Ernexa Therapeutics Inc 10-Q for FY2024 Q2
Ernexa Therapeutics Inc. (ERNA)
About this 10-Q
Ernexa Therapeutics Inc filed this 10-Q on August 13, 2024, covering the quarter ended June 30, 2024 (FY2024 Q2).
Headline figures
Quarter ended June 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $47K
- Net loss
- $5.53M
- compared with a net loss of $4.51M a year earlier
- Diluted EPS
- -$1.02
- compared with -$0.85 a year earlier
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
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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
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 August 9, 2024, 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, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024, 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 “Eterna” refer to Eterna Therapeutics Inc., references to “Eterna LLC” refer to Eterna Therapeutics LLC, a wholly owned subsidiary of Eterna, and references to the “Company,” “we,” “us” or “our” refer to Eterna and its subsidiaries, including Eterna LLC, Novellus, Inc. and Novellus Therapeutics Limited.
| ii |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(unaudited)
| June 30, 2024 | December 31, 2023 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Restricted cash | ||||||||
| 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 | ||||||||
| Due to related party, current | ||||||||
| Deferred revenue, current | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Convertible notes, net | ||||||||
| Warrant liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Deferred revenue, 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 June 30, 2024 and December 31, 2023, $ | ||||||||
| Common stock, $ par value, shares authorized at June 30, 2024 and December 31, 2023; and issued and outstanding at June 30, 2024 and December 31, 2023, 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 |
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ||||||||||||||||
| Gross loss | ( | ) | ( | ) | ( | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Acquisition of Exacis in-process research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other (expense) income, net: | ||||||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||
| Loss on non-controlling investment | ( | ) | ( | ) | ||||||||||||
| Interest (expense) income, net | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ||||||||||||
| Total other (expense) income, net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Series A preferred stock dividend | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| 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 |
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ (DEFICIT) EQUITY
For the three and six months ended June 30, 2024 and 2023 (unaudited)
(in thousands)
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at April 1, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Issuance of common stock from vested restricted stock units | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Cash dividends to Series A preferred stockholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balances at January 1, 2024 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of note warrants | - | - | ||||||||||||||||||||||||||
| Issuance of common stock from vested restricted stock units | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Cash dividends to Series A preferred stockholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at June 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Balances at April 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock in connection with Exacis asset acquisition | - | |||||||||||||||||||||||||||
| Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net | - | |||||||||||||||||||||||||||
| Cash dividends to Series A preferred stockholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balances at January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock in connection with Exacis asset acquisition | - | |||||||||||||||||||||||||||
| Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net | - | |||||||||||||||||||||||||||
| Cash dividends to Series A preferred stockholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Balance | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
ETERNA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| 2024 | 2023 | |||||||
| For the six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| 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 | ||||||||
| Commitment shares issued to Lincoln Park Capital, LLC | ||||||||
| Loss on shares sold to Lincoln Park Capital, LLC | ||||||||
| Non-cash component of acquisition of Exacis in-process research and development | ||||||||
| Amortization of right-of-use asset | ||||||||
| (Gain) loss on disposal of fixed assets | ( | ) | ||||||
| Accrued interest expense | ||||||||
| Paid-in-kind interest expense | ||||||||
| Amortization of debt discount and debt issuance costs | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Change in fair value of contingent consideration liability | ( | ) | ( | ) | ||||
| Loss on non-controlling investment | ||||||||
| 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 the convertible notes financing | ||||||||
| Fees paid related to the convertible notes financing | ( | ) | ||||||
| Proceeds from sale of common stock pursuant to stock purchase agreement with Lincoln Park Capital Fund, LLC | ||||||||
| Dividends paid to Series A preferred stockholders | ( | ) | ( | ) | ||||
| Net cash provided by financing activities | ||||||||
| Net 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 December 2023 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 | $ | $ | ||||||
| Initial measurement of ROU assets | $ | $ | ||||||
| Initial measurement of lease liability | $ | $ | ||||||
| Contingent consideration for Exacis asset acquisition | $ | $ | ||||||
| Issuance of common stock for Exacis asset acquisition | $ | $ | ||||||
| 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 |
ETERNA THERAPEUTICS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Eterna
Therapeutics Inc. is a life science company committed to realizing the potential of mRNA cell engineering to provide patients with
transformational new medicines. Eterna has in-licensed a portfolio of over
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 Eterna’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2024, as amended by the Form 10-K/A filed with the SEC on March 18, 2024 (as amended, the “2023 10-K”). The accompanying condensed consolidated balance sheet as of December 31, 2023 has been derived from the audited financial statements contained in the 2023 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 and six months ended June 30, 2024 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2024, or any other period.
Reclassifications
Certain reclassifications have been made to the Company’s prior year amounts to conform to the current year presentation.
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,
including conducting clinical trials and providing general and administrative support for operations. As of June 30, 2024, the Company
had an unrestricted cash balance of approximately $
In
October 2022, the Company entered into a sublease for approximately
| 5 |
On August 5, 2024, the
sublessor drew down on the letter of credit for the full $
In
April 2023, the Company entered into a standby equity purchase agreement (the “SEPA”) and a registration rights agreement
with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park committed to purchase up to $
In
July and December 2023, the Company received $
In connection with preparing the accompanying condensed consolidated financial statements as of and for the three and six months ended June 30, 2024, 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 the sales of shares of its common stock under the SEPA, public or private equity offerings, debt financings, out-licensing the Company’s intellectual property, strategic partnerships or other means. Other than the SEPA, 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) ASSET ACQUISITION
On April 26, 2023, the Company entered into an asset purchase agreement (the “Exacis Purchase Agreement”), with Exacis Biotherapeutics Inc. (“Exacis”), the stockholders party thereto and, with respect to specified provisions therein, Factor Limited. Pursuant to the Exacis Purchase Agreement, the Company acquired from Exacis substantially all of Exacis’ intellectual property assets (the “Exacis Assets”), including all of Exacis’ right, title and interest in and to an exclusive license agreement by and between Exacis and Factor Limited (the “Purchased License”). The Company assumed none of Exacis’ liabilities, other than liabilities under the Purchased License that accrue subsequent to the closing date. The transactions contemplated by the Exacis Purchase Agreement (the “Exacis Acquisition”) closed on April 26, 2023.
| 6 |
In
consideration for the Exacis Assets, on the closing date of the transaction, the Company issued to Exacis an aggregate of approximately
shares of common stock, which shares were subject to a
| (i) | if,
at any time during the -year period commencing on the closing date and ending on the
-year anniversary of the closing date, the Company’s market capitalization equals
or exceeds $ |
| (ii) | if,
at any time during the -year period commencing on the closing date and ending on the
-year anniversary of the closing date, the Company’s market capitalization equals
or exceeds $ |
| (iii) | during
the -year period commencing on the closing date and ending on the -year anniversary
of the closing date, the Company will pay or deliver to Exacis |
The Company accounted for the Exacis Acquisition as an asset acquisition because it determined that substantially all of the fair value of the assets acquired was concentrated in the Purchased License. Assets acquired in an asset acquisition are recognized based on their cost to the acquirer and generally allocated to the assets on a relative fair value basis. The Company’s cost for acquiring the Exacis Assets includes the issuance of the Company’s common stock, direct acquisition-related costs and contingent consideration. The table below shows the total fair value of the consideration paid for the Exacis Assets (in thousands). See Note 4 for more information on the fair value measurement of the assets acquired.
SCHEDULE OF FAIR VALUE MEASUREMENT OF ASSETS ACQUIRED
| Fair Value of Consideration | ||||
| Shares issued | $ | |||
| Contingent consideration | ||||
| Direct costs | ||||
| Total fair value | $ | |||
The
Company allocated
| 7 |
4) CONTRACT WITH CUSTOMER
On
February 21, 2023, the Company and Lineage Cell Therapeutics, Inc. (“Lineage”) entered into an exclusive option and license
agreement (the “Lineage Agreement”), which provided Lineage with the option (the “Option Right”) to obtain an
exclusive sublicense of intellectual property from the Company and to request the Company to develop a customized cell line. The Lineage
Agreement was amended in August 2023 to provide for changes specifically related to the cell line customization activities such as (i)
payment terms, (ii) certain definitions, (iii) certain courses of action if the customized cell line selected by Lineage is not successful
and (iv) documentation requirements. Lineage paid the Company a $
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.
Pursuant
to ASC 606, the Company determined that the Option Right was an unexercised right held by Lineage under the Lineage Agreement at contract
inception, as the cell line customization activities and the sublicense were optional purchases at contract inception. These optional
purchases of goods and services would be treated as separate
contracts if and when Lineage determines that it will make such purchases. Therefore,
The
Option Right and the cell line customization activities are accounted for as separate contracts, and the Company has determined that
the amended terms discussed above represent a modification to the cell line customization contract. Because there were no goods or services
transferred to Lineage before entering
into the amendment, and therefore,
Lineage
will make payments to the Company for the cell line customization activities over the development period. The Company will only earn
the remaining full amount of the cell line customization fee if it makes certain progress towards delivery of the customized cell
line. The Company has determined that $
The granting of the license that the Company may provide to Lineage if Lineage exercises the Option Right is not considered a performance obligation at this time, as it is an optional request that the customer may make in the future and will be accounted for as a separate contract when the customer exercises the Option Right.
The
Company recognizes
direct labor and supplies used in the customization activities as incurred and are recorded as a cost of revenue. As provided
for in the A&R Factor License Agreement discussed in Note 9, the Company is obligated to pay Factor Limited
5) CONVERTIBLE NOTES FINANCINGS
On
July 14, 2023, the Company received $
On
December 14, 2023, the Company entered into a purchase agreement with certain purchasers for the private placement of $
| 8 |
There
were two closings under the December 14, 2023 purchase agreement – one on December 15, 2023 and the second on January 11, 2024.
At the first closing, the Company received $
See Note 13 for more information on the note warrants.
The
July 2023 convertible notes bear interest at
At
the option of the holders, the convertible notes may be converted from time-to-time in whole or in part into shares of the Company’s
common stock at an initial conversion rate of, with respect to the July 2023 convertible notes, $
The
convertible notes do not contain any ratchet or other financial antidilution provisions. The convertible notes contain conversion limitations
such that no conversion may be made if the aggregate number of shares of common stock beneficially owned by the holder thereof would
exceed
The
convertible notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods),
among others: nonpayment of principal or interest, breach of covenants or other agreements in the convertible notes; the occurrence of
a material adverse effect event (as defined in the related securities purchase agreement) and certain events of bankruptcy. Generally,
if an undisputed event of default occurs and is continuing under the convertible notes, the holder thereof may require the Company to
redeem some or all of their convertible notes at a redemption price equal to
The Company determined that there were no embedded derivatives within the convertible notes that required bifurcation from the host agreement. In connection with the December 2023 convertible notes that were issued on January 11, 2024, the Company allocated the gross proceeds received and the fees incurred over the applicable convertible notes and warrants based on their relative fair values as follows (in thousands):
SCHEDULE OF BASED ON RELATIVE FAIR VALUE ALLOCATION OF PROCEEDS AND COSTS
| Relative | Allocation | Allocation of Proceeds and Costs | Allocation of Proceeds, | |||||||||||||||||
| Fair Value | Percentage | Proceeds | Costs | Net | ||||||||||||||||
| Convertible notes | $ | % | $ | $ | ( | ) | $ | |||||||||||||
| Note warrants | % | ( | ) | |||||||||||||||||
| $ | % | $ | $ | ( | ) | $ | ||||||||||||||
The Company estimated the fair values of the convertible notes as of January 11, 2024 based off a valuation performed by a third-party specialist as of December 15, 2023 using a binomial tree model and the following assumptions:
SCHEDULE OF FAIR VALUE ASSUMPTIONS
| Stock Price | Credit Spread | Volatility | Risk-Free Rate | |||||||||||||
| Convertible notes | $ | % | % | |||||||||||||
| 9 |
The fair value of the note warrants, all of which qualified for equity classification, was determined using the Black-Scholes pricing model as of January 11, 2024 using the following assumptions:
| Stock Price | Exercise Price | Expected Life | Volatility | Dividend | Risk-Free Rate | |||||||||||||||||
| Warrants | $ | $ | % | % | % | |||||||||||||||||
The amount of proceeds allocated to the note warrants resulted in a corresponding reduction in the carrying value of the respective convertible notes as a debt discount, which is amortized with the debt issuance costs as a component of interest expense based on the effective interest rate method over the contractual terms of the convertible notes.
