Cibus, Inc.: Form 10-Q for the period ended Mar 31, 2024

The following discussion and analysis of the Company’s financial condition and results of operations should be read together with its condensed consolidated financial statements and related notes, which are included elsewhere in this Quarterly Report on Form 10-Q and with its Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024 (Annual Report), including the Consolidated Financial Statements and Notes incorporated therein..

OVERVIEW AND BUSINESS UPDATE

Cibus is a leading agricultural biotechnology company that uses proprietary gene editing technologies to develop plant traits (or specific genetic characteristics) in seeds. Its primary business is the development of plant traits that help address specific productivity or yield challenges in farming such as traits addressing plant agronomy, disease, insects, weeds, nutrient-use, or the climate. These traits are referred to as productivity traits and drive greater farming profitability and efficiency. They do this in several ways, including, but not limited to, making plants resistant to diseases or pests or enabling plants to process nutrients more efficiently. Certain of these traits lead to the reduction in the use of chemicals like fungicides, insecticides, or the reduction of fertilizer use, while others make crops more adaptable to their environment or to climate change. The ability to develop productivity traits in seeds that can increase farming productivity and reduce the use of chemicals in farming is the promise of gene editing technologies. In addition, Cibus is developing, through partner-funded projects, certain alternative plant-based oils or bio-based fermentation products to meet the functional needs of the new sustainable ingredients industry to replace current ingredients that are identified to raise environmental challenges, such as ingredients derived from fossil fuels, materials that cause deforestation, or materials that raise other sustainability challenges.

Cibus’ core technology is its propriety gene editing platform called the Rapid Trait Development System™ or RTDS®. It is the underlying technology in Cibus’ Trait Machine™ process: a standardized end-to-end semi-automated high-throughput gene editing system that directly edits seed companies’ elite germplasm. It is a timebound, reproducible, and predictable science-based breeding process. RTDS is covered by over 500 patents or patents pending. It is the core technology platform underpinning the processes at Cibus’ first standardized high-throughput (gene editing) trait development facility (Oberlin Facility) and is the industry's first facility of this kind. The Company considers the Oberlin Facility an important technological milestone that represents a breakthrough in the achievement of a standardized high-throughput gene editing system that provides the speed, precision, and scale that is the promise of gene editing.

A key aspect of gene editing is that plant traits using this technology are indistinguishable from plant traits developed using conventional plant breeding (or, from nature). Because of this, most major jurisdictions have either passed regulations or started processes to introduce regulations that generally treat traits developed using gene editing on the same basis as traits developed using conventional plant breeding. All traits developed using RTDS, including the Company's five-trait pipeline, comprise the types of changes that arise naturally in conventional plant breeding programs. GMO technologies enabled major improvements in farming productivity. Unfortunately, because GMO technologies use foreign DNA, or transgenes, the development of major GMO traits has faced headwinds. For example, in the European Union (EU), GMO traits were essentially banned, and imports were heavily regulated. Changes in place in key countries and presently under consideration in Europe are aimed at harmonizing how gene edited traits are regulated in order to align with regulations for traits from conventional plant breeding. These changes highlight the major global evolution away from the heavily regulated GMO technology and acceptance of gene editing technologies. This is a big moment for Cibus that the Company has been working towards since its founding.

Cibus believes that its RTDS technologies and Trait Machine process represent a technological breakthrough in plant breeding: the ability to materially change the productivity of the breeding process that currently averages more than a decade with a scientifically based process whose trait products are indistinguishable from traits developed through conventional plant breeding and that are regulated as such. The Trait Machine process materially changes not only the speed and scale of the breeding process, but it also exponentially changes the range of possible genetic solutions from breeding and with it, the capability to develop desired characteristics or traits needed for greater farming sustainability and food security.

Cibus is a leader in the gene editing era—an industry characterized by high-throughput gene editing facilities serving as extensions of plant breeding operations for seed company customers. Cibus is the leader in this vision. Cibus and its Trait Machine process do not compete with seed companies’ breeding operations, they augment them. Cibus provides complex traits that it edits in the elite germplasm of its customers for commercialization. Its role is to improve the efficiency and effectiveness of developing the complex traits needed to address farming’s most pressing productivity issues. Importantly, Cibus and its Trait Machine process provides the ability to efficiently gene edit these complex traits directly into elite germplasm of any of the major crops with a new speed, precision, and scale.

