SEC Form 10-Q filed by Ernexa Therapeutics Inc.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| 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 _____________
Commission file number:
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) |
|
|
| |
| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| The |
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 Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant has
submitted electronically every interactive data file required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of
this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a
shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
No
As of May 7, 2025, the registrant had outstanding shares of common stock, $ par value per share.
TABLE OF CONTENTS
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), 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”). Forward-looking statements include statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans, capital needs, and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. For us, particular factors that might cause or contribute to such differences include those risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2025, in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the SEC.
Readers are urged not to place undue reliance on the forward-looking statements in this Quarterly Report on Form 10-Q, which speak only as of the date of this Quarterly Report on Form 10-Q. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the PSLRA. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.
We believe that the expectations reflected in forward-looking statements in this Quarterly Report on Form 10-Q are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward-looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be materially different from what we expect.
Unless stated otherwise or the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “Ernexa” refer to Ernexa Therapeutics Inc., references to the “Company,” “we,” “us” or “our” refer to Ernexa and its subsidiaries, including Novellus, Inc. and Novellus Therapeutics Limited.
| ii |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(unaudited)
| March 31, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets - operating leases | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Forward sales contract liability | ||||||||
| Notes payable, current | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Contingent consideration liability | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ (deficit) equity: | ||||||||
| Preferred stock, $ par value, shares authorized, designated and outstanding of Series A convertible preferred stock at March 31, 2025 and December 31, 2024, $ | ||||||||
| Common stock, $ par value, shares authorized at March 31, 2025 and December 31, 2024; and issued and outstanding at March 31, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ (deficit) equity | ( | ) | ||||||
| Total liabilities and stockholders’ (deficit) equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross loss | ( | ) | ||||||
| Operating expenses: | ||||||||
| Research and development | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other expense, net: | ||||||||
| Forward sales contract expense | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Interest income (expense), net | ( | ) | ||||||
| Other expense, net | ( | ) | ||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | ||||
| Weighted average shares outstanding - basic and diluted | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
For the three months ended March 31, 2025 and 2024 (unaudited)
(in thousands)
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at January 1, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock in connection with exercise of prefunded warrants | - | |||||||||||||||||||||||||||
| Issuance of common stock to consultant for services | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balances at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of note warrants | - | - | ||||||||||||||||||||||||||
| Costs allocated to note warrants | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at March 31, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| For the three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right-of-use asset | ||||||||
| Gain on disposal of fixed assets | ( | ) | ||||||
| Accrued interest expense | ||||||||
| Paid-in-kind interest expense | ||||||||
| Amortization of debt discount and debt issuance costs | ||||||||
| Forward sales contract expense | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Other non-current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liability | ( | ) | ||||||
| Due to related party | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds received from the sale of fixed assets | ||||||||
| Net cash used in investing activities | ( | ) | ||||||
| Cash flows from financing activities: | ||||||||
| Proceeds received from notes payable | ||||||||
| Proceeds received from exercise of prefunded warrants | ||||||||
| Proceeds received from the convertible notes financing | ||||||||
| Fees paid related to the convertible notes financing | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of period | ||||||||
| Cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Note warrants issued | $ | $ | ||||||
| Unpaid fees incurred in connection with the convertible note financing | $ | $ | ||||||
| Paid in-kind interest added to convertible notes principal | $ | $ | ||||||
| Adjustment to lease liability and ROU asset due to remeasurement | $ | $ | ||||||
| Property and equipment purchased but not paid | $ | $ | ||||||
| Reconciliation of cash, cash equivalents and restricted cash at end of period: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash at end of period | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
ERNEXA THERAPEUTICS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Ernexa Therapeutics Inc. (the “Company”) is a preclinical-stage synthetic allogeneic iMSC therapy company. Its vision is to improve the lives of patients with difficult-to-treat diseases through innovative, effective, and safe, but accessible cellular therapies, and its mission is to develop allogenic off-the-shelf cellular therapies, leveraging induced pluripotent stem cell (“iPSC”)-derived mesenchymal stem cells (“iMSCs”) to target solid tumors and autoimmune diseases.
As used herein, the “Company” or “Ernexa” refers collectively to Ernexa and its consolidated subsidiaries (Eterna Therapeutics LLC, Novellus, Inc. and Novellus Therapeutics Limited) unless otherwise stated or the context otherwise requires. In April 2025, the Company formed a new wholly owned Texas subsidiary named Ernexa TX2 Inc., and the Company dissolved Eterna Therapeutics LLC, which was a single-member limited liability company and had no operations.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.
These condensed consolidated financial statements should be read together with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2025. The accompanying condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited financial statements contained in the 2024 10-K but does not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three months ended March 31, 2025 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2025, or any other period.
2) LIQUIDITY AND CAPITAL RESOURCES
The Company has incurred
significant operating losses and has an accumulated deficit as a result of its efforts to develop product candidates and provide general
and administrative support for operations. As of March 31, 2025, the Company had a cash balance of approximately $
In April 2023, the Company
entered into a standby equity purchase agreement (the “SEPA”) with Lincoln Park Capital Fund, LLC (“Lincoln Park”),
pursuant to which Lincoln Park committed to purchase up to $
In September 2024, the Company
entered into certain financing agreements for the private placement of $
| 5 |
On March 11, 2025 and March
20, 2025, the Company received $
On April 2, 2025, the Company
received $
In connection with preparing the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2025, the Company’s management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern because it does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these condensed consolidated financial statements. The Company will need to raise additional capital, which could be through public or private equity offerings, debt financings, out-licensing the Company’s intellectual property, strategic partnerships or other means. Other than the securities purchase agreement discussed further in Note 12, the Company currently has no arrangements for capital, and no assurances can be given that it will be able to raise capital when needed, on acceptable terms, or at all. The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
3) CONTRACT WITH CUSTOMER
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”) when a customer obtains control of promised services or goods in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services.