The following table shows the activity that occurred during the six months ended June 30, 2024 for the convertible notes on the accompanying condensed consolidated balance sheet:
SCHEDULE OF ACTIVITY OF CONVERTIBLE NOTES
| Gross convertible notes | Debt discount and debt issuance costs | Convertible notes, net | ||||||||||
| Beginning balance as of January 1, 2024 | $ | $ | ( | ) | $ | |||||||
| December 2023 notes issued in January 2024 | ( | ) | ||||||||||
| Paid-in-kind interest added to principal | - | |||||||||||
| Amortization of debt discount and debt issuance costs | - | |||||||||||
| Ending balance as of June 30, 2024 | $ | $ | ( | ) | $ | |||||||
To
date, the Company has elected to pay in-kind the accrued interest payable on the convertible notes and has added the accrued and
unpaid interest to the principal amount of the applicable convertible note. For the three months ended June 30, 2024, the Company
has recognized approximately $
6) 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.
| 10 |
● 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 and cash equivalents, other receivable, prepaid assets and other current assets, accounts payable and accrued expenses, 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 also recorded the Market Cap Contingent Consideration liability related to the Exacis Acquisition. See Note 3 for more information related to the Exacis Acquisition. Both of these liabilities are remeasured at each reporting period, with changes in their fair values recognized in earnings.
The Company uses a Black-Scholes option pricing model to estimate the fair value of its warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the contingent consideration related to the Market Cap Contingent Consideration, both of which are considered a Level 3 fair value measurement. The Company remeasures the fair value of the warrant liabilities and the Market Cap Contingent Consideration at each reporting period and changes in the fair values are recognized in the statement of operations.
The following tables summarize the liabilities that are measured at fair value as of June 30, 2024 and December 31, 2023 (in thousands):
SCHEDULE OF LIABILITIES MEASURED AT FAIR VALUE
| Description | Level | June 30, 2024 | December 31, 2023 | |||||||||
| Liabilities: | ||||||||||||
| Warrant liabilities - Q1-22 warrants | 3 | $ | $ | |||||||||
| Market Cap Contingent Consideration | 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.
The following table presents the changes in the liabilities measured at fair value from January 1, 2024 through June 30, 2024 (in thousands):
SCHEDULE OF CHANGES IN WARRANT LIABILITIES
| Warrant Liabilities | Contingent Consideration | |||||||
| Fair value at January 1, 2024 | $ | $ | ||||||
| Change in fair value | ( | ) | ( | ) | ||||
| Fair value at June 30, 2024 | $ | $ | ||||||
The table below is provided for comparative purposes only and presents information about the fair value of the Company’s convertible notes relative to the carrying values recognized in the condensed consolidated balance sheet as of June 30, 2024 and December 31, 2023 (in thousands).
SCHEDULE OF FAIR VALUE AND CARRYING VALUES OF CONVERTIBLE NOTES
| June 30, 2024 | December 31, 2023 | |||||||||||||||||||
| Level | Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||
| Convertible notes | 3 | $ | $ | $ | $ | |||||||||||||||
The carrying value in the table above is shown before the allocation of the proceeds to the note warrants. The Company assesses the fair value of the convertible notes as of June 30, 2024 using a Monte Carlo simulation model and as of December 31, 2023 using a binomial model, both of which are considered a Level 3 measurement.
| 11 |
7) GOODWILL
In
2018, the Company acquired IRX Therapeutics (“IRX”), which was accounted for as a business combination. The Company recorded
goodwill in the amount of $
8) LEASES
The Company currently has operating leases for office and laboratory space in the borough of Manhattan in New York, New York, and Cambridge, Massachusetts, which expire in 2026 and 2028, respectively.
In
addition, in October 2022, the Company entered into a sublease with a subsidiary of Bristol-Myers Squibb Company, as sublessor
(“Sublessor”), for office, laboratory and research and development space of approximately
The
Sublessor provided the Company with a tenant improvement allowance (“TIA”) of $
On
May 3, 2024, the Company received a notice from the Sublessor regarding past due rent payments of approximately $
The
Company also did not pay the rent for June, July or August 2024, and as of August 1, 2024, owed approximately $
On August 9, 2024, the Company and Sublessor entered into a sublease termination agreement, effective August 31, 2024. The sublease was originally scheduled to expire in 2033. See Note 17 for more information on the sublease termination agreement.
| 12 |
For the three and six months ended June 30, 2024 and 2023, the net operating lease expenses were as follows (in thousands):
NET OPERATING LEASE EXPENSE
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Variable lease expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2024 and the ending balances as of June 30, 2024, including the changes during the period (in thousands).
OPERATING LEASE RIGHT-OF-USE ASSETS AND LIABILITIES
| Operating Lease ROU Assets | ||||
| Operating lease ROU assets at January 1, 2024 | $ | |||
| Adjustment to ROU asset for remeasurement of Somerville Sublease liability | ||||
| Amortization of operating lease ROU assets | ( | ) | ||
| Operating lease ROU assets at June 30, 2024 | $ | |||
| Operating Lease Liabilities | ||||
| Operating lease liabilities at January 1, 2024 | $ | |||
| Adjustment to lease liability due to remeasurement of Somerville Sublease | ||||
| Accretion of interest for Somerville Sublease | ||||
| Principal payments on operating lease liabilities | ( | ) | ||
| Operating lease liabilities at June 30, 2024 | ||||
| Less non-current portion | ||||
| Current portion at June 30, 2024 | $ | |||
As
of June 30, 2024, the Company’s operating leases had a weighted-average remaining life of
MATURITIES OF OPERATING LEASE LIABILITIES
| As of June 30, 2024 | ||||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| Total payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
| 13 |
9) ACCRUED EXPENSES
Accrued expenses at June 30, 2024 and December 31, 2023 consisted of the following (in thousands):
SCHEDULE OF ACCRUED EXPENSES
| June 30, 2024 | December 31, 2023 | |||||||
| Somerville facility | $ | $ | ||||||
| Legal fees | ||||||||
| Convertible notes interest | ||||||||
| Professional fees | ||||||||
| Accrued compensation | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
10) RELATED PARTY TRANSACTIONS
Agreements with Factor Bioscience Inc. and Affiliates
As of June 30, 2024, the Company had the agreements described below with Factor Bioscience Inc. and/or Dr. Matthew Angel. These agreements have been deemed related party transactions because the Company’s former chief executive officer, Dr. Angel, is the chairman and chief executive officer of Factor Bioscience Inc. and a director of its subsidiary, Factor Bioscience Limited (“Factor Limited” and together with Factor Bioscience Inc. and its other affiliates, “Factor Bioscience”). Dr. Angel resigned as the Company’s chief executive officer effective December 31, 2023.
In
September 2022, the Company entered into a Master Services Agreement (the “MSA”) with Factor Bioscience, pursuant to which
Factor Bioscience agreed to provide services to the Company as agreed between the Company and Factor Bioscience and as set forth in one
or more work orders under the MSA, including the first work order included in the MSA (“WO1”). The
MSA contains customary confidentiality provisions and representations and warranties of the parties, and the MSA may be terminated by
either party upon
Under
WO1, Factor Bioscience agreed to provide the Company
with mRNA cell engineering research support services, including access to certain facilities, equipment, materials and training, and
the Company agreed to pay Factor Bioscience an initial fee of $
Under the terms of an amendment to WO1, the Company may terminate WO1 on or after the second anniversary of the date of the MSA, subject to providing Factor Bioscience with 75 days’ prior notice if such notice is provided no later than June 30, 2024. On June 26, 2024, the Company provided Factor Bioscience with its notice to terminate WO1, which will be effective on September 9, 2024.
In
connection with entering into the MSA, Factor Limited entered
into a waiver agreement with Eterna LLC, pursuant to which Factor Limited agreed to waive payment of $
Because
the License Fee Obligation was conditionally waived until the Company paid Factor Bioscience a minimum of $
| 14 |
In September 2022, Novellus Inc. (“Novellus”) and the Company entered into a Second Amendment to the Limited Waiver and Assignment Agreement (the “Waiver and Assignment Agreement”) with Drs. Matthew Angel and Christopher Rohde (the “Founders”) whereby the Company agreed to be responsible for all future, reasonable and substantiated legal fees, costs, settlements and judgments incurred by the Founders, the Company or Novellus for certain claims and actions and any pending or future litigation brought against the Founders, Novellus and/or the Company by or on behalf of the Westman and Sowyrda legal matters described in Note 10 (the “Covered Claims”). The Founders will continue to be solely responsible for any payments made to satisfy a judgement or settlement of any pending or future wage act claims. Under the Waiver and Assignment Agreement, the Founders agreed that they are not entitled to, and waived any right to, indemnification or advancement of past, present or future legal fees, costs, judgments, settlement or other liabilities they may have been entitled to receive from the Company or Novellus in respect of the Covered Claims. The Company and the Founders will share in any recoveries up to the point at which the parties have been fully compensated for legal fees, costs and expenses incurred, with the Company retaining any excess recoveries. The Company has the sole authority to direct and control the prosecution, defense and settlement of the Covered Claims.
In
November 2022, following the expiration of one of the milestone deadlines for certain regulatory filings required under the Third Amended
and Restated Exclusive License Agreement between Novellus Limited and Factor Limited entered into in November 2020 (the “Novellus-Factor
License Agreement”), which permitted Factor Limited to terminate the license granted to Novellus Limited thereunder, the Company
entered into the first amendment to the Original Factor License Agreement (as amended, the “2021 Factor License Agreement”),
pursuant to which, among other things, Factor Limited granted to Eterna LLC an exclusive, sublicensable license under certain patents
owned by Factor Limited (the “Factor Patents”) for the purpose of identifying and pursuing certain opportunities to grant
to third parties sublicenses to the Factor Patents. The Original Factor License Agreement also (i) terminated the Novellus-Factor License
Agreement, (ii) confirmed Factor Limited’s grant to Eterna LLC of the rights and licenses Novellus Limited previously granted to
Eterna LLC under the Novellus-Factor License Agreement on the same terms and conditions as granted by Novellus Limited to Eterna LLC
under such agreement, (iii) confirmed that the sublicense granted by Novellus Limited in accordance with the Novellus-Factor License
Agreement to NoveCite, Inc., a company which the Company has a
On February 20, 2023, the Company, entered into an exclusive license agreement (the “Feb 2023 Factor Exclusive License Agreement”) with Factor Limited, pursuant to which Factor Limited granted to the Company an exclusive, sublicensable, worldwide license under certain patents owned by Factor Limited for the purpose of, among other things, identifying and pursuing certain opportunities to develop products in respect of such patents and to otherwise grant to third parties sublicenses to such patents. The Feb 2023 Factor Exclusive License Agreement, which terminated and superseded the Amended Factor License Agreement, was subsequently terminated and superseded by the A&R Factor License Agreement (as defined below).
