ISCO 10-Q
International Stem Cell CORP (ISCO)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number:
(Exact name of Registrant as specified in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
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Indicated 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 the 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 |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant 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
As of May 10, 2023, the Registrant had
International Stem Cell Corporation and Subsidiaries
Form 10-Q
Table of Contents
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Page Numbers |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022 |
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4 |
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5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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26 |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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27 |
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29 |
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2
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and par value data)
(Unaudited)
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March 31, |
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December 31, |
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2023 |
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2022 |
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Assets |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable, net |
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Inventory, net |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current inventory, net |
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Property and equipment, net |
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Intangible assets, net |
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Right-of-use assets |
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Deposits and other assets |
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Total assets |
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$ |
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$ |
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Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Operating lease liabilities, current |
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Advances |
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Related party note payable |
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Total current liabilities |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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Series D redeemable convertible preferred stock, $ |
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Stockholders' Deficit: |
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Non-redeemable convertible preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Total stockholders' deficit |
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( |
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( |
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Total liabilities, redeemable convertible preferred stock |
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$ |
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$ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except per share data)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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$ |
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$ |
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Operating expenses: |
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Cost of sales |
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General and administrative |
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Selling and marketing |
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Research and development |
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Total operating expenses |
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Income from operations |
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Other income (expense): |
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Interest expense |
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Total other income (expense), net |
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Net loss |
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$ |
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$ |
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Net loss per common share, basic and diluted |
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$ |
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$ |
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Weighted-average common shares used to compute |
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders’ Deficit
(In thousands)
(Unaudited)
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Three Months Ended March 31, 2023 |
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Series D Redeemable |
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Non-redeemable |
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Convertible |
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Convertible |
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Common |
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Additional |
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Total |
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Preferred Stock |
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Preferred Stock |
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Stock |
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Paid-in |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance at December 31, 2022 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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Balance at March 31, 2023 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three Months Ended March 31, 2022 |
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Series D Redeemable |
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Non-redeemable |
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Convertible |
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Convertible |
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Common |
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Additional |
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Total |
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Preferred Stock |
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Preferred Stock |
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Stock |
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Paid-in |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance at December 31, 2021 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at March 31, 2022 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
( |
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$ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
5
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Three Months Ended March 31, |
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2023 |
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2022 |
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Cash flows from operating activities |
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Net loss |
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$ |
( |
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$ |
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Adjustments to reconcile net loss to net cash used in operating |
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Depreciation and amortization |
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Non-cash operating lease expense |
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Stock-based compensation |
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Interest expense on related party note payable |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventory, net |
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( |
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Prepaid expenses and other current assets |
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( |
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Deposits and other assets |
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— |
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Accounts payable |
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Accrued liabilities |
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Operating lease liabilities |
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( |
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( |
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Net cash provided by (used in) operating activities |
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Cash flows from investing activities |
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Purchases of property and equipment |
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( |
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— |
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Net cash used in investing activities |
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— |
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Cash flows from financing activities |
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Proceeds from note payable from a related party |
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— |
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Net cash provided by financing activities |
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— |
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Net increase in cash |
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Cash, beginning of period |
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Cash, end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
— |
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See accompanying notes to the unaudited condensed consolidated financial statements.
6
International Stem Cell Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business, Basis of Presentation and Summary of Significant Accounting Policies
Description of Business
International Stem Cell Corporation (the “Company”) was organized in Delaware in June 2005 and is headquartered in San Diego, California. The Company is primarily a research and development company for the therapeutic market, which has focused on advancing potential clinical applications of human parthenogenetic stem cells (“hpSCs”) for the treatment of various diseases of the central nervous system and liver. The Company has the following wholly owned subsidiaries:
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”) applicable to interim financial statements. Certain information and notes normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s condensed consolidated financial statements. The operating results For the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2023. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2022 included in the Company’s annual report on Form 10-K filed with the SEC on March 30, 2023.
Liquidity and Going Concern
The Company had an accumulated deficit of approximately $
There can be no assurance that the Company will be successful in maintaining normal operating cash flow or obtaining additional funding. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. For the foreseeable future, the Company’s ability to continue its operations is dependent upon its ability to obtain additional financing. 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 the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.
The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company plans to obtain significant additional funding from sources, including through
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debt and equity financing, license arrangements, grants and/or collaborative research arrangements to sustain its operations and develop products.
The timing and degree of any future capital requirements will depend on several factors, including:
Additional debt financing may be expensive and require the Company to pledge all or a substantial portion of its assets. If additional funds are obtained through arrangements with collaborative partners, these arrangements may require the Company to relinquish the rights to some of its technologies, product candidates, or products that the Company would otherwise seek to develop and commercialize on its own. Furthermore, if sufficient capital is not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its product initiatives. The Company’s failure to raise capital or enter into related arrangements when needed would have a negative impact on its financial condition.
Principles of Consolidation and Foreign Currency Transactions
The condensed consolidated financial statements include the accounts of International Stem Cell Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The functional currency of the Company and its wholly owned subsidiaries is the U.S. dollar. Monetary assets and liabilities that are not denominated in the functional currency are remeasured each reporting period into U.S. dollars at foreign currency exchange rates in effect at the respective balance sheet date. Non-monetary assets and liabilities and equity are remeasured at the historical exchange rates. Revenue and expenses are remeasured at the average rate in effect on the date of the transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in general and administrative expense in the accompanying condensed consolidated statements of operations and were not material for the periods presented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates include patent life (remaining legal life versus remaining useful life), inventory carrying values, and the fair value of stock option grants using the Black-Scholes option valuation model. By their nature, estimates are subject to an inherent degree of uncertainty and actual results could differ from these estimates.