The
Company had one contract with a customer that was accounted for under ASC 606 related to an exclusive option and license agreement it
entered into in February 2023, and amended in August 2023, with a customer, which provided the customer with the option (the “Option
Right”) to obtain an exclusive sublicense of intellectual property from the Company and to request to have the Company develop a
customized cell line. The customer paid the Company a $
On
September 24, 2024, the Company assigned this customer contract to Factor Bioscience (as defined in Note 13) whereby all the Company’s
rights and obligations under the customer contract are now Factor Bioscience’s responsibility. Factor Bioscience will pay the Company
thirty percent (
Prior
to assigning the contract to Factor Bioscience, the $
The Company was obligated to pay
Factor Bioscience
| 6 |
4) FAIR VALUE OF FINANCIAL INSTRUMENTS
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 willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
● Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
● Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
● Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions.
The carrying amounts reported on the balance sheet for cash, other receivable, prepaid assets and other current assets, accounts payable and accrued expenses, notes payable, other current liabilities and other liabilities approximate fair value based due to their short maturities.
The Company issued approximately warrants in connection with a private placement during the first quarter of 2022 (the “Q1-22 warrants”), which were determined to be classified as a liability. The Company has also recorded a contingent consideration liability related to an asset acquisition in April 2023.
The Company uses a Black-Scholes option pricing model to estimate the fair value of the Q1-22 warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the contingent consideration liability, both of which are considered a Level 3 fair value measurement.
In
connection with the SPA (as defined in Note 12) that the Company entered into on March 31, 2025, the Company recorded a forward sales
contract liability at fair value and recognized $
The Company determined the expense related to the forward sales contract as of March 31, 2025 by taking the difference between (i) the fair value of the expected shares to be purchased by the investors as of the March 31, 2025 date the Company entered into the SPA and (ii) the discounted purchase price of the shares.
The Company remeasures the fair value of the warrant liabilities, the contingent consideration liability and the forward sales contract liability at each reporting period, and changes in the fair values are recognized in the accompanying condensed consolidated statement of operations.
The following table summarizes the liabilities that are measured at fair value as of March 31, 2025 and December 31, 2024 (in thousands):
| Description | Level | March 31, 2025 | December 31, 2024 | |||||||
| Liabilities: | ||||||||||
| Warrant liabilities - Q1-22 warrants | 3 | $ | $ | |||||||
| Contingent consideration | 3 | $ | $ | |||||||
| Forward sales contract | 3 | $ | $ | |||||||
Certain inputs used in Black-Scholes and Monte Carlo models may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s condensed consolidated statement of operations.
| 7 |
The following table presents the changes in the liabilities measured at fair value from January 1, 2025 through March 31, 2025 (in thousands):
| Warrant Liabilities | Contingent Consideration | Forward Sales Contract | ||||||||||
| Fair value at January 1, 2025 | $ | | $ | | $ | |||||||
| Initial measurement | ||||||||||||
| Change in fair value | ( | ) | ||||||||||
| Fair value at March 31, 2025 | $ | $ | $ | |||||||||
The Company remeasured the fair value of the Q1-22 warrants for the three months ended March 31, 2025, and the result of the remeasurement was de minimis. The Company assessed the fair value of the contingent consideration liability at March 31, 2025 and determined that there were no material changes to the inputs used in the December 31, 2024 remeasurement that would have resulted in a material change to the liability at March 31, 2025. Therefore, the Company did not recognize a change in fair value of the contingent consideration liability for the three months ended March 31, 2025.
5) GOODWILL
The Company recorded goodwill
in the amount of $
6) ACCRUED EXPENSES
Accrued expenses at March 31, 2025 and December 21, 2024 consisted of the following (in thousands):
March 31, 2025 | December 31, 2024 | |||||||
| Professional fees | $ | $ | ||||||
| Legal matters | ||||||||
| Accrued compensation | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
7) LEASES
The Company currently has operating leases for offices in the borough of Manhattan in New York, New York, and Cambridge, Massachusetts, which expire in 2026 and 2028, respectively.
For the three months ended March 31, 2025 and 2024, the net operating lease expenses were as follows (in thousands):
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Operating lease expense | $ | $ | ||||||
| Sublease income | ( | ) | ( | ) | ||||
| Variable lease expense | ||||||||
| Total lease expense | $ | $ | ||||||
| 8 |
Amounts for the three months ended March 31, 2024 in the table above include expense related to a sublease that was terminated effective August 31, 2024.