On
November 14, 2023, the Company entered into an amended and restated exclusive license agreement (the “A&R Factor License Agreement”)
with Factor Limited to replace in its entirety the exclusive license agreement between the parties dated February 20, 2023 and the amendment
thereto. Under the terms of the A&R Factor License Agreement, Factor Limited granted to the Company an exclusive, sublicensable license
under certain patents owned by Factor Limited (the “Factor Patents”). The A&R Factor License Agreement also provides
for, among other things, the expansion of the Company’s license rights to include (i) the field of use of the Factor Patents to
include veterinary uses (ii) know-how that is necessary or reasonably useful to practice to the licensed patents, (iii) the ability to
sublicense through multiple tiers (as opposed to only permitting a direct sublicense) and (iv) the transfer of technology to the Company,
subject to the use restrictions in the A&R Factor License Agreement. The term of the A&R Factor License Agreement expires on
November 22, 2027, but will be automatically extended for an additional
| 15 |
Exacis Asset Acquisition
On April 26, 2023, the Company closed the Exacis Acquisition. See Note 3 for additional information.
The Exacis Acquisition was deemed a related party transaction because, at the time of the acquisition, (i) Dr. Gregory Fiore was both the chief executive officer of Exacis and a member of the Company’s board of directors, (ii) Dr. Angel was both the Company’s chief executive officer and chairman of Exacis’ scientific advisory board, and (iii) an affiliate of Factor Bioscience was the majority stockholder of Exacis.
Consulting Agreement with Former Director
In
May 2023, the Company entered into a consulting agreement with Dr. Fiore, whereby Dr. Fiore agreed to provide business development consulting
services to the Company for a monthly retainer of $
July 2023 and December 2023 Financings
Investors in the July 2023 convertible note financing included Brant Binder, Richard Wagner, Charles Cherington and Nicholas Singer, and investors in the December 2023 convertible note financing included Messrs. Cherington and Singer. Each of them participated in the applicable financing under the same terms and subject to the same conditions as all the other investors. See Note 4 for additional information regarding the financings. Mr. Binder served on the Company’s board of directors from July 6, 2023 to August 8, 2023, Mr. Wagner served on the Company’s board of directors from July 6, 2023 to August 8, 2023, Mr. Cherington served on the Company’s board of directors from March 2021 to July 6, 2023, and Mr. Singer served on the Company’s board of directors from June 2022 to July 6, 2023.
| 16 |
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.
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. Eterna 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. On July 1, 2022, Westman filed a motion to compel arbitration or in the alternative, to stay the litigation pending the disposition of certain litigation in the Court of Chancery for the State of Delaware filed by Mr. Sowyrda against Novellus LLC, Dr. Christopher Rohde, Dr. Matthew Angel, Leonard Mazur and Factor Bioscience, Inc. captioned Zelickson et al., v. Angel et al., C.A. 2021-1014-JRS and by Westman against Novellus LLC captioned Westman v. Novellus LLC, C.A. No. 2021-0882-NAC (together, the “Delaware Actions”). On July 1, 2022, Sowyrda answered the complaint and asserted counterclaims against Novellus, Inc, and third-party defendants Dr. Matthew Angel and Dr. Christopher Rohde alleging violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, breach of contract, unjust enrichment and quantum meruit. Sowyrda also joined in Westman’s motion to stay the case pending the Delaware Actions. Novellus, Inc.’s claims and Mr. Sowyrda’s counterclaims relate to alleged conduct that took place before Eterna acquired Novellus, Inc.
On November 15, 2022, prior to a decision on Westman’s and Sowyrda’s motion to compel or stay, the parties agreed to voluntarily dismiss and consolidate the Delaware Actions with this action. On December 15, 2022, Sowyrda filed an Amended Answer to the Amended Complaint, asserted affirmative defenses and filed Amended Counterclaims against Dr. Angel, Dr. Rohde, Novellus LLC, Novellus Inc., Factor Bioscience Inc., and Eterna Therapeutics Inc. (collectively, the “Counterclaim Defendants”) alleging against various Counterclaim Defendants breach of contract, breaches of the implied duty of good faith and fair dealing, breaches of fiduciary duty, breaches of the operating agreement, aiding and abetting breaches of fiduciary duty, tortious interference with contract, equitable accounting, violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, unjust enrichment, and quantum meruit. Also on December 15, 2022, Westman filed an answer to the Amended Complaint and asserted similar counterclaims against the same Counterclaim Defendants. Westman and Sowyrda each asserted claims for indemnification and/or advancement against Novellus, Inc. On January 11, 2023, Westman and Sowyrda served a joint motion to enforce their advancement and/or indemnification rights against Novellus Inc. Novellus Inc. vigorously opposes this motion and served its opposition on January 27, 2023. On February 8, 2023, Westman and Sowyrda served a reply in support of their motion to enforce indemnification/advancement rights, and submitted the motion to the Court. Novellus Inc. answered Westman and Sowyrda’s counterclaims on January 27, 2023, denying liability. The remaining Counterclaim Defendants served a motion to dismiss most of the remaining counterclaims on January 27, 2023. The Court entered an order granting the Counterclaim Defendants’ motion to dismiss and denying Sowyrda and Westman’s motion to enforce on June 15, 2023. The Court’s order dismissed all of Westman’s claims against Counterclaim Defendants except his claim for indemnification, and all of Sowyrda’s claims except his claim for indemnification and his employment-related claims, which Counterclaim Defendants did not move to dismiss. On July 6, 2023, Westman and Sowyrda filed a petition for interlocutory review with a single justice of the Massachusetts Appeals Court, seeking to overturn the judge’s decision granting the Counterclaim Defendants’ motion to dismiss most of the remaining counterclaims, but not the decision denying Westman and Sowyrda’s motion to enforce advancement rights. On July 25, 2023, the parties to the appeal filed a joint motion to the single justice in the appellate court to stay the appeal to allow for amended counterclaims to be filed by Counterclaim Plaintiffs and a motion to dismiss to be filed by Counterclaim Defendants. Counterclaim Plaintiffs filed an initial set of amended counterclaims on August 15, 2023. Counterclaim Plaintiffs amended and refiled their amended counterclaims on September 29, 2023. Counterclaim Defendants served their motion to dismiss all of the amended counterclaims, except for Sowyrda’s employment-related claims, on October 13, 2023. On June 13, 2024, the motion to dismiss was denied and the court set a schedule for discovery limited to a threshold factual issue. Discovery as to all other issues pertaining to the counterclaims was stayed. On July 15, 2024, Westman and Sowyrda requested that the single justice in the appellate court continue to stay the appeal pending the outcome of the limited discovery ordered by the Court. 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. Pursuant to the Court’s order, Counterclaim Defendants are engaged in limited discovery with Westman. A status conference has been set for September 12, 2024.
Under applicable Delaware law and Novellus Inc.’s organizational documents, the Company may be required to advance or reimburse certain legal expenses incurred by former officers and directors of Novellus, Inc. in connection with the foregoing Westman and Sowyrda matters. However, a future advance or reimbursement is not currently probable nor can it be reasonably estimated.
| 17 |
eTheRNA Immunotherapies NV and eTheRNA Inc. v. Eterna Therapeutics Inc. C.A. No. 123CV11732
On July 31, 2023, eTheRNA Immunotherapies NV and eTheRNA Inc. filed a complaint against the Company alleging the following claims: (1) federal trademark infringement; (2) federal unfair competition; (3) Massachusetts state common law trademark infringement; (4) Massachusetts state unfair competition. On April 2, 2024, the parties settled the claims and stipulated to dismiss the complaint with prejudice. Per the settlement agreement entered into between the parties on March 19, 2024, the Company plans to phase-out its current use of the ETERNA trademark by October 31, 2024.
Licensing Agreements
On November 14, 2023, the Company entered into the A&R Factor License Agreement with Factor Limited. See Note 9 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
Stock Options
SCHEDULE OF STOCK OPTION GRANTED
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Stock options granted | ||||||||||||||||
On January 1, 2024, Sanjeev Luther was appointed as President, Chief Executive Officer and a director of the Company. Upon his appointment, he was granted a non-qualified stock option to purchase approximately shares of the Company’s common stock. The stock option has an exercise price of $ per share, which was equal to the fair market value (as defined in the 2020 Restated Equity Incentive Plan) of the Company’s common stock on the date of grant, will vest over , with % of the shares vesting on the first anniversary of the grant date and the remaining % of the shares vesting in equal installments over the thereafter, in each case, subject to continued service. The stock option was granted pursuant to the terms of Mr. Luther’s employment agreement and as a material inducement to his joining the Company in accordance with Nasdaq Listing Rule 5635(c)(4).
On April 26, 2024, the vesting terms of Mr. Luther’s stock option award were amended so that the stock option vests over , with % of the shares vesting on the first anniversary of the grant date and the remaining % of the shares will vest in equal installments over the remaining , in each case, subject to continued service.
Since the only modification to Mr. Luther’s stock option award was to the vesting terms, there was no change to the fair value of the stock option and the total compensation cost was unchanged. However, the total compensation cost will now be recognized over three years rather than four years, and as a result, the Company recognized approximately $ million in additional stock-based compensation expense during the three and six months ended June 30, 2024 as a result of the modification.
| 18 |
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.
SCHEDULE OF WEIGHTED-AVERAGE ASSUMPTIONS USED FOR STOCK OPTIONS GRANTED
| ixbrl | 2024 | 2023 | 2024 | 2023 | ||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Weighted average risk-free rate | % | % | % | % | ||||||||||||
| Weighted average volatility | % | % | % | % | ||||||||||||
| Dividend yield | % | % | % | % | ||||||||||||
| Expected term | years | years | years | years | ||||||||||||
SCHEDULE OF WEIGHTED AVERAGE GRANT-DATE FAIR VALUE OF STOCK OPTIONS
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| 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 June 30, 2024, 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. During the three and six months ended June 30, 2024 and 2023, less than RSUs vested. As of June 30, 2024, there were less than RSUs outstanding.
The Company did t grant RSUs during either of the three or six months ended June 30, 2024 and 2023.
Stock-Based Compensation Expense
SCHEDULE OF STOCK-BASED COMPENSATION EXPENSE
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Three months ended June 30, | Six months ended June 30, | |||||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 19 |
13) WARRANTS
As discussed in Notes 5 and 6, respectively, the Company has previously issued the note warrants and the Q1-22 warrants. The Company also has warrants outstanding from a private placement completed in the fourth quarter of 2022 (the “Q4-22 warrants”).
As of June 30, 2024, the Company has the following warrants outstanding:
SCHEDULE OF WARRANTS OUTSTANDING
| Warrants Outstanding (in thousands) | Exercise Price | Expiration Date | Classification | |||||||||
| Q1-22 warrants | $ | Liability | ||||||||||
| Q4-22 warrants | $ | Equity | ||||||||||
| July 2023 note warrants | $ | Equity | ||||||||||
| December 2023 note warrant issued December 15, 2023 | $ | Equity | ||||||||||
| December 2023 note warrant issued January 11, 2024 | $ | Equity | ||||||||||
As
of June 30, 2024, the weighted average remaining contractual life of the warrants outstanding was
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 convertible notes contractually entitle the holders thereof to participate in dividends but does 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, 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 plus dilutive securities. Shares of common stock issuable upon exercise, conversion or vesting of outstanding stock options, RSUs, warrants and shares of 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 outstanding convertible notes are also considered potential shares of common stock and are included in the calculation of diluted net loss per share using the “if-converted” method, and the more dilutive of either the two-class method or the if-converted method is reported. 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.
| 20 |
SCHEDULE OF COMPUTATION OF DILUTED NET LOSS PER SHARE OF COMMON STOCK
| Three and six months ended June 30, | ||||||||
| 2024 | 2023 | |||||||
| Warrants | ||||||||
| Convertible Notes converted into common stock | ||||||||
| Stock options | ||||||||
| Preferred stock converted into common stock | ||||||||
| RSUs | ||||||||
| Total potential common shares excluded from computation | ||||||||
15) 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 $
In April 2023, the Company filed a registration statement on Form S-1 (File No. 333-271279) to register the sale from time to time of up to shares of the Company’s common stock by Lincoln Park, including the approximately commitment shares, which was declared effective on April 24, 2023 (the “SEPA S-1”).
