| Summary of Significant Accounting Policies | 2. Summary of Significant Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. On an ongoing basis, the
Company evaluates its estimates, including those related to
stock-based compensation and the valuation allowance for deferred
tax assets and derivatives. The Company bases its estimates on
historical experience and on various other market-specific and
relevant assumptions that it believes to be reasonable under the
circumstances. Actual results could differ from those
estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and term deposits with
original maturities of three months or less. The carrying value of
these instruments approximate fair value. The balances, at times,
may exceed federally insured limits. The Company has not
experienced any losses on its cash and cash equivalents.
Trade Accounts Receivable
Accounts receivable are unsecured, are recorded at net realizable
value, and do not bear interest. The Company makes judgments as to
its ability to collect outstanding receivables based upon patterns
of collectability, historical experience, and management’s
evaluation of specific accounts and will provide an allowance for
credit losses when collection becomes doubtful. The Company
performs credit evaluations of its customers’ financial
condition on an as-needed
As of September 30, 2017, the Company had no trade accounts
receivables. The Company considered its trade receivables to be
fully collectible at December 31, 2016; accordingly, no
allowance for doubtful accounts was considered necessary.
Prepaid Expenses and Other Current Assets
Other current assets represent prepayments, receivable for stock
option exercises, R&D tax credits and deposits made by the
Company.
Property and Equipment
Property and equipment is stated at cost less accumulated
depreciation. Depreciation is computed based upon the estimated
useful lives of the respective assets. Leasehold improvements are
amortized using the straight-line method over the shorter of the
lease term or the estimated useful life of the assets. Repairs and
maintenance costs are expensed as incurred. The cost and
accumulated depreciation of property and equipment retired, or
otherwise disposed of, are removed from the related accounts, and
any residual values are charged to expense. Depreciation expense
has been calculated using the following estimated useful lives:
Buildings and other improvements
10–20 years
Leasehold improvements
Remaining lease period
Office furniture and equipment
5–7 years
Computer equipment and software
3–5 years
Leases
The Company entered into a sale-lease back transaction on September
6, 2017 with respect to certain real property and improvements
located in Roseville, MN, whereby the Company sold the land and
other improvements to a third party in exchange for approximately
$7 million in cash and the Company committed to an initial lease
term of twenty years, with four options to extend the term of the
Lease Agreement for five years each. The transaction also included
a construction contract for the Company’s new nearly 40,000
square-foot corporate headquarters which when complete will include
office, research laboratory space and outdoor growing plots.
During the construction period, the company will initially pay
annual base rent of $490 thousand until the property has been
substantially completed, at which time, the lease will commence and
the Company will pay annual base rent at the rate of 8% of the
total cost which based on the project plan would approximate an
annual base rent of $1,480 thousand. The Lease Agreement is a net
lease, whereby the Company is responsible for the other costs and
expenses associated with the use of the property. Cellectis entered
into a Lease Guaranty with the landlord, whereby Cellectis has
guaranteed the Company’s obligations under the Lease
Agreement. Cellectis’ guarantee of Calyxt’s obligations
under the sale-leaseback transaction will terminate at the end of
the second consecutive calendar year in which Calyxt’s
tangible net worth exceeds $300 million, as determined in
accordance with generally accepted accounting principles.
The Company is responsible for construction cost over runs. As a
result of this involvement, the Company is deemed the
“owner” for accounting purposes during the construction
period and is required to capitalize the construction costs on the
Balance Sheet. The sale of the land and structures also does not
qualify for sale-leaseback accounting under ASC 840 as a result of
“continuing involvement” and the guarantee of the
transaction by Cellectis. Under ASC 840, the “continuing
involvement” precludes the Company from derecognizing the
assets from the Balance Sheet. When the assets under construction
have been substantially completed the assets associated with the
project will be capitalized and depreciated over the term of the
lease.
The Company has recorded assets under construction of $1,374
thousand and a finance obligation of $7,934 thousand as of
September 30, 2017.
Long-Lived Assets
Management reviews its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying
amount of an asset or asset group may not be recoverable. If the
impairment tests indicate that the carrying value of the asset, or
asset group is greater than the expected undiscounted cash flows to
be generated by such asset or asset group, further analysis is
performed to determine the fair value of the asset or asset group.
To the extent the fair value of the asset or asset group is less
than its carrying value, an impairment loss is recognized equal to
the amount the carrying value exceeds the fair value of the asset
or asset group. The Company generally measures fair value by
considering sale prices for similar assets or asset groups, or by
discounting estimated future cash flows from such assets or asset
groups using an appropriate discount rate. Assets to be disposed of
are carried at the lower of their carrying value or fair value less
costs to sell.
There have been no impairment losses recognized for the three and
nine months ended September 30, 2017 or September 30,
2016.
Fair Value of Financial Instruments
Pursuant to the requirements of Financial Accounting Standards
Board (FASB) Accounting Standards Codification (ASC) Topic
820, Fair Value
Measurement
Level 1
Level 2 over-the-counter
Level 3
The Company has derivative instruments that are classified as
Level 2. The Company does not have any financial instruments
classified as Level 3, and there were no movements between
these categories during the nine months ended September 30,
2017 or September 30, 2016.
Forward Purchase Contracts and Derivatives
The Company enters into supply agreements for grain and seed
production with settlement values based on commodity market futures
pricing. The Company accounts for these derivative financial
instruments utilizing the authoritative guidance in ASC Topic
815, Derivatives and Hedging
Unrealized gains and losses on all derivative contracts are
recorded in other current assets or other current liabilities on
the balance sheet at fair value. The gains and losses recorded by
the Company are not significant for the three and nine months ended
September 30, 2017 or 2016.
