NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – The Business
Overview
Lisata Therapeutics, Inc. (together with its subsidiaries, the “Company”) is a clinical-stage pharmaceutical company dedicated to the discovery, development and commercialization of innovative therapies for the treatment of solid tumors and other major diseases. The Company's lead investigational product candidate, LSTA1, is designed to activate a novel uptake pathway that allows co-administered or tethered anti-cancer drugs to penetrate solid tumors more effectively. LSTA1 actuates this active transport system in a tumor-specific manner, resulting in systemically co-administered anti-cancer drugs more efficiently penetrating and accumulating in the tumor, while normal tissues are not expected to be affected. LSTA1 also has the potential to modify the tumor microenvironment (“TME”), with the objective of making tumors more susceptible to immunotherapies. The Company and its collaborators have amassed significant non-clinical data demonstrating enhanced delivery of a range of emerging anti-cancer therapies, including immunotherapies and RNA-based therapeutics. To date, LSTA1 has also demonstrated favorable safety, tolerability, and activity in completed and ongoing clinical trials designed to enhance delivery of standard-of-care chemotherapy for pancreatic cancer. The Company is exploring the potential of LSTA1 to enable a variety of treatment modalities to treat a range of solid tumors more effectively. In addition, the Company has development programs based on its autologous CD34+ cell therapy technology platform that it will look to partner while incurring no additional capital outlay.
The Company's leadership team has decades of collective biopharmaceutical and pharmaceutical product development experience across a variety of therapeutic categories and at all stages of development from preclinical through to product registration and launch. Its goal is to develop and commercialize products that address important unmet medical needs. The Company’s current development pipeline includes:
•LSTA1, the subject of Phase 1b/2a and 2b clinical studies being conducted globally in a variety of solid tumor types, including metastatic pancreatic ductal adenocarcinoma (mPDAC), in combination with a variety of anti-cancer regimens.
Merger with Cend Therapeutics, Inc. and Name Change
On September 15, 2022, the Company, then operating as Caladrius Biosciences, Inc. (“Caladrius”), completed its acquisition of Cend Therapeutics, Inc. (“Cend”), a Delaware corporation (the “Merger”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of April 26, 2022, by and among Caladrius, Cend and CS Cedar Merger Sub, Inc. (“Merger Sub”).
Pursuant to the terms set forth in the Merger Agreement and effective September 15, 2022 (the “Effective Time”): (i) Merger Sub merged with and into Cend, with Cend surviving as a wholly owned subsidiary of Caladrius, (ii) Caladrius changed its name to Lisata Therapeutics, Inc., and (iii) Caladrius effected a 1:15 reverse stock split of its common stock (“Reverse Stock Split”) prior to the Effective Time. At the Effective Time, each share of Cend's common stock outstanding immediately prior to the Effective Time was converted into the right to receive shares of Lisata’s common stock based on an exchange ratio of 0.5338, after taking into account the Reverse Stock Split (the “Exchange Ratio”). In connection with the Merger close, the Company issued an aggregate of 3,772,768 shares of common stock, based on the Exchange Ratio, to holders of Cend, in exchange for all of the Cend capital stock outstanding immediately prior to the closing of the Merger.
Pursuant to the Merger Agreement, Lisata assumed all of the outstanding and unexercised options to purchase shares of Cend capital stock under the 2016 Equity Incentive Plan (the “Cend Plan”), and, in connection with the Merger, such options were converted into options to purchase shares of Lisata’s common stock based on the Exchange Ratio. At the closing of the Merger at the Effective Time, the Company assumed Cend's stock options to purchase an aggregate of 1,227,776 shares of the Company's common stock.
Caladrius was considered to be the accounting acquirer based on the terms of the Merger Agreement and certain factors including: (i) Caladrius owned approximately 52% of the Company's outstanding shares of common stock immediately following the close of the Merger; (ii) although both entities contributed to the new management team of Lisata, the Caladrius team had more individuals on the management team and holds the chief executive officer (“CEO”), chief medical officer (“CMO”) and other senior management roles; (iii) Caladrius paid a premium to acquire Cend’s assets; and (iv) Caladrius was significantly larger than Cend regarding total assets, operations, and research and development activities. The Merger was accounted for as an asset acquisition as substantially all of the fair value is concentrated in in-process research and development (“IPR&D”). Cend’s assets (except for cash and working capital) were measured and recognized as an allocation of the transaction price based on their relative fair values as of the transaction date with any value associated with IPR&D with no
alternative future use being expensed as reported in the consolidated statement of operations. Operating results presented in the consolidated statements of operations and comprehensive loss prior to the Merger are solely related to Caladrius Biosciences, Inc. and subsidiaries.
Coronavirus Considerations
Lisata's Phase 2b FREEDOM Trial of XOWNA® in the U.S. experienced delays in enrolling patients as a result of COVID-19. While early enrollment proceeded to plan with the first patient treated in January 2021, the impact of the COVID-19 pandemic contributed to a general slowing of enrollment, including supply chain disruptions affecting the availability of qualified catheters used in the diagnosis of CMD and/or administration of XOWNA® as well as with a contrast agent typically used in many catheter laboratories. In May 2022, the Company announced that enrollment in the FREEDOM Trial was suspended and that it intended to conduct an interim analysis of the data from not less than the first 20 patients enrolled using the 6-month follow-up data to evaluate the efficacy and safety of XOWNA® in subjects with CMD. Following this analysis along with Key Opinion Leaders’ input, the Company determined that execution of a redesigned FREEDOM-like trial would be the appropriate next step, but the cost of such a trial would be prohibitively expensive to undergo without a strategic partner. Accordingly, the Company’s board of directors concluded that XOWNA® development will only be continued if a strategic partner that can contribute the necessary capital for a redesigned trial is identified and secured. There can be no assurance that we will be able to identify such a partner and enter into an agreement with such partner on acceptable terms or at all.
