $12.4 million from the first nine months of 2019
to $16.3 million in the first nine months of 2020. The increase in cost of goods
sold reflects the higher volume of product sold, $4.4 million of net realizable
value adjustments to period-end inventories including write-downs of excess seed
produced for 2020 plantings, the impact of lower costs associated with products
sold in 2019 because $3.3 million of Grain Costs were previously expensed as
R&D, and $1.1 million of commodity derivative losses from hedging contracts sold
to convert our fixed price grain inventory and fixed price Forward Purchase
Contracts from fixed to floating prices, consistent with how we expect to sell
the grain. These increases were partially offset by lower product costs and the
benefits resulting from the advancement of our soybean product line go-to-market
strategy.

Gross Margin

Gross margin was a negative $6.3 million, or a negative 64 percent, in the first
nine months of 2020, an increase of $6.0 million from the first nine months of
2019, driven by a $4.4 million net realizable value adjustment to period-end
inventories including write-downs of excess seed produced for 2020 plantings,
the impact of lower costs associated with products sold in 2019 because $3.3
million of Grain Costs were previously expensed as R&D, and $1.1 million of
commodity derivative losses from hedging contracts sold to convert our fixed
price grain inventory and fixed price Forward Purchase Contracts from fixed to
floating prices, consistent with how we expect to sell the grain. These
increases were partially offset by higher selling prices, lower product costs,
and benefits from the advancement of our soybean product line go-to-market
strategy.

Gross margin, as adjusted, was a negative $3.2 million, or negative 33 percent,
in the first nine months of 2020 compared to negative $2.8 million, or negative
81 percent, in the same period in 2019. The improvement, on a percentage basis,
was driven by higher selling prices, lower product costs, and savings from the
advancement of our soybean product line go-to-market strategy.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of gross margin, as adjusted, and a reconciliation of gross margin, the most comparable GAAP measure, to gross margin, as adjusted.

Research and Development Expense


R&D expenses decreased by $0.7 million to $7.8 million driven by lower non-cash
stock compensation expense of $0.5 million primarily from a recapture of
non-cash stock compensation expense from the forfeiture and modification of
unvested stock awards. The same period in 2019 also included $0.4 million of
expense to write off research and development tax credits that were no longer
realizable.

Selling and Supply Chain Expense


S&SC expenses decreased by $0.1 million to $3.4 million, driven by a decrease in
non-cash stock compensation expense of $1.0 million primarily from a recapture
of non-cash stock compensation expense from the forfeiture of unvested stock
awards and lower marketing and travel expenses, partially offset by additional
personnel costs.

General and Administrative Expense


G&A expenses decreased by $1.6 million to $12.7 million, driven by a decrease in
non-cash stock compensation of $1.4 million as a result of fewer awards issued
and lower award values, and lower personnel costs of $1.4 million, partially
offset by an increase in insurance costs.

Management Fees

Management fees decreased by $0.9 million as we previously internalized certain services provided by Cellectis, including investor relations, information technology, human resources, legal, and communications.

Restructuring Costs


Restructuring costs include the impact of severance and other expenses resulting
from the action we initiated in August 2020 to advance our soybean product line
go-to-market strategy.

Interest, net

Interest, net decreased by $0.9 million, driven by lower yields and lower cash balances.


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Net Loss


Net loss was $31.4 million in the first nine months of 2020, an increase of $4.0
million from the first nine months of 2019, driven by a $6.0 million decrease in
gross margin following the launch of our high oleic soybean products and the
higher costs we experienced during the product's proof of concept period, a $0.9
decrease in interest, net, and $0.4 million of restructuring costs, offset by
$2.9 million of lower non-cash stock compensation expenses as a result of a
recapture of non-cash stock compensation expense from the forfeiture and
modification of unvested stock awards, as well as the impact from fewer awards
issued and lower award values, and a $0.6 million decrease in Section 16 officer
transition expenses. The same period in 2019 also included $0.4 million of
expense to write off R&D tax credits that were no longer realizable.

Adjusted net loss was $28.3 million in the first nine months of 2020, an improvement of $0.2 million from the first nine months of 2019.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted net loss and a reconciliation of net loss, the most comparable GAAP measure, to adjusted net loss.