The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2025 and the ending balances as of March 31, 2025, including the changes during the period (in thousands).
| Operating Lease ROU Assets | ||||
| Operating lease ROU assets at January 1, 2025 | $ | |||
| Amortization of operating lease ROU assets | ( | ) | ||
| Operating lease ROU assets at March 31, 2025 | $ | |||
| Operating Lease Liabilities | ||||
| Operating lease liabilities at January 1, 2025 | $ | |||
| Principal payments on operating lease liabilities | ( | ) | ||
| Operating lease liabilities at March 31, 2025 | ||||
| Less non-current portion | ( | ) | ||
| Current portion at March 31, 2025 | $ | |||
As of March 31, 2025, the Company’s
operating leases had a weighted-average remaining life of
| As of March 31, 2025 | ||||
| 2025 | $ | |||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
8) PROMISSORY NOTES
On March
11, 2025, the Company received $
Stock Options
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Stock options granted | ||||||||
| 9 |
The Company recognizes stock-based compensation expense for stock options granted to employees, directors and certain consultants. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period on a straight-lined basis.
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Weighted average risk-free rate | % | % | ||||||
| Weighted average volatility | % | % | ||||||
| Dividend yield | % | % | ||||||
| Expected term | years | years | ||||||
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Weighted average grant date fair value | $ | $ | ||||||
Vesting of all stock options is subject to continuous service with the Company through the applicable vesting date. As of March 31, 2025, there were approximately shares of the Company’s common stock subject to outstanding stock options.
Restricted Stock Units
The Company recognizes the fair value of RSUs as expense on a straight-line basis over the requisite service period. For performance-based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable.
Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the applicable vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date.
In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. RSUs vested during either of the three months ended March 31, 2025 or 2024. As of March 31, 2025, there were less than RSUs outstanding. The Company did t grant RSUs during either of the three months ended March 31, 2025 or 2024.
Stock-Based Compensation Expense
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Research and development | $ | $ | ||||||
| General and administrative | ||||||||
| Total | $ | $ | ||||||
| 10 |
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Company’s previously issued convertible notes contractually entitled the holders of such notes to participate in dividends but did not contractually require the holders to participate in the Company’s losses. As such, the two-class method is not applicable during periods with a net loss.
Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, including the weighted average effect of prefunded warrants, and without consideration for potentially dilutive securities.
Diluted net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding, including the weighted average effect of the prefunded warrants, plus dilutive securities. Shares of common stock issuable upon exercise, conversion or vesting of stock options, restricted stock units, warrants and the outstanding Series A convertible preferred stock are considered potential shares of common stock and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive. The Company’s convertible notes that were outstanding as of March 31, 2024 were also considered potential shares of common stock for the three months ended March 31, 2024 and were included in the calculation of diluted net loss per share using the “if-converted” method as of such period, and the more dilutive of either the two-class method or the if-converted method was reported. There were no convertible notes outstanding as of March 31, 2025. Diluted net loss per share is the same as basic net loss per share for periods in which the effect of potentially dilutive shares of common stock is antidilutive.
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Preferred stock converted into common stock | ||||||||
| Convertible Notes converted into common stock | ||||||||
| RSUs | ||||||||
| Total potential common shares excluded from computation | ||||||||
11) COMMITMENTS AND CONTINGENCIES
Litigation Matters
The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated.
| 11 |
Novellus, Inc. v. Sowyrda et al., C.A. No. 2184CV02436-BLS2
On October 25, 2021 Novellus, Inc. filed a complaint in the Superior Court of Massachusetts, Suffolk County, against former Novellus, Inc. employees Paul Sowyrda and John Westman and certain other former investors in Novellus LLC (Novellus, Inc.’s former parent company prior to our acquisition of Novellus, Inc.), alleging breach of fiduciary duty, breach of contract and civil conspiracy. The Company acquired Novellus, Inc. on July 16, 2021. On May 27, 2022 Novellus, Inc. amended the complaint to withdraw all claims against all defendants except Paul Sowyrda and John Westman. Since 2022, the parties have engaged in legal proceedings relating to alleged conduct that took place before the Company acquired Novellus, Inc., including certain counterclaims against Novellus LLC, Novellus Inc., Factor Bioscience Inc., Christopher Rohde, Matthew Angel and the Company (the “Counterclaim Defendants”).
On July 31, 2024, Counterclaim
Defendants and Sowyrda informed the Court that they had reached a settlement and requested that all claims pending between them be dismissed
with prejudice, and on August 9, 2024, the Court approved the motion for approval of dismissal of all such claims with prejudice. On April
22, 2025, Counterclaim Defendants and Westman reached a confidential settlement with an effective date of April 30, 2025. After the effective
date and assuming all of the agreement’s conditions are met, the parties will cooperate to effect the filing of a stipulation of
dismissal with prejudice. The Company accrued approximately $
Licensing Agreements
On September 24, 2024, the Company entered into the Factor L&C Agreement. See Note 13 for details of this agreement.
