Cibus(CBUS) - 2023 Q2 - Quarterly Report

FORM 10-Q Explanatory Note The Company completed Merger Transactions with Cibus Global on May 31, 2023, adopting an "Up-C" structure and establishing Class A and Class B Common Stock after two reverse stock splits - Cibus, Inc. completed Merger Transactions with Cibus Global, LLC on May 31, 2023, adopting an "Up-C" structure where Cibus, Inc. is the sole managing member of Cibus Global[256][332] - The Amended Certificate of Incorporation established Class A Common Stock (full voting and economic rights) and Class B Common Stock (full voting, no economic rights)[256][332] - Prior to the merger, Legacy Calyxt effected a one-for-ten reverse stock split on April 24, 2023, and a one-for-five reverse stock split on May 31, 2023[257][258][333][358] Cautionary Note Regarding Forward-Looking Statements This report contains forward-looking statements about merger benefits, financial performance, and trait development, subject to risks like integration challenges and funding needs - Forward-looking statements cover anticipated benefits of the Merger Transactions, future financial performance, liquidity, capital resources, cash runway, ability to continue as a going concern, and advancement of platform and trait development[284] - Key risks include possible failure to realize merger benefits, effects on business relationships, litigation outcomes, competition, intellectual property challenges, increased development time/resources, reliance on third parties, funding needs, and regulatory developments[284] - The Company does not assume any obligation to publicly revise or update forward-looking statements, except as required by law[284] Market Data Industry and market data are based on independent publications and internal assumptions, acknowledging high uncertainty and risks detailed in the 'Risk Factors' section - Industry and market information is derived from independent industry publications and internal assumptions[261] - The industry faces high uncertainty and risk, as outlined in the 'Risk Factors' section of the Company's Current Report on Form 8-K[261] Website Disclosure The Company uses its website and social media for routine information distribution to comply with Regulation FD, but this content is not incorporated into SEC filings - The Company uses its website (www.cibus.com), corporate Twitter (@CibusGlobal), and LinkedIn (https://www.linkedin.com/company/cibus-global) for routine distribution of company information, including press releases, analyst presentations, and supplemental financial information[286] - These channels are used for disclosing material non-public information and complying with Regulation FD[286] - Information provided on the Company's website or social media is not incorporated into, or deemed part of, this Quarterly Report on Form 10-Q or any other SEC filing[316] PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents unaudited consolidated financial statements, including balance sheets, statements of operations, comprehensive loss, equity, and cash flows, with notes on accounting policies and merger impacts Consolidated Balance Sheets Total assets significantly increased to $814.3 million as of June 30, 2023, from $22.4 million at December 31, 2022, primarily due to the Cibus Global merger Consolidated Balance Sheet Highlights (in Thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------------- | :------------ | :---------------- | | Cash and cash equivalents | $50,895 | $3,427 | | Total current assets | $54,846 | $4,132 | | Property, plant, and equipment, net | $14,989 | $4,516 | | Operating lease right-of-use assets | $22,550 | $13,615 | | Intangible assets, net | $135,379 | $158 | | Goodwill | $585,266 | $— | | Total assets | $814,268 | $22,421 | | Total current liabilities | $22,445 | $1,662 | | Royalty liability - related parties | $148,977 | $— | | Total liabilities | $193,089 | $15,188 | | Redeemable noncontrolling interest | $136,866 | $— | | Total stockholders' equity | $484,313 | $7,233 | - The significant increase in total assets, goodwill, and intangible assets is primarily attributable to the merger with Cibus Global[317] Consolidated Statements of Operations Revenue increased, but net losses significantly rose for the three and six months ended June 30, 2023, driven by higher operating expenses and a new Royalty Liability Interest expense post-merger Consolidated Statements of Operations Highlights (in Thousands, except per share) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $197 | $41 | $239 | $73 | | Research and development | $8,429 | $3,250 | $10,638 | $6,191 | | Selling, general, and administrative | $11,079 | $3,556 | $13,375 | $6,736 | | Loss from operations | $(19,311) | $(6,765) | $(23,774) | $(12,854) | | Royalty liability interest expense - related parties | $(2,617) | $— | $(2,617) | $— | | Net loss | $(20,509) | $(2,485) | $(25,903) | $(8,104) | | Net loss attributable to Cibus, Inc. | $(18,690) | $(2,485) | $(24,084) | $(8,104) | | Basic and diluted net loss per share of Class A common stock | $(3.05) | $(2.66) | $(6.73) | $(9.14) | - Revenue increased significantly (380% YoY for Q2, 227% YoY for H1) primarily due to the addition of Cibus Global revenue from collaboration agreements for rice