Net Loss Per Share

Net loss per share was $0.95 in the first nine months of 2020, an increase of $0.11 per share from the third quarter of 2019, driven by the change in net loss.

Adjusted net loss per share was $0.86 in the first nine months of 2020, an improvement of $0.01 per share from the third quarter of 2019, driven by the change in adjusted net loss.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted net loss per share and a reconciliation of net loss per share, the most comparable GAAP measure, to adjusted net loss per share.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)

Adjusted EBITDA loss was $21.8 million for the first nine months of 2020, an increase of $0.6 million from the first nine months of 2019.

See below under the heading "Use of Non-GAAP Financial Information" for a discussion of adjusted EBITDA and a reconciliation of such measure to net loss, the most comparable measure calculated under U.S. GAAP.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity


As of September 30, 2020, we had a total of $29.4 million of cash, cash
equivalents, short-term investments, and restricted cash. Short-term investments
consist of corporate debt securities and commercial paper with more than 90 days
to maturity at issuance. All these amounts are convertible to cash within 90
days except for $1.0 million of restricted cash associated with our financing
leases. Current liabilities were $7.9 million as of September 30, 2020.
Accordingly, we have cash, cash equivalents and short-term investments
sufficient to fund all short-term obligations as of that date.

We incurred losses from operations of $30.8 million for the nine months ended
September 30, 2020, and $27.7 million for the nine months ended September 30,
2019. As of September 30, 2020, we had an accumulated deficit of $153.5 million
and expect to continue to incur losses in the future.

Cash Flows from Operating Activities



                                                Nine Months Ended September 30,
In Thousands                                      2020                   2019
Net loss                                    $        (31,441 )$        (27,447 )
Depreciation and amortization                          1,372                  1,051
Stock-based compensation                               3,638                  6,565
Changes in operating assets and liabilities           (4,567 )              

(4,857 ) Net cash used by operating activities $ (30,998 )$ (24,688 )



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Net cash used by operating activities increased by $6.3 million, driven by the increase in our net loss of $4.0 million and a decrease in non-cash stock compensation of $3.0 million.


We expect cash used by operating activities in the fourth quarter of 2020 to be
higher than in the first nine months of the year driven by an expected increase
in working capital associated with grain we are required to purchase in the
period.

Cash Flows from Investing Activities



                                               Nine Months Ended September 30,
In Thousands                                      2020                  2019

Purchases of land, buildings, and equipment $ (1,146 ) $ (2,538 ) Short-term investments

                               (20,802 )              

-

Net cash used by investing activities $ (21,948 )$ (2,538 )

Net cash used by investing activities increased by $19.4 million, driven by our purchases of short-term investments as part of our risk diversification strategy.


We expect net cash used for purchases of land, buildings, and equipment in the
fourth quarter of 2020 to be comparable to the first nine months of the year,
and cash used for purchases of short-term investments to stabilize following our
capital raise in the fourth quarter.

Cash Flows from Financing Activities



                                                           Nine Months Ended September 30,
In Thousands                                                 2020                    2019

Proceeds from Paycheck Protection Program loan $ 1,518

     $            -
Repayments of financing lease obligations                          (217 )                 (195 )
Proceeds from the exercise of stock options                         211                    314
Costs incurred related to shares withheld for net
share settlement                                                      -                   (645 )
Proceeds from the sale and leaseback of land,
buildings, and equipment                                              -                    414

Net cash provided (used) by financing activities $ 1,512

$ (112 )

Net cash provided by financing activities increased by $1.6 million, driven by the Paycheck Protection Program loan proceeds.


We expect net cash provided (used) by financing activities in the fourth quarter
of 2020 to be comprised of $14.0 million of net proceeds from our capital raise
in October 2020, partially offset by repayments of financing lease obligations
at the same rate as in prior quarters.

CAPITAL RESOURCES


Considering factors including our cash raised in October 2020, our anticipated
cash burn rate, expense reduction efforts, advancement of our go-to-market
soybean strategy, and cash receipts from our product development efforts with
partners, we believe our cash, cash equivalents, short-term investments, and
restricted cash as of September 30, 2020, will be enough to fund our operations
for at least the next twelve months and into the second half of 2022.