During
the three and six months ended June 30, 2023, the Company issued and sold approximately
shares of common stock under the SEPA, including the approximately
commitment shares, for gross proceeds of $
16) RECENT ACCOUNTING PRONOUNCEMENTS
No new Accounting Standards Updates have been issued by the Financial Accounting Standards Board since January 1, 2024 that would apply to the Company that are not disclosed in the 2023 10-K.
17) SUBSEQUENT EVENT
On August 5, 2024, the sublessor
of the Company’s sublease for the property located in Somerville, Massachusetts drew down on the letter of credit related to the
sublease for the full $
On August 9, 2024, the Company
and the sublessor entered into a sublease termination agreement pursuant to which the parties agreed to terminate the sublease effective
August 31, 2024. Pursuant to the sublease termination agreement, the Company agreed to surrender and vacate the premises, all of the Company’s
right, title and interest in all furniture, fixtures and laboratory equipment at the premises will become the property of the sublessor,
and both parties will be released of their obligations under the sublease. As a result of the sublease termination, the Company expects to save 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, 2023 filed with the Securities and Exchange Commission (the “SEC”) on March 14, 2023, as amended by the Form 10-K/A filed with the SEC on March 18, 2024 (as amended, the “2023 10-K”). 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 Part I, Item 1A of the 2023 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 life science company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines. We have in-licensed a portfolio of over 100 patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSliceTM and UltraSliceTM gene-editing proteins, and the ToRNAdoTM mRNA delivery system, which we collectively refer to as our “mRNA technology platform.” We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.” We license our mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under an exclusive license agreement.
We believe that our proprietary technology platform can be used to develop novel pharmaceutical products to treat a broad range of diseases and address unmet medical needs.
In the short term, we are planning to derive revenue by leveraging our core intellectual property (“IP”) portfolio by licensing our IP to third parties in out-licensing or co-development arrangements. In addition, we are also planning to enhance our developmental activities through preclinical studies in selected indications.
In the mid-term, we are planning to transform our preclinical stage company into a clinical-stage company through investigational new drug application (“IND”)-enabling studies, IND approval, and initiation of our first-in-human study. After achieving the initial milestones, we’ll seek to diversify our pipeline of product candidates and strengthen the mRNA technology platform with the goal of generating IND applications each year.
In the long term, we aspire to become a therapeutics company with multiple approved gene and cellular therapy products across multiple indications in oncology, autoimmune diseases, and rare diseases.
We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.”
mRNA Delivery
Nucleic acids, such as mRNA, can be used to induce cells to express desired proteins, including proteins that are capable of re-writing genetic and epigenetic cellular programs. However, the plasma membrane surrounding cells normally protects cells from exogenous nucleic acids, preventing efficient uptake and protein translation. Delivery systems can be used to enhance the uptake of nucleic acids by cells. Conventional delivery systems, such as lipid nanoparticle (“LNP”)-based delivery, often suffer from endosomal entrapment and toxicity, which can limit their therapeutic use. Our mRNA delivery technology is designed to use a novel chemical substance that is designed to deliver nucleic acids, including mRNA, to cells both ex vivo and in vivo. Our nucleic-acid delivery technology is also designed for ex vivo delivery of mRNA encoding gene-editing proteins and reprogramming factors, including to primary cells, insertion of exogenous sequences into genomic safe-harbor loci, and in vivo delivery of mRNA to the brain, eye, skin, and lung, which may be useful for the development of mRNA-based therapeutic.
mRNA Gene Editing
Our mRNA gene-editing technology is designed to delete, insert, and repair DNA sequences in living cells, which may be useful for correcting disease-causing mutations, making cells resistant to infection and degenerative disease, modulating the expression of immunoregulatory proteins to enable the generation of durable allogeneic cell therapies, and engineering immune cells to more effectively fight cancer.
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Conventional gene-editing technologies typically employ plasmids or viruses to express gene-editing proteins, which can result in low-efficiency editing and unwanted mutagenesis when an exogenous nucleic acid fragment is inserted at random locations in the genome. Our mRNA gene-editing technology instead is designed to employ mRNA to express gene-editing proteins, which can potentially enable gene editing without unwanted insertional mutagenesis, because, unlike conventional gene-editing technologies that employ viruses or DNA-based vectors, mRNA does not typically cause unwanted insertional mutagenesis. We believe the efficiency of our mRNA gene-editing technology has the potential to support development of product candidates that could create new therapeutic approaches. For example, we anticipate that our mRNA gene-editing technology can be used to generate allogeneic chimeric antigen receptor T-cell (“CAR-T”) therapies for the treatment of cancer. In such allogeneic CAR-T therapies, mRNA encoding gene-editing proteins would be used to inactivate the endogenous T-cell receptor to prevent therapeutic T-cells from causing graft-versus-host disease (“GvHD”). GvHD occurs when transplanted cells view the patient’s (i.e., the host’s) cells as a threat and attack the host’s cells. We expect that this same mechanism of action can generate allogeneic stem cell-derived therapies in which mRNA encoding gene-editing proteins could be used to inactivate one or more components of the human leukocyte antigen (“HLA”) complex to render the cells immuno-nonreactive or “stealth,” which may be useful for the development of allogeneic cell-based therapies.
mRNA Cell Reprogramming
Our mRNA cell-reprogramming technology is capable of generating clonal lines of pluripotent stem cells that can be expanded and differentiated into many desired cell types that may be useful for the development of regenerative cell therapies.
Conventional cell-reprogramming technologies (e.g., using Sendai virus or episomal vectors) can result in low efficiency reprogramming, can select for cells with abnormal growth characteristics, and can leave traces of the vector in reprogrammed cells. Our mRNA cell-reprogramming technology instead is designed to employ mRNA to express reprogramming factors, which can enable cell reprogramming without leaving traces of the vector in reprogrammed cells, because, unlike conventional cell-reprogramming technologies that employ viruses or DNA-based vectors, mRNA does not typically leave traces of the vector in reprogrammed cells.
Recent Developments
Sublessor Draw on Letter of Credit and Termination of Sublease
In October 2022, we entered into a sublease for office and laboratory space in Somerville, Massachusetts. See Note 8 to the accompanying condensed consolidated financial statements for additional information regarding the sublease.
As previously reported, on May 3, 2024, we received a notice from the sublessor regarding past due rent of approximately $2.3 million that we did not pay for the months of February, March, April and May 2024. We also did not pay the rent for June, July or August 2024 and, as of August 1, 2024, we owed approximately $4.0 million in the aggregate in past due rent.
In connection with entering into the sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million. The letter of credit was collateralized with $4.1 million of cash deposited in a restricted account.
On August 5, 2024, the sublessor drew down on the letter of credit for the full $4.1 million to cover the approximately $4.0 million of past due rent payments, plus interest and penalties.
On August 9, 2024, we and the sublessor entered into a sublease termination agreement pursuant to which the parties agreed to terminate the sublease effective August 31, 2024. Pursuant to the sublease termination agreement, we agreed to surrender and vacate the premises, all of our right, title and interest in all furniture, fixtures and laboratory equipment at the premises will become the property of the sublessor, and both parties will be released of their obligations under the sublease. As a result of the sublease termination, we expect to save approximately $58.5 million in base rental payments plus parking, operating expenses, taxes and utilities that we would have paid over the remaining lease term.
We do not expect that the termination of the sublease will impact our current business needs.
Ex Parte Re-examination Certificates Received
As of November 16, 2022, three of our in-licensed patents were subject to re-examination by the United States Patent and Trademark Office (“USPTO”), under Re-examination Request Nos. US 90/019,127, US 90/019,128, and US 90/019,129. We have now received Ex Parte Reexamination Certificates for each of these requests, as of June 5, 2024, June 28, 2024, and June 21, 2024, respectively. In each case, the challenged patents survived this challenge to their validity. The challenged claims were minimally amended, and none were invalidated. The claims have now been twice examined by the USPTO and twice allowed.
Non-Compliance with Nasdaq’s Minimum Stockholders’ Equity Rule
As previously reported, on March 19, 2024, we received a notice from The Nasdaq Stock Market LLC stating that we are not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Rule”) because we reported stockholders’ equity of less than $2.5 million as of December 31, 2023. Our stockholders’ equity was $2.2 million as of December 31, 2023. The notice had no immediate effect on our Nasdaq listing. In May 2024, we submitted a plan to Nasdaq advising of actions we have taken or will take to regain compliance with the Minimum Stockholders’ Equity Rule. Nasdaq accepted our plan and granted us a 180-day extension, or through September 16, 2024, to regain compliance with the Minimum Stockholders’ Equity Rule. See the risk factor titled “Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock,” in Item 1A. Risk Factors of Part II of this report.
Basis of Presentation
Revenue
Our near-term focus is on deploying our mRNA technology platform through strategic partnerships. We are not currently developing any product candidates. Our future revenue, if any, is primarily expected to come from out-licensing our mRNA technology platform and/or aspects thereof.
In February 2023, we entered into an exclusive option and license agreement with a third party, under which we granted such third party 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. In August 2023, that third party requested that we begin developing certain induced pluripotent stem cell lines in exchange for a cell line customization fee. The third party paid us $0.4 million towards the customization fee, which we are recognizing ratably over the customization period, which is expected to be approximately 20 to 25 months. We will only earn the remaining amount of the customization fee if we make certain progress towards delivery of the customized cell line. We estimate the amount of consideration we expect to recognize as revenue that is not probable of having a significant reversal of such recognized revenue, and we place a constraint on the remaining contractual consideration. As it becomes evident that the constrained amounts are no longer at risk of a significant reversal of revenue, we will remove the constraint from the related revenue and recognize a cumulative catch-up adjustment to revenue in the period in which the constraint was removed. For additional information, see Note 3 to the accompanying condensed consolidated financial statements.
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Cost of Revenues
We recognize direct labor and supplies associated with generating our revenue as cost of revenues. As provided for in the amended and restated exclusive license agreement we entered into with Factor Limited (the “A&R Factor License Agreement”) discussed in Note 9 to the accompanying condensed consolidated financial statements, we are obligated to pay Factor Limited 20% of any amounts we receive from a customer that is related to the licensed technology under the A&R Factor License Agreement, which we also recognize as a cost of revenue.
Research and Development Expenses
We expense our research and development costs as incurred. Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. Upfront payments and milestone payments we make for the in-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, and allocations of various overhead costs related to our research and 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 successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial 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 and Six Months Ended June 30, 2024 and 2023
Three months ended June 30, | Six months ended June 30, | |||||||||||||||||||||||
| 2024 | 2023 | Change | 2024 | 2023 | Change | |||||||||||||||||||
| Revenue | $ | 47 | $ | - | $ | 47 | $ | 94 | $ | - | $ | 94 | ||||||||||||
| Cost of revenues | 95 | - | 95 | 156 | 50 | 106 | ||||||||||||||||||
| Gross loss | (48 | ) | - | (48 | ) | (62 | ) | (50 | ) | (12 | ) | |||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Research and development | 987 | 1,499 | (512 | ) | 2,445 | 3,173 | (728 | ) | ||||||||||||||||
| General and administrative | 3,896 | 2,590 | 1,306 | 8,211 | 6,182 | 2,029 | ||||||||||||||||||
| Acquisition of Exacis in-process research and development | - | 460 | (460 | ) | - | 460 | (460 | ) | ||||||||||||||||
| Total operating expenses | 4,883 | 4,549 | 334 | 10,656 | 9,815 | 841 | ||||||||||||||||||
| Loss from operations | (4,931 | ) | (4,549 | ) | (382 | ) | (10,718 | ) | (9,865 | ) | (853 | ) | ||||||||||||
| Other (expense) income, net: | ||||||||||||||||||||||||
| Change in fair value of warrant liabilities | 136 | 191 | (55 | ) | 66 | 146 | (80 | ) | ||||||||||||||||
| Change in fair value of contingent consideration | 66 | 118 | (52 | ) | 66 | 118 | (52 | ) | ||||||||||||||||
| Loss on non-controlling investment | - | (8 | ) | 8 | - | (59 | ) | 59 | ||||||||||||||||
| Interest (expense) income, net | (797 | ) | 24 | (821 | ) | (1,583 | ) | 25 | (1,608 | ) | ||||||||||||||
| Other expense, net | - | (280 | ) | 280 | - | (280 | ) | 280 | ||||||||||||||||
| Total other (expense) income, net | (595 | ) | 45 | (640 | ) | (1,451 | ) | (50 | ) | (1,401 | ) | |||||||||||||
| Loss before income taxes | (5,526 | ) | (4,504 | ) | (1,022 | ) | (12,169 | ) | (9,915 | ) | (2,254 | ) | ||||||||||||
| Provision for income taxes | (3 | ) | (4 | ) | 1 | (7 | ) | (9 | ) | 2 | ||||||||||||||
| Net loss | $ | (5,529 | ) | $ | (4,508 | ) | $ | (1,021 | ) | $ | (12,176 | ) | $ | (9,924 | ) | $ | (2,252 | ) | ||||||
Revenue
During the three and six months ended June 30, 2024, we recognized revenue related to the cell line customization activities that we are performing for a third party. We did not perform any such activities, or otherwise recognize any revenue, during the three or six months ended June 30, 2023.