Retirement Savings Plan
The Company established a defined
contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees to defer up to
12) EQUITY TRANSACTIONS
Private Placement
On March 31, 2025, the Company
entered into a securities purchase agreement (the “SPA”) with certain accredited investors to sell in a private placement
an aggregate of approximately million shares of common stock at a purchase price of $ per share, and pre-funded warrants to
purchase up to approximately million shares of common stock, at a purchase price of $ per pre-funded warrant. The pre-funded
warrants will be exercisable until exercised in full at a nominal exercise of $
The SPA represents a forward
sale contract obligating the Company to sell a fixed number of shares of its common stock at a fixed price per share and contains an adjustment
to the settlement amount based on shareholder approval, which is not an input into the pricing of a fixed-for-fixed forward on equity
shares. The Company measured the fair value of the forward sale contract as the difference between (i) the fair value of the expected
shares to be purchased by the investors as of the date the Company entered into the SPA and (ii) the discounted purchase price of the
shares and recorded a liability of approximately $ million as of March 31, 2025. The Company also recognized $
On April 2, 2025, the Company
held an initial closing (the “First Closing”) whereby it sold to the investors an aggregate of approximately million shares
of common stock and approximately million pre-funded warrants for aggregate gross proceeds of approximately $
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Warrants
As of March 31, 2025, the Company had the following warrants outstanding:
Warrants Outstanding (in thousands) | Exercise Price | Expiration Date | Classification | |||||||||
| Q1-22 Warrants | $ | |||||||||||
| December 2022 Warrants | $ | |||||||||||
| Prefunded warrants | $ | None | ||||||||||
As
of March 31, 2025, the weighted average remaining contractual life of the warrants outstanding was
During the three months ended March 31, 2025, the Company had the following warrant activity (in thousands):
| Outstanding January 1, 2025 | Exercised | Outstanding March 31, 2025 | ||||||||||
| Q1-22 Warrants | ||||||||||||
| December 2022 Warrants | ||||||||||||
| Prefunded warrants | ||||||||||||
| Total | ||||||||||||
Standby Equity Purchase Agreement
On April 5, 2023, the Company
entered into the SEPA with Lincoln Park, pursuant to which Lincoln Park committed to purchase up to $
Stock Repurchase Program
In November 2024, the Company’s
Board of Directors authorized a stock repurchase program (the “Repurchase Program”) of up to $
13) RELATED PARTY TRANSACTIONS
September 2024 and March 2025 Financings
Investors
who (i) entered into an exchange agreement for the exchange of convertible notes and warrants for shares of common stock and the private
placement of convertible notes in September 2024 and (ii) entered into a securities purchase agreement for the private placement of common
stock in March 2025 included Charles Cherington. Mr. Cherington participated in the applicable financing under the same terms and subject
to the same conditions as all the other investors. Mr. Cherington served on the Company’s board of directors from March 2021
to July 6, 2023 and owns approximately
March 2025 Promissory Notes
On March 11, 2025, the Company
received $
| 13 |
14) SEGMENT REPORTING
The Company operates within a single reportable operating segment being the research and development of cellular therapies. The Company has identified its president and chief executive officer as its chief operating decision maker (“CODM”), who regularly reviews the Company’s performance and allocates resources based on information reported at the consolidated entity level.
The CODM uses consolidated net loss as a measure of profit and loss and assesses Company performance through the achievement of its business strategy goals. The CODM is regularly provided with forecasted expense information that is used to determine the Company’s liquidity needs and cash allocation to execute its business strategy, and he uses cash as a measure of segment assets in managing the Company. The Company operates in the United States, and all of its assets are located in the United States.
The table below provides a breakdown of the Company’s significant operating expenses for the three months ended March 31 2025 and 2024 with a reconciliation to net loss for each of those years.
The Company’s revenue
and its cost of revenues for the three months ended March 31, 2024 relate to a contract with a customer, as discussed in Note 3. There
was no revenue or cost of revenue for the three months ended March 31, 2025. Depreciation and amortization expense was less than $
| Three months ended March 31, | ||||||||
| 2025 | 2024 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenues | ||||||||
| Gross profit (loss) | ( | ) | ||||||
| Operating expenses: | ||||||||
| Research and development by significant expense: | ||||||||
| MSA/license fees | ||||||||
| Study fees | ||||||||
| Professional fees | ||||||||
| Payroll and related | ||||||||
| Other1 | ||||||||
| Research and development | ||||||||
| General and administrative by significant expense: | ||||||||
| Stock-based compensation | ||||||||
| Payroll and related2 | ||||||||
| Professional fees2 | ||||||||
| Occupancy expense | ||||||||
| Other2 | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Forward sales contract expense | ( | ) | ||||||
| Change in fair value of warrant liabilities | ( | ) | ||||||
| Interest income (expense), net | ( | ) | ||||||
| Other expense, net | ( | ) | ||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Loss before income taxes | ( | ) | ( | ) | ||||
| Provision for income taxes | ( | ) | ( | ) | ||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
March 31, 2025 | December 31, 2024 | |||||||
| Cash | $ | $ | ||||||
| 1 |
| 2 |
15) RECENT ACCOUNTING PRONOUNCEMENTS
No new Accounting Standards Updates have been issued by the Financial Accounting Standards Board since January 1, 2025 that would apply to the Company that are not disclosed in the 2024 10-K.
16) SUBSEQUENT EVENT
On April 2, 2025, the Company
held the First Closing under the SPA whereby it sold to the investors an aggregate of approximately million shares of common stock
and approximately million pre-funded warrants for aggregate gross proceeds of approximately $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2025. The following discussion contains or is based on assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in this report and in Part I, Item 1A of the 2024 10-K and as described from time to time in our other filings with the SEC. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a preclinical-stage synthetic allogeneic iMSC therapy company. Our vision is to improve the lives of patients with difficult-to-treat diseases through innovative, effective, and safe, but accessible cellular therapies, and our mission is to develop allogenic off-the-shelf cellular therapies, leveraging induced pluripotent stem cell (“iPSC”)-derived mesenchymal stem cells (“iMSCs”) to target solid tumors and autoimmune diseases.
