Eterna Therapeutics (ERNA) - 2023 Q3 - Quarterly Report

PART I – FINANCIAL INFORMATION Financial Statements The unaudited condensed consolidated financial statements for the period ended September 30, 2023, are presented Condensed Consolidated Balance Sheets Total assets and liabilities increased significantly due to new lease obligations, while stockholders' equity declined Condensed Consolidated Balance Sheet Summary (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash | $4,551 | $11,446 | | Total current assets | $7,031 | $13,681 | | Right-of-use assets - operating leases | $34,860 | $1,030 | | Total assets | $52,248 | $22,279 | | Liabilities & Equity | | | | Total current liabilities | $9,626 | $7,654 | | Convertible notes payable, net | $3,452 | $0 | | Operating lease liabilities, non-current | $34,998 | $887 | | Total liabilities | $48,686 | $10,172 | | Total stockholders' equity | $3,562 | $12,107 | Condensed Consolidated Statements of Operations The company reported its first revenue and a reduced net loss for Q3 2023 compared to the prior-year period Condensed Consolidated Statements of Operations Summary (in thousands, except per share amounts) | Metric | Q3 2023 | Q3 2022 | Nine Months 2023 | Nine Months 2022 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $51 | $0 | $51 | $0 | | Research and development | $1,457 | $4,963 | $4,710 | $8,430 | | General and administrative | $3,979 | $3,341 | $10,081 | $14,060 | | Impairment of IPR&D | $0 | $0 | $0 | $5,990 | | Loss from operations | $(5,505) | $(8,304) | $(15,370) | $(28,480) | | Net loss | $(5,591) | $(7,316) | $(15,515) | $(20,090) | | Net loss per share | $(1.03) | $(2.49) | $(2.94) | $(7.04) | Condensed Consolidated Statements of Cash Flows Net cash used in operations remained stable while financing activities provided less cash than the prior year Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(15,747) | $(15,541) | | Net cash used in investing activities | $0 | $(176) | | Net cash provided by financing activities | $8,852 | $11,986 | | Net decrease in cash and cash equivalents | $(6,895) | $(3,731) | Notes to Condensed Consolidated Financial Statements Key disclosures include a going concern warning, recent financing, an asset acquisition, and a new facility sublease - Management concluded there is substantial doubt about the Company's ability to continue as a going concern, as it does not expect to have sufficient cash to fund operations for the next twelve months[34] - In July 2023, the company closed a financing for approximately $8.7 million in convertible promissory notes and warrants to purchase 6.1 million shares of common stock[33][55] - In April 2023, the company acquired intellectual property assets from Exacis Biotherapeutics Inc for $460,000, which was expensed as in-process research and development (IPR&D)[36][42] - The company recognized its first revenue of less than $0.1 million for cell line customization activities in Q3 2023[43][51] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses reduced net losses, recent financing, and expresses substantial doubt about its going concern status Results of Operations The net loss for the nine-month period decreased by $4.5 million, driven by lower operating expenses Comparison of Operating Results (in thousands) | Item | Nine Months 2023 | Nine Months 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $51 | $0 | $51 | | Research and development | $4,710 | $8,430 | $(3,720) | | General and administrative | $10,081 | $14,060 | $(3,979) | | Impairment of IPR&D | $0 | $5,990 | $(5,990) | | Loss from operations | $(15,370) | $(28,480) | $13,110 | | Net loss | $(15,515) | $(20,090) | $4,575 | - The decrease in R&D expenses was primarily due to a reduction in MSA fees paid to Factor Bioscience and lower payroll and stock-based compensation expense from employee terminations[167] - The decrease in G&A expenses was due to lower payroll, reduced professional fees, and the non-recurrence of a ROU asset impairment and loss on disposal of fixed assets from 2022[170] Liquidity and Capital Resources The company holds $4.6 million in unrestricted cash but lacks sufficient funds for the next twelve months - The company had cash, cash equivalents, and restricted cash of $8.6 million, of which $4.6 million was unrestricted as of September 30, 2023[181] - Management states that based on current financial conditions, they do not have sufficient funds for operations for the next twelve months, raising substantial doubt about the ability to continue as a going concern[190] - In July 2023, the company closed a financing of $8.7 million in aggregate principal amount of Convertible Notes and issued warrants[187] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Eterna Therapeutics Inc is exempt from providing this information - The company is a smaller reporting company and is not required to provide the information otherwise required by this item[202] Controls and Procedures Management concluded that disclosure controls were not effective due to a previously identified material weakness - Management concluded that disclosure controls and procedures were not effective as of the end of the period covered by the report[206] - The ineffectiveness stems from a material weakness identified due to errors in prior financial statements, which management attributed to accounting personnel's lack of technical proficiency in complex matters[208] - Remediation plans include enhancing review processes for complex transactions, providing additional training, and consulting with an accounting advisor[215] PART II – OTHER INFORMATION Legal Proceedings The company is involved in ongoing litigation with former employees and faces a trademark infringement lawsuit - The company's subsidiary, Novellus, Inc, is in a legal dispute with former employees involving claims and counterclaims related to conduct that took place before Eterna's acquisition of Novellus[102][103] - On July 31, 2023, eTheRNA Immunotherapies NV and eTheRNA Inc filed a complaint against Eterna Therapeutics Inc alleging federal and state trademark infringement and unfair competition[106] Risk Factors New material risks arise from restrictive covenants and potential cash redemption requirements of recent convertible notes - The Convertible Notes contain restrictive covenants that limit the company's ability to, among other things, create liens, pay dividends, and incur additional indebtedness[216] - The company is required to redeem the Convertible Notes for cash under certain circumstances, and failure to do so could lead to default, acceleration of debt, and potential bankruptcy or liquidation[218][221] Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities were reported during the period that were not previously disclosed - There were no unregistered sales of equity securities to report for the period[219] Exhibits This section lists key agreements related to the July 2023 financing and other required filings - Key exhibits filed include agreements for the July 2023 financing and an amendment to the license agreement with Factor Bioscience Limited[220]