Cost of Revenue
During the three and six months ended June 30, 2024, our cost of revenues included direct labor and materials to perform the customization cell line activities for a third party. During the six months ended June 30, 2023, we received a $0.3 upfront payment pursuant to a customer contract with this third party. Although the $0.3 million was recorded as deferred revenue as of June 30, 2023, the obligation to pay Factor Limited the 20% license fee was incurred upon receipt of the payment from the third party, and was therefore recognized as a cost of revenue during the six months ended June 30, 2023. There were no such costs recognized during the three months ended June 30, 2023. As of June 30, 2024, the $0.3 upfront payment continues to be recognized in long-term deferred revenue in the accompanying condensed consolidated balance sheet.
Research and Development Expenses
| Three months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Payroll-related | $ | 61 | $ | 167 | $ | (106 | ) | |||||
| Stock-based compensation | 15 | 56 | (41 | ) | ||||||||
| MSA fees | 813 | 813 | - | |||||||||
| Other expenses, net | 98 | 463 | (365 | ) | ||||||||
| Total research and development expenses | $ | 987 | $ | 1,499 | $ | (512 | ) | |||||
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| Six months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Professional fees | $ | 88 | $ | 449 | $ | (361 | ) | |||||
| Stock-based compensation | 61 | 120 | (59 | ) | ||||||||
| MSA expense | 1,625 | 1,625 | - | |||||||||
| Payroll-related | 386 | 369 | 17 | |||||||||
| Other expenses, net | 285 | 610 | (325 | ) | ||||||||
| Total research and development expenses | $ | 2,445 | $ | 3,173 | $ | (728 | ) | |||||
Total research and development expenses decreased by approximately $0.5 million for the three months ended June 30, 2024 when compared to the three months ended June 30, 2023 primarily due to a decrease in payroll-related expenses from a reduction in headcount as well as a reduction in other expenses related to closing down a clinical trial we ended in 2022.
Total research and development expenses decreased $0.7 million for the six months ended June 30, 2024 when compared to the six months ended June 30, 2023 primarily related to a decrease in expenses related to closing down the clinical trial from 2022 as well as a reduction in ongoing research expenses.
General and Administrative Expenses
| Three months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Occupancy expense | $ | 1,899 | $ | 19 | $ | 1,880 | ||||||
| Stock-based compensation | 408 | 158 | 250 | |||||||||
| Insurance | 96 | 194 | (98 | ) | ||||||||
| Payroll-related | 335 | 700 | (365 | ) | ||||||||
| Professional fees | 999 | 1,392 | (393 | ) | ||||||||
| Other expenses, net | 159 | 127 | 32 | |||||||||
| Total general and administrative expenses | $ | 3,896 | $ | 2,590 | $ | 1,306 | ||||||
| Six months ended June 30, | ||||||||||||
| 2024 | 2023 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Occupancy expense | $ | 3,800 | $ | 43 | $ | 3,757 | ||||||
| Stock-based compensation | 644 | 783 | (139 | ) | ||||||||
| Payroll-related | 867 | 1,057 | (190 | ) | ||||||||
| Insurance | 312 | 726 | (414 | ) | ||||||||
| Professional fees | 2,283 | 3,328 | (1,045 | ) | ||||||||
| Other expenses, net | 305 | 245 | 60 | |||||||||
| Total general and administrative expenses | $ | 8,211 | $ | 6,182 | $ | 2,029 | ||||||
Our general and administrative expenses increased by approximately $1.3 and $2.0 million for the three and six months ended June 30, 2024, respectively, when compared to the three and six months ended June 30, 2023 primarily due to increased occupancy expense related to the Somerville sublease that we began to incur in July 2023. The increase in occupancy expense was partially offset by decreases in professional fees related to legal services and consultants, insurance expense due to lower premiums and payroll-related expenses resulting from a decrease severance expense during the three and six months ended June 20, 2024 compared to the three and six months ended June 30, 2023.
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Acquisition of Exacis In-Process Research and Development
In April 2023, we acquired from Exacis Biotherapeutics Inc. (“Exacis”) substantially all of its intellectual property assets, including all of its right, title and interest in and to an exclusive license agreement by and between Exacis and Factor Limited (the “Purchased License”). The Purchased License was determined to be an in-process research and development (“IPR&D”) asset that has no alternative future use and no separate economic value from its original intended purpose, which is expensed in the period the cost is incurred. As a result, we expensed the fair value of the Purchased License of approximately $0.5 million during the three and six month ended June 30, 2023. For additional information, see Note 3 to the accompanying consolidated financial statements included in this report. There was no similar transaction during the three or six months ended June 30, 2024.
Change in Fair Value of Warrant Liabilities
We recognized credits of approximately $0.1 million in each of the three and six months ended June 30, 2024 for the change in the fair value of warrant liabilities due to a decrease in the market price of our common stock as of June 30, 2024. For the three and six months ended June 30, 2023, we recognized credits of $0.2 million and $0.1 million, respectively, for the change in the fair value of warrant liabilities due to a decrease in the market price of our common stock as of June 30, 2023.
Change in Fair Value of Contingent Consideration
On the closing date of the acquisition of assets from Exacis in April 2023, we recognized a contingent consideration liability of $0.2 million for future payments that may be payable to Exacis, which was included as part of the $0.5 million fair value of the Purchased License asset and expensed as IPR&D for the three and six months ended June 30, 2023. This contingent consideration liability is remeasured at each period end, and any change in the fair value of the contingent liability is recognized in the statement of operations. As of June 30, 2023, we remeasured the contingent liability and recognized a credit of $0.1 million for both the three and six months ended June 30, 2023 due to the decrease in the fair value of the contingent consideration liability. As of June 30, 2024, we remeasured the contingent liability and recognized a credit of $0.1 million for both the three and six months ended June 30, 2024 due to the decrease in the fair value of the contingent consideration liability.
Loss on Non-Controlling Investment
We account for our 25% non-controlling investment in NoveCite, Inc. (“NoveCite”) under the equity method. We have not guaranteed any obligations of NoveCite, nor are we otherwise committed to providing further financial support for NoveCite. Therefore, we only record 25% of NoveCite’s losses up to our investment carrying amount.. As a result, we did not recognize additional losses related to NoveCite for the three or six months ended June 30, 2024. We recognized a de minimus loss related to NoveCite for the three months ended June 30, 2023 and a loss of approximately $0.1 million for the six months ended June 30, 2023.
Interest (Expense) Income, net
We recognized an increase in interest expense for the three and six months ended June 30, 2024 of approximately $0.8 million and $1.6 million, respectively, primarily due to approximately $0.4 million and $0.8 million of interest for the three and six months ended June 30, 2024, respectively, related to the convertible notes as well as the amortization of the debt discount and debt issuance costs associated with the convertible note financings of approximately $0.5 million and $0.9 million for the three and six months ended June 30, 2024, respectively. This increase in interest expense was partially offset by an increase in interest income of $0.1 million in each of the three and six months ended June 30, 2024 from our cash deposited into interest-bearing accounts. There were no convertible notes (or similar debt instruments) outstanding during the three or six months ended June 30, 2023.
Other Expense, net
During the three and six months ended June 30, 2023, we recognized $0.3 million of other expense, all of which related to the value of the commitment shares issued to Lincoln Park Capital Fund, LLC (“Lincoln Park”) under a standby equity purchase agreement (“SEPA”) we entered into in April 2023 as well as other associated fees. We did not recognize any such expense during the three or six months ended June 30, 2024.
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Provision for Income Taxes
During 2024, 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.
Liquidity and Capital Resources
At June 30, 2024, we had cash and cash equivalents of approximately $6.7 million, of which approximately $4.1 million was restricted cash and an accumulated deficit of approximately $199.2 million. We have to date incurred operating losses, and we expect these losses to continue in the future. For the three and six months ended June 30, 2024, we incurred a net loss of $5.5 million and $12.2 million, respectively. For the six months ended June 30, 2024, we used $6.0 million in operating activities.
Currently, our sole source of liquidity is through sales of our common stock under the SEPA, pursuant to which Lincoln Park committed to purchase up to $10.0 million of our common stock. Such sales of common stock by us, if any, are subject to certain conditions and limitations set forth in the SEPA, including a condition that we may not direct Lincoln Park to purchase any shares of common stock under the SEPA if such purchase would result in Lincoln Park beneficially owning more than 4.99% of our issued and outstanding shares of common stock. Sales under the SEPA may occur from time to time, at our sole discretion, through April 2025. To date, we have issued and sold approximately 214,000 shares of our common stock to Lincoln Park, including the approximately 74,000 commitment shares, and have received approximately $0.3 million in gross proceeds from such sales. We sold no shares under the SEPA during the six months ended June 30, 2024.
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 2023 10-K titled, “We will require substantial additional capital to fund our operations, and if we fail to obtain the necessary financing, we may not be able to pursue our business strategy.”
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 of 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 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 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.
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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.
In addition, while we are not presently pursuing product development, we may do so in the future. Developing product candidates, conducting clinical trials and commercializing products requires substantial capital, and we would need to raise substantial additional funds if we were to pursue the development of one or more product candidates.
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 six months ended June 30, | ||||||||||||
| (in thousands) | 2024 | 2023 | Change | |||||||||
| Cash (used in) provided by: | ||||||||||||
| Operating activities | $ | (6,006 | ) | $ | (9,921 | ) | $ | 3,915 | ||||
| Investing activities | (346 | ) | - | (346 | ) | |||||||
| Financing activities | 1,363 | 312 | 1,051 | |||||||||
| Net decrease in cash and cash equivalents | $ | (4,989 | ) | $ | (9,609 | ) | $ | 4,620 | ||||
Net Cash Used in Operating Activities
There was a decrease of approximately $3.9 million in cash used in operating activities for the six months ended June 30, 2024 compared to the same period in 2023. This change was due to a decrease in cash used in operating assets and liabilities of $4.2 million, primarily related to increased accounts payable, accrued expenses and operating lease liabilities, partially offset by a $0.3 million increase in net loss, after giving effect to adjustments made for non-cash transactions, for the six months ended June 30, 2024 compared to the same period in 2023.
Net Cash Used in Investing Activities
We used approximately $0.3 million to pay for the purchases of property and equipment during the six months ended June 30, 2024. There were no investing activities during the six months ended June 30, 2023.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2024 includes approximately $1.4 million of proceeds received from the second closing of the December 2023 convertible notes financing that occurred in January 2024 . Net cash provided by financing activities for the six months ended June 30, 2023 includes approximately $0.3 million of proceeds received from selling approximately 214,000 shares to Lincoln Park under the SEPA. The Company did not sell any shares under the SEPA during the six months ended June 30, 2024.
