Longeveron(LGVN) - 2023 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's condensed financial statements, management's discussion and analysis, market risk disclosures, and internal controls for the reporting period ITEM 1. Condensed Financial Statements The company's Q1 2023 financial statements reflect decreased assets and equity, a $4.6 million net loss, and significant liquidity concerns Condensed Balance Sheets The balance sheets provide a snapshot of the company's assets, liabilities, and equity at the end of Q1 2023 and fiscal year 2022 Condensed Balance Sheets (in thousands) | Item | March 31, 2023 (Unaudited) | December 31, 2022 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $4,984 | $10,503 | | Marketable securities | $8,693 | $9,155 | | Total current assets | $14,870 | $20,280 | | Total assets | $21,808 | $27,413 | | Liabilities | | | | Accounts payable | $457 | $1,751 | | Total current liabilities | $3,595 | $4,869 | | Total liabilities | $5,490 | $6,910 | | Stockholders' Equity | | | | Additional paid-in capital | $84,116 | $83,712 | | Accumulated deficit | $(67,420) | $(62,773) | | Total stockholders' equity | $16,318 | $20,503 | | Total liabilities and stockholders' equity | $21,808 | $27,413 | Condensed Statements of Operations The statements of operations outline the company's revenues, expenses, and net loss for the three months ended March 31, 2023 and 2022 Condensed Statements of Operations (in thousands, except per share data) | Item | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Total revenues | $279 | $370 | | Cost of revenues | $203 | $205 | | Gross profit | $76 | $165 | | Total operating expenses | $4,792 | $3,559 | | Loss from operations | $(4,716) | $(3,394) | | Total other income and (expenses), net | $69 | $(116) | | Net loss | $(4,647) | $(3,510) | | Basic and diluted net loss per share | $(0.22) | $(0.17) | | Basic and diluted weighted average common shares outstanding | 21,033,610 | 20,911,203 | Condensed Statements of Comprehensive Loss The statements of comprehensive loss detail the net loss and other comprehensive income components for the three months ended March 31, 2023 and 2022 Condensed Statements of Comprehensive Loss (in thousands) | Item | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net loss | $(4,647) | $(3,510) | | Net unrealized gains on available-for-sale securities | $58 | $- | | Total comprehensive loss | $(4,589) | $(3,510) | Condensed Statements of Stockholders' Equity The statements of stockholders' equity track changes in capital, accumulated deficit, and comprehensive loss for the period ending March 31, 2023 Changes in Stockholders' Equity (in thousands, except share amounts) | Item | Balance at Dec 31, 2022 | Conversion of Class B to Class A | Class A issued for RSUs vested | Class A held for taxes on RSUs vested | Equity-based compensation | Unrealized loss on available for sale investments | Net loss | Balance at March 31, 2023 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Class A Common Stock (Number) | 6,127,320 | 20,000 | 20,161 | (4,431) | - | - | - | 6,163,050 | | Class A Common Stock (Amount) | $6 | $- | $- | $- | $- | $- | $- | $6 | | Class B Common Stock (Number) | 14,891,085 | (20,000) | - | - | - | - | - | 14,871,085 | | Class B Common Stock (Amount) | $15 | $- | $- | $- | $- | $- | $- | $15 | | Stock Subscription Receivable | $(100) | $- | $- | $- | $- | $- | $- | $(100) | | Additional Paid-In Capital | $83,712 | $- | $- | $(17) | $421 | $- | $- | $84,116 | | Accumulated Deficit | $(62,773) | $- | $- | $- | $- | $- | $(4,647) | $(67,420) | | Accumulated Other Comprehensive Loss | $(357) | $- | $- | $- | $- | $58 | $- | $(299) | | Total Stockholder's Equity | $20,503 | $- | $- | $(17) | $421 | $58 | $(4,647) | $16,318 | Condensed Statements of Cash Flows The statements of cash flows summarize cash movements from operating, investing, and financing activities for the three months ended March 31, 2023 and 2022 Condensed Statements of Cash Flows (in thousands) | Item | Three months ended March 31, 2023 | Three months ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,848) | $(4,152) | | Net cash provided by investing activities | $346 | $767 | | Net cash used in financing activities | $(17) | $(141) | | Change in cash and cash equivalents | $(5,519) | $(3,526) | | Cash and cash equivalents at beginning of the period | $10,503 | $25,658 | | Cash and cash equivalents at end of the period | $4,984 | $22,132 | Notes to Unaudited Condensed Financial Statements These notes provide critical context to the financial statements, detailing the company's nature as a clinical-stage biotechnology firm, its significant liquidity challenges and going concern risk, and its accounting policies for revenue, R&D, and equity-based compensation Note 1. Nature of Business, Basis of Presentation, and Liquidity This note outlines the company's business, financial statement basis, and critical liquidity challenges, including going concern risk - Longeveron Inc. is a clinical-stage biotechnology company