Eterna Therapeutics (ERNA) - 2025 Q2 - Quarterly Report

PART I – FINANCIAL INFORMATION Presents the unaudited financial statements and related disclosures for the company's interim period Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements for Ernexa Therapeutics Inc., including the balance sheets, statements of operations, changes in stockholders' equity (deficit), and cash flows, along with detailed notes explaining the company's financial position, performance, and significant accounting policies for the periods ended June 30, 2025, and December 31, 2024 Condensed Consolidated Balance Sheets Provides a snapshot of the company's assets, liabilities, and equity at specific reporting dates Condensed Consolidated Balance Sheets (in thousands): | Metric | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Cash | $4,315 | $1,729 | | Total current assets | $4,792 | $2,352 | | Total assets | $7,584 | $5,269 | | Total current liabilities | $2,651 | $2,938 | | Total liabilities | $3,140 | $3,568 | | Total stockholders' equity | $4,444 | $1,701 | - Cash increased significantly from $1.7 million at December 31, 2024, to $4.3 million at June 30, 2025, reflecting improved liquidity[15] - Total stockholders' equity more than doubled from $1.7 million to $4.4 million, primarily due to recent equity financing activities[15] Condensed Consolidated Statements of Operations Details the company's revenues, expenses, and net loss over specific interim periods Condensed Consolidated Statements of Operations (in thousands, except per share amounts): | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Revenue | $0 | $47 | $0 | $94 | | Gross loss | $0 | $(48) | $0 | $(62) | | Total operating expenses | $2,501 | $4,883 | $5,231 | $10,656 | | Loss from operations | $(2,501) | $(4,931) | $(5,231) | $(10,718) | | Total other expense, net | $(635) | $(595) | $(6,099) | $(1,451) | | Net loss | $(3,139) | $(5,529) | $(11,341) | $(12,176) | | Net loss per common share - basic and diluted | $(0.61) | $(15.34) | $(2.61) | $(33.75) | | Weighted average shares outstanding - basic and diluted | 5,179 | 361 | 4,350 | 361 | - The Company reported no revenue for the three and six months ended June 30, 2025, compared to $47 thousand and $94 thousand in the prior year periods, respectively, due to the assignment of its customer contract[17][41] - Net loss decreased for both the three-month period (from $5.5 million to $3.1 million) and six-month period (from $12.2 million to $11.3 million) year-over-year, despite the absence of revenue[17] - Net loss per common share significantly improved from $(15.34) to $(0.61) for the three months and from $(33.75) to $(2.61) for the six months, primarily due to a substantial increase in weighted average shares outstanding[17] Condensed Consolidated Statements of Changes in Stockholders' Equity (Deficit) Outlines the changes in the company's equity components over the reporting period Changes in Stockholders' Equity (Deficit) (in thousands): | Metric | Balances at January 1, 2025 | Balances at June 30, 2025 | | :------------------------------------ | :-------------------------- | :------------------------ | | Common Stock (Shares) | 3,426 | 7,483 | | Common Stock (Amount) | $17 | $37 | | Additional Paid-in Capital | $233,219 | $247,291 | | Accumulated Deficit | $(231,536) | $(242,885) | | Total Stockholders' Equity | $1,701 | $4,444 | - Total stockholders' equity increased from $1.7 million at January 1, 2025, to $4.4 million at June 30, 2025, driven by significant increases in common stock and additional paid-in capital from private placements and stock-based compensation[20] - The Company issued 3,965 thousand shares of common stock and prefunded warrants in connection with a private placement, contributing $13.0 million to additional paid-in capital[20] Condensed Consolidated Statements of Cash Flows Summarizes the cash inflows and outflows from operating, investing, and financing activities Condensed Consolidated Statements of Cash Flows (in thousands): | Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(4,597) | $(6,006) | | Net cash used in investing activities | $0 | $(346) | | Net cash provided by financing activities | $7,183 | $1,363 | | Net increase (decrease) in cash and cash equivalents | $2,586 | $(4,989) | | Cash, cash equivalents and restricted cash at end of period | $4,315 | $6,681 | - Net cash used in operating activities decreased by $1.4 million, from $6.0 million in 2024 to $4.6 million in 2025[22][140] - Net cash provided by financing activities significantly increased from $1.4 million in 2024 to $7.2 million in 2025, primarily due to proceeds from promissory notes and a private placement of common stock and prefunded warrants[22][142] - The Company experienced a net increase in cash and cash equivalents of $2.6 million for the six months ended June 30, 2025, a reversal from a $5.0 million decrease in the prior year period[22] Notes to Condensed Consolidated Financial Statements Provides detailed explanations and additional information supporting the condensed consolidated financial statements 1) Description of Business and Basis of Presentation%20DESCRIPTION%20OF%20BUSINESS%20AND%20BASIS%20OF%20PRESENTATION) Describes the company's core business and the accounting principles used in financial statement preparation - Ernexa