Reverse Stock Split
On September 14, 2022, in connection with the Merger, the Company implemented the Reverse Stock Split, as authorized at the annual meeting of stockholders on September 13, 2022. The Reverse Stock Split became effective on September 14, 2022 at 5:00 pm and the Company's common stock began trading on The Nasdaq Capital Market on a post-split basis at the open of business on September 15, 2022. As of September 14, 2022, every fifteen shares of the Company’s issued and outstanding common stock (and such shares held in treasury) were automatically converted into one share of common stock, without any change in the par value per share. In addition, proportionate adjustments were made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, stock appreciation rights, convertible notes and warrants to purchase shares of common stock, the number of shares issuable upon the vesting of all restricted stock awards, and the number of shares of common stock reserved for issuance pursuant to the Company’s equity incentive compensation plans. Any stockholder who would otherwise be entitled to a fractional share of common stock created as a result of the Reverse Stock Split received a cash payment equal to the product of such resulting fractional interest in one share of common stock multiplied by the closing trading price of the common stock on September 15, 2022. The Reverse Stock Split was effectuated in order to increase the per share trading price of our common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market.
All share and per share amounts of common stock, options and warrants in the accompanying financial statements have been restated for all periods presented to give retroactive effect to the Reverse Stock Split. Accordingly, the consolidated statements of equity reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the SEC for interim financial information. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, the accompanying Consolidated Financial Statements of the Company and its subsidiaries, which are unaudited, include all normal and recurring adjustments considered necessary to present fairly the Company’s financial position as of March 31, 2023, and the results of its operations and its cash flows for the periods presented. The unaudited consolidated financial statements herein should be read together with the historical consolidated financial statements of the Company for the years ended December 31, 2022 and 2021 included in our 2022 Form 10-K. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, 2023.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of expenses during the reporting period. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes critical estimates and assumptions in determining stock-based awards values and the valuation of the Merger which was accounted for as an asset acquisition as substantially all of the fair value is concentrated in in-process research and development (“IPR&D”). Accordingly, actual results could differ from those estimates and assumptions.
Principles of Consolidation
The Consolidated Financial Statements include the accounts of Lisata Therapeutics, Inc. and its wholly owned and majority owned subsidiaries and affiliates. All intercompany activities have been eliminated in consolidation.
Foreign Currency Remeasurement
The Company’s reporting currency is the U.S. Dollar. The functional currency of Lisata Therapeutics Australia Pty Ltd. which is a foreign subsidiary of the Company is the Australian Dollar. The assets and liabilities of Lisata Therapeutics Australia Pty Ltd. are translated into U.S. Dollars at the exchange rates in effect at each balance sheet date, and the results of operations are translated using the average exchange rates prevailing throughout the reporting period. Adjustments resulting from translating foreign functional currency financial statements into U.S. Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive income (loss) in stockholders' equity.
Note 2 – Summary of Significant Accounting Policies
Cash and Cash Equivalents
Cash and cash equivalents include short-term, highly liquid, investments with maturities of ninety days or less when purchased.
Concentration of Risks
The Company is subject to credit risk from its portfolio of cash, cash equivalents and marketable securities. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. Cash is held at major banks in the United States and may exceed federally insured limits. The goals of the Company's investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements, and a competitive after-tax rate of return.
Marketable Securities
The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. All of the Company's marketable securities are considered as available-for-sale and carried at estimated fair values and reported in cash equivalents and marketable securities. Unrealized gains and losses on available-for-sale securities are excluded from net income and reported in accumulated other comprehensive income (loss) as a separate component of stockholders' equity. Other income (expense), net, includes interest, dividends, amortization of purchase premiums and discounts, realized gains and losses on sales of securities and other-than-temporary declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method. The Company regularly reviews all of its investments for other-than-temporary declines in fair value. The Company's review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that it will be required to sell the securities before the recovery of their amortized cost basis. When the Company determines that the decline in fair value of an investment is below its accounting basis and this decline is other-than-temporary, it reduces the carrying value of the security it holds and records a loss for the amount of such decline.
Property and Equipment
The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line method. Repairs and maintenance expenditures that do not extend original asset lives are charged to expense as incurred. The estimated useful lives of property and equipment are as follows:
| | | | | |
| Furniture and fixtures | 10 years |
| Computer equipment | 3 years |
| Software | 3 years |
| Leasehold improvements | Life of lease |
Long-lived Assets
Long-lived assets consist of property and equipment. The assets are amortized on a straight line basis over their respective useful lives. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds the fair value of the asset. If other events or changes in circumstances indicate that the carrying amount of an asset that the Company expects to hold and use may not be recoverable, the Company will estimate the undiscounted future cash flows expected to result from the use of the asset and/or its eventual disposition, and recognize an impairment loss, if any. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets.