Our lead product candidate ERNA-101 is allogenic IL-7 and IL-15-secreting iMSCs. ERNA-101 capitalizes on the intrinsic tumor-homing ability of MSCs to slip through the tumor’s defenses and to deliver potent pro-inflammatory factors directly to the tumor microenvironment (“TME”), limiting systemic exposure and potential toxicity while unleashing potent anti-cancer immune responses including enhancement of T-cell anti-tumor activity. Our initial focus is to develop ERNA-101 in platinum-resistant, ovarian cancer. We collaborated with the University of Texas MD Anderson Cancer Center to investigate the ability of ERNA-101 to induce and modulate antitumor immunity in an ovarian cancer model. We expect to complete the Investigational New Drug (“IND”) enabling studies and IND submission by 2026 and to subsequently enter a Phase I investigator sponsored clinical trial in the second half of 2026..
We are also investigating anti-inflammatory cytokine (e.g. IL-10)-secreting iMSCs in inflammatory/auto-immune disorders like Rheumatoid arthritis, which we refer to as ERNA-102. MSCs have an intrinsic ability to home to inflamed tissue and have been shown to dampen inflammation and drive/healing/regeneration through multiple secreted mediators and cell-cell interactions. We are investigating the ability of ERNA-102 to turbocharge these anti-inflammatory and regenerative effects.
Additionally, we are actively seeking strategic partnerships to co-develop or out-license therapeutic assets and engage with potential collaborators to expand developmental opportunities.
Recent Developments
On March 31, 2025, we entered into a securities purchase agreement (the “SPA”) with certain accredited investors and a related registration rights agreement. Pursuant to the SPA, we agreed to issue and sell to the investors, and the investors agreed to purchase, in a private placement, an aggregate of approximately 58.3 million shares of common stock at a purchase price of $0.1046 per share, and pre-funded warrants to purchase up to approximately 11.0 million shares of common stock, at a purchase price of $0.0996 per pre-funded warrant. The pre-funded warrants will be exercisable until exercised in full at a nominal exercise of $0.005 per share and may not be exercised to the extent such exercise would cause the holder to beneficially own more than 4.99% or 9.99%, as applicable, of our outstanding common stock.
Upon the initial closing of the SPA on April 2, 2025 (the “First Closing”), we sold to the investors an aggregate of approximately 9.9 million shares of common stock and 0.5 million pre-funded warrants (such shares, including the shares underlying the pre-funded warrants equal to 19.99% of our outstanding shares as of March 31, 2025). The second closing under the SPA for the sale of approximately 48.3 million shares of common stock and 10.5 million pre-funded warrants (the “Second Closing”) will occur upon shareholder approval at our 2025 annual meeting of stockholders on June 2, 2025 (the “Annual Meeting”).
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Basis of Presentation
Revenue
Revenue is related to an exclusive option and license agreement we had with a customer, under which we granted the customer an option to obtain an exclusive sublicense to certain of our technology for preclinical, clinical and commercial purposes in exchange for a non-refundable up-front payment to us of $0.3 million. We also began developing certain induced pluripotent stem cell lines in exchange for a cell line customization fee. The customer paid us $0.4 million towards the customization fee, which we were recognizing ratably over the customization period, including less than $0.1 million for the three months ended March 31, 2024.
On September 24, 2024, we entered into an agreement with Factor Bioscience Limited (“Factor Limited” and together with Factor Bioscience Inc. and its other affiliates, “Factor Bioscience”) whereby we assigned the customer contract to Factor Bioscience (the “Assignment Agreement”). The Assignment Agreement with Factor Bioscience assigned all our rights and obligations under the customer contract to Factor Bioscience. Payments to us related to the customer contract will now be subject to the Assignment Agreement, which provides for Factor Bioscience paying us thirty percent (30%) of all amounts it receives from the customer in the event that the customer obtains a sublicense from Factor Bioscience. Upon receipt of future payments for the customization activities set forth in the customer contract, Factor Bioscience will pay us twenty percent (20%) of all amounts Factor Bioscience receives from the customer. Because we have no further obligations under the agreement with the customer, there is no revenue recognized for the three months ended March 31, 2025. For additional information, see Note 3 to the accompanying condensed consolidated financial statements. We have no other revenue generating contracts at this time.
Cost of Revenues
We recognize direct labor and supplies associated with generating our revenue as cost of revenues. We were also obligated to pay Factor Bioscience 20% of any amounts we received from the customer contract discussed above under a previous license agreement we had with Factor Bioscience, which has since been terminated, and such costs were also recognized as cost of revenues.
Research and Development Expenses
We expense our research and development costs as incurred. Research and development expenses consist of costs incurred for company-sponsored research and development activities. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended.
The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, supplies and materials, preclinical study costs, expensed licensed technology, consulting, scientific advisors and other third-party costs, as well as allocations of various overhead costs related to our product development efforts.
We have contracted with third parties to perform various studies. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. We accrue for third party expenses based on estimates of the services received and efforts expended during the reporting period. If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the preclinical study or similar conditions.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and other professional fees, travel, insurance, and other corporate costs.