and soybean contract research[132][161] - Net loss increased substantially (725% YoY for Q2, 220% YoY for H1) driven by higher operating expenses and the new Royalty Liability Interest expense[132][161] Consolidated Statements of Comprehensive Loss Comprehensive loss significantly increased for the three and six months ended June 30, 2023, primarily due to higher net loss and minor foreign currency adjustments Consolidated Statements of Comprehensive Loss Highlights (in Thousands) | Metric | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net loss | $(20,509) | $(2,485) | $(25,903) | $(8,104) | | Foreign currency translation adjustments | $(2) | $— | $(2) | $— | | Comprehensive loss | $(20,511) | $(2,485) | $(25,905) | $(8,104) | | Comprehensive loss attributable to redeemable noncontrolling interest | $(1,819) | $— | $(1,819) | $— | | Comprehensive loss attributable to Cibus, Inc. | $(18,692) | $(2,485) | $(24,086) | $(8,104) | - Comprehensive loss for the three and six months ended June 30, 2023, was $(20,511) thousand and $(25,905) thousand, respectively, compared to $(2,485) thousand and $(8,104) thousand in the prior year periods[292] Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders' Equity Total stockholders' equity significantly increased to $484.3 million as of June 30, 2023, driven by common stock issuance for merger consideration and recognition of $136.9 million redeemable noncontrolling interest Stockholders' Equity and Noncontrolling Interest Highlights (in Thousands, except shares) | Metric | December 31, 2022 | June 30, 2023 | | :-------------------------------------- | :---------------- | :------------ | | Redeemable Noncontrolling Interest | $— | $136,866 | | Class A Common Stock (shares) | 976,908 | 16,606,401 | | Class A Common Stock (amount) | $5 | $8 | | Class B Common Stock (shares) | — | 4,642,636 | | Class B Common Stock (amount) | $— | $— | | Additional Paid-In Capital | $220,422 | $722,327 | | Shares in Treasury | $(1,043) | $(1,785) | | Accumulated Deficit | $(212,151) | $(236,235) | | Accumulated Other Comprehensive Loss | $— | $(2) | | Total Stockholders' Equity | $7,233 | $484,313 | - Issuance of common stock (15,508,202 Class A shares and 4,642,636 Class B shares) as merger consideration significantly increased additional paid-in capital by $634.7 million[297][322] - Redeemable noncontrolling interest of $138.7 million was recognized due to the Cibus Global merger[297][322] Consolidated Statements of Cash Flows Net cash used in operating activities increased to $14.1 million, while investing activities provided $58.8 million due to the Cibus Global merger, and financing activities decreased to $2.7 million for the six months ended June 30, 2023 Consolidated Statements of Cash Flows Highlights (in Thousands) | Metric | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :----------------------------- | :----------------------------- | | Net cash used by operating activities | $(14,119) | $(11,276) | | Net cash provided by (used) by investing activities | $58,821 | $(1,289) | | Net cash provided by financing activities | $2,662 | $10,058 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $47,369 | $(2,507) | | Cash, cash equivalents, and restricted cash – end of period | $50,895 | $11,914 | - Cash acquired from the merger with Cibus Global, LLC was $59.4 million, driving the increase in investing activities[264] - Financing activities in 2023 included $2.5 million from a revolving line of credit from Cibus Global and $1.3 million from notes payable, offset by tax payments for vested restricted stock units[264] Notes to the Consolidated Financial Statements These notes detail financial reporting, accounting policies, merger impacts, fair value measurements, assets, liabilities, equity, compensation, taxes, leases, royalty liability, funding, collaborations, and related-party transactions 1. BASIS OF PRESENTATION & SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section details accounting principles, merger impacts, stock splits, going concern, fair value, asset policies, revenue recognition, and the reclassification of IP-related costs from R&D to SG&A - The Company consolidates Cibus Global's financial results and reports redeemable noncontrolling interest[331] - The Company's management has concluded there is substantial doubt regarding its ability to continue as a going concern, necessitating additional capital[14][308][336] - Beginning in Q2 2023, intellectual property portfolio costs and patent filing support are classified as SG&A expense, reclassified from R&D[96][127][349] 2. MERGER WITH CIBUS GLOBAL The May 31, 2023, merger with Cibus Global led to consolidation, recognition of redeemable noncontrolling interest, significant goodwill and intangible assets, and a Tax Receivable Agreement - Cibus Global is considered a Variable Interest Entity (VIE) with Cibus as its sole managing member and primary beneficiary, leading to consolidation[1] - Redeemable noncontrolling interest represents approximately 22% of Cibus Global Common Units not owned directly by the Company, classified as temporary equity due to redemption features[414] Preliminary Purchase Price Allocation (May 31, 2023, in Thousands) | Asset/Liability | Amount | | :-------------------------------------- | :------- | | Cash and cash equivalents | $59,381 | | Accounts receivable | $2,216 | | Property, plant and equipment | $10,588 | | Operating lease right-of-use-assets | $9,519 | | Goodwill | $585,266 | | Intangible assets | $135,429 | | Accounts payable | $(5,582) | | Accrued expenses | $(3,477) | | Royalty liability - related parties | $(146,360) | | Consideration transferred | $634,751 | - The Company entered into a Tax Receivable Agreement (TRA) with Electing Members, obligating it to pay 85% of net income tax savings from certain tax attributes and basis increases[421] 3. FINANCIAL INSTRUMENTS MEASURED AT FAIR VALUE AND CONCENTRATIONS OF CREDIT RISK Financial instruments are measured at fair value using a three-tier hierarchy, with Common Warrants classified as Level 3 liabilities, and cash equivalents invested in low-risk, short-dated securities - Fair value measurements are categorized into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (significant unobservable inputs)[10][274][364][422] Fair Value of Common Warrants (in Thousands) | Metric | June 30, 2023 | December 31, 2022 | | :-------------------------------------- | :------------ | :---------------- | | Estimated fair value of Common Warrants | $662 | $291 | | Risk-free interest rate | 4.3% | 4.0% | | Expected volatility | 100.0% | 85.0% | | Expected term to liquidation (in years) | 4.2 | 4.6 | - The Company invests cash and cash equivalents in highly liquid, short-dated, high investment-grade securities, diversifying risk and minimizing credit risk[424] 4. PROPERTY, PLANT, AND EQUIPMENT, NET Net property, plant, and equipment significantly increased to $14.99 million as of June 30, 2023, primarily due to the Cibus Global merger, with an Asset Retirement Obligation also recorded Property, Plant, and Equipment, Net (in Thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------------- | :------------ | :---------------- | | Buildings | $900 | $900 | | Leasehold improvements | $3,654 | $364 | | Office furniture and equipment | $12,394 | $7,803 | | Computer equipment and software | $2,709 | $912 | | Assets in progress | $1,801 | $— | | Total property, plant, and equipment | $21,831 | $10,393 | | Less accumulated depreciation and amortization | $(6,842) | $(5,877) | | Total | $14,989 | $4,516 | Depreciation and Amortization Expense (in Thousands) | Period | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | | Three Months Ended June 30, | $571 | $365 | | Six Months Ended June 30, | $983 | $722 | - The Asset Retirement Obligation (ARO) increased to $265 thousand as of June 30, 2023, from zero at December 31, 2022, due to the Cibus Global merger and accretion expense[427] 5. GOODWILL AND INTANGIBLE ASSETS $585.3 million in goodwill and $135.4 million in intangible assets, primarily in-process R&D and developed technology, were recognized from the Cibus Global merger, with a 20-year amortization period for definite-lived assets - Goodwill of $585.3 million was recognized in connection with the Merger Transactions with Cibus Global, representing future economic benefits from its market position and assembled workforce[458] Intangible Assets (June 30, 2023, in Thousands) | Category | Gross Carrying Amount | Accumulated Amortization | Intangible Assets, Net | | :-------------------------------------- | :-------------------- | :----------------------- | :--------------------- | | In-process research and development | $99,051 | $— | $99,051 | | Developed technology | $14,148 | $59 | $14,089 | | Trade name | $22,230 | $92 | $22,138 | | Other | $150 | $49 | $101 | | Total | $135,579 | $200 | $135,379 | - The weighted average amortization period for definite-lived intangible assets (developed technology and trade names) is 20 years[391] Estimated Amortization Expense (in Thousands) | Period | Amortization Expense | | :-------------------------------------- | :------------------- | | Remainder of 2023 | $917 | | 2024 | $1,833 | | 2025 | $1,833 | | 2026 | $1,833 | | 2027 | $1,833 | | 2028 | $1,833 | 6. NOTES PAYABLE Notes payable for equipment carry 7.3% to 17.6% interest over 3.1 years, while insurance notes have 6.3% to 7.5% interest, maturing by February 2024 - Notes on financed equipment are subject to annual interest rates between 7.3% and 17.6%, with a weighted average remaining term of 3.1 years, maturing between October 2023 and March 2028[46] - Insurance notes have annual interest rates between 6.3% and 7.5%, with a weighted average remaining term of 0.7 years, maturing between July 2023 and February 2024[403] Future Minimum Payments Under Notes Payable (June 30, 2023, in Thousands) | Period | Licenses | Financed Equipment | Insurance | Total Notes Payable | | :-------------------------------------- | :------- | :----------------- | :-------- | :------------------ | | Remainder of 2023 | $185 | $278 | $593 | $1,056 | | 2024 | $216 | $450 | $193 | $859 | | 2025 | $— | $351 | $— | $351 | | 2026 | $— | $151 | $— | $151 | | 2027 | $— | $89 | $— | $89 | | 2028 | $— | $15 | $— | $15 | | Total | $401 | $1,334 | $786 | $2,521 | | Less: interest | $(21) | $(197) | $(22) | $(240) | | Total (net of interest) | $380 | $1,137 | $764 | $2,281 | | Current portion | $380 | $418 | $764 | $1,562 | | Noncurrent portion | $— | $719 | $— | $719 | 7. STOCKHOLDERS' EQUITY This section details changes in stockholders' equity, including the 2022 Follow-On Offering, warrant exercises, ATM Facility, and the issuance of Class A and Class B Common Stock and Cibus Global Common Units from the Merger Transactions - In February 2022, the Company completed a Follow-On Offering, issuing Class A Common Stock, Pre-Funded Warrants, and Common Warrants, generating $10.0 million in net proceeds[19] - Pre-Funded Warrants were exercised in full on May 4, 2022, at an exercise price of $0.0001 per share[48] - Common Warrants, exercisable for Class A Common Stock at $69.04 per share and expiring August 23, 2027, are classified as a liability due to a contingent put option election available to holders in case of a Fundamental Transaction[380][463] - In 2022, the Company issued approximately 40,000 shares of Class A Common Stock under the ATM Facility for net proceeds of $0.1 million, with no additional shares issued in 2023[21] - In the Merger Transactions, the Company issued 16,527,484 shares of Class A Common Stock (including restricted shares) and 4,642,636 shares of Class B Common Stock to Cibus Global unitholders[50][86] - Class B Common Stock carries full voting rights but no economic rights, with holders receiving pro rata distributions from Cibus Global through corresponding Common Units[51] - As of June 30, 2023, there were 21,249,038 Cibus Common Units outstanding, with 16,606,402 held by Cibus Inc. and 4,642,636 by Electing Members (noncontrolling interest)[23] 8. STOCK-BASED COMPENSATION Stock-based compensation, including options, RSAs, RSUs, and PSUs, significantly increased in 2023 due to the Cibus Global merger and accelerated vesting - Stock options generally vest over three to six years and expire 10 years after grant, with strike prices at 100% or more of the closing share price[55] - On March 1, 2023, the Board modified outstanding stock options to extend the post-separation exercise period from 90 days to five years from the grant date, resulting in $0.2 million incremental stock compensation expense[27] Stock-Based Compensation Expense (in Thousands) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Stock options | $1,441 | $709 | $1,795 | $890 | | Restricted Stock Awards (RSAs) | $1,924 | $— | $1,924 | $— | | Restricted Stock Units (RSUs) | $2,082 | $453 | $2,393 | $658 | | Performance Stock Units (PSUs) | $(433) | $161 | $(270) | $307 | | Total | $5,014 | $1,323 | $5,842 | $1,855 | - RSAs were granted in connection with the Merger Transactions to Cibus Global members, with $30.2 million in unrecognized compensation expense as of June 30, 2023, to be recognized over 2.5 years[30][58] - PSUs were granted under the 2017 Plan and Inducement Plan, with significant vesting events occurring in connection with the Merger Transactions, resulting in no unrecognized compensation expense for PSUs as of June 30, 2023[65][445][446][477] 9. INCOME TAXES No income tax provision was recorded for the three months ended June 30, 2023, due to net operating losses and a full valuation allowance against deferred tax assets, with no material changes to tax uncertainties - No income tax provision was recorded for the three months ended June 30, 2023, due to net operating losses and a full valuation allowance against deferred tax assets[98] - The Company has established a full valuation allowance for deferred tax assets due to uncertainty of generating sufficient taxable income[35] - No material changes to tax uncertainties or penalties were disclosed as of June 30, 2023[66] 10. LEASES, COMMITMENTS, AND CONTINGENCIES The Company holds non-cancellable operating leases for various facilities, with terms expiring between September 2023 and August 2026, and assumed additional leases post-merger - The Company holds non-cancellable operating leases for office, laboratory, greenhouse, and warehouse space, with terms expiring between September 2023 and August 2026[67][99][100] - Operating lease costs for short-term leases were not material for the three and six months ended June 30, 2023, or 2022[38] Components of Lease Expense (in Thousands) | Category | Three Months Ended June 30, 2023 | Three Months Ended June 30, 2022 | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :-------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Finance lease costs | $11 | $7 | $14 | $16 | | Operating lease costs | $807 | $394 | $1,195 | $793 | | Total | $818 | $401 | $1,209 | $809 | Future Minimum Payments Under Operating and Finance Leases (June 30, 2023, in Thousands) | Period | Operating Lease Obligations | Financing Lease Obligations | Total | | :-------------------------------------- | :-------------------------- | :-------------------------- | :---- | | Remainder of 2023 | $3,370 | $83 | $3,453 | | 2024 | $6,788 | $90 | $6,878 | | 2025 | $4,414 | $— | $4,414 | | 2026 | $1,580 | $— | $1,580 | | 2027 | $1,479 | $— | $1,479 | | 2028 | $1,553 | $— | $1,553 | | Thereafter | $15,438 | $— | $15,438 | | Total | $34,622 | $173 | $34,795 | | Less: interest | $(10,650) | $(9) | $(10,659) | | Total (net of interest) | $23,972 | $164 | $24,136 | | Current portion | $5,102 | $164 | $5,266 | | Noncurrent portion | $18,870 | $— | $18,870 | 11. ROYALTY LIABILITY - RELATED PARTIES A