Share-Based Compensation
The Company expenses all share-based payment awards to employees, directors, and consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, the Company estimates the probability of achievement of the performance criteria and recognizes compensation expense related to those awards expected to vest. The Company determines the fair value of option awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. Stock based compensation expense also includes an estimate, which is made at the time of the grant, of the number of awards that are expected to be forfeited. The fair value of the Company’s restricted stock and restricted stock units is based on the closing market price of the Company’s common stock on the date of grant.
Loss Per Share
Basic loss per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding. Diluted loss per share is not presented as such potentially dilutive securities are anti-dilutive to losses incurred in all periods presented.
Treasury Stock
Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains or losses on the subsequent reissuance of shares are credited or charged to additional paid in capital.
Research and Development Costs
Research and development (“R&D”) expenses include salaries, benefits, and other headcount related costs, clinical trial and related clinical manufacturing costs, contract and other outside service fees including sponsored research agreements, and facilities and overhead costs. The Company expenses the costs associated with research and development activities when incurred.
To further drive the Company’s initiatives, the Company will continue targeting key governmental agencies, congressional committees and not-for-profit organizations to contribute funds for the Company’s research and development programs. The Company accounts for such grants as a deduction to the related expense in research and development operating expenses when earned.
In-process Research and Development Expense
Upfront payments that relate to the acquisition of a new drug compound, as well as pre-commercial milestone payments, are immediately expensed as IPR&D in the period in which they are incurred, provided that the new drug compound did not also include processes or activities that would constitute a “business” as defined under U.S. GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use. The Company accounts for contingent consideration payable upon achievement of certain regulatory, development or sales milestones in such asset acquisitions when the underlying contingency is probable and estimable. Milestone payments made to third parties
subsequent to regulatory approval will be capitalized as intangible assets and amortized over the estimated remaining useful life of the related product.
Intangible Asset
The Company’s intangible asset consists of a single asset, Cend’s license agreement with Qilu Pharmaceutical, Co., Ltd. (“Qilu”) acquired in the Merger, with a value of $0.4 million. The intangible asset is stated at fair value and is amortized using the straight-line method over its estimated useful life of 5 years. Amortization expense was $18 thousand for the three months ended March 31, 2023. The intangible asset is reviewed for potential impairment when events or circumstances indicate that carrying amounts may not be recoverable. The projected amortization expense is $71 thousand per year for the next five years.
Revenue Recognition
The Company evaluates license and collaboration arrangements to determine whether units of account within the arrangement exhibit the characteristics of a vendor and customer relationship. For arrangements and units of account where a customer relationship exists, the Company applies the revenue recognition guidance. The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. To determine revenue recognition for contracts with customers the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies the performance obligations. At contract inception, the Company assesses the goods or services promised within each contract and assesses whether each promised good or service is distinct and determines those that are performance obligations. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. Taxes imposed by governmental authorities on the Company's revenue, such as sales taxes and withholding taxes, are excluded from net revenue.
If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license. If licenses are bundled with other performance obligations, the Company would utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. There was no revenue recognized for the three months ended March 31, 2023 and 2022.
Milestones
At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price. Milestone payments that are not within the Company or the Company’s collaboration partner’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received. The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the Company’s estimate of the overall transaction price. Any such adjustments are allocated on a cumulative catch-up basis to satisfied and partially satisfied performance obligations, with the consideration allocated to an ongoing performance obligation being recognized over the period of performance. For the three months ended March 31, 2023 and March 31, 2022, the Company has not recognized revenue related to milestones.
Royalties
For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue from any collaborative arrangement.
Note 3 – Merger
The Merger was accounted for as an asset acquisition as substantially all of the fair value was concentrated in IPR&D. Cend’s assets (except for cash and working capital) were measured and recognized as an allocation of the transaction price based on their relative fair values as of the transaction date with any value associated with IPR&D being expensed. The fair value of total consideration was $36.1 million. The following table is a summary of the purchase price calculation (in thousands except per share data).
| | | | | |
| |
| |
| |
| |
| Number of common shares of the combined company owned by Cend stockholders | 3,772,768 | |
| Multiplied by the fair value per share of Lisata common stock on September 15, 2022 | $6.25 |
| Total | $23,580 |
| Carrying value of Lisata's cost method investment in Cend | 10,000 | |
| Incremental fair value of Cend's fully vested stock options | 2,136 | |
| Lisata transaction costs | 382 | |
| Total purchase price | $36,098 |
The allocation of the purchase price was as follows (amounts in thousands):
| | | | | |
| |
| |
| |
| |
| Cash and cash equivalents | $7,062 |
| Net working capital (excluding cash) | (1,690) | |
| Other liabilities | (22) | |
| Acquired in-process research and development | 30,393 | |
| License | 355 | |
| |
| Net assets acquired | $36,098 |
Note 4 – Available-for-Sale-Securities
The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in our Consolidated Balance Sheets (in thousands):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value | | Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Estimated Fair Value |
| | | | | | | | | | | | | | | |
| Corporate debt securities | $ | 37,267 | | | $ | — | | | $ | (29) | | | $ | 37,238 | | | $ | 44,308 | | | $ | — | | | $ | (17) | | | $ | 44,291 | |
| Commercial paper | 5,328 | | | — | | | — | | | 5,328 | | | 7,953 | | | — | | | — | | | 7,953 | |
| Money market funds | 12,666 | | | — | | | — | | | 12,666 | | | 4,871 | | | — | | | — | | | 4,871 | |
| Municipal debt securities | 349 | | | — | | | — | | | 349 | | | 7,626 | | | — | | | (1) | | | 7,625 | |
| | | | | | | | | | | | | | | |
| Total | $ | 55,610 | | | $ | — | | | $ | (29) | | | $ | 55,581 | | | $ | 64,758 | | | $ | — | | | $ | (18) | | | $ | 64,740 | |
Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The following table summarizes the classification of the available-for-sale securities in our Consolidated Balance Sheets (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Cash equivalents | $ | 22,641 | | | $ | 27,668 | |
| Marketable securities | 32,940 | | | 37,072 | |
| Total | $ | 55,581 | | | $ | 64,740 | |
The following table summarizes our portfolio of available-for-sale securities by contractual maturity (in thousands):
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| March 31, 2023 |
| Amortized Cost | | Estimated Fair Value |
| Less than one year | $ | 55,610 | | | $ | 55,581 | |
| Greater than one year | — | | | — | |
| Total | $ | 55,610 | | | $ | 55,581 | |
Note 5 – Property and Equipment
Property and equipment consisted of the following (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Furniture and fixtures | $ | — | | | $ | 25 | |
| Computer equipment | 589 | | | 589 | |
| Leasehold improvements | 72 | | | 99 | |
| Property and equipment, gross | 661 | | | 713 | |
| Accumulated depreciation | (399) | | | (417) | |
| Property and equipment, net | $ | 262 | | | $ | 296 | |
The Company’s results included depreciation expense of approximately $30 thousand and $7 thousand for the three months ended March 31, 2023 and 2022, respectively.