For the nine months ended September 30, 2020, we generated $9.9 million in revenues from product sales. We anticipate that we will continue to generate losses for the next several years before revenue is enough to support our operating capital requirements.


Until we can generate substantial cash flow, we expect to finance a portion of
future cash needs through cash on hand, public or private equity or debt
financings, government or other third-party funding, and commercialization
activities, which may result in various types of revenue streams from future
licensees, including upfront and milestone payments, annual license fees, or
royalties.

Our financing needs are subject to change depending on, among other things, the
success of our product development efforts, the effective execution of our
streamlined business model, our revenue, and our efforts to effectively manage
expenses. The effects of the COVID-19 pandemic on the financial markets and
broader economic uncertainties may make obtaining capital through equity or debt
financings more challenging and have exacerbated the risk that such capital, if
available, may not be available on terms acceptable to us.

In response to current economic conditions, we have postponed non-essential
capital expenditures and undertaken other efficiency efforts. In addition, the
headcount reductions undertaken in connection with our business model
advancement will contribute to our cost-saving initiatives. We will continue to
review our operating expenses and to take actions that support efficient
operations, financial flexibility, and optimized liquidity.

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CONTRACTUAL OBLIGATIONS, COMMITMENTS AND CONTINGENCIES


As of September 30, 2020, there were no material changes in our commitments
under contractual obligations as disclosed in our Annual Report, except that our
Forward Purchase Contracts, which consist of commitments to purchase grain and
seed, have decreased to $30.8 million from $50.9 million.

OFF BALANCE SHEET OBLIGATIONS

As of September 30, 2020, we do not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

CRITICAL ACCOUNTING POLICIES


The preceding discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements and the related
disclosures, which have been prepared in accordance with U.S. GAAP. The
preparation of these consolidated financial statements requires us to make
estimates, assumptions, and judgments that affect the reported amounts in our
consolidated financial statements and accompanying notes. We base our estimates
on historical experience and on various other assumptions that we believe to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We believe the policies
discussed in Note 1, Basis of Presentation and Summary of Significant Accounting
Policies, are the most critical to an understanding of our financial condition
and results of operations because they require us to make estimates, assumptions
and judgments about matters that are inherently uncertain.

As of September 30, 2020, there have been no significant changes to our critical
accounting policies disclosure reported in "Critical Accounting Estimates" in
our Annual Report.

RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS


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 consolidated 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.

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 consolidated financial statements.

In the first quarter of 2019, we adopted new hedge accounting requirements that better aligned our risk management activities and financial reporting. The adoption did not have a material impact on our consolidated financial statements.


In February 2016, the FASB issued new accounting requirements for accounting,
presentation, and classification of leases. This will result in most leases
being capitalized as a right of use asset with a related liability on our
balance sheets. The requirements of the new standard are effective for annual
reporting periods beginning after December 15, 2021, and interim periods within
those annual periods, which for us is the first quarter of 2022 because we are
an emerging growth company. We are in the process of analyzing the impact of
this standard on our results of operations and financial position.

In June 2016, the FASB issued new accounting requirements on how to account for
credit losses on most financial assets and certain other instruments. This will
require the estimation of lifetime expected credit losses and corresponding
recognition of allowance for losses on trade and other receivables, loans, and
other instruments held at amortized cost. The ASU requires certain recurring
disclosures and is effective for annual periods, and interim periods within
those annual periods, beginning on or after December 15, 2023. We are in the
process of analyzing the impact of this standard on our results of operations.

USE OF NON-GAAP FINANCIAL INFORMATION


To supplement our audited financial results prepared in accordance with GAAP, we
have prepared certain non-GAAP measures that include or exclude special items.
These non-GAAP measures are not meant to be considered in isolation or as a
substitute for financial information presented in accordance with GAAP and
should be viewed as supplemental and in addition to our financial information
presented in accordance with GAAP. Investors are cautioned that there are
material limitations associated with the use of non-GAAP financial measures. In
addition, other companies may report similarly titled measures, but calculate
them differently, which reduces their usefulness as a comparative measure.
Management utilizes these non-GAAP metrics as performance measures in evaluating
and making operational decisions regarding our business.

