SEC Form 10-Q filed by AgeX Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) | |||
| OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) | |||
| OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ___________ to ___________
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
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Indicate
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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The number of shares common stock outstanding as of May 9, 2024 was , par value $0.0001 per share.
SERINA THERAPEUTICS, INC.
TABLE OF CONTENTS
| Page Number | |||
| Part I – FINANCIAL INFORMATION | |||
| Item 1. | Financial Statements | 6 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 32 | |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 38 | |
| Item 4. | Controls and Procedures | 38 | |
| Part II – OTHER INFORMATION | |||
| Item 1. | Legal Proceedings | 40 | |
| Item 1A. | Risk Factors | 40 | |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 41 | |
| Item 3. | Default Upon Senior Securities | 41 | |
| Item 4. | Mine Safety Disclosures | 41 | |
| Item 5. | Other Information | 41 | |
| Item 6. | Exhibits | 42 | |
| 2 |
Forward-Looking Statements
This Quarterly Report on Form 10-Q (“Report”) contains forward-looking statements that involve risks and uncertainties. We make such forward-looking statements pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. All statements other than statements of historical facts contained in this Report are forward-looking statements. In some cases, you can identify forward-looking statements by words such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “seek,” “should,” “target,” “will,” “would,” or the negative of these words or other comparable terminology.
Any forward-looking statements in this Report reflect our current views with respect to future events or to our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Factors that may cause actual results to differ materially from current expectations include, among other things, those discussed in this Report under Item 1 of the Notes to Condensed Financial Statements, under Risk Factors in this Report, those incorporated by reference in the section titled “Risk Factors in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2024, and those listed under Part I, Item 1A. Risk Factors of our Annual Report on Form 10-K as filed with the Securities and Exchange Commission on March 22, 2024. Given these uncertainties, you should not place undue reliance on these forward-looking statements. Except as required by law, we assume no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.
The description or discussion, in this Report, of any contract or agreement is a summary only and is qualified in all respects by reference to the full text of the applicable contract or agreement.
| 3 |
Explanatory Note
On March 26, 2024, the Delaware corporation formerly known as “AgeX Therapeutics, Inc.” completed our previously announced merger transaction in accordance with the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated as of August 29, 2023 (the “Merger Agreement”), by and among AgeX Therapeutics, Inc., a Delaware corporation (“AgeX”), Canaria Transaction Corporation, an Alabama corporation and a wholly owned subsidiary of AgeX (“Merger Sub”), and Serina Therapeutics, Inc., an Alabama corporation (“Legacy Serina”), pursuant to which Merger Sub merged with and into Legacy Serina, with Legacy Serina surviving the merger as a wholly owned subsidiary of AgeX (the “Merger”). Additionally, on March 26, 2024, AgeX changed its name from “AgeX Therapeutics, Inc.” to “Serina Therapeutics, Inc.” (the “Company”).
At the effective time of the Merger, each outstanding share of Legacy Serina capital stock (after giving effect to the automatic conversion of all shares of Legacy Serina preferred stock into shares of Legacy Serina common stock and excluding any shares held as treasury stock by Legacy Serina or held or owned by AgeX or any subsidiary of AgeX or Legacy Serina and any dissenting shares) was converted into the right to receive 0.97682654 shares of AgeX common stock, which resulted in the issuance by AgeX of an aggregate of 5,913,277 shares of AgeX common stock to the stockholders of Legacy Serina. In addition, AgeX assumed the Legacy Serina 2017 Stock Option Plan and each outstanding and unexercised option to purchase Legacy Serina common stock and each outstanding and unexercised warrant to purchase Legacy Serina capital stock were adjusted with such stock options and warrants henceforth representing the right to purchase a number of shares of our common stock equal to 0.97682654 multiplied by the number of shares of Legacy Serina common stock previously represented by such options and warrants.
The Merger was treated as a reverse recapitalization under U.S. generally accepted accounting principles. Legacy Serina is considered the accounting acquirer for financial reporting purposes. Immediately following the consummation of the Merger, AgeX changed its name to “Serina Therapeutics, Inc.” and the Company’s common stock, par value $0.0001 per share (“common stock”), began trading on the NYSE American under the symbol “SER.”
Following the consummation of the Merger, the business previously conducted by Legacy Serina became the business conducted by the Company, which is now a clinical-stage biotechnology company developing Legacy Serina’s drug product candidates. The Company’s headquarters are located in Huntsville, Alabama (Legacy Serina’s former headquarters).
Immediately following the consummation of the Merger, there were approximately 10.1 million shares of the Company’s common stock outstanding on a fully-diluted basis, excluding warrants, with Legacy Serina equityholders collectively owning approximately 75% of the Company and prior AgeX equityholders collectively owning approximately 25% of the Company, in each case on a fully diluted basis excluding warrants.
The foregoing descriptions of the Merger Agreement and the Amended Certificate do not constitute a complete summary of the terms of the Merger Agreement, the Merger Certificate or the Amended Certificate, and are qualified in their entirety by reference to the full text of the Merger Agreement and the Amended Certificate, copies of which are filed as Exhibits 2.1 and 3.1 to this Report.
Pre-Merger Closing Conditions
Reverse Stock Split
As a pre-merger closing condition, on March 14, 2024, AgeX effected a reverse stock split of its common stock at a ratio of 1 for 35.17 (the “Reverse Stock Split”) resulting in approximately 2,500,000 shares of AgeX common stock being outstanding immediately upon the Reverse Stock Split. Except for the number of authorized but unissued shares of AgeX common stock, and except as may be otherwise stated in these notes to financial statements, numbers of shares of AgeX common stock issued and outstanding, or issuable upon the exercise of options or warrants or upon conversion of convertible indebtedness, and AgeX common stock prices, shown in the consolidated financial statements and these notes thereto have been retroactively adjusted to reflect the effect of the Reverse Stock Split.
Warrant Dividends
On March 19, 2024, AgeX issued to each stockholder of record as of the close of business on March 18, 2024 (the “Warrant Dividend Record Date”) three warrants (each, a “Post-Merger Warrant”) for each five shares of AgeX common stock issued and outstanding held by a stockholder of record as of the Warrant Dividend Record Date. Each Post-Merger Warrant will be exercisable at an exercise price equal to $13.20 per warrant (such exercise price reflecting the Reverse Stock Split) for (i) one share of our common stock and (ii) one warrant (each, an “Incentive Warrant”) and will expire on July 31, 2025. Each Incentive Warrant will be exercisable at an exercise price equal to $18.00 per warrant (such exercise price reflecting the Reverse Stock Split) for one share of our common stock and will expire on the four-year anniversary of closing of the Merger.
| 4 |
Each Post-Merger Warrant was issued and each Incentive Warrant will be issued pursuant to the terms of the warrant agreement, dated as of March 19, 2024 (the “Warrant Agreement”), by and between the Company and Equiniti Trust Company, LLC, a New York limited liability company, as warrant agent (the “Warrant Agent”). No fractional warrants were issued. The number of Post-Merger Warrants issued to a stockholder of record were rounded down to the nearest whole number if such holder was entitled to receive a fractional warrant.
Prior to the closing of the Merger, all assets of AgeX other than certain “Legacy Assets” were transferred into a recently formed subsidiary of AgeX UniverXome Bioengineering, Inc. (“UniverXome”). In consideration of the transfer of such assets, UniverXome assumed (i) all indebtedness of AgeX issued to Juvenescence that had not been previously converted into AgeX Series A Preferred Stock or AgeX Series B Preferred Stock, which are secured by the Legacy Assets and (ii) all other liabilities of AgeX in existence as of the effective time of the Merger (other than certain transaction expenses related to the Merger).
Side Letter with Juvenescence
Concurrently with the execution of the Merger Agreement, AgeX, Legacy Serina, and AgeX’s controlling stockholder Juvenescence Limited (“Juvenescence”) entered into a Side Letter, which became effective immediately prior to the closing of the Merger. The Side Letter provides, among other things, that (i) effective immediately before the consummation of the Merger, Juvenescence will cancel all out of the money AgeX warrants held by Juvenescence; (ii) Juvenescence will exercise all Post-Merger Warrants it holds to provide the Company an additional $15 million in capital according to the following schedule: (x) at least one-third on or before May 31, 2024, (y) at least one-third on or before November 30, 2024, and (z) at least one-third on or before June 30, 2025; (iii) Juvenescence will not sell any shares of AgeX Series A Preferred Stock or AgeX Series B Preferred Stock and will take all actions necessary to convert all of such Preferred Stock into AgeX common stock before a Reverse Stock Split that will occur before the Merger; (iv) Juvenescence will release all security interests, guarantees, pledges, assignments and other forms of collateral that it may have in AgeX’s assets pursuant to the terms of Juvenescence loans to AgeX; and (v) Juvenescence will consent to a newly formed subsidiary of AgeX assuming AgeX’s obligations with respect to loan agreements and promissory notes governing loans payable to Juvenescence, including obligations for amounts currently owed and future advances of loan funds, and Juvenescence shall release AgeX from those loan obligations. Juvenescence’s covenant regarding retaining ownership of and converting the Preferred Stock into AgeX common stock has been satisfied through the conversion of the Preferred Stock into AgeX common stock on February 1, 2024.
Since Legacy Serina was determined to be the accounting acquirer in connection with the Merger, for periods prior to the Merger, the condensed consolidated financial statements were prepared on a stand-alone basis for Legacy Serina and did not include the combined entities’ activity or financial position. Subsequent to the Merger, the condensed consolidated financial statements as of and for the three months ended March 31, 2024, include the acquired business from March 27, 2024, through March 31, 2024, and assets and liabilities at their acquisition date fair value. Historical share and per share figures of Legacy Serina have been retroactively restated based on the exchange ratio of 0.97682654.
In this Report, unless the context indicates otherwise, the terms “Company,” “we,” “us,” and “our” refer to (i) Legacy Serina for periods prior to the effectiveness of the Merger and (ii) Serina Therapeutics, Inc. (as a consolidated company) for periods following the effectiveness of the Merger. Following the completion of the Merger, the business conducted by the Company became primarily the business conducted by Legacy Serina.
| 5 |
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
SERINA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except par value amounts)
| March 31, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts and grants receivable, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| Property and equipment, net | ||||||||
| Right of use assets - operating leases | ||||||||
| Right of use assets - finance leases | ||||||||
| Intangible assets, net | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Loans due to Juvenescence, net of debt issuance costs | ||||||||
| Related party payables, net | ||||||||
| Current portion of operating lease liabilities | ||||||||
| Current portion of finance lease liabilities | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Loans due to Juvenescence | ||||||||
| Convertible promissory notes, at fair value | ||||||||
| Operating lease liabilities, net of current portion | ||||||||
| Finance lease liabilities, net of current portion | ||||||||
| TOTAL LIABILITIES | ||||||||
| Commitments and contingencies (Note 11) | ||||||||
| Redeemable Convertible Preferred Stock: | ||||||||
| Redeemable convertible preferred stock, $ par value; authorized; and issued and outstanding at March 31, 2024 and December 31, 2023, respectively | ||||||||
| Stockholders’ deficit: | ||||||||
| Preferred stock, $ par value, shares authorized; issued and outstanding | ||||||||
| Common stock, $ par value, shares authorized; and and shares issued and outstanding | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK, AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 6 |
SERINA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except par value amounts)
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| REVENUES | ||||||||
| Grant revenues | $ | $ | ||||||
| Total revenues | ||||||||
| OPERATING EXPENSES | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE), NET: | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Fair value inception adjustment on convertible promissory note | ||||||||
| Change in fair value of convertible promissory notes | ( | ) | ||||||
| Change in fair value of warrants | ||||||||
| Total other income (expense), net | ( | ) | ||||||
| NET INCOME (LOSS) | $ | ( | ) | $ | ||||
| NET EARNINGS (LOSS) PER COMMON SHARE: | ||||||||
| BASIC | $ | ( | ) | $ | ||||
| DILUTED | $ | ( | ) | $ | ||||
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING: | ||||||||
| BASIC | ||||||||
| DILUTED | ||||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 7 |
SERINA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT
(in thousands)
(unaudited)
| Redeemable Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Par Value | Paid-In Capital
| Accumulated Deficit | Stockholders’ Deficit | ||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock upon exercise of stock options | - | |||||||||||||||||||||||||||
| Issuance of common stock upon conversion of preferred stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Issuance of common stock upon conversion of AgeX-Serina Note | - | |||||||||||||||||||||||||||
| Cancellation of common stock upon consummation of Merger on March 26, 2024 | - | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||
| Merger and issuance of common stock to Legacy Serina shareholders upon consummation of Merger on March 26, 2024 | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| BALANCE AT MARCH 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Redeemable Preferred Stock | Common Stock | Additional | Total | |||||||||||||||||||||||||
| Number of Shares | Amount | Number of Shares | Par Value | Paid-In Capital | Accumulated Deficit | Stockholders’ | ||||||||||||||||||||||
| BALANCE AT DECEMBER 31, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| BALANCE AT MARCH 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 8 |
SERINA THERAPEUTICS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Non-cash lease expense | ||||||||
| Amortization of debt issuance fees | ||||||||
| Stock-based compensation | ||||||||
| Fair value inception adjustment on convertible promissory note | ( | ) | ||||||
| Change in fair value of convertible promissory notes | ( | ) | ||||||
| Change in fair value of warrants | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Accounts payable and accrued liabilities | ||||||||
| Accrued interest on convertible promissory notes | ||||||||
| Operating lease liabilities | ( | ) | ( | ) | ||||
| Other current liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| FINANCING ACTIVITIES: | ||||||||
| Drawdown on loan facilities from Juvenescence | ||||||||
| Cash and restricted cash acquired in connection with the Merger | ||||||||
| Proceeds from the exercise of stock options | ||||||||
| Proceeds from the issuance of convertible promissory notes | ||||||||
| Principal repayments on finance lease liabilities | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| NET CHANGE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH | ||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH: | ||||||||
| At beginning of the period | ||||||||
| At end of the period | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES | ||||||||
| Cash paid for interest | $ | $ | ||||||
| SUPPLEMENTAL SCHEDULE OF NON-CASH FINANCING AND INVESTING ACTIVITIES: | ||||||||
| Right of use asset acquired in exchange for finance lease liabilities | $ | $ | ||||||
| Issuance of common stock upon conversion of Preferred Stock | $ | $ | ||||||
| Issuance of common stock upon conversion of AgeX-Serina Note | $ | $ | ||||||
| Merger and issuance of common stock upon consummation of Merger on March 26, 2024 | $ | $ | ||||||
See accompanying notes to these condensed consolidated interim financial statements.