developing cellular therapies for specific aging-related and life-threatening conditions[26] - The Company has incurred recurring operating losses since inception, with a net loss of $4.6 million for Q1 2023 and an accumulated deficit of $67.4 million as of March 31, 2023[30] - As of March 31, 2023, the Company had $5.0 million in cash and cash equivalents and $8.7 million in marketable securities, but a cash flow forecast indicates insufficient funds for one year, raising substantial doubt about its ability to continue as a going concern[32] Note 2. Summary of Significant Accounting Policies This note details the significant accounting policies, including revenue recognition and R&D expense, applied in preparing the financial statements - The Company's financial statements are prepared in accordance with U.S. GAAP, with certain reclassifications made to prior year statements that had no impact on net loss, shareholders' equity, or cash flows[34] - Revenue is recognized when performance obligations are met, specifically when grant expenses are incurred, clinical trial participants receive treatment, or contract manufacturing obligations are satisfied[50] - Research and development costs, including clinical trial expenses, contracted research, and license fees, are expensed as incurred[52] Note 3. Marketable Securities This note details the company's marketable securities, their fair value, and impact on comprehensive loss Marketable Securities Fair Value (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | U.S. Treasury obligations | $98,133 | $96,981 | | U.S. government agencies | $1,064,992 | $1,250,003 | | Corporate and foreign bonds | $7,530,053 | $7,807,655 | | Money market funds | $1,190,450 | $607,263 | | Accrued income | $66,862 | $64,815 | | Total Marketable securities | $9,950,490 | $9,826,717 | - Marketable securities are categorized as available-for-sale and are stated at fair value, with changes in net unrealized gains and losses reported in other comprehensive loss[41] Note 4. Property and Equipment, net This note details the company's property and equipment, net of depreciation, and associated expenses Property and Equipment, Net (in thousands) | Category | March 31, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Leasehold improvements | $4,328 | $4,328 | | Furniture/Lab equipment | $2,303 | $2,264 | | Computer equipment | $49 | $46 | | Software/Website | $38 | $38 | | Total property and equipment | $6,718 | $6,676 | | Less accumulated depreciation and amortization | $3,908 | $3,727 | | Property and equipment, net | $2,810 | $2,949 | - Depreciation and amortization expense for property and equipment amounted to approximately $0.2 million for the three-month period ended March 31, 2023, compared to $0.1 million for the same period in 2022[64] Note 5. Intangible Assets, net This note outlines the company's intangible assets, including licenses and patents, and their amortization schedules Intangible Assets, Net (in thousands) | Category | March 31, 2023 Cost | March 31, 2023 Accumulated Amortization | March 31, 2023 Total | December 31, 2022 Cost | December 31, 2022 Accumulated Amortization | December 31, 2022 Total | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | License agreements | $2,044 | $(742) | $1,302 | $2,043 | $(685) | $1,358 | | Patent Costs | $951 | - | $951 | $887 | - | $887 | | Trademark costs | $172 | - | $172 | $164 | - | $164 | | Total | $3,167 | $(742) | $2,425 | $3,094 | $(685) | $2,409 | Future Amortization Expense for Intangible Assets (in thousands) | Year Ending December 31, | Amount | | :--- | :--- | | 2023 (remaining nine months) | $168 | | 2024 | $224 | | 2025 | $224 | | 2026 | $224 | | 2027 | $224 | | Thereafter | $238 | | Total | $1,302 | Note 6. Leases This note details the company's operating lease commitments, future payments, and associated lease costs Future Minimum Payments Under Operating Leases (in thousands) | Year Ending December 31, | Amount | | :--- | :--- | | 2023 (remaining nine months) | $518 | | 2024 | $702 | | 2025 | $718 | | 2026 | $735 | | 2027 | $185 | | Total | $2,858 | | Less: Interest | $392 | | Present Value of Lease Liability | $2,466 | - Total lease costs were approximately $0.3 million for both the three months ended March 31, 2023, and 2022, included in general and administrative expenses[68] Note 7. Stockholders' Equity This note details the company's common stock classes, voting rights, and recent equity transactions - As of March 31, 2023, the Company had 6,163,050 shares of Class A Common Stock and 14,871,085 shares of Class B Common Stock issued and outstanding[17] - Holders of Class A Common Stock are entitled to one vote per share, while holders of Class B Common Stock are entitled to five votes per share and may convert to Class A at any time[81] - During the three months ended March 31, 2023, shareholders exchanged 20,000 shares of Class B Common Stock for 20,000 shares of Class A Common Stock[82] Note 8. Equity Incentive Plan This note outlines the equity incentive plan, including