Cibus believes that this is the Future of Breeding™. Cibus believes that its gene editing technologies and trait products have the potential to accelerate agriculture’s jump to a climate smart, more sustainable, crop production system and industry’s move to sustainable, natural, and low carbon materials or ingredients.

The Company believes that a measure of the success of its RTDS technologies and its Trait Machine process is that Cibus has been able to develop a pipeline of five productivity traits, four of which are applicable to multiple crops. Three of the traits are developed, meaning that they have been edited in a customer's elite germplasm and have been validated in multiple field trials. In Canola and Winter Oilseed Rape (WOSR), the Company's Pod Shatter Reduction (PSR) trait has been edited into the elite lines of customer seed company partners and has started “shipping,” meaning that Cibus has begun transferring this PSR trait to these customers in their elite germplasm for potential commercial launch. In Rice, the herbicide tolerance (HT) traits HT1 and HT3 were edited into genetics and are now undergoing introgression (breeding) into multiple customers’ genetics both for the United States and Latin America.

Activities in the first quarter of 2024 through the date of this filing have been pivotal for Cibus in many areas. Within its set of developed productivity traits, the Company made important progress toward commercial development in the first quarter of 2024 with its two HT traits, HT1 and HT3, in Rice. Cibus signed important Rice agreements with Loveland Products, Inc., a subsidiary of Nutrien, Ltd., in the United States and with Interoc S.A. in Latin America. Cibus now has agreements with four Rice customers that, taken together, have total Rice acres representing approximately 40 percent of all addressable acres across North and Latin America (i.e., acres that would be potentially accessible to Cibus' HT1 and HT3 traits). In terms of the commercialization of its PSR trait, the Company continued its progress working with customers in North American and Europe towards commercializing its PSR trait in Canola.

With respect to the Company’s two advanced productivity traits, Sclerotinia resistance and HT2, the Company previously reported successful greenhouse results in Canola for the first two modes of action for Sclerotinia resistance. In addition, the Company completed successful edits of HT2 in Canola in 2023.

Beyond Cibus’ focus on its three-crop (Canola, Rice, and Soybean), five-trait pipeline, Cibus also plans to subsequently develop traits in Wheat and Corn. In the first quarter of 2024, Cibus announced that it had established a scalable gene editing process in Wheat, having successfully regenerated plants from single cells in a wheat cultivar. This demonstrates Cibus’ continued success in developing scalable high-throughput breeding platforms that can operate as extensions of seed company breeding programs, and the Company is now entering into initial discussions with potential seed partners on Wheat edits. Cibus continues to make progress in developing a Soybean platform. Once the Soybean platform is operational, it will be possible for Cibus to develop and commercialize any trait contemporaneously in any or all of these four major crops (Canola, Rice, Soybean, and Wheat).

The first quarter of 2024 was a key moment in the evolving global regulation of gene editing technologies in agriculture. On February 7, 2024, the Parliament of the EU voted in favor of new laws that would clearly differentiate gene editing technology from GMO technology. The proposal adopted by the EU Parliament would regulate certain traits from gene editing as “conventional-like” or like traits developed using conventional plant breeding, with the exception that there is still discussion of how to address traits for HT in the EU. The EU Parliament’s approved proposal sets the stage for the ongoing negotiations among the EU Parliament, the Council of the EU, and the European Commission to formulate a mutually agreed joint text for the new legislation. The major developed market countries including the United Kingdom, United States, and the major markets in South America are now treating traits from gene editing as conventional-like and, although there can be no assurance that the EU regulation will be adopted in the form approved by the EU Parliament or at all, the final passage of the new EU regulation would bring the territory closer to the other major developed markets in having more consistent regulations for the planting, import, and export of products or commodities. For this reason, Cibus believes the impact of these regulations is the beginning of the gene editing era – an era in which products from the most advanced technologies in breeding and gene editing will be regulated on the same basis as products developed using conventional breeding. An era in which technology promises to change the speed and scale of trait development as new technologies have done in many industries. An era that Cibus believes represents agriculture’s analog to digital moment.