| 9 |
SERINA THERAPEUTICS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
(unaudited)
1. Organization, Business Overview and Liquidity
Serina Therapeutics, Inc. (“Serina” or the “Company”) was incorporated as AgeX Therapeutics, Inc. in January 2017 in the state of Delaware. On March 26, 2024, AgeX Therapeutics, Inc. completed a merger transaction in accordance with the terms and conditions of the Agreement and Plan of Merger and Reorganization, dated as of August 29, 2023 (the “Merger Agreement”), by and among AgeX Therapeutics, Inc. (“AgeX”), Canaria Transaction Corporation, an Alabama corporation and a wholly owned subsidiary of AgeX (“Merger Sub”), and Serina Therapeutics, Inc., an Alabama corporation (“Legacy Serina”), pursuant to which Merger Sub merged with and into Legacy Serina, with Legacy Serina surviving the merger as a wholly owned subsidiary of AgeX (the “Merger”). Additionally, on March 26, 2024, AgeX changed its name from “AgeX Therapeutics, Inc.” to “Serina Therapeutics, Inc.” (the “Company”).
At the effective time of the Merger, each outstanding share of Legacy Serina capital stock (after giving effect to the automatic conversion of all shares of Legacy Serina preferred stock into shares of Legacy Serina common stock and excluding any shares held as treasury stock by Legacy Serina or held or owned by AgeX or any subsidiary of AgeX or of Legacy Serina and any dissenting shares) was converted into the right to receive shares of AgeX common stock, which resulted in AgeX issuing an aggregate of shares of AgeX common stock to the stockholders of Legacy Serina. In addition, AgeX assumed the Legacy Serina 2017 Stock Option Plan, and each outstanding and unexercised option to purchase Legacy Serina common stock and each outstanding and unexercised warrant to purchase Legacy Serina capital stock was adjusted with such stock options and warrants henceforth representing the right to purchase a number of shares of Company common stock equal to multiplied by the number of shares of Legacy Serina common stock previously represented by such options and warrants.
Following the consummation of the Merger, the business previously conducted by Serina became the business conducted by the Company, which is now a clinical-stage biotechnology company developing Serina’s drug product candidates. The Company’s headquarters are located in Huntsville, Alabama (Serina’s former headquarters).
The Company is a clinical-stage biotechnology company developing a pipeline of wholly-owned drug product candidates to treat neurological diseases and pain. The Company’s POZ drug delivery technology is designed to enable certain existing drugs and novel drug candidates to be modified in a way that may provide an increase in efficacy and safety of the resulting polymeric drug conjugate. The Company’s proprietary POZ technology is based on a synthetic, water soluble, low viscosity polymer called poly(2-oxazoline). The Company’s POZ technology is engineered to provide greater control in drug loading and more precision in the rate of release of attached drugs delivered via subcutaneous injection.
The therapeutic agents in the Company’s product candidates are typically well-understood and marketed drugs that are effective but are limited by pharmacokinetic (PK) profiles that can include toxicity, side effects and short half-life. We believe that by using POZ technology, drugs with narrow therapeutic windows can be designed to maintain more desirable and stable levels in the blood. We believe that POZ technology can be applied to small molecules, proteins, antibody drug conjugates, and other classes of molecules.
Prior to the closing of the Merger, any assets of AgeX other than certain “Legacy Assets” were transferred into a recently formed subsidiary of AgeX, UniverXome Bioengineering, Inc. (“UniverXome”). UniverXome assumed (i) any outstanding indebtedness of AgeX to Juvenescence Limited (“Juvenescence”), which was secured by the assets contributed to UniverXome, (ii) most of the Company’s contracts with third parties, other than certain designated contracts and any contracts that were terminated before the Merger, and (iii) all other liabilities of the Company in existence as of the effective time of the Merger (other than certain transaction expenses related to the Merger).
Emerging Growth Company
The Company is an “emerging growth company” as defined in the Jumpstart Our Business Startups Act of 2012.
Liquidity and Going Concern
In addition to general economic and capital market trends and conditions, the Company’s ability to raise sufficient additional capital to finance its operations from time to time will depend on a number of factors specific to the Company’s operations such as operating expenses and progress in out-licensing its technologies and development of its product candidates.
The unavailability or inadequacy of financing to meet future capital needs could force the Company to modify, curtail, delay, or suspend some or all aspects of planned operations. Sales of additional equity securities could result in the dilution of the interests of its stockholders. The Company cannot assure that adequate financing will be available on favorable terms, if at all.
| 10 |
The
Company recognized net loss of approximately $
Management
believes that its cash and cash equivalents of $
The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, technical risks associated with the successful research, development and manufacturing of therapeutic candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, and the ability to secure additional capital to fund operations. Therapeutic drug candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing and regulatory approval prior to commercialization. These efforts will require significant amounts of additional capital, adequate personnel, and infrastructure. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales. The Company expects to largely rely on raising capital from equity investors for funding its operations. Some funding is expected to be obtained through licensing agreements or other arrangements with commercial entities.
As a result of recurring losses from operations and recurring negative cash flows from operations, there is substantial doubt regarding the Company’s ability to maintain liquidity sufficient to operate its business effectively. If sufficient capital is not available, the Company would be required to delay, limit, reduce, or terminate its product development or future commercialization efforts or grant rights to develop and market therapeutic candidates to other entities. There can be no assurance that the Company will be able to raise additional funds or that the terms and conditions of any future financings will be workable or acceptable to the Company or its shareholders. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Basis of Presentation and Summary of Significant Accounting Policies
The unaudited condensed consolidated interim financial statements presented herein, and discussed below, have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated by the Securities and Exchange Commission (the “SEC”). In accordance with those rules and regulations certain information and footnote disclosures normally included in comprehensive consolidated financial statements have been condensed or omitted. The condensed consolidated balance sheet as of December 31, 2023 was derived from the audited consolidated financial statements at that date but does not include all the information and footnotes required by U.S. GAAP. These condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s audited consolidated financial statements and related notes for the years ended December 31, 2023 and 2022 attached as Exhibit 99.2 to the Company’s Current Report on Form 8-K filed on April 1, 2024.
The accompanying condensed consolidated interim financial statements, in the opinion of management, include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. The condensed consolidated results of operations are not necessarily indicative of the results to be expected for any other interim period or for the entire year.
Principles of consolidation
The
consolidated financial statements include the accounts of the Company and its subsidiaries in which the Company has a controlling financial
interest. For consolidated entities where the Company has less than
| 11 |
The Company assesses whether it is the primary beneficiary of a variable interest entity (“VIE”) at the inception of the arrangement and at each reporting date. This assessment is based on its power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the Company’s obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. If the entity is within the scope of the variable interest model and meets the definition of a VIE, the Company considers whether it must consolidate the VIE or provide additional disclosures regarding its involvement with the VIE. If the Company determines that it is the primary beneficiary of the VIE, the Company will consolidate the VIE. This analysis is performed at the initial investment in the entity or upon any reconsideration event. For entities the Company holds as an equity investment that are not consolidated under the VIE model, the Company will consider whether its investment constitutes a controlling financial interest in the entity and therefore should be considered for consolidation under the voting interest model.
The
Company has five subsidiaries: Legacy Serina and UniverXome, which are wholly-owned subsidiaries, and ReCyte Therapeutics, Inc. (“ReCyte”),
Reverse Bioengineering, Inc. (“Reverse Bio”), and NeuroAirmid Therapeutics, Inc. (“NeuroAirmid”). Following the
Merger, the Company is primarily focused on developing Legacy Serina’s product candidates which are described elsewhere in this
Report. Prior to the Merger, on March 26, 2024, pursuant the Merger Agreement, the Company contributed all of its stock in Reverse Bio
and ReCyte, along with substantially all of the assets (other than the stock of NeuroAirmid) of the Company to UniverXome. In exchange
for the contribution of those assets, UniverXome assumed certain liabilities, including all of the Company’s indebtedness to Juvenescence.
UniverXome owns
Use of estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect (i) the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and (ii) the reported amounts of revenues and expenses during the reporting period, in each case with consideration given to materiality. Significant estimates and assumptions which are subject to significant judgment include those related to going concern assessment of consolidated financial statements, useful lives associated with long-lived assets, including evaluation of asset impairment, allowances for uncollectible accounts receivables, loss contingencies, deferred income taxes and tax reserves, including valuation allowances related to deferred income taxes, determining the fair value of the Company’s embedded derivatives in the convertible notes payable and receivable, and assumptions used to value stock-based awards or other equity instruments and liability classified warrants. Actual results could differ materially from those estimates. To the extent there are material differences between the estimates and actual results, the Company’s future results of operations will be affected.
Concentration of credit risk and other risks and uncertainties
Financial instruments that potentially subject the Company to concentrations of risk consist principally of cash equivalents. The Company maintains its cash deposits in Federal Deposit Insurance Corporation (“FDIC”) insured financial institutions and may at times hold investments at Securities Investor Protection Corporation (“SIPC”) insured broker-dealers.
At
times, the balances in these accounts may be in excess of FDIC and SIPC insured limits. At March 31, 2024 and December 31, 2023, cash
and cash equivalents deposits in excess of FDIC limits were approximately $
For
the periods ended March 31, 2024 and 2023,
Product candidates developed by the Company and its subsidiaries will require approvals or clearances from the United States Food and Drug Administration (“FDA”) or foreign regulatory agencies prior to commercial sales. There can be no assurance that any of the product candidates being developed or planned to be developed by the Company or its subsidiaries will receive any of the required approvals or clearances. If regulatory approval or clearance were to be denied or any such approval or clearance was to be delayed, it would have a material adverse impact on the Company.