Segments
The Company’s chief operating decision-maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information for each reportable company’s statement of operations. The Company operates the business on the basis of
Inventory, net
Inventory is accounted for using the average cost and first-in, first-out (“FIFO”) methods for LCT cell culture media and reagents, average cost and specific identification methods for LSC products, and specific identification method for other LCT products. Inventory balances are stated at the lower of cost or net realizable value. Laboratory supplies used in the research and development process are expensed as consumed. LCT’s inventory has a long product life cycle, does not have a shelf life when frozen, and future demand is
8
uncertain. At each reporting period, the Company estimates its reserve allowance for excess and obsolete inventory using historical sales data and inventory turnover rates. The establishment of a reserve for excess and obsolete inventory establishes a new cost basis in inventory. If the Company is able to sell previously reserved inventory, the related reserves and inventory balances would be reduced in the period of sale. The value of the inventory that is not expected to be sold within twelve months of the current reporting period is classified as non-current inventory on the accompanying condensed consolidated balance sheets.
Accounts Receivable, net
Trade accounts receivable are recorded at the invoice value, net of discounts, and are not interest bearing. Accounts receivable primarily consist of trade accounts receivable from the sales of LCT’s products as well as LSC trade receivable amounts related to spa and distributor sales. The Company considers receivables past due based on the contractual payment terms. The Company measures expected credit losses for financial instruments at each reporting date based on historical experience, current conditions and reasonable forecasts. The allowance for doubtful accounts represents the Company’s estimate of expected credit losses relating to these factors. Amounts are written off against the allowances for doubtful accounts when the Company determines that a customer account is uncollectible. As of March 31, 2023 and December 31, 2022, the Company’s allowance for doubtful accounts was immaterial.
Intangible Assets
Intangible assets consist of acquired patent licenses and capitalized legal fees related to the acquisition, filing, maintenance, and defense of patents and trademarks. Amortization begins once the patent is issued by the appropriate authoritative bodies. In the period in which a patent application is rejected or efforts to pursue the patent are abandoned, all the related accumulated capitalized costs are expensed. Patents and other intangible assets are amortized on a straight-line basis over the useful life of the underlying patent, which is generally
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets, operating lease obligations, current, and operating lease obligations, net of current portion, on the Company’s consolidated balance sheets.
Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of future minimum lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses a discount rate based on its estimated incremental borrowing rate to determine the right-of-use asset and operating lease liabilities to be recognized. The Company determines its incremental borrowing rate based on the terms and lease payments of its operating leases and what it would normally pay to borrow, on a collateralized basis, over similar terms for an amount equal to the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. In addition, the Company does not separate lease components from non-lease components.
Long-Lived Asset Impairment
The Company reviews long-lived assets for impairment when events or changes in circumstances (“triggering event”) indicate that the carrying value of an asset or group of assets may not be recovered. If a triggering event is determined to have occurred, the carrying value of an asset or group of assets is compared to the future undiscounted cash flows expected to be generated by the asset or group of assets. If the carrying value exceeds the undiscounted cash flows of the asset or group of assets, then an impairment exists, which is measured as the excess of fair value over the asset or asset group’s carrying value. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Revenue Recognition
9
The following table presents the Company's revenue disaggregated by segment, product group, and geography (in thousands, except percentages):
Biomedical market:
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Three Months Ended March 31, 2023 |
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Total |
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% of Total |
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Domestic |
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International |
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Revenues |
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Revenues |
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Biomedical products |
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Cells |
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$ |
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$ |
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$ |
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% |
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Media |
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% |
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Total |
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$ |
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$ |
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$ |
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% |
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Three Months Ended March 31, 2022 |
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Total |
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% of Total |
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Domestic |
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International |
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Revenues |
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Revenues |
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Biomedical products |
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Cells |
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$ |
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$ |
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$ |
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% |
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Media |
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|
|
|
|
|
% |
||||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
% |
||||
Anti-aging market:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Skin care sales channels |
|
$ |
|
|
$ |
|
||
Contract terms for the unit price, quantity, shipping and payment are governed by sales agreements, invoices or online order forms, which the Company considers to be a customer's contract. The unit price is considered the observable stand-alone selling price for the performance obligation(s) within the arrangements. Any promotional or volume sales discounts are applied evenly to the units sold for purposes of calculating standalone selling price.
The Company recognizes revenue when its customer obtains control of the promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. Product sales generally consist of a single performance obligation that the Company satisfies at a point in time (i.e., upon delivery of the product).
For LSC products, ecommerce sales are primarily paid through credit card charges. The anti-aging and biomedical products' standard payment terms for its customers are generally 30 days after the Company satisfies the performance obligation(s).
The Company elects to account for shipping and handling costs, recognized as cost of sales, as activities to fulfill the promise to transfer the goods to a customer. As a result, no consideration is allocated to shipping and handling costs. Rather, the Company accrues the cost of shipping and handling upon shipment of the product, and all contract revenue (i.e., the transaction price) is recognized at the same time.
Variable Consideration
The Company records revenue from customers in an amount that reflects the consideration it expects to be entitled to after transferring control of those goods or services to a customer. From time to time, the Company offers sales promotions on its products such as discounts and free product offers. Variable consideration is estimated at contract inception only to the extent that it is probable that a significant reversal of revenue will not occur and is updated at the end of each reporting period as additional information becomes available.
Contract Balances
The Company records a receivable when it has an unconditional right to receive consideration after a performance obligation is satisfied. As of March 31, 2023 and December 31, 2022, accounts receivable, net, totaled $
10
respectively. During the three months ended March 31, 2023 and 2022, the Company did
Practical Expedients
The Company has elected the practical expedient to not determine whether contracts with customers contain significant financing components. The Company pays commissions on certain sales for its biomedical and anti-aging product markets once the customer payment has been received, which are accrued at the time of sale. The Company generally expenses sales commissions when incurred because the amortization period would be
Cost of Sales
Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products as well as related direct materials, shipping costs, general laboratory supplies and an allocation of overhead.