Royalty Liability, assumed from the Cibus Global merger, obligates 10% of Subject Revenues to Royalty Holders, contingent on $50.0 million aggregate revenues, and is valued using a 23.7% annual discount rate - The Royalty Liability was assumed following the acquisition of Cibus Global in the Merger Transactions[41] - Royalty Holders are entitled to future royalty payments equal to 10% of Subject Revenues, excluding certain revenue types[41][202] - Royalty payments begin in the first fiscal quarter after aggregate Subject Revenues exceed $50.0 million over any consecutive 12-month period; this condition had not occurred as of June 30, 2023[41][178][202] Royalty Liability Activity (in Thousands) | Metric | Amount | | :-------------------------------------- | :------- | | Balance as of December 31, 2022 | $— | | Acquired from merger with Cibus Global, LLC | $146,360 | | Interest expense recognized | $2,617 | | Balance as of June 30, 2023 | $148,977 | - As of June 30, 2023, an annual discount rate of 23.7% was used to calculate the present value of future royalty payments[104][208] 12. SUPPLEMENTAL INFORMATION This section provides supplemental balance sheet and statement of operations details, including accrued expenses and non-cash transactions Accrued Expenses (in Thousands) | Category | June 30, 2023 | December 31, 2022 | | :-------------------------------------- | :------------ | :---------------- | | Accrued consulting and professional fees | $3,479 | $119 | | Accrued field trials | $1,264 | $— | | Other | $293 | $54 | | Total | $5,036 | $173 | Non-Cash Transactions (Six Months Ended June 30, in Thousands) | Transaction | 2023 | 2022 | | :-------------------------------------- | :--- | :--- | | Property, plant, and equipment acquired through assuming liabilities | $307 | $(618) | | Shares issued for consideration in the merger with Cibus Global | $634,751 | $— | | Forgiveness of interim funding resulting from merger with Cibus Global | $2,500 | $— | | Establishment of operating lease right-of-use assets and associated operating lease liabilities | $28 | $14,090 | 13. INTERIM FUNDING The Company received $2.5 million in unsecured, interest-free Interim Funding from Cibus Global prior to the merger, which was reduced to zero upon closing - The Company received $2.5 million in aggregate Interim Funding from Cibus Global through an unsecured, interest-free revolving line of credit[489] - The Interim Funding was used for operating expenses and was reduced to zero upon the closing of the Merger Transactions[489] 14. COLLABORATION AGREEMENT Cibus Global collaborated with P&G to develop sustainable ingredients, resulting in $1.5 million deferred revenue and $0.1 million recognized revenue as of June 30, 2023 - Cibus Global and Procter & Gamble (P&G) entered a collaboration agreement to develop sustainable low-carbon ingredients[75][76] - As of June 30, 2023, the Company had $1.5 million of deferred revenue from R&D activities under the P&G agreement[76] - The Company recognized $0.1 million in revenue from the P&G agreement for the six months ended June 30, 2023[76] 15. RELATED-PARTY TRANSACTIONS This section details the Company's relationship with Cellectis, including a guaranteed lease, an exclusive TALEN technology license, and the termination of management fee expenses post-merger - Cellectis guaranteed the lease agreement for the Company's Roseville, Minnesota facility, but the Company's indemnification obligation was triggered in October 2022[77][123] - The Company holds an amended exclusive license from Cellectis for TALEN technology for commercial use in plants within the Calyxt Field (microorganism, agricultural, and food products, excluding animals and therapeutic applications)[77] - Management fee expenses with Cellectis were terminated upon the closing of the Merger Transactions[110] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section reviews the Company's business, post-merger operational progress, financial performance for Q2 and H1 2023, liquidity, capital resources, contractual obligations, and critical accounting estimates EXECUTIVE OVERVIEW Cibus is an agricultural gene editing company developing and licensing plant traits using its RTDS and Trait Machine™ platforms, with products regulated as "conventional-like" in the US and EU - Cibus is a gene editing-based agricultural technology company focused on developing and licensing plant traits to seed companies for royalties[493] - The Company's patented Rapid Trait Development System™ (RTDS) and Trait Machine™ process enable high-throughput gene editing, developing traits at a fraction of the time and cost of conventional breeding[80][113][115][116] - Products from Cibus' RTDS gene editing platform are regulated as "conventional-like" in the United States and are proposed to be similarly regulated in the European Union[80][139] BUSINESS UPDATE Post-merger, Cibus Global is the core focus, with the Oberlin Facility operational for canola and rice, and a pipeline of six productivity traits, including PSR, HT1, HT3, Sclerotinia resistance, and NUE, in advanced development - Cibus Global is the Company's core focus following the Merger Transactions, with significant commercial and operational progress in H1 2023[87] - The Oberlin