RSU and stock option activity, and related compensation expense RSU Activity (Three Months Ended March 31, 2023) | Category | Number of RSUs | | :--- | :--- | | Outstanding (unvested) at December 31, 2022 | 329,746 | | RSU granted | 50,000 | | RSUs vested | (23,149) | | RSU expired/forfeited | - | | Outstanding (unvested) at March 31, 2023 | 356,597 | Stock Option Activity (Three Months Ended March 31, 2023) | Category | Number of Stock Options | Weighted Average Exercise Price | | :--- | :--- | :--- | | Outstanding at December 31, 2022 | 470,191 | $7.07 | | Options granted | - | - | | Options exercised | - | - | | Options expired/forfeited | - | - | | Outstanding at March 31, 2023 | 470,191 | $7.07 | - Equity-based compensation expense amounted to approximately $0.4 million for the three months ended March 31, 2023, compared to $0.5 million for the same period in 2022[103] Note 9. Commitments and Contingencies This note details contractual commitments for clinical trials, license agreements, and legal contingencies - As of March 31, 2023, the Company had three active master services agreements for clinical trials, with expected total expenditures of approximately $3.5 million over the next two years[105] - The Company has an Exclusive License Agreement with the University of Miami for Aging-related frailty-related MSC technology rights, with $92,000 in milestone fees accrued as of March 31, 2023[110][112] - A securities class action lawsuit was preliminarily settled for approximately $1.4 million, which was accrued as of March 31, 2023[115] Note 10. Employee Benefits Plan This note details the company's contributions to its employee 401(k) plan - The Company contributed approximately $38,000 to its 401(k) Plan during the three months ended March 31, 2023, an increase from $32,000 for the same period in 2022[117] Note 11. Loss Per Share This note explains the calculation of basic and diluted loss per share, identifying anti-dilutive instruments Anti-Dilutive Instruments Excluded from Diluted Net Loss Per Share (in thousands) | Instrument | March 31, 2023 | March 31, 2022 | | :--- | :--- | :--- | | RSUs | 356 | 306 | | Stock options | 470 | 304 | | Warrants | 1,271 | 1,271 | | Total | 2,097 | 1,881 | Note 12. Subsequent Events This note details significant events occurring after the balance sheet date, including RSU vesting and executive separations - On April 3, 2023, 10,648 RSUs vested, resulting in $9,000 paid by the Company for employee and employer taxes[119] - Separation agreements were finalized for the Chief Medical Officer (April 18, 2023) and Chief Financial Officer (April 19, 2023), including severance compensation and immediate acceleration and vesting of RSUs[120][121] ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides an overview of Longeveron's status as a clinical-stage biotechnology company focused on Lomecel-B™ for HLHS, Aging-related Frailty, and Alzheimer's disease, detailing its clinical development strategy, macroeconomic impacts, and a comparison of Q1 2023 and Q1 2022 financial results, highlighting increased R&D expenses and a larger net loss, alongside liquidity challenges and ongoing capital raising efforts Overview and Recent Developments This section provides an overview of Longeveron's clinical-stage biotechnology business and recent pipeline developments - Longeveron is a clinical-stage biotechnology company developing regenerative medicines, with Lomecel-B™ as its lead investigational product[126] - The company is currently pursuing three pipeline indications: Hypoplastic Left Heart Syndrome (HLHS), Aging-related Frailty, and Alzheimer's disease (AD)[127] - Lomecel-B™ has multiple modes of action, including pro-vascular, pro-regenerative, and anti-inflammatory mechanisms, promoting tissue repair and healing[126] Summary of Clinical Development Strategy This section outlines the company's core strategy for regenerative medicine, focusing on clinical trials and IP expansion - The core strategy is to become a world-leading regenerative medicine company through the development and commercialization of novel cell therapy products for unmet medical needs, with a focus on HLHS[132] - Key strategic elements include executing the ELPIS II Phase 2 trial for HLHS, developing international programs (e.g., Japan for Aging-related Frailty), pursuing Lomecel-B™ in Alzheimer's disease, expanding manufacturing capabilities, and expanding the intellectual property portfolio[133] Clinical Development Pipeline in 2023 This section details Lomecel-B™ clinical trial progress for HLHS, Aging-related Frailty, and Alzheimer's, including regulatory designations - Lomecel-B™ is being investigated in an ongoing Phase 2 clinical trial (ELPIS II) for Hypoplastic Left Heart Syndrome (HLHS), funded in part by the National Heart, Lung, and Blood Institute[135] - For HLHS, Lomecel-B™ has received Rare Pediatric Disease (RPD) Designation, Orphan Drug Designation (ODD), and Fast Track Designation from the FDA[136] - A Phase 2 clinical study for Aging-related Frailty patients