Research and Development Costs
Research and development costs, which are expensed as incurred, primarily consist of salaries and benefits associated with research and development personnel, overhead and occupancy costs, contract services costs, and amortization of license costs for technology used in research and development with alternative future uses, offset by the research and development tax credit provided by the Australian Taxation Office for qualified expenditures.
Australian Research and Development Tax Credit
The Company’s wholly owned subsidiary, Cyto Therapeutics, conducts various research and development activities on the Company’s product candidates in Australia. Under Australian tax law, the Australian Taxation Office provides for a refundable tax credit in the form of a cash refund equal to
The refundable tax credit does not depend on the Company’s generation of future taxable income or ongoing tax status or position. Accordingly, the credit is not considered an element of income tax accounting under ASC 740 “Income Taxes”. The Company uses the grant accounting model by analogy to International Accounting Standards (IAS) 20 to account for the refundable tax credit from the Australian government. The Company recognizes the research and development tax credit as a reduction to research and development expense when there is reasonable assurance that the tax credit will be received, the relevant expenses have been incurred, and the amount can be reliably measured. For the three months ended March 31, 2023 and 2022,
Stock-Based Compensation
The cost of a stock-based award is measured at the grant date based on the estimated fair value of the award. Stock-based compensation is recognized as expense on a straight-line basis, net of forfeitures, which are recognized as incurred, over the requisite service period of the award. The fair value of stock options is estimated using the Black-Scholes option valuation model, which requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option.
Net Loss Per Share
Basic net loss per share attributable to common stockholders is calculated by dividing the net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury-stock and if-converted methods. Potentially dilutive common stock equivalents are comprised of stock options and convertible preferred stock. For the three months ended March 31, 2023 and 2022, there was no difference in the number of shares used to calculate basic and diluted shares outstanding.
11
For the three months ended March 31, 2023 and 2022, the following common stock options and convertible preferred stock were not included in the diluted net loss per share calculation because the effect would be anti-dilutive:
|
|
March 31, |
|
|
March 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Options outstanding |
|
|
|
|
|
|
||
Redeemable convertible preferred stock |
|
|
|
|
|
|
||
Non-redeemable convertible preferred stock |
|
|
|
|
|
|
||
Total |
|
|
|
|
|
|
||
Customer Concentrations
For the three months ended March 31, 2023 and 2022,
Recently Issued Accounting Pronouncements
In August 2020, the FASB issued ASU No. 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for convertible debt instruments by reducing the number of accounting models and the number of embedded features that could be recognized separately from the host contract. Consequently, more convertible debt instruments will be accounted for as a single liability measured at its amortized cost, as long as no other features require bifurcation and recognition as derivatives. ASU 2020-06 also requires use of the if-converted method in the diluted earnings per share calculation for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years for smaller reporting companies, with early adoption permitted. The new standard will be effective for the Company on January 1, 2024 or at such earlier time where it is no longer a smaller reporting company. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). The ASU introduced a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to maturity debt securities, trade receivables and other receivables measured at amortized cost at the time the financial asset is originated or acquired. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. In November 2019, the FASB issued an amendment making this ASU effective for fiscal years beginning after December 15, 2022 for smaller reporting companies. The Company
In May 2021, the FASB issued ASU No. 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation – Stock Compensation (Topic 718), and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815-40) Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force) (“ASU 2021-04”), which clarifies and reduces the diversity in an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options that remain equity classified after modification or exchange. ASU 2021-04 is effective for fiscal years beginning after December 15, 2022 and interim periods within those fiscal years, with early adoption permitted. The Company
In November 2021, the FASB issued ASU No. 2021-10, Government Assistance (Topic 832): Disclosure by Business Entities about Government Assistance (“ASU 2021-10”), which improves the transparency of government assistance received by certain business entities by requiring the disclosure of (1) the types of government assistance received; (2) the accounting for such assistance, and (3) the effect of the assistance on the business entity’s financial statements. ASU 2021-10 is effective for fiscal years beginning after
12
December 15, 2021, with early adoption permitted. The Company
2. Inventory
The components of inventory are as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Raw materials |
|
$ |
|
|
$ |
|
||
Work in process |
|
|
|
|
|
|
||
Finished goods |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: allowance for inventory excess and obsolescence |
|
|
( |
) |
|
|
( |
) |
Total current and non-current inventory, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Inventory, net |
|
$ |
|
|
$ |
|
||
Non-current inventory |
|
|
|
|
|
|
||
Total current and non-current inventory, net |
|
$ |
|
|
$ |
|
||
3. Prepaid Expenses and Other Current Assets
The components of prepaid and other current assets are as follows (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Prepaid expenses |
|
$ |
|
|
$ |
|
||
Other current assets |
|
|
|
|
|
|
||
Total prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
4. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Machinery and equipment |
|
$ |
|
|
$ |
|
||
Computer equipment and software |
|
|
|
|
|
|
||
Office equipment |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Less: accumulated depreciation and amortization |
|
|
( |
) |
|
|
( |
) |
Property and equipment, net |
|
$ |
|
|
$ |
|
||
Depreciation and amortization expense for the three months ended March 31, 2023 and 2022 was $
13
5. Intangible Assets
Intangible Assets consist of the following (in thousands):
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2023 |
|
|
2022 |
|
||
Patents |
|
$ |
|
|
$ |
|
||
Less: accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Indefinite life logos and trademarks |
|
|
|
|
|
|
||
Intangible assets, net |
|
$ |
|
|
$ |
|
||
Amortization expense for the three months ended March 31, 2023 and 2022 was $
6. Convertible Preferred Stock and Stockholders’ Deficit
Convertible Preferred Stock
As of March 31, 2023 and December 31, 2022, the Company was authorized to issue
Non-Redeemable Convertible Preferred Stock
The Company’s Series B, Series G, and Series I-2 non-redeemable convertible preferred stock has been classified as equity on the accompanying condensed consolidated balance sheets.