Note 6 – Income (Loss) Per Share
For the three months ended March 31, 2023 and 2022, the Company incurred net losses and therefore no common stock equivalents were utilized in the calculation of diluted loss per share as they are anti-dilutive. At March 31, 2023 and 2022, the Company excluded the following potentially dilutive securities (in thousands):
| | | | | | | | | | | |
| | March 31 |
| | 2023 | | 2022 |
| Stock Options | 1,493 | | | 176 | |
| Warrants | 1,424 | | | 1,424 | |
| | | |
| Restricted Stock Units | 237 | | | 97 | |
Note 7 – Fair Value Measurements
The fair value of financial assets and liabilities that are being measured and reported are defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). The Company is required to classify fair value measurements in one of the following categories:
Level 1 inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
Level 2 inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly.
Level 3 inputs are defined as unobservable inputs for the assets or liabilities.
Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.
The Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of March 31, 2023 and December 31, 2022 (in thousands):
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| | March 31, 2023 | | December 31, 2022 |
| | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 | | Total |
| Assets: | | | | | | | | | | | | | | | | |
| Marketable securities - available for sale | | $ | — | | | $ | 32,940 | | | $ | — | | | $ | 32,940 | | | $ | — | | | $ | 37,072 | | | $ | — | | | $ | 37,072 | |
| | | | | | | | | | | | | | | | |
| | $ | — | | | $ | 32,940 | | | $ | — | | | $ | 32,940 | | | $ | — | | | $ | 37,072 | | | $ | — | | | $ | 37,072 | |
The carrying values of cash, cash equivalents, accounts payable and accrued expenses approximate fair value as of March 31, 2023 and December 31, 2022, due to the short maturity nature of these items.
Note 8 – Accrued Liabilities
Accrued liabilities as of March 31, 2023 and December 31, 2022 were as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Salaries, employee benefits and related taxes | $ | 1,173 | | | $ | 2,586 | |
| Operating lease liabilities — current | 156 | | | 180 | |
| D&O insurance liabilities | 956 | | | — | |
| Clinical and R&D related liabilities | 1,334 | | | 785 | |
| Other | 326 | | | 177 | |
| Total | $ | 3,945 | | | $ | 3,728 | |
Note 9 – Operating Leases
The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019 and recognized leases with duration greater than 12 months on the balance sheet using the modified retrospective approach. The Company has operating leases for two offices, one of which expired on March 31, 2023 and the other expires in 2025. The Company estimates its incremental borrowing rate at lease commencement to determine the present value of lease payments as most of the Company's leases do not provide an implicit rate of return. The Company recognizes lease expense on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company elected to account for non-lease components associated with its leases and lease components as a single lease component. Each of the Company's leases includes options for the Company to extend the lease term and/or sub-lease space in whole or in part.
Operating lease liabilities and right-of-use assets were recorded in the following captions of our balance sheet as follows (in thousands):
| | | | | | | | | | | |
| March 31, 2023 | | December 31, 2022 |
| Right-of-Use Assets: | | | |
| Other assets | $ | 425 | | | $ | 487 | |
| Total Right-of-Use Asset | $ | 425 | | | $ | 487 | |
| | | |
| Operating Lease Liabilities: | | | |
| Accrued liabilities | $ | 156 | | | $ | 180 | |
| Other long-term liabilities | 265 | | | 305 | |
| Total Operating Lease Liabilities | $ | 421 | | | $ | 485 | |
As of March 31, 2023, the weighted average remaining lease term for our operating lease was 2.5 years, and the weighted average discount rate for our operating lease was 9.625%. As of December 31, 2022, the weighted average remaining lease term for our operating leases was 1.50 years, and the weighted average discount rate for our operating leases was 9.625%.