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Fair value measurements of financial instruments
The Company has adopted ASC Topic 820, Fair Value Measurement, for certain financial instruments measured as fair value on a recurring basis. ASC Topic 820 defines fair value, establishes a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 establishes a three-tier fair value hierarchy which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
The three levels of inputs that may be used to measure fair value are as follows:
| ● | Level 1: Quoted prices in active markets for identical assets or liabilities. |
| ● | Level 2: Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets with insufficient volume or infrequent transactions (less active markets), or model-derived valuations in which all significant inputs are observable or can be derived principally from or corroborated with observable market data for substantially the full term of the assets or liabilities. Level 2 inputs also include non-binding market consensus prices that can be corroborated with observable market data, as well as quoted prices that were adjusted for security-specific restrictions. |
| ● | Level 3: Unobservable inputs to the valuation methodology are significant to the measurement of the fair value of assets or liabilities. Level 3 inputs also include non-binding market consensus prices or non-binding broker quotes that we were unable to corroborate with observable market data. |
Accounting for warrants
The Company determines the accounting classification of warrants it issues, as either liability or equity, by first assessing whether the warrants meet liability classification in accordance with ASC 480-10, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, then in accordance with ASC 815-40, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock. Under ASC 480, warrants are considered liability classified if the warrants are mandatorily redeemable, obligate the Company to settle the warrants or the underlying shares by paying cash or other assets, or warrants that must or may require settlement by issuing a variable number of shares. If warrants do not meet liability classification under ASC 480-10, the Company assesses the requirements under ASC 815-40, which states that contracts that require or may require the issuer to settle the contract for cash are liabilities recorded at fair value, irrespective of the likelihood of the transaction occurring that triggers the net cash settlement feature. If the warrants do not require liability classification under ASC 815-40, and in order to conclude equity classification, the Company also assesses whether the warrants are indexed to its common stock and whether the warrants are classified as equity under ASC 815-40 or other applicable U.S. GAAP. After all relevant assessments, the Company concludes whether the warrants are classified as liability or equity. Liability classified warrants require fair value accounting at issuance and subsequent to initial issuance with all changes in fair value after the issuance date recorded in the statements of operations. Equity classified warrants only require fair value accounting at issuance with no changes recognized subsequent to the issuance date. See Notes 5, Related Party Transactions and 6, Fair Value Measurements, for additional information regarding warrants.
Redeemable convertible preferred stock
The Company recorded redeemable convertible preferred stock at fair value upon issuance, net of any issuance costs. As of December 31, 2023, the Company classified stock that was redeemable in circumstances outside of the Company’s control outside of permanent equity. The redeemable preferred stock were converted to common stock on March 26, 2024 upon consummation of the Merger.
Cash, cash equivalents, and restricted cash
In accordance with Accounting Standards Update (“ASU”) 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, a reconciliation of the Company’s cash and cash equivalents in the condensed consolidated balance sheets to cash, cash equivalents and restricted cash in the condensed consolidated statements of cash flows for all periods presented is as follows (in thousands):
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash (1) | ||||||||
| Cash, cash equivalents, and restricted cash as shown in the condensed consolidated statements of cash flows | $ | $ | ||||||
| (1) |
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Property and equipment, net
Property
and equipment are carried at cost less accumulated depreciation. The costs of additions and betterments are capitalized and expenditures
for repairs and maintenance are expensed as incurred. When items of property and equipment are sold or retired, the related costs and
accumulated depreciation are removed from the accounts and any gain or loss is included in the statements of operations. Depreciation
of property and equipment is provided utilizing the straight-line method over the range of lives used of the respective assets, which
is
Leases
The
Company accounts for leases in accordance with ASU 2016-02, Leases (Topic 842) (“ASC 842”) and its subsequent amendments
affecting the Company: (i) ASU 2018-10, Codification Improvements to Topic 842, Leases, and (ii) ASU 2018-11, Leases (Topic
842): Targeted Improvements, using the modified retrospective method. The Company management determines if an arrangement is a lease
at inception. Leases are classified as either financing or operating, with classification affecting the pattern of expense recognition
in the consolidated statements of operations. When determining whether a lease is a financing lease or an operating lease, ASC 842 does
not specifically define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially
all of the fair value of the underlying asset.” For lease classification determination, the Company uses
ROU assets represent an entity’s right to use an underlying asset during the lease term and lease liabilities represent an entity’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. If the lease agreement does not provide an implicit rate in the contract, the lessee uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. For such purposes, the lease term applied may include options to extend or terminate the lease when it is reasonably certain that the Company or a subsidiary will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company does not capitalize leases that have terms of twelve months or less.
The Company entered into five long-term, non-cancelable operating leases, of which four are related to laboratory and office facilities located in Huntsville, Alabama and one for a laboratory equipment. The leases expire on various dates from September 2024 through January 2028. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties. The Company also leases two pieces of equipment for various terms under long-term, non-cancelable finance lease agreements which expire in September 2024 and February 2025. The Company has elected to combine lease and non lease components as a single component. As required under ASC 842, operating leases are recognized on the consolidated balance sheet as ROU lease assets, current lease liabilities, and non-current lease liabilities. Fixed rents are included in the calculation of the lease balances, while variable costs paid for certain operating and pass through costs are excluded. Lease expense is recognized over the expected term on a straight-line basis.
Intangible assets, net
Intangible
assets, consisting primarily of acquired in-process
research and development (“IPR&D”) with alternative future use and patents, is stated at acquired cost, less accumulated
amortization. Amortization expense is computed using the straight-line method over the estimated useful life of
Impairment of long-lived assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. The Company’s long-lived assets consists entirely of intangible assets. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss, equal to the excess of the carrying value of the asset over its fair value, is recorded. There has been no impairment of long-lived assets for the accounting periods presented.
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Revenue recognition
The Company recognizes revenue in a manner that depicts the transfer of control of a product or a service to a customer and reflects the amount of the consideration it expects to receive in exchange for such product or service. In doing so, the Company follows a five-step approach: (i) identify the contract with a customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations, and (v) recognize revenue when (or as) the customer obtains control of the product or service. The Company considers the terms of a contract and all relevant facts and circumstances when applying the revenue recognition standard. The Company applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances.
Grant revenues – The Company accounts for grants received to perform research and development services in accordance with ASC 730-20, Research and Development Arrangements. At the inception of the grant, we perform an assessment as to whether the grant is a liability or a contract to perform research and development services for others. If the Company or a subsidiary receiving the grant is obligated to repay the grant funds to the grantor regardless of the outcome of the research and development activities, then the Company is required to estimate and recognize that liability. Alternatively, if the Company or a subsidiary receiving the grant is not required to repay, or if it is required to repay the grant funds only if the research and development activities are successful, then the grant agreement is accounted for as a contract to perform research and development services for others, in which case, grant revenue is recognized when the related research and development expenses are incurred.
In applying the provisions of Topic 606, the Company has determined that government grants are out of the scope of Topic 606 because the government entities do not meet the definition of a “customer”, as defined by Topic 606, as there is not considered to be a transfer of control of good or services to the government entities funding the grant. In the absence of applicable guidance under U.S. GAAP, our policy is to recognize grant revenue when the related costs are incurred, provided that the applicable conditions under the government contracts have been met. Only costs that are allowable under the grant award, certain government regulations and the National Institutes of Health’s supplemental policy and procedure manual may be claimed for reimbursement, and the reimbursements are subject to routine audits from governmental agencies from time to time. Costs incurred are recorded in research and development expenses on the accompanying consolidated statements of operations.
The Company believes the recognition of revenue as costs are incurred and amounts become realizable is analogous to the concept of transfer of control of a service over time under ASC 606.
License revenues - The Company also recognizes revenue under licensing agreements with commercial entities in accordance with ASC 606. Under revenue sharing licensing agreements, the Company receives reimbursement for eligible costs as well as payments upon the achievement of certain milestones as defined by the contract. These licensing agreements provide for the Company to receive a certain percentage of revenue from sales of their product.
The Company accounts for a contract after it has been approved by all parties to the arrangement, the rights of the parties are identified, payment terms are identified, the contract has commercial substance, and collection is probable.
Each contract is assessed at inception to determine whether it should be combined with other contracts. When making this determination, factors such as whether two or more contracts were negotiated or executed at or near the same time or were negotiated with an overall profit objective. If combined, the Company treats the combined contracts as a single contract for revenue recognition purposes.
The Company evaluates the services promised in each contract at inception to determine whether the contract should be accounted for as having one or more performance obligations. The services in the contracts are typically not distinct from one another due to the requirements to perform under the contract. Accordingly, the contracts are typically accounted for as one performance obligation. However, if a contract has multiple distinct performance obligations, the transaction price is allocated to each performance obligation based on the estimated standalone selling price of the service underlying each performance obligation. Revenue is recognized as performance obligations are satisfied and the customer obtains control of the service. For performance obligations in which control does not continuously transfer to the customer, revenue is recognized at the point in time that each performance obligation is fully satisfied.
The Company determines the transaction price for each contract based on the consideration expected to be received for the services being provided under the contract. For contracts where a portion of the price may vary, the Company estimates variable consideration at the most likely amount, which is included in the transaction price to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur. The Company analyzes the risk of a significant reversal and, if necessary, constrains the amount of variable consideration recognized in order to mitigate the risk. At inception of a contract, the transaction price is estimated based on current rights, and does not contemplate future modifications (including unexercised options) or follow-on contracts until they become legally enforceable. Depending on the nature of the modification, the Company considers whether to account for the modification as an adjustment to the existing contract or as a separate contract.
Milestone payments are recognized as licensing revenue upon the achievement of specified milestones if (i) the milestone is substantive in nature and the achievement of the milestone was not probable at the inception of the agreement; and (ii) the Company has a right to payment. Any milestone payments received prior to satisfying these revenue recognition criteria are recorded as deferred revenue.
Research and development
Research and development costs are expensed as they are incurred and include compensation for scientists, support personnel, outside contracted services, and material costs associated with product development. The Company continually evaluates new product opportunities and engages in intensive research and product development efforts. Research and development expenses include both direct costs tied to a specific contract or grant, and indirect costs. Research and development expenses incurred and reimbursed by grants from third parties or governmental agencies, if any and as applicable, approximate the respective revenues recognized in the condensed consolidated statements of operations.
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General and administrative
General and administrative expenses consist primarily of compensation and related benefits, including stock-based compensation, for executive and corporate personnel, and professional and consulting fees.
Income taxes
Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes related primarily to differences between the basis of loss carryovers and depreciation differences for financial and income tax reporting. Deferred taxes represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which the differences are expected to be recovered or settled.
The Company only recognizes tax benefits from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statement from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. To date, the Company has not recognized such tax benefits in its financial statements.
Basic earnings (loss) per share (“EPS”) of common stock is computed by dividing net income (loss) available to common stockholders (numerator) by the weighted average number of shares of common stock outstanding (denominator) during the period.
Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method for stock options and warrants and the if-converted method for redeemable, convertible preferred stock and convertible promissory notes. In computing diluted EPS, the average stock price for the period is used to determine the number of shares assumed to be purchased from the exercise of stock options and/or warrants. Diluted EPS excluded all dilutive potential shares if their effect is anti-dilutive.
Segment reporting
Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment in the United States of America.
Reclassifications
Certain reclassifications have been made to the prior period condensed consolidated interim financial statements to conform to current year presentation of the Accounts payable and accrued liabilities amount in the condensed consolidated balance sheet.
Recently adopted accounting pronouncements
In August 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-05, Business Combinations—Joint Venture Formations (Subtopic 805-60): Recognition and Initial Measurement, under which an entity that qualifies as either a joint venture or a corporate joint venture as defined in the FASB ASC master glossary is required to apply a new basis of accounting upon the formation of the joint venture. Specifically, the ASU provides that a joint venture or a corporate joint venture (collectively, “joint ventures”) must initially measure its assets and liabilities at fair value on the formation date. The company adopted this standard as of January 1, 2024, and it did not have a material impact on the condensed consolidated interim financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to income Tax Disclosures, under which entities must consistently categorize and provide greater disaggregation of information in the rate reconciliation. They must also further disaggregate income taxes paid. ASU 2023-09 enhances annual income tax disclosures to address investor requests for more information about the tax risks and opportunities present in an entity’s worldwide operations. The company adopted this standard as of January 1, 2024, and it did not have a material impact on the condensed consolidated interim financial statements.
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Recently Issued Accounting Pronouncements Not Yet Adopted
In March 2024, the FASB issued ASU 2024-02, Codification Improvements—Amendments to Remove References to the Concepts Statements (ASU 2024-02). ASU 2024-02 removes various references to the FASB’s Concepts Statements from the FASB’s Accounting Standards Codification (Codification or GAAP). The Concepts Statements are non-authoritative guidance issued by the FASB that provide the objectives, qualitative characteristics and other concepts that govern the development of accounting principles by the FASB. The ASU indicates that the goal of the amendments is to simplify the Codification and distinguish between nonauthoritative and authoritative guidance (since, unlike the Codification, the concepts statements are nonauthoritative). This ASU is effective for the Company beginning January 1, 2025 and is not expected to have a material impact on the condensed consolidated interim financial statements.