The authorized, issued, and outstanding shares of non-redeemable convertible preferred stock as of March 31, 2023 consist of the following:
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
||||
|
|
Shares |
|
|
Issued and |
|
|
Liquidation |
|
|
Carrying |
|
||||
|
|
Authorized |
|
|
Outstanding |
|
|
Preference |
|
|
Value |
|
||||
|
|
|
|
|
|
|
|
(in thousands) |
|
|||||||
Series B |
|
|
|
|
|
|
|
$ |
|
|
$ |
— |
|
|||
Series G |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Series I-2 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
The authorized, issued and outstanding shares of non-redeemable convertible preferred stock as of December 31, 2022 consisted of the following:
|
|
|
|
|
Shares |
|
|
|
|
|
|
|
||||
|
|
Shares |
|
|
Issued and |
|
|
Liquidation |
|
|
Carrying |
|
||||
|
|
Authorized |
|
|
Outstanding |
|
|
Preference |
|
|
Value |
|
||||
|
|
|
|
|
|
|
|
(in thousands) |
|
|||||||
Series B |
|
|
|
|
|
|
|
$ |
|
|
$ |
— |
|
|||
Series G |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Series I-2 |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|||
Total |
|
|
|
|
|
|
|
$ |
|
|
$ |
|
||||
14
Series D Preferred Stock Redemption
The Company’s Series D redeemable convertible preferred stock contains a contingent redemption feature that is not solely within the Company’s control. Accordingly, the Series D redeemable convertible preferred stock is classified in temporary equity (outside of permanent equity) on the accompanying consolidated balance sheets.
Dividends
Holders of the Company’s convertible preferred stock are entitled to participating dividends with common stock when and if declared by the Company’s board of directors.
Liquidation
Liquidation preference among classes of preferred shares is first with Series D with priority followed by Series G, Series B and Series I-2 on the proceeds from any sale or liquidation of the Company in an amount equal to the purchase price of shares plus (in the case of the Series B) an amount equal to
Conversion
The shares of convertible preferred stock are convertible into
The following table summarizes the number of shares of common stock into which each share of convertible preferred stock can be converted as of March 31, 2023:
|
|
|
|
|
|
|
|
Conversion |
|
|||
|
|
Initial |
|
|
Current |
|
|
Ratio to |
|
|||
|
|
Conversion |
|
|
Conversion |
|
|
Common |
|
|||
|
|
Price |
|
|
Price |
|
|
Stock |
|
|||
Series B |
|
$ |
|
|
$ |
|
|
|
|
|||
Series D |
|
$ |
|
|
$ |
|
|
|
|
|||
Series G |
|
$ |
|
|
$ |
|
|
|
|
|||
Series I-2 |
|
$ |
|
|
$ |
|
|
|
|
|||
Common Stock
As of March 31, 2023 and December 31, 2022, the Company was authorized to issue
Equity Incentive Plans
The Company adopted the 2006 Equity Participation Plan (as amended the “2006 Plan”), which provides for the grant of stock options, restricted stock and other equity-based awards. Awards for up to
The Company adopted the 2010 Equity Participation Plan, as amended (the “2010 Plan”), which provides for the grant of stock options, restricted stock and other equity-based awards. Awards for up to
15
consultants under the 2010 Plan. The options granted under the 2010 Plan may be either qualified or non-qualified options and the 2010 Plan is set to terminate in March 2030. Options may be granted with different vesting terms and expire no later than
Stock Options
The Company's stock option activity, involving stock options issued to employees, directors and consultants under the 2006 Plan and the 2010 Plan, for the three months ended March 31, 2023 is summarized below:
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
||||
|
|
|
|
|
|
|
|
Average |
|
|
|
|
||||
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
Aggregate |
|
||||
|
|
Number of |
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
|
Outstanding |
|
|
Exercise |
|
|
Term |
|
|
Value |
|
||||
|
|
Options |
|
|
Price |
|
|
(in years) |
|
|
(in thousands) |
|
||||
Outstanding at December 31, 2022 |
|
|
|
|
$ |
|
|
|
|
|
|
|
||||
Outstanding at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Vested and expected to vest at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Exercisable at March 31, 2023 |
|
|
|
|
$ |
|
|
|
|
|
$ |
— |
|
|||
Total stock-based compensation expense recorded in the condensed statements of operations is as follows (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Cost of sales |
|
$ |
|
|
$ |
|
||
Research and development |
|
|
|
|
|
|
||
Selling and marketing |
|
|
|
|
|
|
||
General and administrative |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Unrecognized compensation expense related to stock options as of March 31, 2023 was $
Common Stock Reserved for Future Issuance
As of March 31, 2023, the Company had shares of common stock reserved for future issuance as follows:
Options outstanding |
|
|
|
|
Common stock available for issuance under the 2010 Plan |
|
|
|
|
Redeemable convertible preferred stock |
|
|
|
|
Non-redeemable convertible preferred stock |
|
|
|
|
Total |
|
|
|
7. Related Party Transactions
Related party lease arrangements
On October 26, 2021, the Company and S Real Estate Holdings, LLC, a related party, entered jointly into a lease agreement with Rehco Holdings, LLC (the “Lease”), for the purpose of establishing a new corporate headquarters, including corporate, R&D, and manufacturing operations. The lease commenced on November 1, 2021 and expires on
On December 15, 2021, the Company and S Real Estate Holdings LLC entered into a co-tenant agreement, whereby the Company and S Real Estate Holdings LLC agreed to allocate portions of the base rent and variable charges, including insurance, maintenance costs, taxes and operating expenses, between the parties. During the term of the Lease, the Company will be liable for
16
Related party note payable
As of December 31, 2021, the Company had an unsecured, non-convertible promissory note, with a principal outstanding amount of $
On January 13, 2022, to obtain funding for working capital purposes, the Company issued an unsecured, non-convertible promissory note in the principal amount of $