Therapeutics Inc. is a preclinical-stage synthetic allogeneic iMSC therapy company focused on developing scalable, affordable, off-the-shelf cell therapies for cancer and autoimmune diseases[25] - The Company effected a 1-for-15 reverse stock split of its common stock on June 12, 2025, and all share and per share data in the report have been adjusted to reflect this[29][31] - The number of authorized common shares was increased from 100,000,000 to 150,000,000 on June 2, 2025[30] 2) Liquidity and Capital Resources%20LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Assesses the company's ability to meet its short-term and long-term financial obligations and funding needs - As of June 30, 2025, the Company had $4.3 million in cash and an accumulated deficit of $242.9 million, incurring net losses of $3.1 million and $11.3 million for the three and six months ended June 30, 2025, respectively[32] - Management concluded there is substantial doubt about the Company's ability to continue as a going concern for the next twelve months without raising additional capital[37] - During the three months ended June 30, 2025, the Company raised $7.2 million in gross proceeds from the sale of common stock and prefunded warrants[36] 3) Contract with Customer%20CONTRACT%20WITH%20CUSTOMER) Details the company's revenue-generating agreements and their impact on financial performance - The Company had an exclusive option and license agreement with a customer, which was assigned to Factor Bioscience on September 24, 2024[39][40] - No revenue was recognized from this contract for the three and six months ended June 30, 2025, compared to less than $0.1 million and $0.1 million, respectively, in 2024[41] - Factor Bioscience will pay the Company 30% of amounts received if the customer exercises its Option Right and 20% for customization activities[40] 4) Fair Value of Financial Instruments%20FAIR%20VALUE%20OF%20FINANCIAL%20INSTRUMENTS) Explains the valuation methodologies and inputs used for financial instruments measured at fair value - The Company measures warrant liabilities and contingent consideration liability at fair value using Level 3 inputs (Black-Scholes and Monte Carlo models, respectively)[46] - A forward sales contract liability of $5.3 million was recorded at inception on March 31, 2025, and subsequently reclassified to additional paid-in capital upon settlement of shares during Q2 2025[47][50] Liabilities Measured at Fair Value (in thousands): | Description | Level | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :---- | :------------ | :---------------- | | Warrant liabilities - Q1-22 warrants | 3 | $0 | $1 | | Contingent consideration | 3 | $41 | $41 | 5) Goodwill%20GOODWILL) Discusses the accounting treatment and impairment testing for goodwill arising from acquisitions - Goodwill of $2.0 million, related to a 2018 acquisition, is not amortized but tested for impairment annually[52] - As of June 30, 2025, no potential triggering events were identified that would indicate impairment[52] 6) Accrued Expenses%20ACCRUED%20EXPENSES) Provides a breakdown of the company's accrued liabilities at the balance sheet dates Accrued Expenses (in thousands): | Category | June 30, 2025 | December 31, 2024 | | :-------------------- | :------------ | :---------------- | | Professional fees | $362 | $238 | | Accrued compensation | $108 | $12 | | Legal matters | $30 | $323 | | Other | $438 | $434 | | Total accrued expenses | $938 | $1,007 | - Total accrued expenses decreased from $1.0 million at December 31, 2024, to $0.9 million at June 30, 2025, primarily due to a reduction in legal matters accruals[53] 7) Leases%20LEASES) Outlines the company's lease arrangements and associated expenses - The Company has operating leases for offices in New York and Cambridge, expiring in 2027 and 2028, respectively[54] Total Lease Expense (in thousands): | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total lease expense | $54 | $1,944 | $106 | $3,890 | - Total lease expense significantly decreased from $1.9 million to $0.05 million for the three months and from $3.9 million to $0.1 million for the six months ended June 30, 2025, primarily due to the termination of a sublease effective August 31, 2024[55] 8) Promissory Notes%20PROMISSORY%20NOTES) Details the company's short-term debt obligations and their repayment - The Company issued two promissory notes totaling $2.3 million to Charles Cherington in March 2025, accruing interest at 5.0% per annum[59] - These notes were repaid in full for $2.3 million, including accrued interest, by offsetting with a receivable from Mr. Cherington's purchase of shares in a private placement, resulting in no outstanding balances as of June 30, 2025[60] 9) Stock-Based Compensation%20STOCK-BASED%20COMPENSATION) Explains the accounting for equity-settled compensation plans and related expenses Stock Options Granted (in thousands): | Period | 2025 | 2024 | | :-------------------------- | :--- | :--- | | Three months ended June 30, | 5 | 33 | | Six months ended June 30, | 127 | 158 | Stock-Based Compensation Expense (in thousands): | Category | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $15 | $15 | $31 | $61 | | General and administrative | $353 | $408 | $839 | $644 | | Total | $368 | $423 | $870 | $705 | - Total stock-based compensation expense