The Company has incurred net losses since its inception. As of March 31, 2024, the Company had an accumulated deficit of $503.2 million. The Company’s net loss was $27.0 million for the three months ended March 31, 2024. As Cibus continues to develop its pipeline of productivity traits and as a result of its limited commercial activities, Cibus expects to continue to incur significant expenses and operating losses for the next several years. Those expenses and losses may fluctuate significantly from quarter-to-quarter and year-to-year.

ATM Facility

On January 2, 2024, the Company entered into a Sales Agreement (Sales Agreement) with Stifel, Nicolaus & Company, Incorporated (Stifel). Pursuant to the terms of the Sales Agreement, the Company may offer and sell through Stifel, from time-to-time and at its sole discretion, shares of the Company’s Class A Common Stock, having an aggregate offering price of up to $80.0 million (ATM Facility). During the three months ended March 31, 2024, the Company issued 356,477 shares of Class A Common Stock and received net proceeds of approximately $6.2 million from the ATM Facility. Subsequently, from April 1, 2024, through May 8, 2024, the Company issued 506,206 shares of Class A Common Stock and has received net proceeds of approximately $9.5 million from the ATM Facility.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2024, COMPARED TO THE THREE MONTHS ENDED MARCH 31, 2023

A summary of the Company’s results of operations for the three months ended March 31, 2024, and 2023 follows:

In Thousands, except per share and percentage values

NM – not meaningful

Revenue

Revenue was $0.5 million in the first quarter of 2024, an increase of $0.5 million from the first quarter of 2023. The increase was driven by the acquisition of Cibus Global revenue which included amounts earned from collaboration agreements related to contract research for Rice and Soybean. Revenue from operations associated with Legacy Calyxt in 2024 and 2023 was primarily associated with the Company’s agreement with a large food ingredient manufacturer to develop a palm oil alternative.

Research and Development Expense

Research and development (R&D) expense was $12.0 million in the first quarter of 2024, an increase of $9.8 million from the first quarter of 2023. The increase was primarily due to the acquisition of Cibus Global which included increases in headcount, laboratory supplies, facility costs, and stock compensation expense related to restricted stock awards (RSAs) granted as part of the completion of the Merger Transactions. These expenses were partially offset by a decrease in Legacy Calyxt expenses due to lower headcount and cost reduction efforts in preparation for the Merger Transactions.

Selling, General, and Administrative Expense

Selling, general, and administrative expense was $7.0 million in the first quarter of 2024, an increase of $4.7 million from the first quarter of 2023. The increase was primarily due to the acquisition of Cibus Global which included increases in headcount, professional fees, and stock compensation expense related to RSAs granted as part of the completion of the Merger Transactions. These expenses were partially offset by a decrease in Legacy Calyxt expenses due to lower headcount and cost reduction efforts in preparation of the Merger Transactions.

Royalty Liability Interest Expense - Related Parties

Royalty Liability Interest was $8.3 million in the first quarter of 2024, an increase of $8.3 million from the first quarter of 2023. The increase was due to the assumption of the Royalty Liability as part of the Merger Transactions.

Other Interest Income (Expense), net

Other interest income (expense), net was income of $0.2 million in the first quarter of 2024, an increase in income of $0.2 million from the first quarter of 2023. The increase in income was driven by interest earned on cash balances.

Non-Operating Income (Expense)

Non-operating income (expense) was expense of $0.4 million in the first quarter of 2024, a decrease in expense of $0.5 million from the first quarter of 2023. The decrease in expense was driven by $0.4 million related to the fair value adjustment of the Common Warrants.

Net Loss Attributable to Redeemable Noncontrolling Interest

Net loss attributable to redeemable noncontrolling interest was $3.5 million in the first quarter of 2024, an increase in net loss attributable to redeemable noncontrolling interest of $3.5 million from the first quarter of 2023. The increase in net loss attributable to redeemable noncontrolling interest is a result of the Up-C Units created as part of the closing of the Merger Transactions, and the amount for the period is based on the percentage of Cibus Global that is not owned by Cibus Inc.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

The Company’s primary source of liquidity is its cash and cash equivalents, with additional capital resources accessible from the capital markets, subject to market conditions and other factors, including limitations that may apply to the Company under applicable Nasdaq regulations.

As of March 31, 2024, the Company had $24.5 million of cash and cash equivalents. Current liabilities were $21.7 million as of March 31, 2024.