On March 1, 2022, the Company and Dr. Andrey Semechkin restructured the Modified Note and agreed to extend the maturity date for an additional six-month period to
On September 15, 2022, the Noteholder surrendered the March 2022 Note, and the Company issued a new promissory note (“September 2022 Note”), which featured all the same terms as the previously outstanding note, with the exception of an extension of the maturity date from
On March 14, 2023, the Noteholder surrendered the September 2022 Note, and the Company issued a new promissory note (“March 2023 Note”), which featured all the same terms as the previously outstanding note, with the exception of an extension of the maturity date from
8. Commitments and Contingencies
Leases
The Company has
The headquarter lease commenced on November 1, 2021 and expires on
In November 2021, the Company entered into an operating lease for supplemental office space adjacent to its new corporate headquarters with the same landlord. The lease commenced on December 1, 2021 and expires on
The Company’s operating leases for real estate are subject to additional variable charges for common area maintenance and other variable costs. Variable costs for the three months ended March 31, 2023 and 2022 were immaterial. All operating lease expense is
17
recognized on a straight-line basis over the lease term. For the three months ended March 31, 2023 and 2022, lease expense totaled $
Maturities of lease liabilities are as follows (in thousands):
Years ending December 31, |
|
|
|
|
2023 (remaining nine months) |
|
$ |
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Total minimum lease payments |
|
|
|
|
Less: imputed interest |
|
|
( |
) |
Total future minimum lease payments |
|
|
|
|
Less: operating lease liabilities, current |
|
|
( |
) |
Operating lease liabilities, net of current portion |
|
$ |
|
|
9. Segments
The Company operates the business on the basis of
The Company does not measure the performance of its segments on any asset-based metrics. Therefore, segment information is presented only for operating loss.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Revenues: |
|
|
|
|
|
|
||
Biomedical market |
|
$ |
|
|
$ |
|
||
Anti-aging market |
|
|
|
|
|
|
||
Total revenues |
|
|
|
|
|
|
||
Operating expenses: |
|
|
|
|
|
|
||
Therapeutic market |
|
|
|
|
|
|
||
Biomedical market |
|
|
|
|
|
|
||
Anti-aging market |
|
|
|
|
|
|
||
Total operating expenses |
|
|
|
|
|
|
||
Operating income (loss): |
|
|
|
|
|
|
||
Therapeutic market |
|
|
( |
) |
|
|
( |
) |
Biomedical market |
|
|
|
|
|
|
||
Anti-aging market |
|
|
( |
) |
|
|
( |
) |
Total operating loss |
|
|
|
|
|
|
||
Other income (expense), net: |
|
|
|
|
|
|
||
Therapeutic market |
|
|
( |
) |
|
|
( |
) |
Total other income (expense), net |
|
|
( |
) |
|
|
( |
) |
Net loss: |
|
|
|
|
|
|
||
Therapeutic market |
|
|
( |
) |
|
|
( |
) |
Biomedical market |
|
|
|
|
|
|
||
Anti-aging market |
|
|
( |
) |
|
|
( |
) |
Total net loss |
|
$ |
( |
) |
|
$ |
( |
) |
18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes and other financial information included elsewhere herein. This information should also be read in conjunction with our audited historical consolidated financial statements which are included in our Form 10-K for the fiscal year ended December 31, 2022 (“Form 10-K”). The discussion contains forward-looking statements, such as our plans, expectations and intentions (including those related to clinical trials and business and expense trends), that are based upon current expectations and that involve risks and uncertainties. Our actual results may differ significantly from management’s expectations. The factors that could affect these forward-looking statements are discussed in the Risk Factors included in our Form 10-K. This discussion should not be construed to imply that the results discussed herein will necessarily continue into the future, or that any expectations expressed herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best assessment by our management.
Business Overview
We have generated aggregate product revenues from our two commercial businesses of $2.1 million and $2.0 million for the three months ended March 31, 2023 and 2022, respectively. We currently have no revenue generated from our principal operations in therapeutic and clinical product development.
Our products are based on multi-decade experience with human cell culture and a proprietary type of pluripotent stem cells, human parthenogenetic stem cells (“hpSCs”). Our hpSCs are comparable to human embryonic stem cells (“hESCs”) in that they have the potential to be differentiated into many different cells in the human body. However, the derivation of hpSCs does not require the use of fertilized eggs or the destruction of viable human embryos and also offers the potential for the creation of immune-matched cells and tissues that are less likely to be rejected following transplantation. Our collection of hpSCs, known as UniStemCell™, currently consists of 15 stem cell lines. We have facilities and manufacturing protocols that comply with the requirements of Good Manufacturing Practice (GMP) standards as promulgated by the U.S. Code of Federal Regulations and enforced by the United States Food and Drug Administration (“FDA”).
Market Opportunity and Growth Strategy
Therapeutic Market – Clinical Applications of hpSCs for Disease Treatments
We are developing different cell types from our stem cells that may result in therapeutic products. We focus on applications where cell and tissue therapy is already proven but where there is an insufficient supply of functional cells or tissue.
We believe that the most promising potential clinical applications of our technology are Parkinson’s disease ("PD”), traumatic brain injury ("TBI”), and stroke. Using our proprietary technologies and know-how, we are creating neural stem cells from hpSCs as a potential treatment of PD, TBI, and stroke.