Facility, the first stand-alone high-throughput gene editing trait development facility, is operational for canola and rice, with soybean expected to be operational in the second half of 2023[80][502] - The Company's lead developed traits include Pod Shatter Resistance (PSR) in canola and winter oilseed rape, and herbicide tolerance traits (HT1 and HT3) in rice, with initial transfers to customers underway[81][88][118][495] - Other traits in advanced development include Sclerotinia resistance in canola and soybean, and a new herbicide tolerance trait (HT2); Nitrogen-use efficiency (NUE) is in the initial editing stage[90][120][495][501] - Cibus is collaborating with Bayer AG to evaluate its Trait Machine platform and entered a collaboration with Procter & Gamble to develop sustainable soybean output products[91][138] Pre-Merger Transactions and Legacy Calyxt Projects Legacy Calyxt focused on plant-based synthetic biology using its PlantSpring™ platform, and the Company is progressing three customer projects, including an improved quality alfalfa trait - Prior to the merger, Legacy Calyxt focused on plant-based synthetic biology, leveraging its PlantSpring™ technology platform to engineer plant metabolism for innovative, high-value, and sustainable materials[84] - The Company is progressing three customer projects from the Legacy Calyxt business: improved quality alfalfa trait (IQA) with S&W Seed Company, a research collaboration for a palm oil alternative soybean trait, and a plant-based chemistry pilot project[118][498] RELATIONSHIP WITH CELLECTIS AND COMPARABILITY OF RESULTS Cellectis' ownership significantly decreased post-merger, losing governance rights, while the Company's indemnification obligation for a lease guarantee was triggered in October 2022, and it retains a broad plant gene editing license - Cellectis' ownership of the Company's Class A Common Stock decreased from approximately 48.0% to 2.9% immediately following the Merger Transactions, and it no longer holds contractual governance rights[92] - The Company's indemnification obligation to Cellectis for its guarantee of the Roseville, Minnesota facility lease was triggered in October 2022[123] - The Company holds a license from Cellectis broadly covering the use of engineered nucleases for plant gene editing[123] FINANCIAL OPERATIONS OVERVIEW This section outlines revenue recognition, R&D expense policies, reclassification of IP costs to SG&A, Royalty Liability Interest expense, and components of interest and non-operating income/expenses - Revenue is recognized from research collaboration agreements, product sales, technology licenses, and product development activities, with an increasing expectation for royalty payments from trait development[124][505] - R&D expenses are recognized as incurred, primarily consisting of personnel costs, third-party contractors, development costs for trait validation, laboratory supplies, and facilities costs[95][142] - Beginning in Q2 2023, intellectual property portfolio costs and patent filing support are included in SG&A expense, reclassified from R&D[96][127] - Royalty Liability Interest expense is based on the Warrant Exchange Agreement, requiring ongoing quarterly payments equal to a portion of aggregate worldwide revenues[509] - Non-operating income (expenses) primarily includes gains and losses from mark-to-market of Common Warrants, legal settlements, and foreign exchange transactions, with merger-related costs reclassified to SG&A[130][407] RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2023, COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2022 Revenue increased by 380% to $0.2 million, but net loss surged by 725% to $(20.5) million for Q2 2023, driven by the Cibus Global merger, higher operating expenses, and a new $2.6 million Royalty Liability Interest expense Three Months Ended June 30, 2023 vs. 2022 (in Thousands, except per share) | Metric | 2023 | 2022 | $ Change | % Change | | :-------------------------------------- | :--- | :--- | :------- | :------- | | Revenue | $197 | $41 | $156 | 380% | | Research and development | $8,429 | $3,250 | $5,179 | 159% | | Selling, general, and administrative | $11,079 | $3,556 | $7,523 | 212% | | Loss from operations | $(19,311) | $(6,765) | $(12,546) | (185)% | | Royalty liability interest expense - related parties | $(2,617) | $— | $(2,617) | NM | | Interest, net | $99 | $(16) | $115 | 719% | | Non-operating income (expenses) | $1,320 | $4,296 | $(2,976) | (69)% | | Net loss | $(20,509) | $(2,485) | $(18,024) | (725)% | | Net loss attributable to redeemable noncontrolling interest | $(1,819) | $— | $(1,819) | NM | | Net loss attributable to Cibus, Inc. | $(18,690) | $(2,485) | $(16,205) | (652)% | | Basic and diluted net loss per share of Class A common stock | $(3.05) | $(2.66) | $(0.39) | (15)% | - R&D expense increased by $5.2 million (159%) due to $4.2 million from Cibus Global acquisition (headcount, supplies, facilities), $1.3 million one-time stock compensation, and $1.0 million stock compensation for RSAs, partially offset by $1.2 million decrease in Legacy Calyxt expenses[133] - SG&A expense increased by $7.5 million (212%) due to $6.5 million one-time merger expenses ($3.5M legal/professional, $1.9M severance, $1.1M stock comp), $1.7 