Future minimum lease payments under the lease agreement as of March 31, 2023 were as follows (in thousands):
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| Years ended | Operating Leases |
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| |
| 2023 | 143 | |
| 2024 | 190 | |
| 2025 | 143 | |
| Total lease payments | 476 | |
| Less: Amounts representing interest | (55) | |
| Present value of lease liabilities | $ | 421 | |
Note 10 – Stockholders' Equity
Reverse Stock Split
On September 14, 2022, in connection with the merger, we implemented the Reverse Stock Split, as described in Note 1. All share and per share amounts of common stock, options and warrants in the accompanying financial statements have been restated for all periods presented to give retroactive effect to the Reverse Stock Split. Accordingly, the consolidated statements of equity reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.
Equity Issuances
At The Market Offering Agreement
On June 4, 2021, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C. Wainwright & Co., LLC, as sales agent, in connection with an “at the market offering” under which the Company from time to time may offer and sell shares of its common stock, having an aggregate offering price of up to $50.0 million. Subsequent to the filing of our Form 10-K on March 22, 2022, the aggregate market value of our outstanding common stock held by non-affiliates was approximately $43.6 million. Pursuant to General Instruction I.B.6 of Form S-3, since the aggregate market value of our outstanding common stock held by non-affiliates was below $75.0 million at the time of such Form 10-K filing, the aggregate amount of securities that we are permitted to offer and sell was reduced to $17,698,943, which was equal to one-third of the aggregate market value of our common stock held by non-affiliates as of September 21, 2022. During the three months ended March 31, 2023 and since inception, the Company has not issued any shares under the ATM Agreement.
Common Stock
In connection with the Merger closing, the Company issued an aggregate of 3,772,768 shares of common stock, based on the Exchange Ratio, to holders of Cend, in exchange for all of the Cend capital stock outstanding immediately prior to the closing of the Merger.
Stock Options and Warrants
In connection with the Merger and after giving effect to the Reverse Stock Split, the Company assumed 1,227,776 options outstanding of Cend. The options granted under the Cend Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their original date of grant. The Cend Plan stock options generally vest over a four-year term. The following table summarizes the activity for stock options and warrants for the three months ended March 31, 2023:
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| | Stock Options | | Warrants |
| | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (In Thousands) | | Shares | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value (In Thousands) |
| Outstanding at December 31, 2022 | | 1,391,352 | | | $ | 10.83 | | | 7.03 | | $ | 187.6 | | | 1,423,774 | | | $ | 42.57 | | | 3.37 | | $ | — | |
| | | | | | | | | | | | | | | | |
| Changes during the period: | | | | | | | | | | | | | | | | |
| Granted | | 103,850 | | | 3.11 | | | | | | | — | | | — | | | | | |
| | | | | | | | | | | | | | | | |
| Exercised | | — | | | — | | | | | | | — | | | — | | | | | |
| Forfeited | | — | | | — | | | | | | | — | | | — | | | | | |
| Expired | | (2,520) | | | 224.37 | | | | | | | — | | | — | | | | | |
| Outstanding at March 31, 2023 | | 1,492,682 | | | $ | 9.94 | | | 7.01 | | $ | 359.4 | | | 1,423,774 | | | $ | 42.57 | | | 3.13 | | $ | — | |
Vested at March 31, 2023
or expected to vest in the future | | 1,486,393 | | | $ | 9.96 | | | 7.00 | | $ | 358.2 | | | 1,423,774 | | | $ | 42.57 | | | 3.13 | | $ | — | |
| Vested at March 31, 2023 | | 1,207,228 | | | $ | 10.90 | | | 6.64 | | $ | 344.4 | | | 1,423,774 | | | $ | 42.57 | | | 3.13 | | $ | — | |
Restricted Stock
During the three months ended March 31, 2023 and 2022, the Company issued restricted stock for services as follows ($ in thousands):
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| | | 2023 | | 2022 |
| Number of restricted stock issued | | 159,950 | | | 70,745 | |
| Value of restricted stock issued | | $ | 480 | | | $ | 973 | |
The vesting terms of restricted stock issuances are generally between one and four years.
Restricted Stock Units
During the three months ended March 31, 2023 and 2022, the Company issued restricted stock units for services as follows ($ in thousands, except share data):
| | | | | | | | | | | |
| Three Months Ended March 31, |
| 2023 | | 2022 |
| Number of restricted stock units issued | 188,850 | | | 91,990 | |
| Value of restricted stock units issued | $ | 567 | | | $ | 1,265 | |
The weighted average estimated fair value of restricted stock issued for services in the three months ended March 31, 2023 and 2022 was $3.00 and $13.76 per share, respectively. The fair value of the restricted stock units was determined using the Company’s closing stock price on the date of issuance. The vesting terms of restricted stock unit issuances are generally one year, or upon the achievement of performance-based milestones.
Note 11 – Share-Based Compensation
Share-Based Compensation
We utilize share-based compensation in the form of stock options, restricted stock, and restricted stock units. The following table summarizes the components of share-based compensation expense for the three months ended March 31, 2023 and 2022 (in thousands):
| | | | | | | | | | | | | | | | | |
| | | Three Months Ended March 31, |
| | | | | 2023 | | 2022 |
| Research and development | | | | | $ | 187 | | | $ | 218 | |
| General and administrative | | | | | 488 | | | 542 | |
| Total share-based compensation expense | | | | | $ | 675 | | | $ | 760 | |
| | | | | | | |
Total compensation cost related to unvested awards not yet recognized and the weighted-average periods over which the awards were expected to be recognized at March 31, 2023 were as follows (in thousands):
| | | | | | | | | | | | | | | | | |
| Stock Options | | Restricted Stock Units | | Restricted Stock |
| Unrecognized compensation cost | $ | 1,042 | | | $ | 378 | | | $ | 459 | |
| Expected weighted-average period in years of compensation cost to be recognized | 1.42 | | 1.22 | | 1.47 |
Total fair value of shares vested and the weighted average estimated fair values of shares granted for the three months ended March 31, 2023 and 2022 were as follows (in thousands):
| | | | | | | | | | | | | | | |
| Stock Options | | |
| Three Months Ended March 31, | | |
| 2023 | | 2022 | | | | |
| Total fair value of shares vested | $ | 324 | | | $ | 377 | | | | | |
| Weighted average estimated fair value of shares granted | $ | 0.78 | | | $ | 0.62 | | | | | |
Valuation Assumptions
The fair value of stock options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of the Company’s stock. The expected term for the options is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. The expected term for the warrants is based upon the contractual term of the warrants.