increased from $705 thousand in the six months ended June 30, 2024, to $870 thousand in the same period of 2025, primarily driven by general and administrative expenses[67] - As of June 30, 2025, approximately 293,000 shares of common stock were subject to outstanding stock options[63] 10) Net Loss Per Share%20NET%20LOSS%20PER%20SHARE) Describes the calculation of basic and diluted net loss per common share - Basic and diluted net loss per share are calculated using the two-class method for participating securities, but the two-class method is not applicable during periods with a net loss[68] - Diluted net loss per share is the same as basic net loss per share when potentially dilutive shares are anti-dilutive[70] Potential Common Shares Excluded from Diluted Net Loss Per Share (in thousands): | Category | Three and six months ended June 30, 2025 | Three and six months ended June 30, 2024 | | :------------------------------------ | :--------------------------------------- | :--------------------------------------- | | Stock options | 293 | 169 | | Warrants | 32 | 1,359 | | Preferred stock converted into common stock | 5 | 1 | | Convertible Notes converted into common stock | 0 | 542 | | Total potential common shares excluded | 330 | 2,071 | 11) Commitments and Contingencies%20COMMITMENTS%20AND%20CONTINGENCIES) Discloses the company's contractual obligations and potential liabilities - The Company settled litigation with John Westman on April 22, 2025, which included the issuance of 20,000 shares of common stock and a cash payment of less than $0.1 million[74] - Under the Factor L&C Agreement, the Company obtained exclusive licenses for certain technology in cancer, autoimmune disorders, and rare diseases, with an initial term of one year, automatically renewable[76][77] - The Company is obligated to pay Factor Bioscience approximately $0.2 million per month for the first twelve months, $0.1 million per month for patent costs, milestone payments, and royalties[78] 12) Equity Transactions%20EQUITY%20TRANSACTIONS) Reports on significant changes in the company's equity structure, including stock issuances and warrants - The Company increased its authorized common stock from 100 million to 150 million shares effective June 2, 2025[80] - On March 31, 2025, the Company entered into a private placement agreement (SPA) to sell approximately 4,621,000 shares of common stock (or pre-funded warrants) at $1.569 per share, raising approximately $7.2 million in gross proceeds[81][83] - The SPA was accounted for as a forward sales contract, initially recording a $5.3 million liability and expense, which was reclassified to additional paid-in capital upon settlement[82][84] Warrants Outstanding (in thousands): | Type | Outstanding | Exercise Price | Issuance Date | Expiration Date | Classification | | :-------------------- | :---------- | :------------- | :------------ | :-------------- | :------------- | | Q1-22 Warrants | 23 | $572.98 | 03/09/22 | 09/09/27 | Liability | | December 2022 Warrants | 9 | $21.45 | 12/02/22 | 06/02/28 | Equity | | Prefunded warrants | 75 | $0.075 | 10/29/24 | None | Equity | | Prefunded warrants | 34 | $0.075 | 04/02/25 | None | Equity | | Prefunded warrants | 622 | $0.075 | 06/09/25 | None | Equity | | Total | 763 | | | | | 13) Related Party Transactions%20RELATED%20PARTY%20TRANSACTIONS) Details financial transactions and relationships with parties having significant influence over the company - Charles Cherington, a former board member and current owner of approximately 37% of the Company's common stock, participated in the September 2024 and March 2025 financings under the same terms as other investors[89][90] - Mr. Cherington provided $2.3 million in promissory notes to the Company in March 2025, which were fully repaid by offsetting with his purchase of shares in the private placement[90][91] 14) Segment Reporting%20SEGMENT%20REPORTING) Identifies the company's operating segments and how resources are allocated and performance is evaluated - The Company operates within a single reportable operating segment: the research and development of cellular therapies[92] - The Chief Operating Decision Maker (CODM) reviews performance and allocates resources at the consolidated entity level, using consolidated net loss and cash as key measures[92][93] Significant Operating Expenses (in thousands): | Category | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Six months ended June 30, 2025 | Six months ended June 30, 2024 | | :------------------------------------ | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Research and development | $1,136 | $987 | $2,445 | $2,445 | | General and administrative | $1,365 | $3,896 | $2,786 | $8,211 | | Total operating expenses | $2,501 | $4,883 | $5,231 | $10,656 | 15) Recent Accounting Pronouncements%20RECENT%20ACCOUNTING%20PRONOUNCEMENTS) Discusses the impact of newly issued accounting standards on the company's financial reporting - No new Accounting Standards Updates have been issued by the FASB since January 1, 2025, that would apply to the Company and are not already disclosed in the 2024 10-K[98] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and results of operations for the three and six months ended June 30, 2025, compared to the same periods in 2024. It covers the business overview, recent corporate