The table below summarizes the carrying value of derivative
instruments as of September 30, 2017 and December 31,
2016.
Derivatives not Asset Derivatives Liability Derivatives
Balance Sheet Location Fair Value Balance Sheet
Location Fair Value
September 30, December 31, September 30, December 31,
(in
thousands)
(in thousands) (in
thousands)
(in thousands)
Forward purchase contracts
Prepaid expenses and $ 3 $ 9
Accrued liabilities—current $ 5 $ 19
Total derivatives $ 3 $ 9 $ 5 $ 19
Patents
The Company expenses patent costs, including related legal costs,
as incurred and records such costs within selling, general and
administrative expenses in the statements of operations.
Revenue Recognition
The Company enters into R&D agreements that may consist of
nonrefundable up-front
For agreements that contain multiple elements, each element within
a multiple-element arrangement is accounted for as a separate unit
of accounting provided the following criteria are met: the
delivered products or services have value to the customer on a
stand-alone basis and, for an arrangement that includes a general
right of return relative to the delivered products or services,
delivery, or performance of the undelivered product or service is
considered probable and is substantially controlled by the Company.
The Company considers a deliverable to have stand-alone value if
the product or service is sold separately by the Company or another
vendor or could be resold by the customer. Further, the
Company’s revenue arrangements do not include a general right
of return relative to the delivered products.
Nonrefundable up-front
Milestone payments represent amounts received from the
Company’s R&D partners, the receipt of which is dependent
upon the achievement of certain scientific, regulatory, or
commercial milestones. The Company recognizes milestone payments
when the triggering event has occurred, there are no further
contingencies or services to be provided with respect to that
event, and the counterparty has no right to refund of the payment.
The triggering event may be scientific results achieved by the
Company or another party to the arrangement, regulatory approvals,
or the marketing of products developed under the arrangement.
Royalty revenue arises from the Company’s contractual
entitlement to receive a percentage of product sales revenues
achieved by counterparties. Royalty revenue is recognized on an
accrual basis in accordance with the terms of the agreement when
sales can be determined reliably and there is reasonable assurance
that the receivables from outstanding royalties will be
collected.
License revenue from licenses that were granted to third parties is
recognized ratably over the period of the license agreements.
Revenue from R&D services is recognized over the period the
R&D services are performed.
Cost of Revenue
Cost of revenue relates to the performance of services or contract
research and consists of direct external expenses relating to
projects and internal costs, including overhead allocated on a
full-time equivalent basis.
Research and Development
R&D expenses represent costs incurred for the development of
various products using licensed gene editing technology, including
expenses allocated to Calyxt by Cellectis. R&D expenses consist
primarily of salaries and related costs of the Company’s
scientists, in-licensing
In the normal course of business, Calyxt enters into R&D
contracts with third parties whereby Calyxt performs R&D of
certain gene traits for the third party. The Company has entered
into various multiyear arrangements in which Calyxt performs the
R&D of the gene technology and the third parties generally have
primary responsibility for any commercialization of the technology.
These arrangements are performed with no guarantee of either
technological or commercial success.
The Company in-licenses up-front in-licensing in-licensing in-licensing in-licensing
Foreign Currency Transactions
Transactions in foreign currencies are remeasured into the
Company’s functional currency, U.S. dollars, at the exchange
rates effective at the transaction dates. Assets and liabilities
denominated in foreign currencies at the reporting date are
remeasured into the functional currency using the exchange rate
effective at that date. The resulting exchange gains or losses are
recorded in the statements of operations under selling, general,
and administrative expenses.
Income Taxes
Current income taxes are recorded based on statutory obligations
for the current operating period for the jurisdictions in which the
Company has operations.
Deferred taxes are provided on an asset and liability method,
whereby deferred tax assets are recognized for deductible temporary
differences and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences
between the reported amounts of assets and liabilities and their
tax basis. Deferred tax assets are reduced by a valuation allowance
when, in the opinion of management, it is more likely than not that
some portion or all of the deferred tax assets will not be
realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of
enactment.
The tax effects from an uncertain tax position can be recognized in
the financial statements only if the position is more likely than
not to be sustained on audit, based on the technical merits of the
position. Calyxt recognizes the financial statement benefit of a
tax position only after determining that the relevant tax authority
would more likely than not sustain the position following an audit.
For tax positions meeting the
more-likely than-not
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update
(ASU) 2014-09, Revenue
from Contracts with Customers, Revenue from Contracts with
Customers, Revenue
Recognition. 2014-09 2016-08, Revenue
from Contracts with Customers: Principal versus Agent
Considerations (Reporting Revenue Gross versus
Net) 2016-10, Revenue
from Contracts with Customers: Identifying Performance Obligations
and Licensing; 2016-12, Revenue
from Contracts with Customers: Narrow-Scope Improvements and
Practical Expedients, not-for-profit
In November 2015, the FASB issued
ASU 2015-17, Income
Taxes (Topic 740): Balance Sheet Classification of Deferred
Taxes. non-current non-current 2015-17 non-public 2015-17
In February 2016, the FASB issued
ASU 2016-02, Leases
(Topic 842). not-for-profit 2016-02 2016-02
In March 2016, the FASB issued ASU 2016-09, Compensation—Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting paid-in 2016-09 2016-09
In May 2017, the FASB issued ASU 2017-09, Compensation Stock
Compensation (Topic 718): Scope of Modification
Accounting |
