Celularity (CELU) - 2023 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements The financial statements for the period ending September 30, 2023, reveal significant financial distress, marked by asset reduction, net losses, and going concern doubts Condensed Consolidated Balance Sheets As of September 30, 2023, total assets decreased to $157.2 million, driven by goodwill and intangible asset impairments, reducing equity Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $273 | $13,966 | | Goodwill | $7,347 | $119,694 | | Intangible assets, net | $11,554 | $120,994 | | Total Assets | $157,192 | $401,066 | | Liabilities | | | | Total current liabilities | $84,632 | $62,088 | | Acquisition-related contingent consideration | $1,606 | $105,945 | | Total Liabilities | $126,945 | $202,165 | | Total Stockholders' Equity | $30,247 | $198,901 | Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) For Q3 2023, the company reported a net loss of $93.9 million, primarily due to an $82.7 million goodwill impairment, contrasting with a $4.8 million net income in Q3 2022 Q3 2023 vs Q3 2022 Statement of Operations (in thousands) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Total Revenues | $3,786 | $4,135 | | Loss from Operations | $(99,256) | $(5,646) | | Goodwill Impairment | $82,714 | $0 | | Net (Loss) Income | $(93,876) | $4,799 | | Net (Loss) Income per Share | $(0.50) | $0.03 | Nine Months 2023 vs 2022 Statement of Operations (in thousands) | Metric | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | | Total Revenues | $10,659 | $13,846 | | Loss from Operations | $(205,602) | $(43,085) | | Goodwill Impairment | $112,347 | $0 | | IPR&D Impairment | $107,800 | $0 | | Net Loss | $(205,842) | $(10,242) | | Net Loss per Share | $(1.19) | $(0.07) | Condensed Consolidated Statements of Stockholders' Equity Stockholders' equity significantly decreased from $198.9 million at year-end 2022 to $30.2 million by September 30, 2023, primarily due to the accumulated net loss - Total stockholders' equity fell from $198.9 million at December 31, 2022, to $30.2 million at September 30, 2023, mainly due to the accumulated net loss for the period[41] Condensed Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash used in operating activities was $34.3 million, with financing activities providing $24.1 million, resulting in a net decrease in cash Cash Flow Summary (Nine Months Ended Sep 30, in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(34,344) | $(108,291) | | Net cash used in investing activities | $(3,468) | $(4,457) | | Net cash provided by financing activities | $24,108 | $118,153 | | Net (decrease) increase in cash | $(13,704) | $5,405 | Notes to Unaudited Condensed Consolidated Financial Statements The notes highlight substantial doubt about the company's going concern ability due to recurring losses, low cash, debt defaults, and significant impairment charges from discontinued clinical programs - The company has raised substantial doubt about its ability to continue as a going concern due to significant losses, low cash reserves, debt defaults, and the need to secure additional capital[26][56] - The company has ceased recruitment in its major clinical trials for CYNK-001 and terminated the development of CYCART-19, leading to significant impairment charges[20][46] - The company is in default on its debt agreements, including failure to make required payments to Yorkville and breaching the minimum liquidity covenant on loans with RWI and C.V. Starr[25][59] - A dispute with Palantir Technologies over a software agreement led to the company ceasing use of the platform and recognizing a $24.2 million liability for remaining contract payments[146] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strategic reprioritization, including workforce reduction and halting clinical programs, to focus on biomaterials, while highlighting a severe liquidity crisis and substantial doubt about going concern - The company has reprioritized its efforts, resulting in a one-third reduction of its workforce and a halt to active recruitment in its clinical programs to focus on biomaterials and contract manufacturing[334] - Management explicitly states that adverse conditions, including significant losses, low cash, and debt defaults, raise substantial doubt about the company's ability to continue as a going concern[353][377] - The company recognized a goodwill impairment charge of $82.7 million for Q3 2023 and a total of $112.3 million for the nine months ended Sep 30, 2023, in its Cell Therapy reporting unit[325] - An IPR&D impairment charge of $107.8 million was recorded during the nine months ended September 30, 2023, due to the discontinuation of Cell Therapy clinical trials[325] Results of Operations For Q3 2023, total revenues decreased by 8.4% to $3.8 million, and the loss from operations dramatically widened to $99.3 million, primarily due to an $82.7 million goodwill impairment Comparison of Three Months Ended September 30 (in thousands) | Line Item | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $3,786 | $4,135 | (8.4%) | | Research and development | $5,182 | $20,351 | (74.5%) | | Selling, general and administrative | $10,748 | $14,907 | (27.9%) | | Goodwill impairment | $82,714 | $0 | 100.0% | | Loss from operations | $(99,256) | $(5,646) | 1658.0% | Comparison of Nine Months Ended September 30 (in thousands) | Line Item | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Total Revenues | $10,659 | $13,846 | (23.0%) | | Research and development | $30,737 | $67,373 | (54.4%) | | Software cease-use costs | $24,161 | $0 | 100.0% | | Goodwill impairment | $112,347 | $0 | 100.0% | | IPR&D impairment | $107,800 | $0 | 100.0% | | Loss from operations | $(205,602) | $(43,085) | 377.2% | Liquidity and Capital Resources The company faces a critical liquidity position with only $0.3 million in cash, an accumulated deficit of $851.3 million, and insufficient capital to fund operations for the next 12 months - As of the issuance date, the company had only $0.3 million of unrestricted cash and cash equivalents and insufficient capital to sustain operations for the next 12 months[403] - The company expects to finance its cash needs through equity offerings, debt financings, or other capital sources, but failure to do so may force it to curtail operations or seek bankruptcy protection[427] Quantitative and Qualitative Disclosures About Market Risk This section is noted as not applicable for the company - The company states that this item is not applicable[412] Controls and Procedures Management concluded that disclosure controls and procedures were ineffective as of September 30, 2023, due to multiple material weaknesses in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023[413] - Multiple material weaknesses were identified across all five components of internal control: Control Environment, Risk Assessment, Control Activities, Information and Communication, and Monitoring[435][436] - A key reason for the weaknesses was insufficient resources with the appropriate knowledge and expertise to design and operate effective internal controls[414] PART II. OTHER INFORMATION Legal Proceedings The company is involved in arbitration with Palantir, a lawsuit against Evolution Biologyx for unpaid invoices, and a Civil Investigative Demand regarding federal insurance claims for its Interfyl product - The company is in arbitration with Palantir Technologies over a disputed Master Service Agreement, with Palantir seeking damages equal to the full contract value[454] - Celularity has sued Evolution Biologyx, LLC to recover approximately $2.35 million in unpaid invoices for biomaterial products[421] - The company received a Civil Investigative Demand under the False Claims Act related to federal insurance claims for its Interfyl product[442] Risk Factors The company's operations and financial results are subject to various risks and uncertainties, as described in its Annual Report on Form 10-K - The report refers to the Risk Factors section of the company's Annual Report on Form 10-K for the year ended December 31, 2022[456] Unregistered Sales of Equity Securities and Use of Proceeds This section is noted as 'None' - The company reported no unregistered sales of equity securities during the period[444] Defaults Upon Senior Securities This section is noted as 'None', although debt defaults are extensively discussed elsewhere in the report - The company reports 'None' under this item, though defaults on debt agreements are detailed elsewhere in the report, such as in Note 1 and Note 7 of the financial statements[25][59][457] Mine Safety Disclosures This section is noted as not applicable - The company states that this item is not applicable[445] Other Information This section is noted as 'None' - The company reported no other information under this item[446] Exhibits This section lists the exhibits filed with the quarterly report, including corporate governance documents, various financing agreements, and certifications - Exhibits filed include various loan agreements, securities purchase agreements, and amendments to warrants, reflecting the company's recent financing activities[461]