Material Cash Requirements
Convertible Notes
As of the filing date of this report, the aggregate amount outstanding under our convertible notes, including accrued interest that has been paid in-kind, is $19.0 million, of which $9.2 million and $9.8 million relates to the July 2023 convertible notes and the December 2023 convertible notes, respectively. Unless earlier called for redemption by the holders thereof, the convertible notes mature on the five-year anniversary of their date of issuance. We may not redeem any of the convertible notes prior to maturity. See Note 4 to the accompanying condensed consolidated financial statements for additional information.
Critical Accounting Estimates
There were no significant changes in our critical accounting estimates during the three months ended June 33, 2024 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2023 10-K.
Recent Accounting Pronouncements
No new Accounting Standards Updates have been issued by the Financial Accounting Standards Board since January 1, 2024 that would apply to us that are not disclosed in the 2023 10-K.
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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.
Item 4. Controls and Procedures.
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 not 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 due primarily to the material weakness discussed below.
Management’s Plan for Remediation of Material Weakness in Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
We were unable to timely file our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022 with the SEC due to identifying errors in our financial statements reported in our Annual Report on Form 10-K for the years ended December 31, 2021 and 2020 during our preparation of the financial statements for the quarter ended March 31, 2022. Management concluded that the errors were the result of accounting personnel’s lack of technical proficiency in complex matters. On June 30, 2022, we filed an amendment to our Annual Report on Form 10-K for the years ended December 31, 2021 and 2020 to correct the errors in our financial statements for the years ended December 31, 2021 and 2020 and for the quarters ended June 30, 2020, September 30, 2020, March 31, 2021, June 30, 2021 and September 30, 2021.
Management has implemented measures designed to ensure that the deficiencies contributing to the ineffectiveness of our internal control over financial reporting are remediated, such that the internal controls are designed, implemented and operating effectively. The remediation actions to date include:
| ● | enhancing the business process controls related to reviews over technical, complex, and non-recurring transactions; | |
| ● | providing additional training to accounting personnel; and | |
| ● | using an external accounting advisor to review management’s conclusions on technical, complex and non-recurring matters. |
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The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. As of June 30, 2024, we continue to season and enhance such controls to ensure that they will continue to operate effectively for a sufficient period of time before management can make conclusions on the operating effectiveness.
We are committed to developing a strong internal control environment, and we believe the remediation efforts that we have implemented and will implement will result in significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary.
Changes in Internal Control over Financial Reporting
Except for the actions intended to remediate the material weakness as described above, 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 10—Commitments and Contingencies—Legal 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, we do not believe there is any litigation pending that could have, individually or in the aggregate, a material adverse effect on our results of operations, financial condition or cash flows.
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 2023 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 2023 10-K, except as follows:
Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock.
As previously reported, on March 19, 2024, we received a notice (the “Notice”) from the Listing Qualifications Staff (“Staff”) of The Nasdaq Stock Market LLC (“Nasdaq”) stating that we are not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Rule”) because we reported stockholders’ equity of less than $2.5 million as of December 31, 2023. Our stockholders’ equity was $2.2 million as of December 31, 2023. The Notice had no immediate effect on our Nasdaq listing.
In May 2024, we submitted a plan to the Staff advising of actions we have taken or will take to regain compliance with the Minimum Stockholders’ Equity Rule. The Staff accepted the plan and granted us a 180-day extension, or through September 16, 2024, to regain compliance with the Minimum Stockholders’ Equity Rule. If we are unable to demonstrate compliance on or before September 16, 2024, Nasdaq would be required to issue a delisting determination. In such event, we may be entitled to request a hearing before a Nasdaq Hearings Panel to appeal such determination.
We can provide no assurance that we will be able to regain compliance with the Minimum Stockholders’ Equity Rule on or before September 16, 2024, or that we will be able to continue to satisfy any other continued listing requirements of Nasdaq.
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If our common stock is 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.
Item 5. Other Information.
(a) In October 2022, we entered into a sublease with a subsidiary of Bristol-Myers Squibb Company, as sublessor, for office, laboratory and research and development space of approximately 45,500 square feet in Somerville, Massachusetts.
As previously reported, on May 3, 2024, we received a notice from the sublessor regarding past due rent of approximately $2.3 million that we did not pay for the months of February, March, April and May 2024. Failure to pay the past due rent payments in full, plus approximately $70,000 in late fees and interest, within five business days from the date of the notice constituted an event of default under the sublease We also did not pay the rent for June, July or August 2024 and, as of August 1, 2024, we owed approximately $4.0 million in the aggregate in past due rent.
In connection with entering into the sublease, we delivered a security deposit in the form of a letter of credit in the amount of $4.1 million. The letter of credit was collateralized with $4.1 million of cash deposited in a restricted account.
On August 5, 2024, the sublessor drew down on the letter of credit for the full $4.1 million to cover the approximately $4.0 million of past due rent payments, plus interest and penalties.
On August 9, 2024, we and the sublessor entered into a sublease termination agreement pursuant to which the parties agreed to terminate the sublease effective August 31, 2024. Pursuant to the sublease termination agreement, we agreed to surrender and vacate the premises, all of our right, title and interest in all furniture, fixtures and laboratory equipment at the premises will become the property of the sublessor, and both parties will be released of their obligations under the sublease.
The initial term of the sublease was for 10 years that would have expired in November 2033. The sublease called for base rental payments of approximately $0.5 million per month as well as monthly payments for parking and our share of traditional lease expenses, including certain taxes, operating expenses and utilities. As a result of the sublease termination, we expect to save approximately $58.5 million in base rental payments plus parking, operating expenses, taxes and utilities that we would have paid over the remaining lease term.
We do not expect that the termination of the sublease will impact our current business needs.
(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)
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Item 6. Exhibits
| Exhibit | Description | Incorporated By Reference | ||
| 10.1* | Form of Restricted Stock Award Agreement for the Restated 2020 Stock Incentive Plan | Filed herewith | ||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
| 31.2 | Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
| 32.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | ||
| 32.2 | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | ||
| 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). | Filed herewith | ||
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | Filed herewith | ||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | Filed herewith | ||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | Filed herewith | ||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | Filed herewith | ||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | Filed herewith | ||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| * | Indicates 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 hereunto duly authorized.
| ETERNA THERAPEUTICS INC. | ||
| Date: August 13, 2024 | By: | /s/ Sanjeev Luther |
| Sanjeev Luther | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: August 13, 2024 | By: | /s/ Sandra Gurrola |
| Sandra Gurrola | ||
| Senior Vice President of Finance | ||
| (Principal Financial Officer and Principal Accounting Officer) |
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Exhibit 10.1
ETERNA THERAPEUTICS INC.
RESTATED 2020 STOCK INCENTIVE PLAN
AWARD AGREEMENT
Notice of Restricted Stock Grant
Eterna Therapeutics Inc. (the “Company”) has awarded to you (“Participant”) the number of shares of Restricted Stock set forth below under the Company’s Restated 2020 Stock Incentive Plan (the “Plan”).
| Participant Name: | [ ] | |
| Grant ID: | [ ] | |
| Grant Date: | [ ] | |
| Number of Shares of Restricted Stock: | [ ] | |
| Amount Paid by Participant for the Shares of Restricted Stock: | [ ] | |
| Aggregate Fair Market Value of Restricted Stock on Date of Restricted Stock Grant: | [ ] | |
| Country at Grant: | [ ] | |
| Vesting Commencement Date: | [ ] | |
| Vesting Schedule: | [ ] |
Capitalized terms used but not defined in this Notice of Restricted Stock Grant (this “Notice”) or the attached Restricted Stock Terms and Conditions (including any appendices and exhibits attached thereto) will have the same meanings specified in the Plan. This Notice and the Restricted Stock Terms and Conditions are collectively referred to as the “Award Agreement” applicable to the Restricted Stock.
By accepting (whether electronically or otherwise) this grant of Restricted Stock, Participant acknowledges and agrees to the following:
| 1. | This grant of Restricted Stock is governed by all the terms and conditions of the Award Agreement and the Plan applicable to the grant of Restricted Stock, whether or not such terms and conditions are stated in the Award Agreement. The text of the Plan is incorporated herein by this reference. In the event of a conflict between the terms of the Plan and the Award Agreement, the terms of the Plan will prevail. |
The Award Agreement, any exhibits attached thereto, and the Plan constitute the entire understanding between the Participant and the Company regarding this grant of Restricted Stock. Any prior agreements, commitments or negotiations are superseded.
The Participant and the Company agree to execute such further instruments and to take such further action as may reasonably be necessary to carry out the intent of the Award Agreement.
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| 2. | Participant has received a copy of the Plan, this Award Agreement, the Plan prospectus (if required under applicable law), and the Company’s insider trading policy, the Company’s clawback policy, and represents that he or she has read these documents and is familiar with their terms. Participant further agrees to accept as binding, conclusive, and final all decisions and interpretations of the Committee regarding any questions relating to this grant of Restricted Stock and the Plan. | |
| 3. | Vesting of the Restricted Stock is subject to Participant’s continued [employment] [service] as [an] [a] [employee] [director] [consultant], which is for an unspecified duration and may be terminated at any time, with or without Cause, and nothing in this Award Agreement or the Plan changes the nature of that relationship. | |
| 4. | The Company is not providing any tax, legal, or financial advice, nor is the Company making any recommendations regarding participation in the Plan. Participant should consult with his or her own personal tax, legal, and financial advisors regarding participation in the Plan before taking any action related to the Plan. | |
| 5. | Participant consents to electronic delivery and participation as set forth in this Award Agreement. | |
| 6. | If Participant does not accept or decline this grant of Restricted Stock within 60 days of the Grant Date or by such other date that may be communicated to Participant by the Company, the Company will accept the grant of Restricted Stock on Participant’s behalf and Participant will be deemed to have accepted the terms and conditions of the Restricted Stock set forth in the Plan and this Award Agreement. If Participant wishes to decline this grant of Restricted Stock, Participant should promptly notify [__] at [__]@eternatx.com. If Participant declines this grant of Restricted Stock, the Restricted Stock will be cancelled and no benefits from the Restricted Stock nor any compensation or benefits in lieu of the Restricted Stock will be provided to Participant. |
| Eterna Therapeutics Inc. | Participant | |||
| By: | Signature: | |||
| Title: | Date: | |||
| 2 |
ETERNA THERAPEUTICS INC.
RESTATED 2020 STOCK Incentive Plan
award agreement
Restricted Stock Terms and Conditions
1. Grant of Restricted Stock. The Company awards the Participant the number of shares of Restricted Stock shown on the accompanying Notice of Restricted Stock Grant (the “Notice”). This Restricted Stock Grant is not intended to constitute a nonqualified deferred compensation plan within the meaning of section 409A of the Code and will be interpreted accordingly. Notwithstanding the foregoing, no member of the Company Group shall be liable for any costs incurred by Participant under Section 409A of the Code and/or similar state laws.
2. Vesting. This Award will vest according to the Vesting Schedule set forth on the Notice. The period over which the Award vests is referred to as the “Restricted Period”.
3. [Change in Control; Acceleration]. [In the event of a Change in Control, and provided that the Participant is employed by (or rendering services to) the Company continuously from the Grant Date through the effective date of the Change of Control, 100% of the then unvested portion of this Award shall vest as of immediately prior to the effective date of such Change in Control.]