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Results of Operations
Comparison of the Three Months Ended March 31, 2025 and 2024
| Three months ended March 31, | ||||||||||||
| (In thousands) | 2025 | 2024 | Change | |||||||||
| Revenue | $ | - | $ | 47 | $ | (47 | ) | |||||
| Cost of revenues | - | 61 | (61 | ) | ||||||||
| Gross loss | - | (14 | ) | 14 | ||||||||
| Operating expenses: | ||||||||||||
| Research and development | 1,309 | 1,458 | (149 | ) | ||||||||
| General and administrative | 1,421 | 4,315 | (2,894 | ) | ||||||||
| Total operating expenses | 2,730 | 5,773 | (3,043 | ) | ||||||||
| Loss from operations | (2,730 | ) | (5,787 | ) | 3,057 | |||||||
| Other expense, net: | ||||||||||||
| Forward sales contract expense | (5,335 | ) | - | (5,335 | ) | |||||||
| Change in fair value of warrant liabilities | 1 | (70 | ) | 71 | ||||||||
| Interest income (expense), net | 5 | (786 | ) | 791 | ||||||||
| Other expense, net | (135 | ) | - | (135 | ) | |||||||
| Total other expense, net | (5,464 | ) | (856 | ) | (4,608 | ) | ||||||
| Loss before income taxes | (8,194 | ) | (6,643 | ) | (1,551 | ) | ||||||
| Provision for income taxes | (8 | ) | (4 | ) | (4 | ) | ||||||
| Net loss | $ | (8,202 | ) | $ | (6,647 | ) | $ | (1,555 | ) | |||
Revenue
For the three months ended March 31, 2024, we recognized ratably over the customization period amounts related to a development fee we received from a customer for a customized cell line. For additional information on this customer contract, see Note 3 to the accompanying condensed consolidated financial statements. We did not have any revenue generating contracts during the three months ended March 31, 2025.
Cost of Revenue
For the three months ended March 31, 2024, we recognized less than $0.1 million of fees to Factor Bioscience, which was recorded as a cost of revenue. There was no such cost recognized for the three months ended March 31, 2025.
Research and Development Expenses
| Three months ended March 31, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Payroll-related | $ | 96 | $ | 325 | $ | (229 | ) | |||||
| MSA/license fees | 637 | 812 | (175 | ) | ||||||||
| Professional fees | 156 | 103 | 53 | |||||||||
| Study fees | 352 | 64 | 288 | |||||||||
| Other expenses, net | 68 | 154 | (86 | ) | ||||||||
| Total research and development expenses | $ | 1,309 | $ | 1,458 | $ | (149 | ) | |||||
Total research and development expenses decreased by approximately $0.1 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024, primarily due to payroll-related expense due to decreased headcount and a reduction in the Factor Bioscience MSA/license fee arrangement. These decreases were offset by increased costs related to our ERNA 101 and 102 study fees as well as increased professional fees for consultants.
| 17 |
General and Administrative Expenses
| Three months ended March 31, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Occupancy expense | $ | 7 | $ | 1,901 | $ | (1,894 | ) | |||||
| Professional fees2 | 386 | 1,285 | (899 | ) | ||||||||
| Payroll and related2 | 394 | 532 | (138 | ) | ||||||||
| Stock-based compensation | 486 | 237 | 249 | |||||||||
| Other expenses, net | 148 | 360 | (212 | ) | ||||||||
| Total general and administrative expenses | $ | 1,421 | $ | 4,315 | $ | (2,894 | ) | |||||
Our general and administrative expenses decreased by approximately $2.9 million for the three months ended March 31, 2025 compared to the three months ended March 31, 2024 primarily due to reduced rent expense due to a sublease we terminated in August 2024, decreases in professional fees related to legal services and consultants, and a reduction in payroll related expenses. These decreases were offset by increases in stock-based compensation as a result of an increase to stock options granted and vesting during the three months ended March 31, 2025 compared to the three months ended March 31, 2024. We will continue to focus on finding operational efficiencies that result in cost savings.
Forward sales contract expense
For the three months ended March 31, 2025, we recognized a loss of $5.3 million related to the forward sales contract we entered into on March 31, 2025 because the fair value of the shares expected to be issued under the SPA exceeds the proceeds. See Note 12, Equity Transaction - Private Placement, to the accompanying condensed consolidated statement of operations for more information on this SPA. There was no similar transaction for the three months ended March 31, 2024.
Change in Fair Value of Warrant Liabilities
We recognized less than $0.1 million in expense for the three months ended March 31, 2024 for the change in the fair value of warrant liabilities as a result of an increase in the market price of our common stock as of March 31, 2024. The change in the fair value of the warrant liabilities for the three months ended March 31, 2025 was de minimis.
Interest Income (Expense), net
For the three months ended March 31, 2025, we recognized $0.9 million less in interest expense due to a reduction in interest-bearing debt, and we also recognized less than a $0.1 million decrease in interest income due to having reduced cash balances when compared to the three months ended March 31, 2024.
Other Expense, net
During the three months ended March 31, 2025, we recognized $0.1 million of expenses related to the SPA transaction entered into on March 31, 2025. See Note 5, Private Placement, to the accompanying condensed consolidated statement of operations for more information on this SPA.