in Japan has been approved by the PMDA, with the goal of enabling ASRM approval when combined with previous clinical results[140] Impact of Macroeconomic Conditions This section assesses the impact of macroeconomic conditions, including banking sector volatility, on company operations - The Company has transferred deposits and marketable securities to a larger bank to mitigate direct adverse impacts from ongoing banking sector volatility (e.g., Silicon Valley Bank and First Republic Bank closures)[138][200] - To date, current macroeconomic conditions have not materially impacted the Company's programs or operations, despite experiencing some supply constraints and marginal price increases[139] Components of Our Results of Operations This section explains the primary components of revenues, cost of revenues, R&D, and general and administrative expenses - Revenue is generated from grant awards, fees from The Bahamas Registry Trial, and contract development and manufacturing services[141] - Research and development costs are expensed as incurred and include clinical trial expenses, contracted research, license agreement fees, supplies, salaries, share-based compensation, and depreciation[144] - General and administrative expenses primarily consist of salaries, stock-based compensation, public company-related expenses, legal fees, insurance costs, and professional fees[147] RESULTS OF OPERATIONS - COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 2023 AND 2022 This section compares financial performance for the three months ended March 31, 2023 and 2022, highlighting changes in revenues and expenses Summary of Results of Operations (in thousands) | Item | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | Increase (Decrease) | | :--- | :--- | :--- | :--- | | Revenues | $279 | $370 | $(91) | | Cost of revenues | $203 | $205 | $(2) | | Gross profit | $76 | $165 | $(89) | | General and administrative expenses | $1,855 | $1,980 | $(125) | | Research and development expenses | $2,780 | $1,292 | $1,488 | | Selling and marketing expenses | $157 | $287 | $(130) | | Total operating expenses | $4,792 | $3,559 | $1,233 | | Loss from operations | $(4,716) | $(3,394) | $(1,322) | | Other income (expenses) | $69 | $(116) | $185 | | Net loss | $(4,647) | $(3,510) | $(1,137) | - Net loss increased by $1.1 million (32%) to $4.6 million for Q1 2023, primarily due to a $1.5 million (115%) increase in research and development expenses[155][157] - Revenues decreased by $0.1 million (24.6%) to $0.3 million in Q1 2023, mainly due to a reduction in grant funds and lower clinical trial revenue from the Bahamas Registry Trial[152] Cash Flows This section analyzes cash flow activities from operations, investing, and financing for the three months ended March 31, 2023 and 2022 Summary of Cash Flows (in thousands) | Activity | Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(5,848) | $(4,152) | | Net cash provided by investing activities | $346 | $767 | | Net cash used in provided by financing activities | $(17) | $(141) | | Change in cash and cash equivalents | $(5,519) | $(3,526) | - Net cash used in operating activities increased to $5.8 million in Q1 2023 from $4.2 million in Q1 2022, primarily driven by the net loss and payments to accounts payable[159] LIQUIDITY AND CAPITAL RESOURCES The company faces significant liquidity challenges, with insufficient cash to fund operations for the next year, raising substantial doubt about its going concern ability, relying on equity offerings, debt financings, and grant awards, having raised approximately $77.2 million from equity since inception, with future funding requirements substantial due to ongoing clinical development and operational expansion Capital Raising Efforts This section details the company's historical capital raising efforts through equity offerings and warrant exercises - The Company sold 2,910,000 shares in its IPO for $29.1 million gross proceeds and undertook a PIPE Offering of 1,169,288 shares and warrants for $20.5 million gross proceeds[166][168] - As of December 31, 2022, 51,061 warrants from the IPO were exercised, providing $0.6 million in net proceeds to the Company[167] Grant Awards This section details governmental and non-profit grant awards received and available unused funds - From inception through December 31, 2022, the Company was awarded approximately $11.9 million in governmental and non-profit association grants[169] - As of March 31, 2023, unused grant funds available for draw were approximately $0.1 million, a decrease from $0.8 million as of December 31, 2022[169] Funding Requirements This section outlines future capital needs, funding timeline, and potential sources of capital, including associated risks - The Company believes its existing cash and cash equivalents will only fund operating expenses and capital expenditure requirements into the first half of 2024[174] - Future funding requirements are substantial due to advancing clinical development, expanding intellectual property, hiring additional personnel, and