4. Dividend and Voting Rights. Unless otherwise provided in an Award Agreement, until the expiration of the Restricted Period:
4.1 (i) the Restricted Stock shall be treated as outstanding, (ii) the Participant holding shares of Restricted Stock may exercise full voting rights with respect to such shares, and (iii) subject to Section 4.2, the Participant holding shares of Restricted Stock shall be entitled to receive all dividends and other distributions paid with respect to such shares while they are so held; and
4.2 all dividends and distributions in respect of the Restricted Stock shall be held in escrow by the Company and subject to the same vesting terms and conditions as the shares of Restricted Stock and such dividends shall only be paid to the Participant upon vesting of the underlying shares of Restricted Stock; if any such dividends or distributions are paid in shares of Common Stock, such shares shall be subject to the same restrictions on transferability and forfeitability as the shares of Restricted Stock with respect to which they were paid; and
4.3 if the Participant forfeits any rights the Participant has under this Award in accordance with Section 6, the Participant shall, on the date of such forfeiture, no longer have any rights as a stockholder with respect to the shares of Restricted Stock evidenced by this Award and shall no longer be entitled to vote or receive dividends on such shares.
5. Certificates; Book Entry; Escrow. The Company may issue stock certificates or evidence the Participant’s interest in this Award by using a restricted book entry account with the Company’s transfer agent, with legends, or notations, as applicable, referring to the terms, conditions and restrictions applicable to this Award. Physical possession or custody of any stock certificates that are issued evidencing the shares of Restricted Stock subject of this Award shall be retained by the Company until such time as the Restricted Stock vests. Any such certificate(s) shall be deposited in escrow with the Secretary of the Company (or his/her designee) to be held in accordance with the provisions of this Section. Each deposited certificate shall be accompanied by a duly executed Assignment Separate from Certificate in the form attached hereto as Exhibit A. The deposited certificates shall remain in escrow until such time as the certificates are to be released or otherwise surrendered for cancellation as discussed below.
The Restricted Stock held in escrow hereunder shall be subject to the following terms and conditions relating to their release from escrow or their surrender to the Company, provided, however, that the minimum number of shares released to the Participant in any individual release of share certificates must be at least twenty-five (25) shares (unless the release represents the final release of share certificates from escrow to Participant):
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When the Participant’s interest in shares of Restricted Stock vests, the Company shall, as applicable, either remove the notations on any such shares of Restricted Stock issued in book entry form or deliver to Participant a stock certificate representing a number of shares of Common Stock, equal to the number of shares of Restricted Stock with respect to which have become vested.
6. Non-Transferability. Subject to any exceptions set forth in the Award Agreement or the Plan, during the Restricted Period, neither this Award nor the rights relating thereto may be sold, anticipated, assigned, attached, garnished, optioned, transferred, alienated, pledged, or otherwise transferred or encumbered by the Participant or made subject to any creditor’s process, whether voluntarily, involuntarily or by operation of law. Any attempt to do any of the foregoing, during the Restricted Period shall be wholly ineffective and, if any such attempt is made, this Award will be automatically forfeited by the Participant and all of the Participant’s rights to and under this Award shall immediately terminate without any payment or consideration by the Company. The terms of the Plan and this Award Agreement will be binding upon the executors, administrators, heirs, successors, and assigns of Participant.
7. Code Section 83(b) Election. The Participant represents and warrants that the Participant understands the Federal, state and local income tax consequences of the granting of this Award. The Grantee may make an election under Code Section 83(b) (a “Section 83(b) Election”) with respect to the unvested shares of Restricted Stock subject to this Award. Any such election must be made within thirty (30) days after the Grant Date. If the Participant elects to make a Section 83(b) Election, the Participant shall provide the Company with a copy of an executed version and satisfactory evidence of the filing of the executed Section 83(b) Election with the US Internal Revenue Service within ten days such filing. The Participant agrees to assume full responsibility for ensuring that the Section 83(b) Election is actually and timely filed with the US Internal Revenue Service and for all tax consequences resulting from the Section 83(b) Election. THE PARTICIPANT ACKNOWLEDGES THAT IT IS THE PARTICIPANT’S SOLE DECISION AND RESPONSIBILITY, AND NOT THE COMPANY’S, TO FILE A TIMELY ELECTION UNDER CODE SECTION 83(b), EVEN IF THE PARTICIPANT REQUESTS THE COMPANY OR ITS REPRESENTATIVES TO MAKE (OR ASSIST IN MAKING) THIS FILING ON THE PARTICIPANT’S BEHALF. MOREOVER, THE PARTICIPANT IS RELYING SOLELY ON THE PARTICIPANT’S OWN ADVISORS WITH RESPECT TO THE DECISION AS TO WHETHER OR NOT TO FILE A SECTION 83(b) ELECTION.
8. [Leaves of Absence. For purposes of this Award Agreement, while the Participant is a common-law employee, the Participant’s service does not terminate when the Participant goes on a bona fide leave of absence that was approved by the Committee in writing, if the terms of the leave provide for continued Service crediting, or when continued service crediting is required by applicable law. The Participant’s service terminates in any event when the approved leave ends, unless the Participant immediately returns to active work. The Committee shall determine which leaves count for this purpose (along with determining the effect of a leave of absence on vesting of the Restricted Stock), and when the Participant’s service terminates for all purposes under the Plan.] [Intentionally Omitted.]1
1 First alternative to be used if the Participant is an employee.
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9. Restrictions on Issuance. The Company will not issue any Restricted Stock or shares of Common Stock if the issuance thereof at that time would violate any law or regulation.
10. Taxes and Withholding.
10.1 Responsibility for Taxes. By accepting this Award, the Participant acknowledges that, regardless of any action taken by the Company or, if different, any member of the Company Group that employs Participant (the “Employer”), the ultimate liability for all Taxes is and remains the Participant’s responsibility and may exceed the amount actually withheld by the Company or the Employer. The Participant further acknowledges that the Company and/or the Employer (i) make no representations or undertakings regarding the treatment of any Taxes in connection with any aspect of this Award, including, but not limited to, the grant, vesting, or settlement of this Award, the subsequent sale of shares underlying this Award, and the receipt of any dividends; and (ii) do not commit to and are under no obligation to structure the terms of the grant or any aspect of this Award to reduce or eliminate the Participant’s liability for Taxes or achieve any particular tax result. Further, if the Participant is subject to Taxes in more than one jurisdiction, as applicable, the Participant acknowledges that the Company and/or the Employer may be required to withhold or account for Taxes in more than one jurisdiction. The Participant agrees to pay to the Company or the Employer any amount of Taxes that the Company or the Employer may be required to withhold or account for as a result of this Award that cannot be satisfied by the means described in this Section. The Company may refuse to issue or deliver the shares underlying this Award, or the proceeds of the sale of such shares, if the Participant fails to comply with its obligations in connection with the Taxes.
10.2 Withholding. Prior to the relevant taxable or Taxes withholding event, as applicable, the Participant agrees to make adequate arrangements satisfactory to the Company and/or the Employer to satisfy all Taxes. In this regard, the Participant authorizes the Company or the Employer, or their respective agents, at their discretion, to satisfy the obligations with regard to all Taxes by one or a combination of the following: (i) withholding from the Participant’s wages or other cash compensation paid to the Participant by the Company and/or the Employer or any member of the Company Group; (ii) withholding from proceeds of the sale of the shares underlying this Award either through a voluntary sale or through a mandatory sale arranged by the Company (on the Participant’s behalf pursuant to this authorization and without further consent); (iii) withholding shares underlying this Award, provided the Company only withholds a number of shares necessary to satisfy no more than the withholding amounts determined based on the maximum permitted statutory rate applicable in Participant’s jurisdiction; (iv) the Participant’s payment of a cash amount (including by check representing readily available funds or a wire transfer); or (v) any other arrangement approved by the Committee and permitted under applicable law.
Withholding for Taxes will be made in accordance with Section 13(c) of the Plan and such rules and procedures as may be established by the Committee, and in compliance with the Company’s insider trading policy, if applicable. In the event the Company or the Employer withholds more than the Taxes using one of the methods described above, the Participant may receive a refund of any over-withheld amount in cash but will have no entitlement to the shares sold or withheld.
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11. Restrictions on Resale. By signing this Award Agreement, the Participant agrees not to sell, transfer, dispose of, pledge, hypothecate, make any short sale of, or otherwise effect a similar transaction of any shares acquired under this Award Agreement (each a “Sale Prohibition”) at a time when applicable laws, regulations or Company or underwriter trading policies prohibit the disposition of shares.
The Company shall have the right to designate one or more periods of time, each of which generally will not exceed one hundred eighty (180) days in length (provided however, that such period may be extended in connection with the Company’s release (or announcement of release) of earnings results or other material news or events), and to impose a Sale Prohibition, if the Company determines (in its sole discretion) that such limitation(s) is needed in connection with a public offering of shares or to comply with an underwriter’s request or trading policy, or could in any way facilitate a lessening of any restriction on transfer pursuant to the Securities Act of 1933 (“Securities Act”) or any state securities laws with respect to any issuance of securities by the Company, facilitate the registration or qualification of any securities by the Company under the Securities Act or any state securities laws, or facilitate the perfection of any exemption from the registration or qualification requirements of the Securities Act or any applicable state securities laws for the issuance or transfer of any securities. The Company may issue stop/transfer instructions and/or appropriately legend any stock certificates issued pursuant to this Restricted Stock Grant in order to ensure compliance with the foregoing. Any such Sale Prohibition shall not alter the vesting schedule set forth in this Agreement.
If the sale of shares under the Plan is not registered under the Securities Act, but an exemption is available which requires an investment or other representation, the Participant shall represent and agree at the time of grant of the Restricted Stock that the shares being acquired under this Award Agreement are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.
The Participant may also be required, as a condition of this Award Agreement, to enter into any Company stockholder agreement or other agreements that are applicable to stockholders.
12. No Retention Rights. Neither this Award nor this Award Agreement gives the Participant the right to be retained by the Company Group in any capacity. The Company Group the right to terminate the Participant’s service at any time and for any reason.
13. Extraordinary Compensation. In accepting this Award, Participant acknowledges, understands and agrees that: (a) the Plan is established voluntarily by the Company, is discretionary in nature, and may be amended, suspended or terminated by the Company at any time, to the extent permitted by the Plan; (b) the grant of this Award is voluntary and occasional and does not create any contractual or other right to receive future grants, or benefits in lieu of grants, even if grants have been made in the past; (c) all decisions with respect to future grants of Awards, if any, will be at the sole discretion of the Company; (d) the Participant is voluntarily receiving this Award; (e) this Award and the shares underlying this Award are not intended to replace any pension rights or compensation and are outside the scope of the Participant’s employment contract, if any; (f) this Award and the shares underlying this Award, and the income and value of same, are not part of normal or expected compensation for any purpose, including, without limitation, calculating any severance, resignation, termination, redundancy, dismissal, end-of-service payments, bonuses, long-service awards, pension or retirement or welfare benefits or similar payments; (g) unless otherwise provided in the Plan or by the Company in its discretion, this Award and the benefits evidenced by this Award Agreement do not create any entitlement to have this Award or any such benefits transferred to, or assumed by, another company nor to be exchanged, cashed out or substituted for, in connection with any corporate transaction affecting the shares of the Company; and (h) neither the Company nor any member of the Company Group shall be liable for any foreign exchange rate fluctuation between Participant’s local currency and the United States Dollar or the selection by the Company or any member of the Company Group in its sole discretion of an applicable foreign exchange rate that may affect the value of this Award (or the calculation of income or Taxes thereunder) or of any amounts due to Participant pursuant to the terms of this Award or the subsequent sale of the shares underlying this Award.
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14. Adjustments. If the outstanding shares of Common Stock are increased or decreased or changed into or exchanged for a different number or kind of shares or other securities by reason of any recapitalization, reclassification, reorganization, stock split, reverse split, combination of shares, exchange of shares, stock dividend or other distribution payable in capital stock of the Company or other increase or decrease in such shares effected without receipt of consideration by the Company, an appropriate and proportionate adjustment shall be made to this Award by the Committee including to the number and kind of shares of Common Stock issuable pursuant to this Award.