Provision for Income Taxes
During 2025, we expect to incur state income tax liabilities related to our operations. We have established a full valuation allowance for all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full valuation allowance.
| 18 |
Liquidity and Capital Resources
As of March 31, 2025, we had cash of approximately $1.9 million, and we had an accumulated deficit of approximately $239.7 million. We have to date incurred operating losses, and we expect these losses to continue in the future. For three months ended March 31, 2025, we incurred a net loss of $8.2 million, which includes a $5.3 million non-cash expense upon entering into a forward sales contract, and we used $2.1 million of cash in operating activities.
On March 11, 2025 and March 20, 2025, we received $1.5 million and $0.8 million, respectively, in exchange for the issuance of two promissory notes with an aggregate principal amount of $2.3 million to an investor. The promissory notes mature on the earlier of (i) June 15, 2025 or (ii) upon us receiving greater than $5 million in aggregate proceeds from a subsequent capital raise. Interest accrues at a rate of 5.0% per annum, payable at maturity.
On April 2, 2025, we received $1.1 million in gross proceeds from the First Closing pursuant to the private placement of common stock and prefunded warrants under the SPA we entered into on March 31, 2025. We will receive $6.2 million in gross proceeds from the Second Closing, subject to receipt of stockholder approval at the Annual Meeting and other customary closing conditions. We plan to use the proceeds from this financing for general working capital purposes and to pay off the notes payable discussed above, including any accrued and unpaid interest. See Note 12, Equity Transactions - Private Placement, to the accompanying condensed consolidated statement of operations for additional information regarding this financing.
Based on our current financial condition and forecasts of available cash, we will not have sufficient capital to fund our operations for the 12 months following the issuance date of the accompanying condensed consolidated financial statements. We can provide no assurance that we will be able to obtain additional capital when needed, on favorable terms, or at all. If we cannot raise capital when needed, on favorable terms or at all, we will need to reevaluate our planned operations and may need to reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations. If we become unable to continue as a going concern, we may have to liquidate our assets, and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. See the risk factor in Item 1A of Part II of our 2024 10-K titled, “We will require substantial additional capital to fund our operations and execute our business strategy, and we may not be able to raise adequate capital on a timely basis, on favorable terms, or at all.”
Historically, the cash used to fund our operations has come from a variety of sources and predominantly from sales of shares of our common stock and convertible notes. We will continue to evaluate and plan to raise additional funds to support our working capital needs through public or private equity offerings, debt financings, strategic partnerships, out-licensing our intellectual property, grants or other means. There can be no assurance that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders. Our ability to raise capital through sales of our common stock will depend on a variety of factors including, among others, market conditions, the trading price and volume of our common stock, and investor sentiment. In addition, macroeconomic factors and volatility in the financial market, which may be exacerbated in the short term by concerns over inflation, interest rates, impacts of the wars in Ukraine and the Middle East, strained relations between the U.S. and several other countries, and social and political discord and unrest in the U.S., among other things, may make equity or debt financings more difficult, more costly or more dilutive to our stockholders.
In addition, equity or convertible debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions and security interests in our assets. If we raise capital through collaborative arrangements, we may be required to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us.
We prepared the accompanying condensed consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. As discussed above, there is substantial doubt about our ability to continue as a going concern because we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over at least the next 12 months from the date of issuance of the accompanying condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern.
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Cash Flows
Cash flows from operating, investing and financing activities, as reflected in the accompanying condensed consolidated statements of cash flows, are summarized as follows:
| For the three months ended March 31, | ||||||||||||
| (in thousands) | 2025 | 2024 | Change | |||||||||
| Cash (used in) provided by: | ||||||||||||
| Operating activities | $ | (2,065 | ) | $ | (3,747 | ) | $ | 1,682 | ||||
| Investing activities | - | (97 | ) | 97 | ||||||||
| Financing activities | 2,254 | 1,385 | 869 | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 189 | $ | (2,459 | ) | $ | 2,648 | |||||
Net Cash Used in Operating Activities
There was a decrease of approximately $1.7 million in cash used in operating activities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024. This change was due a $2.4 million decrease in net loss, after giving effect to adjustments made for non-cash transactions, primarily due to a decrease in occupancy expense and professional fees, offset by an increase of $0.7 million in cash used in operating assets and liabilities for the three months ended March 31, 2025 compared to the three months ended March 31, 2024.
Net Cash Used in Investing Activities
We used approximately $0.1 million to pay for the purchases of property and equipment during the three months ended March 31, 2024. There were no investing activities during the three months ended March 31, 2025.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the three months ended March 31, 2025 includes $2.3 million of gross proceeds received from the issuance of two promissory notes as well as an immaterial amount received from the exercise of prefunded warrants. Net cash provided by financing activities for the three months ended March 31, 2024 includes $1.4 million of gross proceeds received from the issuance of convertible notes in January 2024 and the fees related to such issuance.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
Critical Accounting Estimates
There were no significant changes in our critical accounting estimates during the three months ended March 31, 2025 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2024 10-K.
Recent Accounting Pronouncements
No new Accounting Standards Updates have been issued by the Financial Accounting Standards Board since January 1, 2025 that would apply to us that are not disclosed in the 2024 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Under the rules and regulations of the SEC, as a smaller reporting company we are not required to provide the information otherwise required by this item.
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Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q under the supervision, and with the participation, of our management, including our President and Chief Executive Officer (who serves as our principal executive officer) and our Senior Vice President of Finance (who serves as our principal financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on that evaluation, our Chief Executive Officer and Senior Vice President of Finance concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q in providing reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth under “Note 11—Commitments and Contingencies—Litigations Matters” to the accompanying condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated in this Item 1 by reference.