3. Selected Balance Sheet Components
Property and equipment, net
Property and equipment at March 31, 2024 and December 31, 2023 net of accumulated depreciation expenses was as follows (in thousands):
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Computer equipment | $ | $ | ||||||
| Equipment | ||||||||
| Software | ||||||||
| Total property and equipment | ||||||||
| Less accumulated depreciation | ( | ) | ( | ) | ||||
| Total property and equipment, net | $ | $ | ||||||
Depreciation
expense for the periods ended March 31, 2024 and 2023 totaled approximately $
Intangible assets, net
At March 31, 2024, intangible assets, primarily consisting of acquired IPR&D with alternative use and patents, and accumulated amortization were as follows (in thousands):
| March 31, 2024 (unaudited) | ||||
| Intangible assets | $ | |||
| Accumulated amortization | ( | ) | ||
| Total intangible assets, net | $ | |||
The
Company recognized approximately $
Amortization of intangible assets for periods subsequent to March 31, 2024 is as follows (in thousands):
| Year Ending December 31, | Amortization Expense | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| Thereafter | ||||
| Total | $ | |||
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Accounts payable and accrued liabilities
At March 31, 2024 and December 31, 2023, accounts payable and accrued liabilities were comprised of the following (in thousands):
| March 31, 2024 (unaudited) | December 31, 2023 | |||||||
| Accounts payable | $ | $ | ||||||
| Accrued compensation | ||||||||
| Accrued vendors and other expenses | ||||||||
| Total accounts payable and accrued liabilities | $ | $ | ||||||
4. Grant Revenues
In
August 2022, the Company was awarded a $
The
Company substantially completed its obligation under the grant by December 31, 2023 and accordingly recognized all of the $
5. Related Party Transactions
Convertible Notes Agreement and Asset Contribution Agreement
On March 26, 2024, AgeX entered into an Asset Contribution Agreement with UniverXome (the “Asset Contribution Agreement”) pursuant to which AgeX transferred to UniverXome all of AgeX’s capital stock in Reverse Bio and ReCyte, along with certain patents, patent applications, and other intellectual property, certain biological materials, certain trademarks and service marks, certain equipment, certain inventory, and certain files and records relating to the foregoing, and UniverXome assumed all of the Liabilities (as defined in the Merger Agreement) in existence as the Effective Time (as defined in the Merger Agreement) other than the Transaction Expenses (as defined in the Merger Agreement) and certain other liabilities. Concurrently with the execution of the Asset Contribution Agreement, AgeX, and its subsidiaries UniverXome, Reverse Bio, and ReCyte (the “Subsidiary Obligors”), entered into an Agreement with Respect to the Convertible Notes (the “Convertible Notes Agreement”) with Juvenescence. Under the Convertible Notes Agreement and related documents, AgeX transferred to UniverXome, and UniverXome assumed, all of AgeX’s rights and obligations under.
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Pursuant to the Convertible Notes Agreement, Juvenescence agreed to release AgeX from its obligations under (i) the 2022 Secured Note and the 2023 Secured Note discussed below (collectively, the “Convertible Notes”), together with (ii) all agreements evidencing or securing the Convertible Notes, including certain security agreements, and UniverXome assumed all of AgeX’s obligations under the Convertible Notes and related agreements, including the security agreements. As a result, (i) Juvenescence agreed to look solely to UniverXome, and ReCyte and Reverse Bio as guarantors, for any and all obligations, including repayment, under the Convertible Notes, the security agreements, and related documents, and (ii) Juvenescence released its security interests in the assets of AgeX and certain subsidiaries, including its security interests in the stock of UniverXome, the stock and assets of Merger Sub, the stock and assets of NeuroAirmid, and certain cGMP embryonic cell lines used to support the NeuroAirmid business, and any security interest that it might have in the stock and assets of Merger Sub and Legacy Serina, while retaining its security interest in the stock and assets of ReCyte and Reverse Bio and in AgeX assets transferred to UniverXome. Juvenescence also agreed to provide the Company with a claims reserve for the purpose of settling and paying the costs associated with certain claims and demands of, and liabilities against, the Company, which claims reserve will be an additional debt obligation of UniverXome.
The Convertible Notes Agreement amended certain provisions of the 2022 Secured Note and 2023 Secured Note to eliminate (i) the provisions permitting Juvenescence and AgeX to convert outstanding amounts owed into shares of AgeX common stock, and (ii) certain related provisions.
The
Convertible Notes Agreement includes a mechanism for adjusting the amount outstanding under the 2022 Secured Note as necessary for AgeX
to have had $
Indebtedness Exchange Agreement and Issuance of AgeX Preferred Stock
During
July 2023, AgeX and Juvenescence entered into an Exchange Agreement pursuant to which AgeX issued shares of Series A Preferred Stock
and Series B Preferred Stock to Juvenescence in exchange for the extinguishment of a total of $
2022 Secured Note
The following summary of the 2022 Secured Note is qualified by the terms of the Convertible Notes Agreement which substitutes UniverXome for AgeX as the “borrower” and primary obligor pursuant to the 2022 Secured Note and the Security Agreement described below, and which amends certain provisions of the 2022 Secured Note.
On
February 14, 2022, AgeX and Juvenescence entered into a Secured Convertible Promissory Note (the “2022 Secured Note”) pursuant
to which Juvenescence agreed to provide to AgeX a $
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On
July 31, 2023, AgeX and Juvenescence entered into a Fourth Amendment (the “Fourth Amendment”) to the 2022 Secured Note to
provide that (i) the definition of Reverse Financing Condition was amended to extend to October 31, 2023 the referenced deadline for
fulfillment of the condition to permit borrowing or other incurrence of indebtedness by ReverseBio, and (ii) certain aspects of the loan
conversion provisions of the 2022 Secured Note were amended. On November 9, 2023, AgeX and Juvenescence entered into the Allonge and
Fifth Amendment to Amended and Restated Convertible Promissory Note (the “Fifth Amendment”) that increased the amount of
the line of credit available to AgeX by $
On
February 9, 2024, AgeX and Juvenescence executed a Sixth Amendment to Amended and Restated Convertible Promissory Note (the “Sixth
Amendment”) that extends to May 9, 2024 the “Repayment Date” on which the outstanding principal balance and accrued
loan origination fees will become due and payable pursuant to the 2022 Secured Note. See Note 13, Subsequent Events for information
regarding the Allonge and Eighth Amendment to the Amended and Restated Convertible Promissory Note entered into on May 8, 2024 that extends
to December 31, 2024 the “Repayment Date” and for an additional $
On
March 26, 2024, AgeX entered into an Allonge and Seventh Amendment to the Amended and Restated Convertible Promissory Note (the “Seventh
Amendment”) that provided the Company an additional $
From
January 1 through March 31, 2024, AgeX drew in the aggregate $
As an arrangement fee for the 2022 Secured Note, AgeX agreed to pay Juvenescence an origination fee in an amount equal to 4% of the amount each draw of loan funds, which will accrue as each draw is funded, and an additional 4% of all the total amount of funds drawn that will accrue following the end of the period during which funds may be drawn from the line of credit. The origination fee will become due and payable on the repayment date or in a pro rata amount with any prepayment of in whole or in part of the outstanding principal balance of the 2022 Secured Note.
2022 Warrants – Upon each drawdown of funds under the 2022 Secured Note prior to June 2, 2023 when the Third Amendment went into effect, AgeX issued to Juvenescence warrants to purchase shares of AgeX common stock (“2022 Warrants”). The 2022 Warrants are governed by the terms of a Warrant Agreement between AgeX and Juvenescence. The number of 2022 Warrants issued with respect to each draw of loan funds was equal to 50% of the number determined by dividing the amount of the applicable loan draw by the applicable Market Price. The Market Price was the last closing price per share of AgeX common stock on the NYSE American preceding the delivery of the notice from AgeX requesting the draw of funds that triggered the obligation to issue 2022 Warrants.
As
of December 31, 2023, AgeX had issued to Juvenescence 2022 Warrants to purchase a total of
Conversion of Loan Amounts to Common Stock – The 2022 Secured Note included provisions allowing AgeX or Juvenescence to convert the loan balance and any accrued but unpaid origination fee into AgeX common stock; however those provisions were eliminated from the 2022 Note pursuant to the Convertible Notes Agreement.
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Default
Provisions – The loan balance and origination fees may become immediately due and payable prior to the mandatory repayment
date if an Event of Default occurs. Events of Default under the 2022 Secured Note, as amended and assumed by UniverXome pursuant to the
Convertible Notes Agreement, include the following: (a) UniverXome fails to pay any principal amount payable by it in the manner and
at the time provided under and in accordance with the 2022 Secured Note; (b) UniverXome fails to pay any other amount payable by it in
the manner and at the time provided under and in accordance with the 2022 Secured Note or the Security Agreement described below or any
other agreement executed in connection with the 2022 Secured Note (the “Loan Documents”) and the failure is not remedied
within three business days; (c) UniverXome fails to perform any of its covenants or obligations or fail to satisfy any of the conditions
under the 2022 Secured Note or any other Loan Document and, such failure (if capable of remedy) remains unremedied to the satisfaction
of Juvenescence (in its sole discretion) for 10 business days after the earlier of (i) notice requiring its remedy has been given by
Juvenescence to UniverXome and (ii) actual knowledge of the failure by senior officers of UniverXome; (d)
Restrictive Covenants – The 2022 Secured Note, as amended and assumed by UniverXome pursuant to the Convertible Notes Agreement, includes certain covenants that among other matters such as financial reporting: (i) impose financial restrictions on AgeX while the 2022 Secured Note remains unpaid, including restrictions on the incurrence of additional indebtedness by AgeX and its subsidiaries, except that AgeX’s subsidiary Reverse Bio will be permitted to incur debt convertible into equity not guaranteed or secured by the assets of AgeX or any other AgeX subsidiary, (ii) require that AgeX use loan proceeds and funds that may be raised through certain equity offerings only for research and development work, professional and administrative expenses, for general working capital, and for repayment of all or a portion of AgeX’s indebtedness to Juvenescence; and (iii) prohibit AgeX from making additional investments in subsidiaries, unless AgeX obtains the written consent of Juvenescence to a transaction that otherwise would be prohibited or restricted.
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2023 Secured Note
The following summary of the 2023 Secured Note is qualified by the terms of the Convertible Notes Agreement which substitutes UniverXome for AgeX as the “borrower” and primary obligor pursuant to the 2023 Secured Note and the Security Agreement described below, and which amends certain provisions of the 2023 Secured Note.
On
March 13, 2023, AgeX and Juvenescence entered into a $
On
July 31, 2023, AgeX and Juvenescence entered into an amendment to the 2023 Secured Note that mirrors the amendments of the 2022 Secured
Note pursuant to the Fourth Amendment of the 2022 Secured Note described above and also modified certain aspects of the conversion provisions
of the 2023 Secured Note. The outstanding principal balance of the 2023 Secured Note was scheduled to become due and payable on March
13, 2026.
During July 2023, the 2023 Secured Note indebtedness, plus a portion of the accrued loan origination fees, was exchanged for shares of AgeX Series B Preferred Stock pursuant to the Exchange Agreement.
The 2023 Secured Note included provisions allowing AgeX or Juvenescence to convert the loan balance and any accrued but unpaid origination fee into the Company common stock; however those provisions were eliminated from the 2023 Note pursuant to the Convertible Notes Agreement.
The 2023 Secured Note includes certain covenants that among other matters require financial reporting and impose certain restrictions on AgeX that are substantially the same as those under the 2022 Secured Note.
Security Agreement
AgeX entered into a Security Agreement on February 14, 2022 in favor of Juvenescence as the secured party in connection with the 2022 Secured Note, and subsequently an Amended and Restated Security Agreement that amended the February 14, 2022 Security Agreement and added the 2023 Secured Note to the obligations secured by the Security Agreement. The Security Agreement, as so amended, granted Juvenescence a security interest in substantially all of the assets of AgeX, including a security interest in shares of AgeX subsidiaries that hold certain assets, as collateral for AgeX’s loan obligations. Pursuant to the Convertible Notes Agreement, UniverXome assumed AgeX’s obligations under the Security Agreement and Juvenescence released its security interests in the assets of AgeX and certain subsidiaries, including its security interests in the stock of UniverXome, the stock and assets of Merger Sub, the stock and assets of NeuroAirmid, and certain cGMP embryonic cell lines used to support the NeuroAirmid business, and any security interest that it might have in the stock and assets of Merger Sub and Legacy Serina, while retaining its security interest in the stock and assets of ReCyte and Reverse Bio and in AgeX assets transferred to UniverXome. If an Event of Default occurs under the 2022 Note, the 2023 Note or the Security Agreement, Juvenescence will have the right to foreclose on the assets pledged as collateral.