million from Cibus Global, and $1.0 million stock compensation for RSAs, partially offset by $2.1 million decrease in Legacy Calyxt expenses[134] - Net loss attributable to redeemable noncontrolling interest was $1.8 million in Q2 2023, a new item resulting from the Up-C Units created in the merger[160] RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2023, COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2022 Revenue increased by 227% to $0.2 million, but net loss surged by 220% to $(25.9) million for H1 2023, driven by the Cibus Global merger, higher operating expenses, and a $2.6 million Royalty Liability Interest expense Six Months Ended June 30, 2023 vs. 2022 (in Thousands, except per share) | Metric | 2023 | 2022 | $ Change | % Change | | :-------------------------------------- | :--- | :--- | :------- | :------- | | Revenue | $239 | $73 | $166 | 227% | | Research and development | $10,638 | $6,191 | $4,447 | 72% | | Selling, general, and administrative | $13,375 | $6,736 | $6,639 | 99% | | Loss from operations | $(23,774) | $(12,854) | $(10,920) | (85)% | | Royalty liability interest expense - related parties | $(2,617) | $— | $(2,617) | NM | | Interest, net | $78 | $(33) | $111 | 336% | | Non-operating income (expenses) | $410 | $4,783 | $(4,373) | (91)% | | Net loss | $(25,903) | $(8,104) | $(17,799) | (220)% | | Net loss attributable to redeemable noncontrolling interest | $(1,819) | $— | $(1,819) | NM | | Net loss attributable to Cibus, Inc. | $(24,084) | $(8,104) | $(15,980) | (197)% | | Basic and diluted net loss per share of Class A common stock | $(6.73) | $(9.14) | $2.41 | 26% | - R&D expense increased by $4.4 million (72%) due to $4.2 million from Cibus Global acquisition (headcount, supplies, facilities), $1.3 million one-time stock compensation, and $1.0 million stock compensation for RSAs, partially offset by $2.1 million decrease in Legacy Calyxt expenses[162] - SG&A expense increased by $6.6 million (99%) due to $6.5 million one-time merger expenses ($3.5M legal/professional, $1.9M severance, $1.1M stock comp), $1.7 million from Cibus Global, and $1.0 million stock compensation for RSAs, partially offset by $2.9 million decrease in Legacy Calyxt expenses[163] - Non-operating income decreased by $4.4 million (91%) primarily due to a $5.1 million increase in expense related to the mark-to-market of Common Warrants, partially offset by a $0.8 million gain from a legal settlement[152] LIQUIDITY AND CAPITAL RESOURCES As of June 30, 2023, the Company had $50.9 million in cash and $22.4 million in current liabilities, but significant net losses and operating cash usage raise substantial doubt about its going concern ability without additional capital, leading to a $200 million Form S-3 filing - As of June 30, 2023, the Company had $50.9 million of cash and cash equivalents and $22.4 million of current liabilities[166][172] - The Company incurred net losses of $25.9 million and used $14.1 million in cash for operating activities for the six months ended June 30, 2023[167][195] - Management concluded there is substantial doubt about the Company's ability to continue as a going concern for 12 months or more without raising additional capital[175][199] - Net cash used by operating activities increased by $2.8 million (25%) to $14.1 million for H1 2023, driven by increased net loss offset by non-cash adjustments and changes in operating assets/liabilities from the merger[168][191] - Net cash provided by investing activities increased by $60.1 million (4,663%) to $58.8 million for H1 2023, primarily due to $59.4 million cash acquired from the Cibus Global merger[169] - Net cash provided by financing activities decreased by $7.4 million (74%) to $2.7 million for H1 2023, mainly due to $10.0 million net proceeds from a 2022 offering not recurring, partially offset by interim funding and notes payable[156][194] - The Company filed a Form S-3 registration statement for up to $200 million in various securities, which has not yet been declared effective[196] CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENCIES Contractual obligations totaled $26.4 million net of interest as of June 30, 2023, with the Royalty Liability contingent on $50.0 million Subject Revenues, and no material off-balance sheet arrangements exist Contractual Obligations and Commitments (June 30, 2023, in Thousands) | Period | Operating Lease Obligations | Financing Lease Obligations | Notes Payable | Total | | :-------------------------------------- | :-------------------------- | :-------------------------- | :------------ | :---- | | Remainder of 2023 | $3,370 | $83 | $1,056 | $4,509 | | 2024 | $6,788 | $90 | $859 | $7,737 | | 2025 | $4,414 | $— | $351 | $4,765 | | 2026 | $1,580 | $— | $151 | $1,731 | | 2027 | $1,479 | $— | $89 | $1,568 | | 2028 | $1,553 | $— | $15 | $1,568 | | Thereafter | $15,438 | $— | $— | $15,438 | | Total | $34,622 | $173 | $2,521 | $37,316 | | Less: interest | $(10,650) | $(9) | $(240) | $(10,899) | | Total (net of interest) | $23,972 | $164 | $2,281 | $26,417 | | Current portion | $5,102 | $164 | $1,562 | $6,828 | | Noncurrent portion | $18,870 | $— | $719 | $19,589 | - The Royalty Liability is contingent upon aggregate Subject Revenues reaching $50.0 million over a 12-month