Note 12 – Income Taxes
In assessing the realizability of deferred tax assets, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize its existing deferred tax assets. Based on its assessment, the Company has provided a full valuation allowance against its net deferred tax assets as their future utilization remains uncertain at this time.
As of December 31, 2021, the Company had approximately $281 million of Federal NOLs available to offset future taxable income expiring from 2030 through 2036. The Company performed an analysis and determined that they had an ownership change of greater than 50% over a 3-year testing period on January 25, 2021. As a result, $168.8 million of the $281 million of Federal NOLs will expire unutilized. The Company wrote off that portion of the deferred tax asset and reduced the corresponding valuation allowance resulting in $112.3 million of remaining Federal NOLs. The write off of the deferred tax asset and the corresponding reduction in valuation allowance has no impact to the balance sheet or income statement. Losses incurred before the ownership change on January 25, 2021 will be subject to an annual limitation of $173 thousand under Internal Revenue Code Section 382.
As of December 31, 2022, the Company had approximately $34.0 million of Federal NOLs available to offset future taxable income expiring from 2030 through 2036. The Company performed an analysis and determined that they had an ownership change of greater than 50% on September 15, 2022. As a result of the ownership change, $88.2 million of Federal
NOLs will expire unutilized. The Company wrote off that portion of the deferred tax asset and reduced the corresponding valuation allowance resulting in $34.0 million of remaining Federal NOLs. The write off of the deferred tax asset and the corresponding reduction in valuation allowance has no impact to the balance sheet or income statement. Losses incurred before the ownership change on September 15, 2022 will be subject to an annual limitation of zero while losses incurred after September 15, 2022 will not be subject to limitations.
As of December 31, 2022, Cend Therapeutics had approximately $10.9 million of Federal NOLs available to offset future taxable income. The Company performed an analysis and determined that there was an ownership change of greater than 50% on September 15, 2022. As of September 15, 2022 Cend has approximately $10.7 million of Federal and $15.0 million of state NOLs. The state NOLs will expire from the 2036 through 2042 tax years. Using a fair market value of $36.1 million and applying an applicable federal rate of 2.54% Cend will have an annual limitation of approximately $917 thousand each year. The Federal NOL of $106 thousand incurred in the post-acquisition period September 15, 2022 to December 31, 2022 is not subject to limitation, and does not expire. Cend’s wholly owned Australian subsidiary has $1.8 million of NOLs which will be carried forward and do not expire. There is a full valuation allowance against the NOLs.
As of December 31, 2022 and 2021, the Company had State NOLs available in New Jersey of $35.5 million and $97.0 million, respectively, California of $10.0 million and $69.5 million, respectively, and New York City of $1.9 million and $13.0 million, respectively, to offset future taxable income expiring from 2032 through 2042. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s NOLs is limited given the change in ownership. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible.
The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes the two-step process to determine the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company recognizes interest and penalties associated with uncertain tax positions as a component of income tax expense.
As of December 31, 2022 and 2021, the Company’s uncertain tax positions were $344 thousand and $0, respectively. Due to the acquisition of Cend, the Company’s uncertain tax positions increased by $344 thousand related to Federal and state credits and certain state NOLs. The Company will continue to evaluate its uncertain tax positions in future periods. As of March 31, 2023, the Company does not believe there will be any material changes in its unrecognized tax positions over the next year.
For years prior to 2019, the federal statute of limitations is closed for assessing tax. The Company’s state tax returns remain open to examination for a period of three to four years from the date of filing.
On April 5, 2023, Lisata received final approval to sell a portion of their unused New Jersey net operating losses (“NJ NOLs”) through the State of New Jersey Economic Development Authority's Technology Business Tax Certificate Transfer Program (the “Program”). The Program permits qualified companies to sell a percentage of their NJ NOLs to unrelated profitable corporations. When the NOL’s are sold it will be a discrete event. The Company will record a deferred income tax benefit and reduce the deferred tax asset (NJ NOLs) when the transaction closes and cash is received.
On August 16, 2022, the Inflation Reduction Act was signed into law. The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023. For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022. Since the Company is in a net operating loss position, the capitalization of research and development costs did not have a material impact on the Company’s results of operations for the year ended December 31, 2022. The Company will continue to monitor possible future impact of changes in tax legislation.
Note 13 – Australia Research and Development Tax Incentive
The Company’s Australian subsidiary, which conducts core research and development activities, is eligible to receive a refundable tax incentive between 43.5% to 48.5% (depending upon the income tax rate) for qualified research and development activities. As of the three months ended March 31, 2023, $1.0 million was recorded as an income tax incentive receivable in the consolidated balance sheets, as the Company determined that the expenses met the eligibility criteria and the amounts claimed are expected to be received shortly after the related tax returns are filed.