15. Legends. All certificates or book entries representing the Common Stock issued under this Award may, where applicable, have endorsed thereon the following notations or legends and any other notation or legend the Company determines appropriate.
““SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN TERMS, CONDITIONS, AND RESTRICTIONS ON TRANSFER AS SET FORTH IN THE ETERNA THERAPEUTICS, INC. RESTATED 2020 STOCK INCENTIVE PLAN (THE “PLAN”), AND IN AN AGREEMENT ENTERED INTO BY AND BETWEEN THE REGISTERED OWNER OF SUCH SHARES AND ETERNA THERAPEUTICS, INC. (THE “COMPANY”), DATED __ (THE “AWARD AGREEMENT”). A COPY OF THE PLAN AND THE AWARD AGREEMENT MAY BE OBTAINED FROM THE SECRETARY OF THE COMPANY.”
“THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AND OPTIONS TO PURCHASE SUCH SHARES SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER, OR HIS OR HER PREDECESSOR IN INTEREST. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY AND WILL BE FURNISHED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY BY THE HOLDER OF RECORD OF THE SHARES REPRESENTED BY THIS CERTIFICATE.”
“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”
16. Notice. Any communication or notice relating to this Award Agreement shall be in writing, and mailed by registered or certified mail or delivered by hand, to the Company, to its principal place of business, attention: Chief Financial Officer, and if to the Participant, to the Participant’s address as appearing on the records of the Company. All notices shall be deemed effective upon personal delivery or upon deposit in the U.S. mail, postage prepaid and properly addressed to the party to be notified.
17. Voluntary Participant. Participant acknowledge that the Participant is voluntarily participating in the Plan.
18. No Rights to Future Awards. The Participant’s rights, if any, in respect of or in connection with any future Restricted Stock are derived solely from the discretionary decision of the Company to permit the Participant to participate in the Plan and to benefit from a discretionary future Restricted Stock. By accepting this Award, the Participant expressly acknowledges that there is no obligation on the part of the Company to continue the Plan and/or grant any additional Awards to the Participant or benefits in lieu of any other Award even if Awards have been granted repeatedly in the past. All decisions with respect to future Awards, if any, will be at the sole and absolute discretion of the Committee.
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19. Future Value. The future value of the shares underling this Award is unknown and cannot be predicted with certainty. If the underlying shares do not increase in value after the Grant Date, this Award will have less value (or even no value) than it may have on the Grant Date.
20. No Advice Regarding Restricted Stock Grant. The Company has not provided any tax, legal or financial advice, nor has the Company made any recommendations regarding the Participant’s participation in the Plan, or the Participant’s acquisition or sale of the shares underlying this Award. The Participant is hereby advised to consult with its own personal tax, legal and financial advisors regarding the Participant’s participation in the Plan before taking any action related to the Plan.
21. Clawback. By accepting this Award, the Participant acknowledges that the Participant is fully bound by, and subject to all of the terms and conditions of, the clawback policy adopted by the Company, as the same may be amended, modified or restated from time to time (the “Clawback Policy”), and the Participant agrees to abide by the terms of any the Clawback Policy. To the extent that the Committee determines that all or a portion of this Award or the shares of Common Stock issued in respect of this Award must be cancelled, forfeited, repaid, or otherwise recovered by the Company, the Participant shall promptly take whatever action is necessary to effectuate such cancellation, forfeiture, repayment, or recovery. No recovery of all or a portion of this Award or the shares of Common Stock issued in respect of this award under the Clawback Policy will be an event giving rise to a right to terminate for Good Reason (or any similar defined term) under any agreement with the Company. In the event of any conflicts between the terms of the Clawback Policy and the terms of the Plan or this Award Agreement, the terms of the Clawback Policy shall govern.
22. Other Information. The Participant agrees to receive stockholder information, including copies of any annual report, proxy statement and periodic report, from the SEC Filings section in the Investor Relations section of the Company’s website at www.eternatx.com. The Participant acknowledges that copies of the Plan, Plan prospectus, Plan information and stockholder information are also available upon written or telephonic request to the Company’s Plan administrator.
23. Data Privacy. Participant hereby explicitly and unambiguously consents to the collection, use and transfer, in electronic or other form, of Participant’s personal data as described in this Award Agreement and any other grant materials by and among the Company and the members of the Company Group for the purpose of implementing, administering and managing Participant’s participation in the Plan. Participant understands that the Company and the members of the Company Group may hold certain personal information about Participant, including, but not limited to, Participant’s name, home address and telephone number, date of birth, social insurance number or other identification number, salary, nationality, job title, any shares or directorships held in the Company, details of all grants, or any other entitlement to shares awarded, cancelled, received, vested, unvested or outstanding in Participant’s favor (“Data”), for the purpose of implementing, administering and managing the Plan. Participant understands that Data will be transferred to such stock plan service provider as may be selected by the Company, presently or in the future, which may be assisting the Company with the implementation, administration and management of the Plan. Participant understands that the recipients of the Data may be located in the United States or elsewhere, and that the recipient’s country (e.g., the United States) may have different data privacy laws and protections than Participant’s country. Participant authorizes the Company, the stock plan service provider as may be selected by the Company, and any other possible recipients which may assist the Company, presently or in the future, with implementing, administering and managing the Plan to receive, possess, use, retain and transfer the Data, in electronic or other form, for the purposes of implementing, administering and managing the Plan. Further, Participant understands that he or she is providing the consents herein on a purely voluntary basis. If Participant does not consent, or if Participant later seeks to revoke his or her consent, or instructs the Company to cease the processing of the Data, his or her employment or service will not be adversely affected; the only adverse consequence of refusing or withdrawing Participant’s consent or instructing the Company to cease processing, is that the Company would not be able to grant Participant this Award or any other equity awards or administer or maintain such awards. Therefore, Participant understands that refusing or withdrawing his or her consent may affect Participant’s ability to participate in the Plan. For more information on the consequences of Participant’s refusal to consent or withdrawal of consent, Participant understands that he or she may contact his or her local human resources representative.
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24. Applicable Law. This Award Agreement shall be governed by and construed and interpreted in accordance with the laws of the State of Delaware, without giving effect to principles of conflicts of law. For purposes of litigating any dispute that arises directly or indirectly from the relationship of the parties evidenced by this grant or this Award Agreement, the parties hereby submit to the exclusive jurisdiction of the State of Delaware and agree that such litigation shall be conducted only in the courts of the State of Delaware, or the federal courts for the United States for the District of Delaware, and no other courts, where this grant is made and/or to be performed.
25. Addendum and Sub-Plans. Notwithstanding any provisions in this Award Agreement, this Award shall be subject to any special terms and conditions set forth in any Addendum to this Award Agreement for Participant’s country. Moreover, if Participant relocates to one of the countries included in the Addendum (if any), the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons. The Addendum (if any) constitutes part of this Award Agreement. Further, the Plan shall be deemed to include any special terms and conditions set forth in any applicable sub-plan for Participant’s country, and, if Participant relocates to a country for which the Company has established a sub-plan, the special terms and conditions for such country will apply to Participant, to the extent the Company determines that the application of such terms and conditions is necessary or advisable for legal or administrative reasons.
26. Enforcement of Rights; Amendment. Except as contemplated by the Plan, no modification of or amendment to this Award Agreement, nor any waiver of any rights under this Award Agreement, shall be effective unless in writing signed by the parties to this Award Agreement to the extent it would alter or impair rights or obligations under this Award Agreement. The failure by either party to enforce any rights under this Award Agreement shall not be construed as a waiver of any rights of such party. Notwithstanding anything to the contrary in the Plan or this Award Agreement, the Company reserves the right to revise this Award Agreement as it deems necessary or advisable, in its sole discretion and without the consent of Participant, to comply with Section 409A of the Code or to otherwise avoid imposition of any additional tax or income recognition or costs under Section 409A of the Code in connection with this Award.
27. Severability. If one or more provisions of this Award Agreement are held to be unenforceable under applicable laws, the parties agree to renegotiate such provision in good faith. In the event that the parties cannot reach a mutually agreeable and enforceable replacement for such provision, then (a) such provision shall be excluded from this Award Agreement, (b) the balance of this Award Agreement shall be interpreted as if such provision were so excluded, and (c) the balance of this Award Agreement shall be enforceable in accordance with its terms.
28. Language. If Participant has received this Award Agreement, the Plan or any other document related to this Award and/or the Plan translated into a language other than English and if the meaning of the translated version is different than the English version, the English version will control.
29. Imposition of Other Requirements. The Company reserves the right to impose other requirements on Participant’s participation in the Plan, on this Award and on any shares received under this Award, to the extent the Company determines it is necessary or advisable for legal or administrative reasons, and to require Participant to accept any additional agreements or undertakings that may be necessary to accomplish the foregoing.
30. Counterparts. This Award Agreement may be executed in two or more counterparts, each of which shall be deemed an original and all of which together shall constitute one instrument. Facsimile, email or other electronic execution and delivery of this Award Agreement (including but not limited to execution by electronic signature or click-through electronic acceptance) shall constitute valid and binding execution and delivery for all purposes and shall be deemed to be, and have the effect of, an original signature.
31. Successors and Assigns. The rights and benefits of this Award Agreement shall inure to the benefit of, and be enforceable by the Company’s successors and assigns.
32. Consent to Electronic Delivery and Participation. By accepting this Award, Participant agrees to participate in the Plan through an on-line or electronic system established and maintained by the Company or a third party designated by the Company, and consents to the electronic delivery of the Award Agreement, the Plan, account statements, Plan prospectuses (if any), and all other documents, communications, or information related to the RSUs and current or future participation in the Plan. Electronic delivery may include the delivery of a link to the Company intranet or the internet site of a third party involved in administering the Plan, the delivery of the document via e-mail or such other delivery determined at the Company’s discretion. Participant acknowledges that Participant may receive from the Company a paper copy of any documents delivered electronically at no cost if Participant contacts the Company by telephone, through a postal service, or electronic mail to the Company’s stock plan administrator.
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EXHIBIT A
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR VALUE RECEIVED and pursuant to that certain Restricted Stock Grant Agreement dated as of [ ], the undersigned hereby sells, assigns and transfers unto [ ] [ ] shares of the Common Stock of Eterna Therapeutics Inc., a Delaware corporation, standing in the undersigned’s name on the books of said corporation, herewith, and does hereby irrevocably constitute and appoint _____________ attorney-in-fact to transfer the said stock on the books of the said corporation with full power of substitution in the premises.
Dated: [Month] [Day], 20_____
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Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sanjeev Luther, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Eterna Therapeutics Inc.;
2. Based on my knowledge, this 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 such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 13, 2024 | /s/ Sanjeev Luther |
| Sanjeev Luther | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Sandra Gurrola, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Eterna Therapeutics Inc.;
2. Based on my knowledge, this 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 such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
(a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| Date: August 13, 2024 | /s/ Sandra Gurrola |
| Senior Sandra Gurrola | |
| Vice President of Finance | |
| (Principal Financial Officer) |
Exhibit 32.1
CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Eterna Therapeutics Inc. for the quarterly period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to his knowledge on the date hereof:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eterna Therapeutics Inc. for the period presented therein.
| Date: August 13, 2024 | /s/ Sanjeev Luther |
| Sanjeev Luther | |
| President and Chief Executive Officer | |
| (Principal Executive Officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.
Exhibit 32.2
CERTIFICATION PURSUANT TO 18 U.S.C. 1350,
AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Eterna Therapeutics Inc. for the quarterly period ended June 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to her knowledge on the date hereof:
1. the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of Eterna Therapeutics Inc. for the period presented therein.
| Date: August 13, 2024 | /s/ Sandra Gurrola |
| Sandra Gurrola | |
| Senior Vice President of Finance | |
| (Principal Financial Officer) |
The foregoing certification is being furnished solely pursuant to 18 U.S.C. § 1350 and is not being filed as part of the Report or as a separate disclosure document.