Debt Issuance Costs
In accordance with ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, all debt issuance costs are recorded as a discount on the debt and amortized to interest expense over the term of the applicable loan agreement using the effective interest method. Direct debt issuance costs include but are not limited to legal fees, debt origination fees, estimated fair market value warrants issued in connection with the loan agreement, and NYSE American additional listing fees for the shares underlying warrants issued.
The following table summarizes the debt balances net of unamortized deferred debt issuance costs by loan agreement as of March 31, 2024 (in thousands):
| Principal | Origination Fee | Total Debt | Unamortized Debt Issuance Costs | Total Debt, Net | ||||||||||||||||
| Current | ||||||||||||||||||||
| 2022 Secured Note | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
| Non-current | ||||||||||||||||||||
| 2023 Secured Note | ||||||||||||||||||||
| Total debt, net | $ | $ | $ | $ | ( | ) | $ | |||||||||||||
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Related Party Payables
As
of March 31, 2024, approximately $
6. Fair Value Measurements
Derivative Financial Instruments
On
March 15, 2023, Serina issued a Convertible Promissory Note (the “AgeX-Serina Note”) in the amount of $
Serina evaluated the AgeX-Serina Note in accordance with ASC 815, Derivatives and Hedging, and determined it contains certain variable share settlement features tied to the price of a future financing which were not considered clearly and closely related to the host instruments. These provisions included automatic conversion upon the event of a Qualified Financing, the Holder’s option to convert the AgeX-Serina Note upon a Non-Qualified Financing, and the Holder’s option to convert or request repayment upon sale of Serina. The AgeX-Serina Note also contained a Change in Control Put and a Default Put which were not clearly and closely related to the host instrument. Serina elected to initially and subsequently measure the AgeX-Serina Note in its entirety at fair value, with changes in fair value recognized in earnings. The fair value inception date adjustment on the instrument is recorded as a component of other income in Serina’s statements of operations.
FASB ASC 825-10-25, Financial Instruments – Overall, allows Serina to elect the fair value option for recording financial instruments when they are initially recognized or if there is an event that requires re-measurement of the instruments at fair value, such as a significant modification of the debt. Serina elected the fair value option because they believed it to be the most appropriate method of encompassing the credit risk and exercise behavior that a market participant would consider when valuing the hybrid financial instrument.
On
March 15, 2023 the fair value of the $
From
June 2022 through February 2023, Serina issued interest-bearing Convertible Promissory Notes (the “Serina Convertible Notes”)
to various investors in the principal amount of $
Serina evaluated the Serina Convertible Notes in accordance with ASC Topic 815, Derivatives and Hedging, and determined they contained certain variable share settlement features tied to the price of a future financing which were not considered clearly and closely related to the host instruments. These provisions included mandatory conversion upon the event of a Qualified Financing and the Holder’s option to convert the Serina Convertible Notes upon a Non-Qualified Financing. The Serina Convertible Notes also contained a Change in Control Put and a Default Put which were not clearly and closely related to the host instrument. Serina elected to initially and subsequently measure the Serina Convertible Notes in their entirety at fair value, with changes in fair value recognized in earnings. The fair value inception date adjustment on the instrument is recorded as a component of other income in Serina’s statements of operations. The change in fair value of the instrument since inception date is recorded on a separate line item as a component of other income in Serina’s statements of operations.
On July 26, 2023, all of the Serina Convertible Notes were converted into shares of Legacy Serina Series A-5 Preferred Stock. As provided for in the note agreements, the holders of the Serina Convertible Notes also received warrants to purchase an additional shares of Legacy Serina Series A-5 Preferred Stock. See Note 7, Stockholders’ Equity/(Deficit) for discussion on Legacy Serina warrants assumed by the Company upon consummation of the Merger on March 26, 2024.
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The Company had the following liabilities measured at fair value on a recurring basis at December 31, 2023 (in thousands).
| Total | Level 1 | Level 2 | Level 3 | |||||||||||||
| Liabilities: | ||||||||||||||||
| Convertible promissory notes | $ | $ | $ | $ | ||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
The following is a reconciliation of the beginning and ending balances for the AgeX-Serina Note and the Serina Convertible Notes liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2024 and 2023 (in thousands):
| AgeX-Serina Note | Serina Convertible Notes | |||||||
| Balance as of December 31, 2022 | $ | $ | ||||||
| Convertible debt issuance | ||||||||
| Inception adjustment | ( | ) | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Balance as of March 31, 2023 | $ | $ | ||||||
| AgeX-Serina Note | Serina Convertible Notes | |||||||
| Balance as of December 31, 2023 | $ | $ | ||||||
| Notes converted into common stock | ( | ) | ||||||
| Change in fair value | ||||||||
| Balance as of March 31, 2024 | $ | $ | ||||||
The following is a reconciliation of the beginning and ending balances for the warrant liability measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three months ended March 31, 2024 and 2023 (in thousands):
| Balance as of December 31, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| Balance as of March 31, 2023 | $ | |||
| Balance as of December 31, 2023 | $ | |||
| Balance as of March 31, 2024 | $ |
7. Stockholders’ Equity/(Deficit)
Preferred Stock
The Company is authorized to issue up to shares of $ par value preferred stock. shares of preferred stock were issued and outstanding as of March 31, 2024.
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Prior to the Merger, Legacy Serina had authority to issue up to shares of preferred stock with a par value of $per share. All issued and outstanding redeemable convertible preferred stock as shown in the following table were converted into common stock upon consummation of the Merger on March 26, 2024. At the effective time of the Merger, each outstanding share of Legacy Serina capital stock (after giving effect to the automatic conversion of all shares of Legacy Serina preferred stock into shares of Legacy Serina common stock and excluding any shares held as treasury stock by Serina or held or owned by AgeX or any subsidiary of AgeX or Legacy Serina and any dissenting shares) was converted into the right to receive shares of AgeX common stock, which resulted in the issuance by AgeX of an aggregate of shares of AgeX common stock to the stockholders of Legacy Serina (the “Exchange Shares”).
The table below presents Legacy Serina redeemable convertible preferred stock information adjusted for the Exchange Ratio (in thousands other than per share price).
| Preference Order | Designation | Shares Designated | Shares Issued and Outstanding | Issue Price per Share | Liquidation Preference | |||||||||||||
| #1 | Series A Preferred Stock | $ | $ | |||||||||||||||
| #2 | Series A-1 Preferred Stock | |||||||||||||||||
| #3 | Series A-2 Preferred Stock | |||||||||||||||||
| #4 | Series A-3 Preferred Stock | |||||||||||||||||
| #5 | Series A-4 Preferred Stock | |||||||||||||||||
| #6 | Series A-5 Preferred Stock | |||||||||||||||||
| $ | ||||||||||||||||||
Common Stock
The Company has shares of common stock, $ par value per share, authorized. The holders of the Company’s common stock are entitled to receive ratably dividends when, as, and if declared by the Board of Directors out of funds legally available. Upon liquidation, dissolution, or winding up, the holders of Company common stock are entitled to receive ratably the net assets available after the payment of all debts and other liabilities and subject to the prior rights of the Company outstanding preferred shares, if any.
The
holders of
As of March 31, 2024 and December 31, 2023, there were and shares of Company common stock issued and outstanding, respectively.
Warrants
Post-Merger Warrants
On
March 19, 2024,
The
Side Letter provides, among other things, that Juvenescence will exercise all Post-Merger Warrants it holds to provide the Company an
additional $
Former AgeX Warrants
As
of March 31, 2024, there are
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Assumed Warrants
Upon
consummation of the Merger, the Company assumed the outstanding, unexercised warrants to purchase Legacy Serina capital stock (the “Assumed
Warrants”), which were adjusted such that after the Merger each such Assumed Warrant represents the right to purchase a number
of shares of Company common stock equal to 0.97682654 multiplied by the number of shares of Legacy Serina common stock issuable upon
the exercise of such Assumed Warrant prior to the Merger. There were
Equity Incentive Plan Awards
Serina 2024 Equity Incentive Plan
On March 27, 2024, the Company’s Board of Directors adopted the 2024 Equity Incentive Plan, (the “2024 Incentive Plan”). Under the 2024 Incentive Plan, the Company has reserved shares of common stock for the grant of stock options or the sale of restricted stock (“Restricted Stock”) or for the settlement of restricted stock units which are hypothetical units issued with reference to common stock (“Restricted Stock Units” or “RSUs”). The Company may also grant stock appreciation rights (“SARs”) under the Incentive Plan. The Plan also permits the Company to issue such other securities as its Board of Directors or the Compensation Committee administering the Incentive Plan may determine. Awards of stock options, Restricted Stock, SARs, and RSUs (“Awards”) may be granted under the Incentive Plan to the Company employees, directors, and consultants.
Shares Available for Grant | Number of Options Outstanding | Number of RSUs Outstanding | Weighted- Average Exercise Price | |||||||||||||
| 2024 Incentive Plan adopted on March 27, 2024 | $ | |||||||||||||||
| Stock options granted | ( | ) | ||||||||||||||
| Balance at March 31, 2024 | $ | |||||||||||||||
| Options exercisable at March 31, 2024 | $ | |||||||||||||||
Serina 2017 Stock Option Plan
In 2017, the Legacy Serina’s Board of Directors adopted the Serina Therapeutics, Inc. 2017 Stock Option Plan (the “2017 Option Plan”) that provides for the granting of stock options to employees. Pursuant to the Merger Agreement, the Company assumed the outstanding stock options granted by Legacy Serina under the 2017 Option Plan. The options were adjusted such that after the Merger each such option granted and outstanding under the 2017 Option Plan represents the right to purchase a number of shares of Company common stock equal to multiplied by the number of shares of Legacy Serina common stock issuable upon the exercise of such options granted and outstanding under the 2017 Option Plan prior to the Merger. As of March 31, 2024, options to purchase shares of Company common stock were outstanding under the 2017 Option Plan, which options have an exercise price of $ and expire on dates ranging from May 2031 to December 2032. Pursuant to the Merger Agreement, no further options shall be granted under the 2017 Option Plan.
Serina 2017 Equity Incentive Plan
Under
the Serina 2017 Equity Incentive Plan, as amended (the “2017 Incentive Plan” formerly AgeX 2017 Equity Incentive Plan), the
Company has reserved shares of common stock for the grant of stock options or the sale of Restricted Stock or for the settlement
of RSUs. Pursuant to the Merger Agreement, all “out of the money” options (meaning those options with an exercise price equal
to or greater than $ on a pre-reverse stock split basis) were canceled and no further options shall be granted under the 2017 Incentive
Plan. The “in the money” stock options were adjusted for the
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Stock-based Compensation Expense
The Company recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with ASC 718, Compensation – Stock Compensation (“ASC 718”). The Company estimates the fair value of employee stock-based payment awards on the grant-date and recognizes the resulting fair value, net of estimated forfeitures for grants prior to 2017, over the requisite service period. Upon adoption of ASU 2016-09 on January 1, 2017 as further discussed below, forfeitures are accounted for as they occur instead of based on the number of awards that were expected to vest prior to adoption of ASU 2016-09.
The Company uses the Black-Scholes option pricing model for estimating the fair value of options granted under its equity award plans, including the 2024 Incentive Plan, 2017 Option Plan, and 2017 Incentive Plan. The fair value of each restricted stock grant, if any, is determined based on the value of the common stock granted or sold. The Company has elected to treat stock-based payment awards with time-based service conditions as a single award and recognizes stock-based compensation on a straight-line basis over the requisite service period.
Compensation expense for non-employee stock-based awards is recognized in accordance with ASC 718. Stock option awards issued to non-employees, principally consultants or outside contractors, as applicable, are accounted for at fair value using the Black-Scholes option pricing model. Management believes that the fair value of the stock options and restricted stock units can more reliably be measured than the fair value of services received. The Company records compensation expense based on the then-current fair values of the stock options and restricted stock units at the grant date. Compensation expense for non-employee grants is recorded on a straight-line basis in the consolidated statements of operations.
