Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following
discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related
notes thereto and other financial information appearing elsewhere in this 10-K. This 10-K contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995. See “Cautionary Note Regarding Forward-Looking Statements”
and Part I, Item 1A, “Risk Factors.” Readers are also urged to carefully review and consider these and other disclosures
made by us which attempt to advise interested parties of the factors which affect our business.
Introduction
and Overview
We are a
clinical stage biotechnology company developing regenerative medicines to address unmet medical needs. The Company’s lead investigational
product is Lomecel-BTM. Lomecel-BTM has multiple modes of action that include pro-vascular, pro-regenerative, and anti-inflammatory
mechanisms, promoting tissue repair and healing with broad potential applications across a spectrum of disease areas.
We are currently
pursuing three pipeline indications: Hypoplastic Left Heart Syndrome (“HLHS”), Alzheimer’s disease (“AD”)
and Aging-related Frailty. Our mission is to advance Lomecel-BTM and other cell-based product candidates into pivotal trials, with
the goal of achieving regulatory approvals, subsequent commercialization, and broad use by the healthcare community.
Financial
Overview. Since inception, the Company has primarily been engaged in organizational activities, including raising capital, and research
and development activities. The Company does not yet have a product that has been approved by the FDA, and has only generated revenues
from grants, the Bahamas Registry Trials and contract manufacturing. The Company has not yet achieved profitable operations or generated
positive cash flows from operations. The Company has incurred recurring losses from operations since its inception, and as of December
31, 2023 the Company had an accumulated deficit of $85.0 million. The Company expects to continue to generate operating losses for the
foreseeable future.
We believe
that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements into the
second quarter of 2024. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available
capital resources sooner than we expect. We currently have no credit facility or committed sources of capital. To continue as a going
concern we will need to obtain additional capital, which we will likely obtain through a variety of means, including through public or
private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To
the extent that we raise additional capital through the sale of convertible debt or equity securities, current stockholder ownership
interest will be diluted, and the terms may include liquidation or other preferences that adversely affect stockholder rights. Such financing
will likely result in dilution to stockholders, and may result in imposition of debt covenants, increased fixed payment obligations or
other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments pursuant
to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates, or grant licenses
on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations
even if we believe we have sufficient funds for our current or future operating plans.
Operational
Overview. With respect to HLHS, we are exploring the possibility that Lomecel-BTM when administered directly to the myocardium
of affected infants, can improve outcomes in this devastating rare pediatric disease. The standard of care in HLHS is a series of three
reconstructive surgeries, typically at 10 days, 4 months, and approximately 4 years of life. Despite these life-saving surgical interventions,
it is estimated that only 50 to 60 percent of affected individuals survive until adolescence. The pro-vascular, pro-regenerative and
anti-inflammatory properties of Lomecel-BTM may improve the function of the right ventricle in these infants. A previous Longeveron
Phase 1 open-label study indicated that such a benefit may exist when outcomes were compared to historical controls. Longeveron is currently
conducting a controlled study to determine the actual benefit of Lomecel-BTM in these patients.
77
As of February 16, 2024, we have completed five U.S. clinical studies
of Lomecel-BTM: Phase 1 AD, Phase 1 HLHS, Phase 1/2 Aging-related frailty (“HERA Trial”), Phase 2a AD (CLEAR MIND Trial”),
and Phase 2b Aging-related frailty. We currently have one clinical trial actively enrolling patients: Phase 2b HLHS (“ELPIS II”
trial). Additionally, we sponsor a registry in The Bahamas under the approval and authority of the National Stem Cell Ethics Committee.
The Bahamas Registry Trials may administer Lomecel-BTM to eligible participants at private clinics in Nassau for a variety of indications.
While Lomecel-BTM is considered an investigational product in The Bahamas, under the approval terms from the National Stem Cell Ethics
Committee, we are permitted to charge a fee to participate in the Registry Trial.
Since our
founding in 2014, we have focused the majority of our time and resources on the following: organizing and staffing our company, building,
staffing and equipping a cGMP manufacturing facility with research and development labs, business planning, raising capital, establishing
our intellectual property portfolio, generating clinical safety and efficacy data in our selected disease conditions and indications,
and developing and expanding our manufacturing processes and capabilities.
We manufacture
all of our own product candidates for clinical trials. In 2017 we opened a manufacturing facility comprised of eight clean rooms, two
research and development laboratories, and warehouse and storage space. We have supply contracts with multiple third parties for fresh
bone marrow, which we use to produce our product candidate for clinical testing and research and development. From time to time, we enter
into contract development and manufacturing contracts or arrangements with third parties who seek to utilize our product development
capabilities.