PD: Our most advanced project is the neural stem cell program for the treatment of Parkinson’s disease. In 2013, we published in Nature Scientific Reports the basis for our patent on a new method of manufacturing neural stem cells, which is used to produce the clinical-grade cells necessary for future clinical studies and commercialization. In 2014, we completed the majority of the preclinical research, establishing the safety profile of NSC in various animal species, including non-human primates. In June 2016, we published the results of a 12-month pre-clinical non-human primate study, which demonstrated the safety, efficacy and mechanism of action of the ISC- hpNSC®. In 2017, we dosed four patients in our Phase I trial of ISC-hpNSC®, human parthenogenetic stem cell-derived neural stem cells for the treatment of Parkinson’s disease. We reported 12-month results from the first cohort and 6-month interim results of the second cohort at the Society for Neuroscience annual meeting (Neuroscience 2018) in November 2018. In April 2019, we announced the completion of subject enrollment, with the 12th subject receiving a transplantation of the highest dose of cells. There have been no safety signals or serious adverse effects seen to date as related to the transplanted ISC-hpNSC® cells.
We announced a successful completion of the dose escalating phase 1 clinical trial in June 2021. In terms of preliminary efficacy, where scores are compared against baseline before transplantation, we observed a potential dose-dependent response with an apparent peak effectiveness at our middle dose. The % OFF-Time, which is the time during the day when levodopa medication is not performing optimally and PD symptoms return, decreased an average 47% from the baseline at 12 months post transplantation in cohort 2. This trend continued through 24 months where the % OFF-Time in the second cohort dropped by 55% from the initial reading. The same was true for % ON-Time without dyskinesia, which is the time during the day when levodopa medication is performing optimally without dyskinesia. The % ON-Time increased an average of 42% above the initial evaluation at 12 months post-transplantation in the second cohort.
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Stroke: In August 2014, we announced the launch of a stroke program, evaluating the use of ISC-hpNSC® transplantation for the treatment of ischemic stroke using a rodent model of the disease. The Company has a considerable amount of safety data on ISC-hpNSC® from the Parkinson’s disease program and, as there is evidence that transplantation of ISC-hpNSC® may improve patient outcomes as an adjunctive therapeutic strategy in stroke, having a second program that can use this safety dataset is therefore a logical extension. In 2015, the Company together with Tulane University demonstrated that NSC can significantly reduce neurological dysfunction after a stroke in animal models.
TBI: In October 2016, we announced the results of the pre-clinical rodent study, evaluating the use of ISC-hpNSC® transplantation for the treatment of TBI. The study was conducted at the University of South Florida Morsani College of Medicine. We demonstrated that animals receiving injections of ISC-hpNSC® displayed the highest levels of improvements in cognitive performance and motor coordination compared to vehicle control treated animals. In February 2019, we published the results of the pre-clinical study in Theranostics, a prestigious peer-reviewed medical journal. The publication titled, "Human parthenogenetic neural stem cell grafts promote multiple regenerative processes in a traumatic brain injury model,” demonstrated that the clinical-grade neural stem cells used in our Parkinson’s disease clinical trial, ISC-hpNSC®, significantly improved TBI-associated motor, neurological, and cognitive deficits without any safety issues.
Anti-Aging Cosmetic Market – Skin Care Products
Our wholly owned subsidiary Lifeline Skin Care, Inc. (“LSC”) develops, manufactures and sells anti-aging skin care products based on two core technologies: encapsulated extract derived from hpSC and specially selected targeted small molecules. LSC’s products include:
LSC’s products are regulated as cosmetics. LSC’s products are sold domestically through a branded website, Amazon, and ecommerce partners.
Biomedical Market – Primary Human Cell Research Products
Our wholly owned subsidiary Lifeline Cell Technology, LLC (“LCT”) develops, manufactures and commercializes approximately 200 human cell culture products, including frozen human “primary” cells and reagents (called “media”), which are needed to grow, maintain, and differentiate the cells. LCT’s scientists have used a standardized, methodical, scientific approach to basal medium optimization to systematically produce optimized products designed to culture specific human cell types and to elicit specific cellular behaviors. These techniques can also be used to produce products that do not contain non-human animal proteins, a feature desirable to the research and therapeutic markets. Each LCT cell product is quality tested for the expression of specific markers (to assure the cells are the correct type), proliferation rate, viability, morphology and absence of pathogens. Each cell system also contains associated donor information and all informed consent requirements are strictly followed. LCT’s research products are marketed and sold by its internal sales force, OEM partners and LCT brand distributors in Europe and Asia.
20
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table summarizes our results of operations for the three months ended March 31, 2023 and 2022:
|
|
Three Months Ended March 31, |
|
|||||||||||||
|
|
2023 |
|
|
2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Product sales |
|
$ |
2,086 |
|
|
$ |
2,020 |
|
|
$ |
66 |
|
|
|
3 |
% |
Cost of sales |
|
|
824 |
|
|
|
725 |
|
|
|
99 |
|
|
|
14 |
% |
As a % of revenues |
|
|
40 |
% |
|
|
36 |
% |
|
|
|
|
|
|
||
General and administrative |
|
|
800 |
|
|
|
832 |
|
|
|
(32 |
) |
|
|
-4 |
% |
Selling and marketing |
|
|
315 |
|
|
|
301 |
|
|
|
14 |
|
|
|
5 |
% |
Research and development |
|
|
145 |
|
|
|
137 |
|
|
|
8 |
|
|
|
6 |
% |
Other income (expense), net |
|
|
(36 |
) |
|
|
(34 |
) |
|
|
(2 |
) |
|
|
6 |
% |
Net loss |
|
$ |
(34 |
) |
|
$ |
(9 |
) |
|
$ |
(25 |
) |
|
|
278 |
% |
As a % of revenues |
|
|
-2 |
% |
|
|
0 |
% |
|
|
|
|
|
|
||
Product sales, net
Product sales for the three months ended March 31, 2023 was $2,086 thousand compared to $2,020 thousand for the three months ended March 31, 2022. The increase of $66 thousand, or 3%, was primarily attributable to an increase of $276 thousand in our Cells product sales, partially offset by a $179 thousand decrease in our Media and other product sales in our Biomedical market segment. This net increase was further offset by a decrease in our skin care product sales of approximately $31 thousand as a result of the discontinuation of our professional line of anti-aging products, resulting in only one product line and less demand.