During the period January 1, 2024 through March 31, 2024, the Company granted stock options to purchase shares of common stock to certain employees and consultants under the 2024 Incentive Plan, with a grant date fair value of approximately $ per share. Total unrecognized compensation cost related to unvested stock option grants of approximately $ as of March 31, 2024 is expected to be recognized over a period ranging from to years.
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total stock-based compensation expense | $ | $ | ||||||
The fair value of each option award is estimated on the date of grant using a Black-Scholes option pricing model applying the weighted-average assumptions including the market price of the underlying common stock, expected option life, risk-free interest rates, volatility, and dividend yield. The assumptions that were used to calculate the grant date fair value of employee and non-employee stock option grants for the three months ended March 31, 2024 were as follows:
| Three Months Ended March 31, | ||||||||
| 2024(1) | 2023(2) | |||||||
| Exercise price | $ | $ | ||||||
| Market price | $ | $ | ||||||
| Expected life (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free interest rates | % | % | ||||||
| Dividend yield | % | % | ||||||
| (1) | ||
| (2) |
The determination of stock-based compensation is inherently uncertain and subjective and involves the application of valuation models and assumptions requiring the use of judgment. If the Company had made different assumptions, its stock-based compensation expense and net loss for the three months ended March 31, 2024 and 2023 may have been significantly different.
The Company does not recognize deferred income taxes for incentive stock option compensation expense and records a tax deduction only when a disqualified disposition has occurred.
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9. Profit Sharing Plan
Through its wholly owned subsidiary Legacy Serina, the Company has established a 401(k) profit sharing plan (the “PSP”) for all eligible employees of the Company. The PSP provides for eligible employee contributions subject to certain annual Internal Revenue Code limits. For participants who are age 50 or older during any calendar year, additional employee contributions are allowed under the PSP, subject to Internal Revenue Code limits.
Employer
contributions, if any, may include matching contributions and profit sharing contributions, both of which are made on a discretionary
basis and are subject to service and employment requirements. Employer matching contributions and employer profit sharing contributions
vest based on a graded vesting schedule. The Company made
10. Income Taxes
The provision for income taxes for interim periods is determined using an estimated annual effective tax rate in accordance with ASC 740-270, Income Taxes, Interim Reporting. The effective tax rate may be subject to fluctuations during the year as new information is obtained, which may affect the assumptions used to estimate the annual effective tax rate, including factors such as valuation allowances against deferred tax assets, the recognition or de-recognition of tax benefits related to uncertain tax positions, if any, and changes in or the interpretation of tax laws in jurisdictions where the Company conducts business.
Due to losses incurred for all periods presented, the Company did not record a provision or benefit for income taxes. A valuation allowance is provided when it is more likely than not that some portion of the deferred tax assets will not be realized. The Company established a full valuation allowance for all of its deferred tax assets for all periods presented due to the uncertainty of realizing future tax benefits from its net operating loss carryforwards and other deferred tax assets.
The Company reports income tax related interest and penalties within its provision for income tax in its interim condensed consolidated statements of operations. Similarly, the Company reports the reversal of income tax-related interest and penalties within its provision for income tax line item to the extent the Company resolves its liabilities for uncertain tax positions in a manner favorable to its accruals therefore, during the three months ended March 31, 2024 and 2023, the Company did not record unrecognized tax benefits.
11. Commitments and Contingencies
Facilities and Equipment Lease Agreements and ASC 842
The Company leases its operating and office facilities in Huntsville, Alabama for various terms under long-term, non-cancelable operating lease agreements. The leases expire on various dates from October 2025 through January 2028 and provide for renewal periods of two years. The Company also leases laboratory equipment under a long-term, non-cancelable operating lease which expires in September 2024. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties & equipment.
The Company also leases two pieces of equipment for various terms under long-term, non-cancelable finance lease agreements. These leases expire in September 2024 and in February 2025.
For the office lease, the Company has elected to not apply the recognition requirements under ASC 842, as lease cost on a straight-line basis over the lease term, because the amount of the lease payments is not deemed material. In the normal course of business, it is expected that these leases will be renewed or replaced by leases on other properties.
Supplemental cash flow information related to leases is as follows (in thousands):
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Cash paid for amounts included in the measurement of lease liabilities: | ||||||||
| Operating cash flows from operating leases | $ | $ | ||||||
| Operating cash flows from financing leases | ||||||||
| Financing cash flows from financing leases | ||||||||
| Right-of-use assets obtained in exchange for lease obligations | ||||||||
| Operating leases | ||||||||
| Financing leases | ||||||||
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Supplemental balance sheet information related to leases was as follows (in thousands other than weighted average remaining lease term and discount rates):
| March 31, 2024 | December 31, 2023 | |||||||
| (unaudited) | ||||||||
| Operating lease | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Accumulated Amortization | ( | ) | ( | ) | ||||
| Right-of-use asset, net | $ | $ | ||||||
| Right-of-use lease liability, current | $ | $ | ||||||
| Right-of-use lease liability, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Finance leases | ||||||||
| Right-of-use assets | $ | $ | ||||||
| Accumulated Amortization | ( | ) | ( | ) | ||||
| Right-of-use asset, net | $ | $ | ||||||
| Right-of-use lease liability, current | $ | $ | ||||||
| Right-of-use lease liability, noncurrent | ||||||||
| Total operating lease liabilities | $ | $ | ||||||
| Weighted average remaining lease term | ||||||||
| Operating lease | ||||||||
| Finance leases | ||||||||
| Weighted average discount rate | ||||||||
| Operating lease | % | % | ||||||
| Finance leases | % | % | ||||||
The following is a maturity analysis of the annual undiscounted cash flows of the lease liabilities as of March 31, 2024 (in thousands):
| Operating Leases | Finance Leases | |||||||
| Nine months ending December 31, 2024 | $ | $ | ||||||
| Year ending December 31, 2025 | ||||||||
| Year ending December 31, 2026 | ||||||||
| Year ending December 31, 2027 | ||||||||
| Thereafter | ||||||||
| Total undiscounted lease payments | ||||||||
| Less: imputed interest | ( | ) | ( | ) | ||||
| Total lease obligations | ||||||||
| Less: current portion | ( | ) | ( | ) | ||||
| Long-term lease obligations | $ | $ | ||||||
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Litigation – General
The Company is subject to various claims and contingencies in the ordinary course of its business, including those related to litigation, business transactions, employee-related matters, and others. When the Company is aware of a claim or potential claim, it assesses the likelihood of any loss or exposure. If it is probable that a loss will result and the amount of the loss can be reasonably estimated, the Company will record a liability for the loss. If the loss is not probable or the amount of the loss cannot be reasonably estimated, the Company discloses the claim if the likelihood of a potential loss is reasonably possible and the amount involved could be material. The Company is not aware of any claims likely to have a material adverse effect on its financial condition or results of operations.
Tax Filings
The Company tax filings are subject to audit by taxing authorities in jurisdictions where it conducts business. These audits may result in assessments of additional taxes that are subsequently resolved with the authorities or potentially through the courts. Management believes the Company has adequately provided for any ultimate amounts that are likely to result from these audits; however, final assessments, if any, could be significantly different than the amounts recorded in the unaudited condensed consolidated interim financial statements.
Employment Contracts
The Company has entered into employment contracts with certain executive officers. Under the provisions of the contracts, the Company may be required to incur severance obligations for matters relating to changes in control, as defined, and involuntary terminations.
Indemnification
In the normal course of business, the Company may provide indemnifications of varying scope under the Company’s agreements with other companies or consultants, typically for the Company’s research and development programs. Pursuant to these agreements, the Company will generally agree to indemnify, hold harmless, and reimburse the indemnified parties for losses and expenses suffered or incurred by the indemnified parties arising from claims of third parties in connection with the Company’s research and development. Indemnification provisions could also cover third-party infringement claims with respect to patent rights, copyrights, or other intellectual property licensed from the Company to third parties. Office and laboratory leases will also generally indemnify the lessor with respect to certain matters that may arise during the term of the lease. The Registration Rights Agreement between Juvenescence and the Company includes indemnification provisions pursuant to which the parties will indemnify each other from certain liabilities in connection with the registration, offer, and sale of securities under a registration statement, including liabilities arising under the Securities Act. The Company has also agreed to provide the AST Indemnity pursuant to the Letter of Indemnification described in Note 5, Related Party Transactions. The term of these indemnification obligations will generally continue in effect after the termination or expiration of the particular license, lease, or agreement to which they relate. The potential future payments the Company could be required to make under these indemnification agreements will generally not be subject to any specified maximum amount. Historically, the Company has not been subject to any claims or demands for indemnification. The Company also maintains various liability insurance policies that limit the Company’s financial exposure and in the case of the AST Indemnity the Company has received a cross-indemnity from Juvenescence against all claims, damages, liabilities or losses arising out of the AST Indemnity. As a result, the Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities for these agreements to date.
| 30 |
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Basic net earnings (loss) per common share allocable to common stockholders | ||||||||
| NUMERATOR | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Less: net earnings allocable to participating securities | ||||||||
| Net earnings (loss) allocable to common shareholders | ( | ) | | |||||
| DENOMINATOR | ||||||||
| Weighted-average shares of common stock outstanding used to calculate basic net earnings (loss) per common share | ||||||||
| Basic net earnings (loss) per common share allocable to common stockholders | $ | ( | ) | $ | ||||
| Diluted net earnings (loss) per common share allocable to common stockholders | ||||||||
| NUMERATOR | ||||||||
| Net earnings (loss) allocable to common stockholders | $ | ( | ) | $ | ||||
| Add back: interest on convertible promissory notes | ||||||||
| Net earnings (loss) allocable to common stockholders | ( | ) | ||||||
| DENOMINATOR | ||||||||
| Weighted-average shares of common stock outstanding used to calculate basic net earnings (loss) per common share | ||||||||
| Add: dilutive effect of stock options | ||||||||
| Add: dilutive effect of warrants | ||||||||
| Add: dilutive effect of common stock issued for convertible promissory notes | ||||||||
| Add: dilutive effect of redeemable convertible preferred stock | ||||||||
| Weighted-average shares of common stock outstanding used to calculate diluted net earnings (loss) per common share | ||||||||
| Diluted net earnings (loss) per common share attributable to common stockholders | $ | ( | ) | $ | ||||
| Three Months Ended March 31, | ||||||||
| 2024 | 2023 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Total anti-dilutive securities | ||||||||
13. Subsequent Events
On
May 8, 2024, the Company entered into an Allonge and Eighth Amendment to the Amended and Restated Convertible Promissory Note
that extends to December 31, 2024 the “Repayment Date” on which the outstanding principal balance and accrued loan origination
fees will become due and payable pursuant to the 2022 Secured Note and provided the Company an additional $
| 31 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis of Serina’s financial condition and results of operations together with the “Unaudited Pro Forma Condensed Combined Financial Information” attached as Exhibit 99.3, and Serina’s audited consolidated financial statements and related notes for the years ended December 31, 2023 and 2022 attached as Exhibit 99.2, to Serina’s Current Report on Form 8-K filed with the SEC on April 1, 2024 (the “April 1 Form 8-K”). Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business and related financing, includes forward looking statements that involve risks and uncertainties. As a result of many factors, including those factors set forth in the section titled “Risk Factors” incorporated by reference in the April 1 Form 8-K, our actual results could differ materially from the results described in or implied by the forward looking statements contained in the following discussion and analysis. You should carefully read the section titled “Risk Factors” incorporated by reference in the April 1 Form 8-K to gain an understanding of the important factors that could cause actual results to differ materially from our forward looking statements.
The matters addressed in this Item 2 that are not historical information constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), including statements about any of the following: any projections of earnings, revenue, cash, effective tax rate, use of net operating losses, or any other financial items; the plans, strategies and objectives of management for future operations or prospects for achieving such plans, and any statements of assumptions underlying any of the foregoing. Any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “seeks,” “estimates,” and similar expressions are intended to identify forward-looking statements. While the Company may elect to update forward-looking statements in the future, it specifically disclaims any obligation to do so, even if the Company’s estimates change and readers should not rely on those forward-looking statements as representing the Company’s views as of any date subsequent to the date of the filing of this Report. Although we believe that the expectations reflected in these forward-looking statements are reasonable, such statements are inherently subject to risks and the Company can give no assurances that its expectations will prove to be correct. Actual results could differ materially from those described in this report because of numerous factors, many of which are beyond the control of the Company. A number of important factors could cause the results of the company to differ materially from those indicated by such forward-looking statements, including those detailed under the heading “Risk Factors” in this Form 10-Q, the April 1 Form 8-K, our Form 10-K for the year ended December 31, 2023, and our other reports filed with the SEC from time to time.