Since the
time that we became a publicly traded company in February 2021, we have sold 6,798,041 shares of Common Stock through our IPO, a December
2021 private issuance of public equity (“PIPE”) offering (the “2021 PIPE Offering”), a September 2023 rights
offering, an October 2023 registered direct offering with pre-funded warrants and concurrent private placement (the “October 2023
Offering”) and a December 2023 registered direct offering and concurrent private placement (the “December 2023 Offering”),
along with warrants to purchase (i) 106,400 shares of common stock at an initial exercise price of $12.00 per share issued to the
underwriter in our IPO in February 2021 (the “IPO Warrants”), (ii) 1,169,288 shares of Common Stock at an initial exercise
price of $17.50 per share in the 2021 PIPE Offering (the “PIPE Purchaser Warrants”) as well as representative warrants to
purchase 46,722 shares of common stock at an exercise price of $17.50 per share (the “PIPE Representative Warrants” and together
with the PIPE Purchaser Warrants the “PIPE Warrants”), (iii) 4,848,486 warrants to purchase shares of common stock at an
exercise price of $1.65 per share (the “October 2023 Private Placement Warrants”) as well as placement agent warrants to
purchase 169,697 shares of common stock at an exercise price of $2.0625 per share (the “October 2023 Placement Agent Warrants”)
in the October 2023 Offering (collectively, the “October 2023 Warrants”), and (iv) 1,355,301 warrants to purchase shares
of common stock at an exercise price of $1.62 per share (the “December 2023 Private Placement Warrants”) as well as placement
agent warrants to purchase 94,871 shares of common stock at an exercise price of $2.1813 per share (the “December 2023 Placement
Agent Warrants”) in the December 2023 Offering (collectively, the “December 2023 Warrants”). The exercise price of
the PIPE Purchaser Warrants were re-set in accordance with their terms upon announcement and in connection with the consummation of the
September 2023 rights offering to $5.25 per share.
When appropriate
funding opportunities arise, we routinely apply for grant funding to support our ongoing research and since 2016 we have received approximately
$16.0 million in grant awards ($11.5 million of which has been directly awarded to us and is recognized as revenue when the performance
obligations are met) from the National Institute on Aging (“NIA”) of the National Institutes of Health (“NIH”),
the National Heart Lung and Blood Institute (“NHLBI”) of the NIH, the Alzheimer’s Association, and the Maryland Stem
Cell Research Fund (“MSCRF”) of the Maryland Technology Development Corporation, or TEDCO.
78
Components
of Our Results of Operations
Revenue
We have generated
revenue from three sources:
Cost of
Revenues
We record
cost of revenues based on expenses directly related to revenue. For grants we record allocated expenses for research and development
costs to a grant as a cost of revenues. For the clinical trial revenue, directly related expenses for that program are allocated and
accrued as incurred. These expenses are similar to those described under “Research and Development Expenses” below.
Selling
and Marketing Expenses
Selling and
marketing expenses consist primarily of royalty and license fees associated with our agreements with the University of Miami, investor
and public relations costs, as well as attending and sponsoring industry, investment, organization and medical conferences and events.
Research
and Development Expenses
Research
and development costs are charged to expense when incurred in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”) 730 Research and Development. ASC 730 addresses the proper accounting and reporting
for research and development costs. It identifies: first, those activities that should be identified as research and development; second,
the elements of costs that should be identified with research and development activities, and the accounting for these costs; and third
the financial statement disclosures related to them. Research and development include costs such as clinical trial expenses, contracted
research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee
benefits, property and equipment depreciation and allocation of various corporate costs. We accrue for costs incurred by external service
providers, including contract research organizations (“CROs”) and clinical investigators, based on estimates of service performed
and costs incurred. These estimates include the level of services performed by the third parties, subject enrollment in clinical trials,
administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced
by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future
periods as the related services are rendered.
79
We currently
do not carry any inventory for our product candidates, as we have yet to launch a product for commercial distribution. Historically our
operations have focused on conducting clinical trials, product research and development efforts, and improving and refining our manufacturing
processes, and accordingly, manufactured clinical doses of product candidates were expensed as incurred, consistent with the accounting
for all other research and development costs. Once we begin commercial distribution, all newly manufactured approved products will be
allocated either for use in commercial distribution, which will be carried as inventory and not expensed, or for research and development
efforts, which will continue to be expensed as incurred.
We expect
that our research and development expenses will continue to be significant in the future as we increase our headcount to support increased
research and development activities relating to our clinical programs, as well as incur additional expenses related to our clinical trials.