period, a condition not met as of June 30, 2023[178][202] - The Cibus Charitable Foundation, created in 2022, has not yet received donations or commenced operations, and the Company's donation obligation is contingent on its 501(c)(3) status and certain revenue thresholds[40][103][179][205] - The Company does not have any off-balance sheet arrangements as defined under applicable SEC rules and regulations, other than seed and grain production agreements[181][206] CRITICAL ACCOUNTING ESTIMATES Critical accounting estimates include Common Warrant valuation using Black-Scholes, Royalty Liability discounted at 23.7%, and business combination accounting involving significant judgment in fair value allocation - Common Warrants are classified as a liability and valued using a Black-Scholes option pricing model, with changes in fair value reported in earnings[183][380] - The Royalty Liability is estimated based on total future royalty payments, periodically assessed using internal projections and external sources, and discounted at an annual rate of 23.7% as of June 30, 2023[104][208] - Accounting for business combinations (ASC 805) requires significant judgment in determining the fair value of acquired assets and assumed liabilities, particularly property, plant, and equipment and intangible assets, impacting future depreciation and amortization and initial goodwill[227] Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk for cash and cash equivalents is not significant, and foreign currency exchange risk, primarily in Euros, is limited, with no current hedging activities - Interest rate risk related to cash and cash equivalents is not significant due to their short-term duration and low-risk profile[210] - The Company is exposed to a limited amount of foreign currency exchange risk, principally in Euros, from its foreign subsidiaries[228] - The Company does not currently engage in hedging activity to reduce its potential exposure to currency fluctuations[228] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of June 30, 2023, with no material changes in internal control over financial reporting during the quarter, except for Cibus Global integration - The Company's disclosure controls and procedures were effective as of June 30, 2023[213] - No material changes in internal control over financial reporting occurred during the three months ended June 30, 2023, except for changes related to the integration of Cibus Global[214] PART II. OTHER INFORMATION Item 1. Legal Proceedings As of June 30, 2023, the Company is not involved in any material legal proceedings, having settled an IP infringement case with the final installment received in Q1 2023 - The Company is not a party to any material pending legal proceedings as of June 30, 2023[70][215] - A settlement with a technology vendor for alleged intellectual property infringement resulted in $0.75 million received in Q4 2022 and the final $0.75 million in Q1 2023[70] Item 1A. Risk Factors No material changes to risk factors occurred during the period, with a comprehensive discussion available in Exhibit 99.3 of the Form 8-K filed on June 1, 2023 - No material changes in risk factors occurred during the period covered by this report[216] - Risk factors are discussed in Exhibit 99.3 to the Company's Current Report on Form 8-K filed on June 1, 2023[216] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The Company issued no unregistered equity securities or repurchased Class A or Class B Common Stock, but 30,640 Class A shares were withheld for net share settlement from RSU vesting - The Company did not issue any unregistered equity securities during the period, other than previously disclosed transactions[217] - No shares of Class A or Class B Common Stock were repurchased[231] - 30,640 shares of Class A Common Stock were withheld for net share settlement resulting from restricted stock unit award vesting[231] Item 5. Other Information No directors or officers adopted, modified, or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter ended June 30, 2023 - No directors or officers adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter ended June 30, 2023[232] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including merger agreement amendments, corporate documents, employment and warrant agreements, and various certifications - Exhibits include amendments to the Agreement and Plan of Merger, certificates of incorporation, and amended and restated bylaws[510] - Key agreements listed are executive employment agreements, Warrant IP Security Agreement, Warrant Transfer and Exchange Agreement, Registration Rights Agreement, Exchange Agreement, Tax Receivable Agreement, and the First Amendment to the License Agreement with Cellectis S.A[219][510] - Certifications from the CEO and CFO pursuant to Exchange Act rules and Sarbanes-Oxley Act are included[235] SIGNATURE SIGNATURE The report was signed on behalf of Cibus, Inc. by Rory Riggs, CEO and Chairman, and Wade King, CFO, on August 10, 2023 - The report was signed by Rory Riggs, Chief Executive Officer and Chairman (Principal Executive Officer)[223] - The report was signed by Wade King, Chief Financial Officer (Principal Financial and Accounting Officer)[237][511] - The signing date was August 10, 2023[238]