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We present gross margin, as adjusted, a non-GAAP measure that includes the
effects of Grain Costs expensed as R&D in a prior period, excludes the effects
of commodity derivatives entered into to hedge the change in value of fixed
price grain inventories and fixed price Forward Purchase Contracts as the
expected impact from these contracts will be fully offset when the underlying
grain is sold, and excludes the impact of any net realizable value adjustments
to inventories occurring in the period, which would otherwise have been recorded
as an adjustment to value in a prior period or would have been recorded in a
future period as the underlying products are sold.

We provide in the table below a reconciliation of gross margin, as adjusted, to
gross margin, which is the most directly comparable GAAP financial measure. We
provide gross margin, as adjusted because we believe that this non-GAAP
financial metric provides investors with useful supplemental information at this
stage of commercialization as the amounts being adjusted affect the period to
period comparability of our gross margins and financial performance.

The table below presents a reconciliation of gross margin to gross margin, as
adjusted:



                                         Three Months Ended September 30,             Nine Months Ended September 30,
In Thousands                               2020                    2019                 2020                   2019
Gross margin (GAAP measure)           $        (1,819 )       $          (561 )    $       (6,340 )       $         (332 )
Gross margin percentage                           (35 )%                  (19 )%              (64 )%                  (9 )%
Adjustments:
Grain costs expensed as R&D                         -                  (2,814 )                 -                 (3,349 )
Mark to market loss                             1,107                       -               1,107                      -
Net realizable value adjustment to               (555 )                   832
inventories                                                                                 2,000                    832
Gross margin, as adjusted             $        (1,267 )       $       

(2,543 ) $ (3,233 )$ (2,849 ) Gross margin percentage, as adjusted

              (24 )%                  (86 )%              (33 )%                 (81 )%


We present adjusted net loss, a non-GAAP measure, and define it as net loss
including the effects of Grain Costs expensed as R&D in a prior period, and
excluding the effects of commodity derivatives entered into to hedge the change
in value of fixed price grain inventories and fixed price Forward Purchase
Contracts as the expected impact from these contracts will be fully offset when
the underlying grain is sold, any net realizable value adjustments to
inventories occurring in the period, which would otherwise have been recorded as
an adjustment to value in a prior period or would have been recorded in a future
period as the underlying products are sold, Section 16 officer transition
expenses, R&D payroll tax credits that are no longer realizable, restructuring
costs, and the recapture of non-cash stock compensation expense from the
forfeiture and modification of unvested stock awards associated with staffing
adjustments made as part of the advancement of our soybean business model.

We provide in the table below a reconciliation of adjusted net loss to net loss, which is the most directly comparable GAAP financial measure. We provide adjusted net loss because we believe that this non-GAAP financial metric provides investors with useful supplemental information at this stage of commercialization as the amounts being adjusted affect the period to period comparability of our net losses and financial performance.

The table below presents a reconciliation of net loss to adjusted loss:


                                  Three Months Ended September 30,          Nine Months Ended September 30,
In Thousands                           2020                2019               2020                   2019
Net loss (GAAP measure)           $        (9,476 )$   (10,669 )$        (31,441 )$        (27,447 )
Non-GAAP adjustments:
Grain Costs expensed as R&D                     -            (2,814 )                  -                 (3,349 )
Mark to market loss                         1,107                 -                1,107                      -
Net realizable value adjustment              (555 )             832                2,000                    832
to inventories
Section 16 officer transition                  56               193                  493                  1,052

expenses

Research and development payroll                -               536                    -                    410
tax credit
Restructuring costs                           436                 -                  436                      -
Recapture of non-cash stock                  (906 )               -                 (906 )                    -
compensation
Adjusted net loss                          (9,338 )         (11,922 )            (28,311 )              (28,502 )



We present adjusted net loss per share, a non-GAAP measure, and define it as net
loss per share including the effects of Grain Costs expensed as R&D in a prior
period, and excluding the effects of commodity derivatives entered into to hedge
the change in value of fixed price grain inventories and fixed price Forward
Purchase Contracts as the expected impact from these contracts will be fully
offset when the underlying grain is sold, any net realizable value adjustments
to inventories occurring in the period, which would otherwise

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have been recorded as an adjustment to value in a prior period or would have
been recorded in a future period as the underlying products are sold, Section 16
officer transition expenses, R&D payroll tax credits that are no longer
realizable, restructuring costs, and the recapture of non-cash stock
compensation expense from the forfeiture and modification of unvested stock
awards associated with staffing adjustments made as part of the advancement of
our soybean business model.