The Company’s liquidity funds its non-discretionary cash requirements and its discretionary spending. The Company has contractual obligations related to recurring business operations, primarily related to lease payments for its corporate and laboratory facilities. The Company’s principal discretionary cash spending is for salaries, capital expenditures, short-term working capital payments, and professional and other transaction-related expenses incurred as the Company pursues additional financing. Until the Company is able to obtain additional public or private financing, it currently expects to satisfy its near-term requirements with existing cash on hand and proceeds raised from the ATM Facility.

The Company incurred a net loss of $27.0 million for the three months ended March 31, 2024. As of March 31, 2024, the Company had an accumulated deficit of $503.2 million and expects to continue to incur losses in the future.

Cash Flows from Operating Activities

In Thousands, except percentage values

NM – not meaningful

Net cash used by operating activities was $13.5 million in the first three months of 2024, an increase in cash used of $11.1 million from the first three months of 2023. The increase in cash used was primarily driven by a $10.7 million increase in net loss related to the operations acquired in the Merger Transactions and a decrease of $0.4 million from the changes in operating assets and liabilities related to assets and liabilities assumed from the closing of the Merger Transactions with Cibus Global, LLC.

The Company expects cash used by operating activities in 2024 to be higher than 2023 driven by a full year of combined companies in 2024 versus only seven months of combined companies in 2023.

Cash Flows from Investing Activities

In Thousands, except percentage values

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Net cash used by investing activities was $0.2 million in the first three months of 2024, an increase in cash used of $0.2 million from the first three months of 2023. The increase was driven by an increase in capital expenditures.

The Company expects cash provided by investing activities in 2024 to be lower than 2023 driven by the cash acquired as a result of the Merger Transactions in 2023.

Cash Flows from Financing Activities

In Thousands, except percentage values

NM – not meaningful

Net cash provided by financing activities was $5.5 million in the first three months of 2024, an increase of $4.6 million from the first three months of 2023. The increase was primarily due to additional capital raised through the ATM Facility in 2024 of $6.2 million of net proceeds offset by the $1.0 million receipt of funds from draws on the revolving line of credit form Cibus Global in the prior year period as well as by repayments of notes payable of $0.4 million.

The Company expects cash provided by financing activities in 2024 to be higher than 2023 driven by the need to raise capital to fulfill the Company's forecasted spending in 2024 and beyond.

Capital Resources

The Company’s primary source of liquidity is its cash and cash equivalents, with additional capital resources accessible, subject to market conditions and other factors, including limitations that may apply to the Company under applicable Nasdaq regulations, from the capital markets, including through stock offerings of common stock or other securities, which may be implemented pursuant to the Company’s effective registration statement on Form S-3.

During the three months ended March 31, 2024, the Company issued 356,477 shares of Class A Common Stock and received net proceeds of approximately $6.2 million from the ATM Facility. Subsequently, from April 1, 2024, through May 8, 2024, the Company issued 506,206 shares of Class A Common Stock and has received net proceeds of approximately $9.5 million from the ATM Facility.

Operating Capital Requirements

The Company has incurred losses since its inception and its net loss was $27.0 million for the three months ended March 31, 2024, and it used $13.5 million of cash for operating activities for the three months ended March 31, 2024.

As of March 31, 2024, the Company had $24.5 million of cash and cash equivalents. Current liabilities were $21.7 million as of March 31, 2024.

The Company has initiated cost reduction initiatives designed to preserve capital resources for the advancement of its priority objectives. Such initiatives include reductions in capital expenditures, streamlining of independent contractor utilization and cost management, reduced and prioritized spending on business travel, careful management of contract approvals to ensure they align with priority objectives, and prioritization of near-term payment obligations.

The Company has incurred losses since its inception and anticipates that it will continue to generate losses for the next several years. Over the longer term and until the Company can generate cash flows sufficient to support its operating capital requirements, it expects to finance a portion of future cash needs through (i) cash on hand, (ii) commercialization activities, which may result in various types of revenue streams from future trait R&D collaboration agreements and technology licenses, including upfront and milestone payments, annual license fees, and royalties; (iii) government or other third party funding (iv) public or private equity or debt financings, or (v) a combination of the foregoing. However, capital generated by commercialization activities, if any, is expected to be received over a period of time and near-term additional capital may not be available on reasonable terms, if at all.