Cost of sales
Cost of sales for the three months ended March 31, 2023 was $824 thousand, compared to $725 thousand for the three months ended March 31, 2022. The increase of $99 thousand, or 14%, was from our Biomedical line, approximately $69 thousand unfavorable manufacturing variances, partially offset by the sale of 100% reserved inventory of $30 thousand and from our Skin care line, a decrease in anti-aging product sales of approximately $6 thousand.
Profit margins have decreased approximately 4% for the three months ended March 31, 2023, as compared to the three months ended March 31, 2022, which is primarily attributable to an overall increase in cost of sales.
Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products, as well as related direct materials, general laboratory supplies and the allocation of overhead. We aim to continue to refine our manufacturing processes and supply chain management to improve the cost of sales as a percentage of revenue for both our LCT and LSC segments.
Research and development income
Research and development expense for the three months ended March 31, 2023 was $145 thousand, compared to $137 thousand for the three months ended March 31, 2022. The increase of $8 thousand, or 6%, was a result of an increase in personnel and stock compensation costs, including consultant costs, of approximately $34 thousand. This was partially offset by a decrease of approximately $19 thousand in other patent related costs quarter-over-quarter, as well as a net decrease in supplies, facilities and licensing expense of approximately $7 thousand.
Our research and development efforts are primarily focused on the development of treatments for Parkinson’s disease, traumatic brain injury, and stroke. These projects are long-term investments that involve developing both new stem cell lines and new differentiation techniques that can provide higher purity populations of functional cells. Research and development expenses are expensed as incurred and are accounted for on a project-by-project basis. However, much of our research has potential applicability to each of our projects.
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Selling and marketing expenses
Selling and marketing expenses for the three months ended March 31, 2023 was $315 thousand, compared to $301 thousand for the three months ended March 31, 2022. The increase of $14 thousand, or 5%, was primarily attributable to an increase in advertising expense partially offset by a decrease in shipping costs resulting from the reclassification to cost of sales in the current year versus the prior year.
Our sales and marketing expenses consist primarily of employee-related expenses including salaries, bonuses, benefits, and share-based compensation for our Biomedical and Anti-aging cosmetic businesses. Other significant costs include facility costs not otherwise included in or allocated to other departments, as well as marketing material costs, permits and licenses for ecommerce, and other advertising expenses.
General and administrative expenses
General and administrative expenses for the three months ended March 31, 2023 was $800 thousand, compared to $832 thousand for the three months ended March 31, 2022. The decrease of $32 thousand, or 4%, was primarily attributable to decreases in personnel-related costs, including relocation costs, of approximately $34 thousand, and insurance and licensing fees of approximately $22 thousand, which were partially offset by increases in consulting fees, legal fees and other logistics and general fees of approximately $24 thousand.
Our general and administrative expenses consist primarily of employee-related expenses including salaries, bonuses, benefits, and share-based compensation. Other significant costs include facility costs not otherwise included in or allocated to other departments, legal fees not relating to patents and corporate matters, and fees for accounting and consulting services.
Other income (expense), net
Other expense, net for the three months ended March 31, 2023 was $36 thousand, compared to other expense, net of $34 thousand for the three months ended March 31, 2022. The increase was attributable to interest on our related party note payable.
Liquidity and Capital Resources
The Company enters into contracts in the normal course of business with various third-party consultants and contract research organizations (“CRO”) for preclinical research, clinical trials and manufacturing activities. These contracts generally provide for termination upon notice. Actual expenses associated with these arrangements may be higher or lower due to various reasons, including but not limited to, progress of our development products, enrollment in clinical trials, and product and personnel delays due to COVID. Other short-term and long terms commitments that would affect liquidity include lease obligations as well as related party debt repayments.
As of March 31, 2023, we had an accumulated deficit of approximately $110.4 million and have historically incurred net losses and negative operating cash flows. Substantially all of our operating losses have resulted from the funding of our research and development programs and general and administrative expenses associated with our operations. We incurred net losses of $34 thousand and $9 thousand for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, we had cash of approximately $943 thousand, compared to $742 thousand as of December 31, 2022. Our primary use of cash is to continue to fund our research and development programs while maintaining and growing our revenue generating businesses.
Cash Flows
Comparison of the Three Months Ended March 31, 2023 and 2022
The following table provides information regarding our cash flows for the three months ended March 31, 2023 and 2022 (in thousands):
|
|
Three Months Ended March 31, |
|
|||||
|
|
2023 |
|
|
2022 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
216 |
|
|
$ |
(23 |
) |
Net cash used in investing activities |
|
|
(15 |
) |
|
|
— |
|
Net cash provided by financing activities |
|
|
— |
|
|
|
250 |
|
Net increase (decrease) in cash |
|
$ |
201 |
|
|
$ |
227 |
|
22
Operating Cash Flows
For the three months ended March 31, 2023, net cash provided by operating activities was $216 thousand, resulting primarily from our net loss of $34 thousand and net changes in operating assets and liabilities of $19 thousand, consisting of decreases in operating lease liabilities of $53 thousand, accounts receivable, net of $59 thousand and inventory, net of $81 thousand partially offset by increases in accounts payable of $29 thousand, accrued liabilities of $124 thousand and prepaid expenses and other current assets of $221 thousand. The decrease in cash was partially offset by net noncash adjustments of $231 thousand, pertaining to recurring non-cash expenses, such as stock-based compensation, depreciation and amortization expense, non-cash operating lease expense, and interest expense on our related party note payable.