Note 14 – Contingencies
Contingencies
From time to time, the Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of pending claims cannot be predicted with certainty, the Company does not believe that the outcome of any pending claims will have a material adverse effect on the Company's financial condition or operating results.
In May 2021, Cend received a written threat of litigation on behalf of a Chinese entity called Lingmed Limited (“Lingmed”) claiming Lingmed was entitled to a success fee based on Cend’s Collaboration and License Agreement with Qilu Pharmaceuticals. Cend responded by denying that Lingmed is entitled to a success fee under the terms of their agreement. In May 2022, Cend was served with a complaint filed by Lingmed in the San Diego County Superior Court, alleging claims for breach of contract, fraud and declaratory relief. Cend’s response to the complaint was filed on June 6, 2022. Lingmed filed an answer to Cend’s response on July 11, 2022. The court held a case management conference on October 7, 2022, which resulted in a continuance until December 16, 2022. On December 16, 2022, the court continued the case management conference until April 7, 2023. At the April 7, 2023 case management conference, based on Lingmed reporting that it had not yet been able to effect service on an individually-named defendant through the Hague Convention, the court continued the conference until August 4, 2023. The Company denies these allegations and intends to vigorously defend against this claim.
Note 15 – License Agreements
Sanford Burnham Prebys
In December 2015, Cend entered into a license agreement with Sanford Burnham Prebys (“SBP”) under which Cend was granted an exclusive, worldwide, royalty-bearing license to certain patent rights and know-how controlled by SBP related to the development of LSTA1. At the time the license agreement was entered into, Cend’s founding shareholder, now a Lisata board member, was an executive at SBP. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights. As consideration for the license, Cend issued a total of 382,030 shares of common stock, as adjusted for the Reverse Stock Split and Exchange Ratio. The Company is required to pay an annual license maintenance fee of $10,000 increasing to $20,000 on year seven of the agreement. The Company could also be required to make milestone payments to SBP upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $10.6 million. The Company has also agreed to pay SBP royalties of 4% of net sales of products sold by the Company, or through a sublicense, subject to certain reductions. Additionally, the Company is obligated to pay SBP 25% of any sublicensing income.
In October 2021, Cend entered into a license agreement with SBP under which Cend was granted an exclusive, royalty-bearing license to certain patent rights and know-how controlled by SBP. The agreement provides Cend with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights. The Company is required to pay an annual license maintenance fee of $20,000, increasing to $30,000 on year four of the agreement. Further, the Company could be required to make milestone payments to SBP upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $23.2 million. The Company is obligated to pay SBP royalties of 4% of net sales of products sold by the Company or through a sublicense, subject to certain reductions. Additionally, the Company is obligated to pay SBP varying sublicense fees, ranging from 10% to 25%, dependent on when the related milestones are reached.
The agreements will expire upon the later of (i) the final abandonment of all pending patent applications within the licensed patents or (ii) the expiration of the last to expire patent within the licensed patents. The agreements may be terminated in their entirety by the Company at any time by giving SBP sixty days’ prior written notice. The agreements may be terminated in their entirety by SBP if the Company, at any time, defaults in the payment of any sum when due and fails to make such payment within thirty days after receipt of written notice. The agreements may be terminated in their entirety by SBP or the Company (i) in the event of an uncured material breach by the other party, or (ii) in the event the other party (a) files for, or is involuntarily petitioned with, bankruptcy (other than dissolution or winding up for the purposes of reconstruction or amalgamation), (b) makes an assignment of all or substantially all of its assets for the benefit of creditors, or (c) has a receiver or trustee is appointed and is unable to secure a dismissal, stay or other suspension of such proceedings within thirty days. Upon termination of the agreements for any reason, all rights and obligations of the Company with respect to the patents and patent applications shall terminate and revert to SBP.
SBP owned 382,030 shares of the Company’s common stock as of March 31, 2023 and is a related party.
University of California at San Diego
In March 2021, Cend entered into a license agreement with the University of California at San Diego (“UCSD”) under which Cend was granted an exclusive, royalty-bearing license to certain patent rights related to the development of nano-particles to modulate immune response. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell and otherwise exploit the patent rights. The Company could be required to make milestone payments to UCSD upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $1.2 million. The Company has also agreed to pay UCSD royalties of 1.5% of net sales of products sold by the Company or through a sublicense, subject to certain reductions. Additionally, the Company agreed to pay UCSD varying sublicense fees, ranging from 10% to 20%, dependent on when the related milestones are reached.
The agreement will expire upon the expiration of the longest-lived patent rights. The agreement may be terminated in its entirety by the Company at any time by giving UCSD ninety days’ prior written notice. The agreement may be terminated in its entirety by UCSD if the Company, at any time, (i) fails to perform or violates any term of the agreement and fails to cure the default within sixty days. Upon termination of the agreement for any reason, UCSD may terminate a sublicensee but will allow the Company to assign any sublicenses to UCSD provided a) that the sublicensee is in good standing upon termination of the agreement with the Company; and b) the sublicensee is not currently involved in litigation as an adverse party to UCSD.