The following discussion should be read in conjunction with the Company’s condensed consolidated interim financial statements and the related notes provided under “Item 1- Financial Statements” above.
Critical Accounting Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations discusses and analyzes data in our unaudited condensed consolidated interim financial statements, which we have prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Preparation of the financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Management 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. Senior management has discussed the development, selection and disclosure of these estimates with the Audit Committee of our Board of Directors. Actual conditions may differ from our assumptions and actual results may differ from our estimates.
An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the three months ended March 31, 2024 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, except as disclosed in Note 2, Basis of Presentation and Summary of Significant Accounting Policies, of our condensed consolidated interim financial statements included elsewhere in this Report.
Components of Operating Results
Operating Expenses
Our operating expenses since inception have consisted primarily of research and development expenses and general and administrative costs.
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Research and Development
Our research and development expenses consist primarily of costs incurred for the development of our product candidates and our drug discovery efforts, which include:
| ● | personnel costs, which include salaries, benefits and equity-based compensation expense; | |
| ● | expenses incurred under agreements with consultants and contract organizations that conduct research and development activities on our behalf; | |
| ● | costs related to production of preclinical and clinical materials, including fees paid to contract manufacturers; | |
| ● | laboratory and vendor expenses related to the execution of preclinical studies and planned clinical trials; and | |
| ● | laboratory supplies and equipment used for internal research and development activities. |
We expense all research and development costs in the periods in which they are incurred. Costs for certain research and development activities are recognized based on an evaluation of the progress to completion of specific tasks using information and data provided to us by our vendors and service providers.
Our research and development expenses are not currently tracked on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates and therefore have not implemented the systems and procedures to track research and development expenses on a program-by-program basis. We track research and development expenses based on the type of expense as further described below under “Results of Operations – Research and Development Expenses.” Substantially all our research and development costs in the years ended December 31, 2023 and 2022 were incurred on the development of our preclinical candidates and advancing research on our POZ lipid technology.
We expect our research and development expenses to increase substantially for the foreseeable future as we continue to invest in research and development activities related to developing our product candidates, including investments in conducting clinical trials, manufacturing and otherwise advancing our programs. The process of conducting the clinical research necessary to obtain regulatory approval is costly and time consuming, and the successful development of our product candidates is highly uncertain.
Because of the numerous risks and uncertainties associated with product development and the current stage of development of our product candidates and programs, we cannot reasonably estimate or know the nature, timing, and estimated costs necessary to complete the remainder of the development of our product candidates or programs. We are also unable to predict if, when, or to what extent we will obtain approval and generate revenues from the commercialization and sale of any of our product candidates. The duration, costs and timing of preclinical studies and clinical trials and development of our product candidates will depend on a variety of factors, including:
| ● | successful completion of preclinical studies and initiation of clinical trials for future product candidates; | |
| ● | successful enrollment and completion of clinical trials for our current product candidates; | |
| ● | data from our clinical programs that support an acceptable risk benefit profile of our product candidates in the intended patient populations; acceptance by the U.S. Food and Drug Administration, or FDA, or other applicable regulatory agencies of the Investigational New Drug, or IND, applications, clinical trial applications and/or other regulatory filings for SER 252 and other product candidates. | |
| ● | expansion and maintenance of a workforce of experienced scientists and others to continue to develop our product candidates; | |
| ● | successful application for and receipt of marketing approvals from applicable regulatory authorities; | |
| ● | obtainment and maintenance of intellectual property protection and regulatory exclusivity for our product candidates; | |
| ● | making of arrangements with contract manufacturing organizations for, or establishment of, commercial manufacturing capabilities; | |
| ● | establishment of sales, marketing and distribution capabilities and successful launch of commercial sales of our product candidates, if and when approved, whether alone or in collaboration with others; |
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| ● | acceptance of our product candidates, if and when approved, by patients, the medical community and third party payors; | |
| ● | effective competition with other therapies; | |
| ● | obtainment and maintenance of coverage, adequate pricing, and adequate reimbursement from third party payors, including government payors; | |
| ● | maintenance, enforcement, defense, and protection of our rights in our intellectual property portfolio; | |
| ● | avoidance of infringement, misappropriation, or other violations with respect to others’ intellectual property or proprietary rights; and | |
| ● | maintenance of a continued acceptable safety profile of our products following receipt of any marketing approvals. |
We may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our preclinical studies and clinical trials. We may elect to discontinue, delay, or modify clinical trials of some product candidates or focus on others. A change in the outcome of any of these factors could mean a significant change in the costs and timing associated with the development of our current and future preclinical and clinical product candidates. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those that we currently anticipate will be required for the completion of clinical development, or if we experience significant delays in execution of or enrollment in any of our preclinical studies or clinical trials, we could be required to expend significant additional financial resources and time on the completion of preclinical and clinical development.
Research and development activities account for a significant portion of our operating expenses. We expect our research and development expenses to increase for the foreseeable future as we continue to implement our business strategy, which includes advancing SER 252 and our other product candidates through clinical development, expanding our research and development efforts, including hiring additional personnel to support our research and development efforts, and seeking regulatory approvals for our product candidates that successfully complete clinical trials. In addition, product candidates in later stages of clinical development generally incur higher development costs than those in earlier stages of clinical development, primarily due to the increased size and duration of later stage clinical trials. As a result, we expect our research and development expenses to increase as our product candidates advance into later stages of clinical development. However, we do not believe that it is possible at this time to accurately project total program specific expenses through commercialization. There are numerous factors associated with the successful commercialization of any of our product candidates, including future trial design and various regulatory requirements, many of which cannot be determined with accuracy at this time based on our stage of development.
General and Administrative Expenses
Our general and administrative expenses consist primarily of personnel costs, including equity-based compensation, and other expenses for outside professional services, including legal, recruiting, audit and accounting and facility related costs not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and equity-based compensation expense for our personnel in executive and other administrative functions. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of expanding our operations and operating as a public company. These increases will likely include increases related to the hiring of additional personnel and legal, regulatory, and other fees and services associated with maintaining compliance with the NYSE American, the NYSE American Company Guide and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs and investor relations costs associated with being a public company.
Other Income/(Expense)
Our other income is comprised of interest from cash equivalents.
Our other expense is comprised of expenses related to the change in fair value of the embedded derivative and interest accrued from the convertible notes.
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Results of Operations
The table presented below shows our operating expenses for the periods presented (in thousands).
| Three Months Ended March 31, | $ Increase/ | % Increase/ | ||||||||||||||
| 2024 | 2023 | (Decrease) | (Decrease) | |||||||||||||
| Research and development expenses | $ | 1,106 | $ | 399 | $ | 707 | 177.2 | % | ||||||||
| General and administrative expenses | 1,220 | 593 | 627 | 105.7 | % | |||||||||||
Comparison of Three Months Ended March 31, 2024 and 2023
Revenues
Revenues for the three months ended March 31, 2024 and 2023 were not material.
Research and development expenses
Research and development expenses were $1.1 million for the three months ended March 31, 2024, compared to $0.4 million for the same period in 2023. The increase of $0.7 million is primarily due to increases of $0.5 million in outside research and services allocable to research and development expenses, $0.1 million in patent related professional fees, and $0.1 million in salaries and payroll related expenses and consulting services allocable to research and development expenses.
General and administrative expenses
General and administrative expenses were $1.2 million for the three months ended March 31, 2024, compared to $0.6 million for the same period in 2023. The increase of $0.6 million is due primarily to increases by $0.5 million in professional legal and accounting services incurred largely in connection with the Merger which consummated on March 26, 2024, $0.1 million in consulting services and stock based compensation expenses for options granted to consultants allocable to general and administrative expenses and $0.1 million in investment and public relations related expenses. These expenses were offset to some extent by a $0.1 million decrease for database subscription fee.
Other income (expense), net
The $9.7 million change in other income (expense), net to $7.1 million other expense, net as of March 31, 2024 as compared to $2.6 million other income, net for the same period in 2023 is primarily attributable to: (1) the aggregate change in the fair value of the Serina Convertible Notes and the AgeX-Serina Note which amounted to $7 million (loss) for the three months ended March 31, 2024 as compared to $2.5 million (gain) in the same period in 2023 and (2) the change in the fair value of Legacy Serina Series A-5 preferred stock warrants which was $0 during the three months ended March 31, 2024 as compared to $172,000 for the same period in 2023. See Notes 6, Fair Value Measurement and 7, Stockholders’ Equity/(Deficit) to our condensed consolidated interim financial statements included elsewhere in this Report for additional information on fair value adjustments of convertible promissory notes and conversion of the AgeX-Serina Note upon consummation of the Merger on March 26, 2024 and liability classified Legacy Serina warrants and assumption of those warrants by the Company upon consummation of the Merger on March 26, 2024.
Income taxes
Due to losses incurred for all periods presented, we did not record a provision or benefit for income taxes. A valuation allowance will be provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all deferred tax assets for the periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.
For years beginning after December 31, 2021, the 2017 Tax Act requires companies to capitalize their research and experimentation expenditures as defined under Section 174 and amortize those expenditures on a straight-line bases over a period of 5 years for research activities performed in the United States. Previously the Company was able to immediately expense such costs. It is possible that Congress will defer or eliminate the ultimate implementation of this provision. The Company has sufficient federal net operating loss carryforwards to offset the impact of this provision.
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Liquidity and Capital Resources
Sources of Liquidity
Our operations from inception through March 31, 2024 have been financed primarily by aggregate net proceeds of $46.9 million from the issuance of convertible preferred stock and convertible notes through Legacy Serina and $2.4 million drawn under the 2022 Secured Convertible Promissory Note (the “2022 Secured Note”) subsequent to consummation of the Merger. Since inception, we have had significant operating losses and negative cash flows as of March 31, 2024, we had an accumulated deficit of $5.4 million. See Notes 5, Related Party Transactions to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about the 2022 Secured Note.
We had $8.7 million in cash and cash equivalents as of March 31, 2024. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.
Our losses from operations, negative operating cash flows and accumulated deficit, as well as the additional capital needed to fund operations within one year of the audited consolidated financial statement issuance date, raise substantial doubt about our ability to continue as a going concern. We expect to incur substantial expenditures in the foreseeable future for the development of our product candidates and will require additional financing to continue this development. Our audited consolidated financial statements attached as Exhibit 99.2 to the April 1 Form 8-K have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited consolidated 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 be necessary should we be unable to continue as a going concern.
The unavailability or inadequacy of financing to meet future capital needs could force us to modify, curtail, delay, or suspend some or all aspects of planned operations.
Funding Requirements
Any product candidates we may develop may never achieve commercialization, and we anticipate that we will continue to incur losses for the foreseeable future. We expect that our research and development expenses, general and administrative expenses, and capital expenditures will continue to increase. As a result, until such time, if ever, as we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. Our primary uses of capital are, and we expect will continue to be, costs related to pre-clinical and clinical research, clinical studies, manufacturing, and development services; compensation and related expenses; costs relating to the build out of our laboratories at our headquarters; license payments or milestone obligations that may arise; laboratory expenses and costs for related supplies; manufacturing costs; legal and other regulatory expenses and general overhead costs.
We believe that our cash on hand, along with the approximately $15 million of cash proceeds expected to be received from Juvenescence through the exercise of all the post-merger warrants it holds pursuant to the terms of the Side Letter, will not be sufficient to enable us to fund our operations through calendar year 2025 based on our current plan. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders, including investors in this offering, will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs.
Because of the numerous risks and uncertainties associated with research, development, and commercialization of pharmaceutical products, we are unable to estimate the exact amount of our operating capital requirements. Our future funding requirements will depend on many factors, including, but not limited to:
| ● | the impacts of the COVID 19 pandemic; | |
| ● | the progress, costs and results of IND enabling studies for our lead product candidate SER 252 and our potential future clinical trials for SER 252; |
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| ● | the scope, progress, results and costs of discovery research, preclinical development, laboratory testing and clinical trials for our other product candidates; | |
| ● | the costs, timing, and outcome of regulatory review of our product candidates; | |
| ● | our ability to enter into contract manufacturing arrangements for supply of active pharmaceutical | |
| ● | ingredient, or API, and manufacture of our product candidates and the terms of such arrangements; | |
| ● | our ability to establish and maintain strategic collaborations, licensing or other arrangements and the financial terms of such arrangements; | |
| ● | the payment or receipt of milestones and receipt of other collaboration based revenues, if any; the costs and timing of any future commercialization activities, including product manufacturing, sales, marketing, and distribution, for any of our product candidates for which we may receive marketing approval; | |
| ● | the amount and timing of revenue, if any, received from commercial sales of our product candidates for which we receive marketing approval; | |
| ● | the costs and timing of preparing, filing and prosecuting patent applications, maintaining and enforcing our intellectual property and proprietary rights and defending any intellectual property related claims; | |
| ● | the extent to which we acquire or in license other products, product candidates, technologies, or data referencing rights; | |
| ● | the ability to receive additional nondilutive funding, including grants from organizations and foundations; and | |
| ● | the costs of operating as a public company |
Further, our operating plans may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development activities. Because of the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures associated with our current and anticipated product development programs.