For the three months ended March 31, 2022, net cash used in operating activities was $23 thousand, resulting primarily from our net loss of $9 thousand and net changes in operating assets and liabilities of $226 thousand, partially offset by net recurring non-cash adjustments of $212 thousand.
Investing Cash Flows
Net cash used in investing activities for the three months ended March 31, 2023 was $15 thousand, compared to none for the three months ended March 31, 2022. The increase was attributable to the purchase of property and equipment during the current period.
Financing Cash Flows
For the three months ended March 31, 2023, no net cash was provided by financing activities compared to $250 thousand net cash provided for the three months ended March 31, 2022. Net cash provided for the three months ended March 31, 2022 was wholly attributable to proceeds from our related party note payable of $250 thousand.
Funding Requirements
Management continues to evaluate various financing sources and options to raise working capital to help fund our current research and development programs and operations. We will need to obtain significant additional capital from equity and/or debt financings, license arrangements, grants and/or collaborative research arrangements to sustain our operations and develop products. Unless we obtain additional financing, we do not have sufficient cash on hand to sustain our operations at least through one year after the issuance date. The timing and degree of any future capital requirements will depend on many factors, including:
Our failure to raise capital or enter into applicable arrangements when needed would have a negative impact on our financial condition. Additional debt financing may be expensive and require us to pledge all or a substantial portion of its assets. Further, if additional funds are obtained through arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of its technologies, product candidates or products that we would otherwise seek to develop and commercialize on its own. If sufficient capital is not available, we may be required to delay, reduce the scope of or eliminate one or more of its product initiatives.
We currently have no revenue generated from our principal operations in therapeutic and clinical product development through research and development efforts. There can be no assurance that we will be successful in maintaining our normal operating cash flow
23
and obtaining additional funds and that the timing of our capital raising or future financing will result in cash flow sufficient to sustain our operations at least through one year after the issuance date.
Based on the factors above, there is substantial doubt about our ability to continue as a going concern. The consolidated financial statements were prepared assuming that we will continue to operate as a going concern. The 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 classification of liabilities that may result from the outcome of this uncertainty. Management’s plans in regard to these matters are focused on managing our cash flow, the proper timing of our capital expenditures, and raising additional capital or financing in the future.
Critical Accounting Estimates
Our management’s discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the United States of America and the rules and regulations of the Securities and Exchange Commission. The preparation of these condensed consolidated financial statements requires us to make judgements and estimates that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statement, and the reported amounts of revenues, costs and expenses during the reporting periods.
Our estimates are based on our historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities and amount of expense recognized that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We evaluate our estimates and assumptions on an ongoing basis. The effects of material revisions in estimates, if any, will be reflected in the consolidated financial statements prospectively from the date of the change in estimates.
There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2023 from those disclosed in “Part II – Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.
Recently Issued Accounting Pronouncements
A description of recently issued accounting pronouncements that may potentially impact our financial position and results of operations is disclosed in Note 1 to our condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q.
Contractual Obligations and Commitments
There have been no material changes to our contractual obligations and commitments outside the ordinary course of business during the three months ended March 31, 2023 from those disclosed in “Part II - Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act, and are not required to provide the information required under this item.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(e) and 15d-15(e) under the Exchange Act, the Company, with the participation of management, including our Chief Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in such rules) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Principal Financial Officer concluded that, at December 31, 2022, our disclosure controls and procedures were not effective
24
as of such date due to a material weakness over financial reporting that was disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Principal Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
Remediation
As previously described in "Part II - Item 9A.Controls and Procedures" of our Annual Report on Form 10-K for the year ended December 31, 2022, we began implementing a remediation plan to address the material weakness mentioned above. The weakness will not be considered remediated, until the applicable controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We expect that the remediation of this material weakness will be completed no later than December 31, 2023.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal controls during the three months ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
25
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in “Part I – Item 1A. Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 30, 2023.
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
None.
26
Item 6. Exhibits
Exhibit Index
Exhibit |
|
Description |
3.1 |
|
|
3.2 |
|
|
3.3 |
|
|
3.4 |
|
|
3.5 |
|
|
3.6 |
|
|
3.7 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
4.4 |
|
|
4.5 |
|
|
10.1 |
|
|
10.2 |
|
|
24.1 |
|
|
31.1* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer. |
31.2* |
|
Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer. |
32.1* |
|
|
32.2* |
|
|
101.INS* |
|
Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
27
Exhibit |
|
Description |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith. |
||
28
SIGNATURES
Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
INTERNATIONAL STEM CELL CORPORATION |
||
Dated: May 12, 2023 |
|
|
|
|
|
|
By: |
|
/s/ ANDREY SEMECHKIN |
|
|
Name: |
|
Andrey Semechkin |
|
|
Title: |
|
Chief Executive Officer (Principal Executive Officer) |
|
|
By: |
|
/s/ RUSSELL KERN |
|
|
Name: |
|
Russell Kern |
|
|
Title: |
|
Executive Vice President, Chief Scientific Officer and Director (Principal Financial Officer) |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Andrey Semechkin and Russell Kern, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him or her in any and all capacities, to sign any amendments to this Report on Form 10-Q, and to file the same, with exhibits thereto and other documents in connection therewith with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed on behalf of the registrant and in the capacities and on the dates indicated.
29