From time to time, we may become involved in legal proceedings arising in the ordinary course of business. Except as described above, are not party to any material legal proceedings..
Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described in our 2024 10-K, in addition to other information in this report, when evaluating our business and before deciding whether to purchase, hold or sell shares of our common stock. Each of these risks and uncertainties, as well as additional risks and uncertainties not presently known to us or that we currently consider immaterial, could harm our business, financial condition, results of operations and/or growth prospects, as well as adversely affect the market price of our common stock, in which case you may lose all or part of your investment. There have been no material changes to the risk factors described in the 2024 10-K, except as follows:
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock.
Our common stock is listed on The Nasdaq Capital Market. The Nasdaq Capital Market requires that listed companies satisfy certain continued listing requirements. Listing Rule 5500(a)(2) requires that listed companies maintain a minimum bid price of their common stock of at least $1 per share (the “Bid Price Rule”). Listing Rule 5550(b) requires that listed companies have: (1) stockholders’ equity of at least $2.5 million (the “Stockholders’ Equity Rule”; (2) a market value of listed securities (the “MVLS Rule”) of at least $35 million; or (3) net income from continuing operations of $500,000 in the company’s most recently completed fiscal year or in two of the three most recently completed fiscal years.
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On December 30, 2024, we received notice from Nasdaq that we no longer met the Bid Price Rule and were provided until June 30, 2025 to regain compliance with the Bid Price Rule. On January 6, 2025, we received notice from Nasdaq informing us that we no longer met the MVLS Rule and were provided until July 7, 2025 to regain compliance with the MLVS Rule. If at any time during the Bid Price Rule compliance period, our closing bid price is at least $1 per share for a minimum of 10 consecutive business days during the 180-day compliance period, Nasdaq will provide written confirmation that we regained compliance with that applicable rule. In the event we do not regain compliance with the Bid Price Rule by June 30, 2025, we may be eligible for consideration of a second 180-day compliance period if we meet the MLVS Rule and all other initial listing standards for Nasdaq’s Capital Market, with the exception of the Bid Price Rule. In addition, we would also be required to notify Nasdaq of our intent to cure the Bid Price Rule deficiency by effecting a reverse stock split, if necessary. If it appears to Nasdaq that we will not be able to cure the deficiency, or if we are otherwise not eligible, Nasdaq will provide us notice that our securities will be subject to delisting.
Likewise, if at any time during the MLVS Rule compliance period our MVLS closes at $35 million or more for a minimum of 10 consecutive business days, Nasdaq will provide written confirmation that we have regained compliance that applicable rule. In the event we do not regain compliance with the Market Value Standard by July 7, 2025, Nasdaq will provide us notice that our securities will be subject to delisting, at which time, we may appeal the delisting determination.
At our Annual Meeting, we will seek shareholder approval for a reverse stock split at a ratio of 1-for-10 to 1-for-15, with the final ratio to be determined at the discretion of our Board of Directors (the “Reverse Stock Split Proposal”). Subject to such shareholder approval, we expect to regain compliance with the Bid Price Rule prior to the June 30, 2025 compliance deadline.
On March 31, 2025, we entered into the SPA, which provides for the issuance of approximately $7.3 million of common stock and pre-funded warrants over two closings. Upon the First Closing on April 2, 2025, we sold to the investors approximately $1.1 million shares of common stock and pre-funded warrants. The Second Closing under the SPA for the sale approximately $6.2 million shares of common stock and pre-funded will occur upon shareholder approval at our Annual Meeting, subject to customary closing conditions. Following completion of the Second Closing , we expect to be in compliance with Listing Rule 5550(b)(1), which requires a minimum stockholders’ equity of $2.5 million (the “Stockholders’ Equity Rule”), prior to the deadline to regain compliance with the MLVS Rule.
If we fail to satisfy any of the Nasdaq continued listing requirements, Nasdaq may take steps to delist our common stock.
If our common stock is ultimately delisted by Nasdaq, and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, then we could face significant material adverse consequences, including: a material reduction in the liquidity of our common stock and a corresponding material reduction in the trading price of our common stock; a more limited market quotations for our securities; a determination that our common stock is a “penny stock” that requires brokers to adhere to more stringent rules and possibly resulting in a reduced level of trading activity in the secondary trading market for our securities; more limited research coverage by stock analysts; loss of reputation; more difficult and more expensive equity financings in the future; the potential loss of confidence by investors; and fewer business development opportunities.
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” If our common stock remains listed on Nasdaq, our common stock will be covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. If our securities were no longer listed on Nasdaq and therefore not “covered securities,” we would be subject to regulation in each state in which we offer our securities.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Other Information.
(a) None.
(b) None.
(c) During the quarter
covered by this report, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
Item 6. Exhibits
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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 hereunto duly authorized.
| ERNEXA THERAPEUTICS INC. | ||
| Date: May 7, 2025 | By: | /s/ Sanjeev Luther |
| Sanjeev Luther | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 7, 2025 | By: | /s/ Sandra Gurrola |
| Sandra Gurrola | ||
| Senior Vice President of Finance | ||
| (Principal Financial Officer and Principal Accounting Officer) |
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