seeking regulatory approvals[175] - The Company will need additional capital, which may be obtained through equity offerings, debt financings, or collaborations, potentially leading to dilution or relinquishing valuable rights[177][178][179] Critical Accounting Policies and Use of Estimates This section discusses critical accounting policies and estimates, including long-lived asset impairment and revenue recognition - Management evaluates long-lived assets for impairment when triggering events occur, assessing recoverability based on estimated undiscounted cash flows; no impairment was determined for Q1 2023 or Q1 2022[185] - Revenue recognition follows ASC Topic 606, recognizing revenue when performance obligations for grants, clinical trials, or contract manufacturing are met[186][187] - Research and development costs are expensed as incurred, including clinical trial expenses, contracted research, and license agreement fees[188] Emerging Growth Company Status This section explains the company's 'emerging growth company' status and associated reduced reporting requirements - The Company is an 'emerging growth company' under the JOBS Act, allowing it to take advantage of reduced reporting requirements and an extended transition period for new accounting standards[189] Recent Accounting Pronouncements This section refers to disclosures on recent accounting pronouncements and their potential financial impact - A description of recent accounting pronouncements that may potentially impact the Company's financial position, results of operations, or cash flows is disclosed in Note 2 to the unaudited condensed financial statements[192] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk The company reported no material changes in its exposure to market risk since the disclosure included in its 2022 Annual Report on Form 10-K - There were no material changes in the Company's exposure to market risk since the disclosure included in Management's Discussion and Analysis of Financial Condition and Results of Operations in its 2022 10-K[193] ITEM 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes in internal control over financial reporting during the quarter - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2023[194] - There were no changes in internal control over financial reporting that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting during the fiscal quarter ended March 31, 2023[195] PART II. OTHER INFORMATION This section includes legal proceedings, risk factors, unregistered equity sales, and a comprehensive list of exhibits ITEM 1. Legal Proceedings The company is involved in a securities class action lawsuit, preliminarily settled for approximately $1.4 million, accrued as of March 31, 2023 - A securities class action lawsuit, filed September 13, 2021, alleges materially false and misleading statements in the Company's initial public offering documents and other disclosures[199] - All parties preliminarily agreed to settle the action for approximately $1.4 million, which was accrued as of March 31, 2023, and is subject to Court approval[199] ITEM 1A. Risk Factors The company highlights risks from financial services industry volatility, potentially impacting its financial condition and operations - Adverse developments affecting the financial services industry, such as actual events or concerns involving liquidity, defaults, or non-performance by financial institutions (e.g., SVB, FRB closures), could adversely affect the Company's financial condition and results of operations[200] - Investor concerns regarding financial systems could result in less favorable commercial financing terms or systemic limitations on access to credit, making it more difficult for the Company to acquire financing[200] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported purchasing 4,431 equity shares in January 2023 at $3.37 per share, primarily for RSU vesting tax obligations Issuer Purchases of Equity Securities (January 1 - March 31, 2023) | Period | Total Number of Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 1-31, 2023 | 4,431 | $3.37 | | February 1-28, 2023 | - | - | | March 1-31, 2023 | - | - | | Total | 4,431 | $3.37 | - The shares purchased include those withheld from employees to satisfy minimum tax withholding obligations associated with the vesting of restricted stock units during the period[202] ITEM 6. Exhibits This section lists exhibits filed with the Form 10-Q, including agreements, officer certifications, and Inline XBRL documents - Exhibits include an agreement dated February 22, 2023, certifications of the principal executive officer and principal financial officer, and Inline XBRL Instance, Schema, Calculation, Definition, Label, and Presentation Linkbase Documents[206][207] SIGNATURES The report was signed on May 12, 2023, by the Chief Executive Officer and Chief Financial Officer of Longeveron Inc - The report was signed by Mohamed Wa'el Ahmed Hashad (Chief Executive Officer) and James Clavijo (Chief Financial Officer) on May 12, 2023[211]