Massachusetts Institute of Technology
In October 2021, Cend entered into a license agreement with the Massachusetts Institute of Technology ("MIT") under which Cend was granted an exclusive, royalty-bearing license to certain patent rights related to the development of tissue specific delivery of interfering RNA. The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights. As consideration for the license, Cend issued a total of 43,236 shares of common stock, as adjusted for the Reverse Stock Split and Exchange Ratio. The Company is required to pay an annual license maintenance fee of $20,000, increasing to $25,000 for year two and three of the agreement, increasing to $50,000 on year four of the agreement and thereafter until the first commercial sale, and increasing to $150,000 each year of the agreement after the first sale. Further, the Company could be required to make milestone payments to MIT upon completion of certain regulatory and commercial milestones. The aggregate potential milestone payments are approximately $5.0 million. The Company has also agreed to pay MIT royalties of 2% of net sales of products sold by the Company or through a sublicense, subject to certain reductions. Additionally, the Company is obligated to pay MIT varying sublicense fees, ranging from 3% to 20%, depending on when the related milestones are reached. In connection with the close of the Merger, the Company was required to pay MIT a change of control fee of $0.3 million.
The agreement will expire upon the expiration or abandonment of all valid claims. The agreement may be terminated in its entirety by the Company at any time by giving MIT six months prior written notice. The agreement may be terminated in its entirety by MIT if the Company, at any time, (i) defaults in the payment of any sum when due and fails to make such payment within thirty days after receipt of written notice, or (ii) commits a material breach of its obligations under the agreement (aside from item (i)) and fails to cure that breach within sixty days after receipt of written notice. Upon termination of the agreement for any reason, the rights and licenses granted to the Company shall terminate and revert to MIT. Upon termination of the agreement for any reason, MIT may terminate a sublicensee but will allow the Company to assign any sublicenses to MIT provided that the sublicensee is in good standing upon termination of the agreement with the Company.
MIT owned 43,236 shares of the Company’s common stock as of March 31, 2023
Note 16 – Research Collaboration and License Agreement
Exclusive License and Collaboration Agreement
In February 2021, Cend entered into an Exclusive License and Collaboration Agreement (the “Qilu Agreement”) in which Cend granted an exclusive license to Qilu for the development and commercialization of LSTA1 in the Territory (defined as the Greater Area of China including China, Macau, Hong Kong, and Taiwan). Under the terms of the agreement, Qilu is solely responsible for the development of LSTA1 in its Territory. In consideration for the license, Qilu made an upfront payment of $10 million to Cend, which was recognized as revenue by Cend prior to the Merger. In addition, Cend received and recognized as revenue a $5 million development milestone prior to the Merger. The Company is eligible to receive additional developmental and commercial milestone payments up to $95 million and $125 million, respectively, tiered royalties on net sales ranging from 10% to 15%, and tiered sublicensing revenues ranging from 12% to 35%.
Unless terminated early, the Qilu Agreement will continue in effect until the expiration of all Qilu payment obligations. Either party may terminate the Qilu Agreement if an undisputed material breach by the other party is not cured within a defined period of time, or upon notice for insolvency-related events of the other party that are not discharged within a defined time
period. Qilu may terminate the Qilu Agreement in its entirety, at any time with at least sixty days written notice. All rights and obligations of Qilu with respect to such licensed patents and patent applications would terminate.
Note 17 – Subsequent Events
Sale of New Jersey Net Operating Losses
On September 19, 2022, the Company received preliminary approval from the New Jersey Economic Development Authority ("NJEDA") to participate in the Technology Business Tax Certificate Transfer Program (the "Program"). The Program permits qualified companies to sell a percentage of their New Jersey net operating losses ("NJ NOLs") to unrelated profitable corporations. On April 5, 2023, the Company received final approval from the NJEDA, and it subsequently sold a portion of its NJ NOLs to a qualifying and approved buyer pursuant to the Program for net proceeds of $2.2 million.
Elimination of President and Chief Business Officer Position
On May 1, 2023, the Company, after a careful review of capital utilization and prioritization, eliminated the position of President and Chief Business Officer, and terminated the employment of Mr. David Slack, effective immediately. Pursuant to the employment agreement, dated as of September 15, 2022, by and between the Company and Mr. Slack (the “Slack Employment Agreement”), the termination of Mr. Slack’s employment also constituted his resignation from any director, officer, employee or committee position he had with the Company or any of its affiliates and the Slack Employment Agreement served as written notice of resignation upon such termination. Accordingly, Mr. Slack effectively resigned from the Company’s Board of Directors as of May 1, 2023 pursuant to the terms of the Slack Employment Agreement.
In connection with Mr. Slack’s resignation and in accordance with the terms and conditions of the Slack Employment Agreement, Mr. Slack is entitled to receive the following items of compensation: (i) a lump sum payment of $24,134, representing earned but unpaid base salary, earned and vested but unpaid bonus amounts, accrued and unused paid time off, unreimbursed business expenses and other payments and benefits owed to Mr. Slack under the terms of his compensation arrangements with the Company; (ii) severance payments in a total amount of $478,400, to be paid over a period of 12 months following termination (the “Slack Severance Period”); (iii) COBRA assistance for the duration of the Slack Severance Period, not including the portion of the monthly premium which Mr. Slack would otherwise have paid if he had not resigned and (iv) a bonus payment equal to $239,200, representing 50% of Mr. Slack’s base salary at the time of termination, paid in equal installments for the duration of the Slack Severance Period. Also in connection with his termination, the exercise period of each of Mr. Slack’s vested options was extended to three years following termination or the remaining term of such awards, whichever period is shorter.