Cash Flows
The following table summarizes the major sources and uses of cash for the periods set forth below (in thousands):
Three
Months Ended | ||||||||||||||||
| 2024 | 2023 | $ Change | % Change | |||||||||||||
| Net cash used in operating activities | $ | (1,577 | ) | $ | (709 | ) | $ | (868 | ) | 122.4 | % | |||||
| Net cash (used in) provided by investing activities | (14 | ) | - | (14 | ) | * | % | |||||||||
| Net cash provided by financing activities | 2,728 | 10,089 | (7,361 | ) | (73.0 | )% | ||||||||||
| Net increase in cash | $ | 1,137 | $ | 9,380 | $ | (8,243 | ) | (87.9 | )% | |||||||
* Information is not meaningful
Operating Activities
Net loss for the three months ended March 31, 2024 amounted to $9.4 million. Net cash used in operating activities during this period amounted to $1.6 million. The $7.8 million difference between the net loss and net cash used in operating activities during the three months ended March 31, 2024 was primarily attributable to certain non-cash items, including changes in the fair value of convertible notes among other non-cash items as well as the effect of changes in operating assets and liabilities. The change was primarily due to the non-cash change in the fair value of the AgeX-Serina Note outstanding of approximately $7 million as well as an increase in accounts payable, accrued liabilities of approximately $0.6 million and accrued interest on AgeX-Serina Note of approximately $163,000.
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Investing Activities
Net cash used in investing activities during the three months ended March 31, 2024 of $14,000 is entirely related to purchases of office and laboratory equipment.
Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2024 of $2.7 million is primarily attributable to $2.4 million drawn under the credit facilities from Juvenescence and approximately $337,000 cash and restricted cash acquired in connection with the Merger. See Notes 5, Related Party Transactions, to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreements with Juvenescence.
Going Concern
Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations in conducting research and development activities one year from the date our audited consolidated financial statements are issued. We evaluate the probability associated with each source and use of cash resources in making our going concern determination. The research and development of pharmaceutical products is inherently subject to uncertainty.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Under SEC rules and regulations, as a smaller reporting company, we are not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
It is management’s responsibility to establish and maintain adequate internal control over all financial reporting pursuant to Rule 13a-15 under the Exchange Act. Our management, including our principal executive officer and principal financial officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of the end of the period covered by this report. Following this review and evaluation, the principal executive officer and principal financial officer determined that our disclosure controls and procedures were not effective as of March 31, 2024, due to material weaknesses described below.
In light of the conclusion that our disclosure controls and procedures are considered ineffective as of March 31, 2024, we have applied procedures and processes as necessary to ensure the reliability of our financial reporting in regard to this quarterly report. Accordingly, the Company believes, based on its knowledge, that: (i) this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which they were made, not misleading with respect to the period covered by this report; and (ii) the financial statements, and other financial information included in this quarterly report, fairly present in all material respects our financial condition, results of operations and cash flows as of and for the periods presented in this quarterly report.
Material Weaknesses
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
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In the evaluation of our disclosure controls and procedures discussed above, we identified material weaknesses due to a lack of internal controls at Legacy Serina. Specifically, management has determined the following:
| ● | a lack of sufficient in-house qualified accounting staff; | |
| ● | a lack of validation of completeness and accuracy of internally prepared data, including key reports generated from systems, utilized in the operations of controls; | |
| ● | inadequate controls and segregation of duties due to limited resources and number of employees; | |
| ● | substantial reliance on manual reporting processes and spreadsheets external to the accounting system for financial reporting leading to delays in the Company’s closing process; and | |
| ● | a lack of experience in monitoring and administering Legacy Serina’s internal control over financial reporting. |
To mitigate the items identified in the assessment, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals/consultants.
Remediation Plan
We are continuing to seek ways to remediate these weaknesses, which stem from Legacy Serina’s small workforce and limited resources prior to the Merger.
The material weaknesses will not be remediated until our remediation plan has been fully developed and implemented, the applicable controls operate for a sufficient period of time, and we have concluded, through testing, that the newly implemented and enhanced controls are operating effectively. We are continuing to work on the implementation of our remediation plan, following which we will continue to test and monitor the new and enhanced controls until management has concluded that they are designed and operating effectively. We may conclude that additional measures, including resources, are necessary to remediate the material weaknesses in our internal control over financial reporting, which may necessitate additional evaluation and implementation time. We may also modify certain of the remediation efforts described above.
Changes in Internal Controls
Other than as described above, there was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Inherent Limitation on the Effectiveness Over Financial Reporting
The effectiveness of any system of internal control over financial reporting, including ours, is subject to inherent limitations, including the exercise of judgment in designing, implementing, operating, and evaluating the controls and procedures, and the inability to eliminate misconduct completely. Accordingly, any system of internal control over financial reporting, including ours, no matter how well designed and operated, can only provide reasonable and not absolute assurances. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. We intend to continue to monitor and upgrade our internal controls as necessary or appropriate for our business, but there can be no assurance such improvements will be sufficient to provide us with effective internal control over financial reporting.
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PART II — OTHER INFORMATION
Item 1. Legal Proceedings
We may from time to time be a party to litigation and subject to claims incident to the ordinary course of business. In the future, we may become a party to an increasing number of litigation matters and claims, including in connection with Merger Agreement and the transactions contemplated thereby. The outcome of litigation and claims cannot be predicted with certainty, and the resolution of these matters could materially affect our future results of operations, cash flows or financial position.
On December 11, 2023, a purported stockholder of AgeX filed a putative shareholder class action and derivative lawsuit in the Superior Court of the State of California, County of Alameda, captioned Buttner, et al. v. AgeX Therapeutics, Inc., et al., Case No. 23CV057083 (the Buttner Complaint). The Buttner Complaint names AgeX, the AgeX Board, an officer of AgeX, Juvenescence Limited and Juvenescence US Corp. as defendants. The Buttner Complaint alleges direct claims against the individual defendants for breaches of fiduciary duty in connection with their approval of the Merger and disclosures made by AgeX in connection therewith and, in the alternative, alleges derivative claims, purportedly on behalf of AgeX, against the individual defendants for such alleged breaches of fiduciary duty. The Buttner Complaint also alleges direct and derivative claims against Juvenescence Limited, Juvenescence US Corp., and one member of the AgeX Board for breaches of fiduciary duty as alleged controlling stockholders of AgeX. On February 29, 2024, the plaintiff filed a request for dismissal of the action without prejudice and on March 5, 2024 the court entered an order dismissing the action per the plaintiff’s request.
Item 1A. Risk Factors
Our business, financial condition, results of operations and future growth prospects are subject to various risks, including those described under “Risk Factors” in our Current Report on Form 8-K filed with the Securities and Exchange Commission on April 1, 2024 (the “Form 8-K”), which we encourage you to review. There have been no material changes from the risk factors disclosed in the Form 8-K, except as follows:
We need additional financing to execute our operating plan and continue to operate as a going concern.
As required under Accounting Standards Update 2014-15, Presentation of Financial Statements-Going Concern (ASC 205-40), we have the responsibility to evaluate whether conditions and/or events raise substantial doubt about our ability to meet our future financial obligations as they become due within one year after the date the financial statements are issued. Based on our most recent projected cash flows, we believe that our cash and cash equivalents, even with the amount of credit remaining available under our loan agreements with Juvenescence would not be sufficient to satisfy our anticipated operating and other funding requirements for the next twelve months from the date of filing of this Report. These factors raise substantial doubt regarding our ability to continue as a going concern and the report of our independent registered public accountants accompanying our audited consolidated financial statements in this Report contains a qualification to such effect.
We have incurred operating losses and negative cash flows since inception and had an accumulated deficit of $5.4 million as of March 31, 2024. We expect to continue to incur operating losses and negative cash flows. Because we will continue to experience net operating losses, our ability to continue as a going concern is subject to our ability to obtain necessary capital from outside sources, including obtaining additional capital from the sale of our common stock or other equity securities or assets, obtaining additional loans from financial institutions or investors, and entering into collaborative research and development arrangements or licensing some or all of our patents and know-how to third parties while retaining a royalty and other contingent payment rights related to the development and commercialization of products covered by the licenses. Our continued net operating losses, the amount of our debt obligations to Juvenescence and the provisions of our indebtedness agreements with them, including restrictions on the use of loan funds and the security interest they hold in our assets, the risks associated with the development of our product candidates and technologies, and our deferral of in-house development of our product candidates and technologies in connection with our reductions in staffing and the closing of our research laboratory facilities, will increase the difficulty in obtaining such capital, and there can be no assurances that we will be able to obtain such capital on favorable terms or at all. If we are unable to raise capital when needed, we may be forced to delay, reduce or eliminate our research and development activities, or ultimately not be able to continue as a going concern.
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We identified material weaknesses in our internal controls which, if not remediated appropriately or timely, could result in an inability to effectively and timely complete our financial statements, which may result in a loss of investor confidence and an adverse impact to our stock price.
We have reported material weaknesses in internal control in Part I, Item 4 of this Report. As a result, management concluded that our internal control over financial reporting was not effective as of the end of the period covered by this Report. We are currently implementing certain remedial measures and assessing others intended to remediate the material weaknesses, but our efforts may not be successful. These measures will result in additional expenses associated with technology, finance personnel, training and other costs. If we are unable to remediate the material weaknesses within a reasonable time or at all, or are otherwise unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial or other information accurately, and to prepare financial statements within required time periods, could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price.
We may in the future identify other material weaknesses and significant deficiencies in our internal control over financial reporting, in addition to those identified as of the end of the period covered by this Report, which may result in our not detecting errors on a timely basis and our financial statements being materially misstated. If we or our independent registered public accounting firm identify future material weaknesses in our internal control over financial reporting, we are unable to comply with the requirements of Section 404 of the Sarbanes Oxley Act of 2002 in a timely manner or we are unable to assert that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could be negatively affected. We could also become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Previously reported.
Item 3. Default Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
As described above in Note 13, Subsequent Events, on May 8, 2024, the Company entered into an Allonge and Eighth Amendment to the Amended and Restated Convertible Promissory Note that extends to December 31, 2024 the “Repayment Date” on which the outstanding principal balance and accrued loan origination fees will become due and payable pursuant to the 2022 Secured Note and provided the Company an additional $525,000 of credit subject to the terms of the 2022 Secured Note which was drawn entirely on May 9, 2024. The funds will be used to pay certain litigation expenses and costs as contemplated in Section 12 of the Agreement with Respect to Convertible Notes between the Company and Juvenescence, dated as of March 26, 2024.
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Item 6. Exhibits
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| 31* | Rule 13a-14(a)/15d-14(a) Certification | |||||||||
| 32** | Section 1350 Certification | |||||||||
| 101.INS* | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) | |||||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | |||||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |||||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |||||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |||||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |||||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
| * | Filed herewith. |
| ** | Furnished herewith. |
| † | Certain schedules and exhibits to this agreement have been omitted in accordance with Item 601(b)(2) of Regulation S-K. A copy of any omitted schedule and/or exhibit will be furnished to the Securities and Exchange Commission on request. |
| # | Schedules and exhibits to this Exhibit have been omitted pursuant to Item 601(b)(10) of Regulation S-K. A copy of any omitted schedule or exhibit will be furnished to the Securities and Exchange Commission or its staff upon request |
| ‡ | Management contract or compensatory plan. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SERINA THERAPEUTICS, INC. | |
| Date: May 14, 2024 | /s/ Steve Ledger |
| Steve Ledger | |
| Interim Chief Executive Officer | |
| Date: May 14, 2024 | /s/ Andrea E. Park |
| Andrea E. Park | |
| Interim Chief Financial Officer and Chief Accounting Officer |
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