developments, detailed analysis of revenue and expenses, liquidity, capital resources, and cash flow, highlighting the Company's preclinical stage, ongoing losses, and need for additional capital Overview Provides a high-level summary of the company's business, strategic focus, and product pipeline - Ernexa Therapeutics Inc. is a preclinical-stage synthetic allogeneic iMSC therapy company focused on developing cell therapies for cancer and autoimmune diseases[100] - The lead product candidate, ERNA-101 (IL-7 and IL-15-secreting iMSCs), is being developed for platinum-resistant ovarian cancer, with IND submission expected by 2026 and Phase I clinical trials in H2 2026[101] - The Company is also investigating ERNA-201 (IL-10-secreting iMSCs) for inflammatory/auto-immune disorders like rheumatoid arthritis and actively seeking strategic partnerships[102][103] Recent Developments Highlights significant corporate events and strategic actions undertaken by the company - Effective June 2, 2025, the Company increased authorized common stock from 100 million to 150 million shares and allowed stockholder action by written consent[104][105] - A 1-for-15 reverse stock split became effective on June 12, 2025, which helped the Company regain compliance with Nasdaq's minimum bid price requirement[105][110] - The Company completed a private placement on March 31, 2025, selling approximately 4,621,000 shares of common stock (or pre-funded warrants) and raising approximately $7.2 million in gross proceeds[107][108] - As of June 30, 2025, the Company's stockholders' equity was $4.4 million, complying with Nasdaq's $2.5 million minimum requirement[109] Basis of Presentation Explains the accounting policies and principles applied in preparing the financial statements - Revenue for 2024 was from an exclusive option and license agreement, which was assigned to Factor Bioscience on September 24, 2024, resulting in no revenue for the three and six months ended June 30, 2025[112][113] - Cost of revenues includes direct labor and supplies for customization activities and fees paid to Factor Bioscience under a previous license agreement, with no such costs recognized in 2025[114] - Research and development costs are expensed as incurred, comprising salaries, stock-based compensation, supplies, preclinical study costs, and licensed technology expenses[115][116] - General and administrative expenses include salaries, benefits, equity-based compensation, legal and professional fees, travel, and insurance[118] Results of Operations Analyzes the company's financial performance by comparing revenues and expenses over different periods Summary of Results of Operations (in thousands): | Metric | Three months ended June 30, 2025 | Three months ended June 30, 2024 | Change (3M) | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change (6M) | | :------------------------------------ | :------------------------------- | :------------------------------- | :---------- | :----------------------------- | :----------------------------- | :---------- | | Revenue | $0 | $47 | $(47) | $0 | $94 | $(94) | | Gross loss | $0 | $(48) | $48 | $0 | $(62) | $62 | | Research and development expenses | $1,136 | $987 | $149 | $2,445 | $2,445 | $0 | | General and administrative expenses | $1,365 | $3,896 | $(2,531) | $2,786 | $8,211 | $(5,425) | | Loss from operations | $(2,501) | $(4,931) | $2,430 | $(5,231) | $(10,718) | $5,487 | | Forward sales contract expense | $(512) | $0 | $(512) | $(5,847) | $0 | $(5,847) | | Net loss | $(3,139) | $(5,529) | $2,390 | $(11,341) | $(12,176) | $835 | - Total operating expenses decreased by $2.4 million for the three months and $5.4 million for the six months ended June 30, 2025, primarily due to a significant reduction in general and administrative expenses[120] - General and administrative expenses decreased by $2.5 million (3M YoY) and $5.4 million (6M YoY), mainly due to reduced rent expense from a terminated sublease, lower professional fees, and decreased payroll-related expenses[126][127] - The Company recognized a forward sales contract expense of $0.5 million for the three months and $5.8 million for the six months ended June 30, 2025, related to the private placement[128] - Interest expense decreased by $0.9 million (3M YoY) and $1.7 million (6M YoY) due to a reduction in interest-bearing debt[130] Liquidity and Capital Resources Assesses the company's ability to meet its short-term and long-term financial obligations and funding needs - As of June 30, 2025, the Company had $4.3 million in cash and an accumulated deficit of $242.9 million, with net losses of $3.1 million and $11.3 million for the three and six months ended June 30, 2025, respectively[133] - The Company used $4.6 million in cash for operating activities during the six months ended June 30, 2025[133] - Management believes there is substantial doubt about the Company's ability to continue as a going concern for the next 12 months without additional capital, which may be sought through equity offerings, debt financings, or strategic partnerships[136][138] - During Q2 2025, the Company raised $7.2 million in gross proceeds from a private placement, which was used for general working capital and to repay $2.3 million in promissory notes[135] Cash Flows Summary (in thousands): | Activity | Six months ended