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

The Company’s ability to continue as a going concern will depend on its ability to obtain additional public or private equity or debt financing (including through the continued availability of the ATM Facility), obtain government or private grants and other similar types of funding, attain further operating efficiencies, reduce or contain expenditures, and, ultimately, to generate revenue. The Company believes that its cash and cash equivalents as of March 31, 2024, is not sufficient to fund its operations for a period of 12 months or more from the date of this filing. Taking into account the impact of implemented cost saving initiatives and without giving effect to potential financing transactions Cibus is pursuing, Cibus expects that existing cash and cash equivalents will fund planned operating expenses and capital expenditure requirements into the third quarter of 2024. The Company's assessment of the period of time through which its financial resources will be adequate to support its operations is a forward-looking statement and involves risks and uncertainties, and actual results could vary as a result of a number of factors. The Company has based this estimate on assumptions that may prove to be wrong. Circumstances and business conditions may change that would require the Company to use its cash resources for purposes beyond those that are currently forecast, which would shorten its cash runway. In addition, changes in market conditions may reduce the Company’s opportunities to raise additional capital, including through the ATM Facility.

The Company will need to raise additional capital to support its business plans to continue as a going concern within one year after the date that the accompanying condensed consolidated financial statements are issued. If the Company is unable to raise additional capital in a sufficient amount or on acceptable terms, the Company may have to implement additional, more stringent cost reduction measures to manage liquidity, and the Company may have to significantly delay, scale back, or cease operations, in part or in full. If the Company raises additional funds through the issuance of additional debt or equity securities, including as part of a strategic alternative, it could result in substantial dilution to its existing stockholders and increased fixed payment obligations, and these securities may have rights senior to those of the Company’s shares of common stock. These factors raise substantial doubt about the Company's ability to continue as a going concern for at least one year from the date of issuance of the accompanying condensed consolidated financial statements. Any of these events could impact the Company’s business, financial condition, and prospects.

The Company’s financing needs are subject to change depending on, among other things, the success of its trait and product development efforts, the effective execution of its business model, its revenue, and its efforts to effectively manage expenses. The effects of macroeconomic events and potential geopolitical developments on the financial markets and broader economic uncertainties may make obtaining capital through equity or debt financings more challenging and may exacerbate the risk that such capital, if available, may not be available on terms acceptable to the Company.

CONTRACTUAL OBLIGATIONS, COMMITMENTS, AND CONTINGENCIES

As of March 31, 2024, there were no material changes in the Company's commitments under contractual obligations as disclosed in its Annual Report.

Relationship with Cellectis

Cellectis, the Company's largest shareholder prior to the completion of the Merger Transactions, has guaranteed the lease agreement for the Company’s Roseville, Minnesota facility. Cellectis’ guarantee of the Company’s obligations under the lease will terminate at the end of the second consecutive calendar year in which the Company’s tangible net worth exceeds $300 million. The Company agreed to indemnify Cellectis for any obligations incurred by Cellectis under its guaranty of the obligations under the lease, effective upon Cellectis’ ownership falling to 50 percent or less of the Company’s outstanding common stock. This indemnification obligation was triggered in October 2022.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preceding discussion and analysis of the Company’s financial condition and results of operations are based upon its condensed consolidated financial statements and the related disclosures, which have been prepared in accordance with United States GAAP. The preparation of these condensed consolidated financial statements requires the Company to make estimates, assumptions, and judgments that affect the reported amounts in its condensed consolidated financial statements and accompanying notes. The Company bases its estimates on historical experience and on various other assumptions that it believes 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. The Company believes the policies discussed in Note 1, Nature of Business & Summary of Significant Accounting Policies, are the most critical to an understanding of its financial condition and results of operations because they require it to make estimates, assumptions, and judgments about matters that are inherently uncertain.

As of March 31, 2024, there were no material changes in the Company's critical accounting policies and estimates as disclosed in its Annual Report.

Management’s Evaluation of Disclosure Controls and Procedures

Based on an evaluation under the supervision and with the participation of the Company’s management, its principal executive officer and principal financial officer have concluded that the Company’s disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, were effective as of March 31, 2024.

Changes in Internal Control over Financial Reporting

No changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the three months ended March 31, 2024, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

There have been no material changes in risk factors from those disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on March 21, 2024.