We provide in the table below a reconciliation of adjusted net loss per share to
net loss per share, which is the most directly comparable GAAP financial
measure. We provide adjusted net loss per share because we believe that this
non-GAAP financial metric provides investors with useful supplemental
information at this stage of commercialization as the amounts being adjusted
affect the period to period comparability of our net losses per share and
financial performance.

The table below presents a reconciliation of net loss per share to adjusted net
loss per share:



                                          Three Months Ended September 30,               Nine Months Ended September 30,
In Thousands                                2020                     2019                 2020                     2019
Net loss per share (GAAP measure)     $          (0.29 )       $          (0.32 )   $          (0.95 )       $          (0.84 )
Non-GAAP adjustments:
Grain Costs expensed as R&D                          -                    (0.09 )                  -                    (0.10 )
Mark to market loss                               0.03                        -                 0.03                        -
Net realizable value adjustment to               (0.01 )                   0.03                 0.06                     0.03
inventories
Section 16 officer transition                     0.01                     0.01                 0.02                     0.03
expenses
Research and development payroll tax                 -                     0.01                    -                     0.01

credit

Restructuring costs                               0.01                        -                 0.01                        -
Recapture of non-cash stock                      (0.03 )                      -                (0.03 )                      -

compensation

Adjusted net loss per share                      (0.28 )                  (0.36 )              (0.86 )                  (0.87 )


We present adjusted EBITDA, a non-GAAP measure, and define it as net
loss excluding interest, net, income tax expense, depreciation and amortization
expenses, stock-based compensation expenses, the effects of commodity
derivatives entered into to hedge the change in value of fixed price grain
inventories and fixed price Forward Purchase Contracts as the expected impact
from these contracts will be fully offset when the underlying grain is sold, any
net realizable value adjustments to inventories occurring in the period, which
would otherwise have been recorded as an adjustment to value in a prior period
or would have been recorded in a future period as the underlying products are
sold, Section 16 officer transition expenses, R&D payroll tax credits that are
no longer realizable, and restructuring costs; and including the effects of
Grain Costs expensed as R&D in a prior period.

We provide in the table below a reconciliation of adjusted EBITDA to net loss,
which is the most directly comparable GAAP financial measure. Because adjusted
EBITDA excludes non-cash items and discrete or infrequently occurring items, we
believe that adjusted EBITDA provides investors with useful supplemental
information about the operational performance of our business and facilitates
comparison of our financial results between periods where certain items may vary
significantly independent of our business performance.

The table below presents a reconciliation of net loss to adjusted EBITDA:




                                      Three Months Ended September 30,          Nine Months Ended September 30,
In Thousands                               2020                2019               2020                   2019
Net loss (GAAP measure)               $        (9,476 )$   (10,669 )$        (31,441 )$        (27,447 )
Non-GAAP adjustments:
Interest, net                                     324               (32 )                568                   (296 )
Income tax expense                                  -                 -                    -                      -
Depreciation and amortization                     468               362                1,372                  1,051
Stock-based compensation expenses                 570             2,705                3,638                  6,565
Grain Costs expensed as R&D                         -            (2,814 )                  -                 (3,349 )
Mark to market loss                             1,107                 -                1,107                      -
Net realizable value adjustment to               (555 )             832                2,000                    832
inventories
Section 16 officer transition                      56               193                  493                  1,052
expenses
Research and development payroll tax                -               536                    -                    410
credit
Restructuring costs                               436                 -                  436                      -
Adjusted EBITDA                       $        (7,070 )$    (8,887 )$        (21,827 )$        (21,182 )




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