June 30, 2025 | Six months ended June 30, 2024 | Change | | :------------------------------------ | :----------------------------- | :----------------------------- | :----- | | Operating activities | $(4,597) | $(6,006) | $1,409 | | Investing activities | $0 | $(346) | $346 | | Financing activities | $7,183 | $1,363 | $5,820 | | Net increase (decrease) in cash and cash equivalents | $2,586 | $(4,989) | $7,575 | Off-Balance Sheet Arrangements Discloses any material off-balance sheet transactions, arrangements, obligations, or other relationships - The Company did not have any off-balance sheet arrangements during the periods presented or currently[143] Critical Accounting Estimates Identifies accounting estimates that require significant judgment and could materially impact financial results - There were no significant changes in critical accounting estimates during the three and six months ended June 30, 2025, from those described in the 2024 10-K[144] Recent Accounting Pronouncements Discusses the impact of newly issued accounting standards on the company's financial reporting - No new Accounting Standards Updates have been issued by the FASB since January 1, 2025, that would apply to the Company and are not disclosed in the 2024 10-K[145] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Ernexa Therapeutics Inc. is exempt from providing quantitative and qualitative disclosures about market risk - The Company is not required to provide quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[146] Item 4. Controls and Procedures This section details the Company's evaluation of its disclosure controls and procedures and reports on any changes in internal control over financial reporting. Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting during the quarter - The Company's management, including the CEO and SVP of Finance, concluded that disclosure controls and procedures were effective as of June 30, 2025, providing reasonable assurance of achieving desired control objectives[148][149] - There were no material changes in the Company's internal control over financial reporting during the most recent fiscal quarter[150] PART II – OTHER INFORMATION Presents additional non-financial and legal information required for interim reporting Item 1. Legal Proceedings This section incorporates by reference the litigation matters discussed in Note 11 to the financial statements, confirming the Company's involvement in ordinary course legal proceedings and the absence of other material legal proceedings - Information on legal proceedings is incorporated from Note 11 to the condensed consolidated financial statements[152] - The Company is not a party to any material legal proceedings other than those described in Note 11[152] Item 1A. Risk Factors This section advises investors to consider the risks outlined in the Company's 2024 Form 10-K and this Quarterly Report, noting that there have been no material changes to the previously described risk factors - An investment in the Company's common stock involves a high degree of risk, as detailed in the 2024 10-K and this Quarterly Report[153] - There have been no material changes to the risk factors described in the 2024 10-K[153] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on unregistered sales of equity securities, specifically the issuance of 20,000 shares of common stock in May 2025 for litigation settlement, relying on the Section 4(a)(2) exemption from registration - On May 19, 2025, the Company issued 20,000 shares of common stock to John Westman in connection with a litigation settlement[155] - This issuance relied on the exemption from registration provided by Section 4(a)(2) under the Securities Act for transactions not involving a public offering[156] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities during the period - There were no defaults upon senior securities[157] Item 4. Mine Safety Disclosures This item is not applicable to the Company - This item is not applicable[158] Item 5. Other Information This section states that there is no other information to report under sub-items (a) and (b), and confirms that no directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated any Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[160] Item 6. Exhibits This section lists all exhibits filed as part of the Quarterly Report on Form 10-Q, including certificates of amendment to the Company's Restated Certificate of Incorporation, certifications of principal executive and financial officers, and XBRL documents - Exhibits include Certificates of Amendment for Authorized Shares, Written Consent, and Reverse Stock Split, filed on June 2, 2025, and June 10, 2025, respectively[161] - Certifications of the Principal Executive Officer and Principal Financial Officer pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 are filed or furnished[161] - The report includes Inline XBRL Document Set for financial statements and accompanying notes[161] Signatures Certifies the accuracy and completeness of the financial report by authorized officers Signatures Contains the official certifications by the company's principal executive and financial officers - The report is signed by Sanjeev Luther, President and Chief Executive Officer, and Sandra Gurrola, Senior Vice President of Finance, on August 13, 2025[164]