General
and Administrative Expenses
General and
administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our
executive, finance, business development and administrative functions. General and administrative expenses also include public company
related expenses; legal fees relating to corporate matters; insurance costs; professional fees for accounting, auditing, tax and consulting
services; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and
maintenance of facilities and other operating costs.
We expect
that our general and administrative expenses will continue to be significant in the future as we increase our headcount to support increased
administrative activities as a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated
with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations
costs.
Other
Income and Expenses
Interest
income consists of interest earned on cash equivalents and marketable securities. We expect our interest income to fluctuate due to changes
in the current cash and marketable securities balances. Other income consists of funds earned that are not part of our normal operations.
In past years they have been primarily a result of tax refunds received for social security taxes as part of a research and development
tax credit program.
Income
Taxes
No provision
for income taxes has been recorded for the years ended December 31, 2023, and 2022. We may incur income taxes in the future if we have
earnings. At this time the Company has not evaluated the impact of any future profits.
80
RESULTS
OF OPERATIONS
COMPARISON
OF THE YEARS ENDED DECEMBER 31, 2023 AND 2022
The following
table summarizes our results of operations for the years ended December 31, 2023 and 2022, together with the changes in those items in
dollars (in thousands):
Year Ended December 31, Increase
Operating Expenses
Other (expense) and income
Revenues, Cost of Revenues and Gross Profit: Revenues for the
years ended December 31, 2023 and 2022 were $0.7 million and $1.2 million, respectively. 2023 revenues decreased $0.5 million, or 42%,
when compared to 2022 as a result of decreased grant and lower participant demand for our Bahamas Registry Trial. Grant revenue for the
years ended December 31, 2023 and 2022 was less than $0.1 million and $0.3 million, respectively. The decrease of $0.2 million, or 85%,
when compared to 2022, was primarily due to a reduction in grant funds available due in part to the completion of the grant-funded clinical
trials. Clinical trial revenue, which is derived from the Bahamas Registry Trial, for the years ended December 31, 2023 and 2022 was $0.7
million and $0.9 million, respectively. Clinical trial revenue for the year ended December 31, 2023 decreased by $0.2 million, or 29%,
when compared to 2022 as a result of decreased participant demand.
Related cost of revenues was $0.5 million and $0.7 million for the
years ended December 31, 2023 and 2022, respectively. The decrease of $0.2 million, or 33%, was primarily due to the decrease in the revenues
earned from the Bahamas Registry Trials and reduced direct costs associated with our grants program. This resulted in a gross profit of
approximately $0.2 million for the year ended December 31, 2023, a decrease of $0.3 million, or 56%, when compared with a gross profit
of $0.5 million for 2022.
General
and Administrative Expense: General and administrative expenses for the year ended December 31, 2023 increased to approximately $11.4
million, compared to $8.1 million for the same period in 2022 . The increase of approximately $3.3 million, or 40%, was primarily related
to an increase of $1.6 million for compensation and benefit expenses (including $0.4 million of separation costs), $1.0 million in legal,
professional and consulting fees, $0.4 million of public company expenses, $0.2 million in equity-based compensation costs allocated
to general and administrative expenses, and $0.1 million for higher board fees.
81
Research
and Development Expenses: Research and development expenses for the year ended December 31, 2023 decreased to approximately $9.1
million, from approximately $9.4 million for the same period in 2022. The decrease of $0.3 million, or 3%, was primarily due to decreases
of $0.5 million in equity-based compensation allocated to research and development expenses and $0.3 million in compensation and benefits,
offset by increases of $0.4 million in supplies and costs to manufacture Lomecel-BTM and $0.2 million in research and development
expenses that were not reimbursable by grants. Research and development expenses consisted primarily of the following items (less those
expenses allocated to the cost of revenues for the grants)(in thousands):
Year Ended December 31,
Supplies and costs to manufacture Lomecel-BTM 1,214 817
Employee compensation and benefits 1,861 2,203
Selling and Marketing Expenses: Selling and marketing expenses
for the years ended December 31, 2023 and 2022 were $0.8 million and $1.1 million, respectively. The decrease of $0.3 million, or 25%,
was primarily due to decreases in investor relations and international development expenses.
Non-operating
Lawsuit expense: Non-operating Lawsuit expense for the years ended December 31, 2023 and 2022 was less than $0.1 million and approximately
$1.4 million, respectively. Additional detail can be found in Part I, Item 3 “Legal Proceedings” of this Form 10-K. Legal
expenses incurred in ordinary business activities are reported within general and administrative expenses.
Other
tax credits: Other tax credits for each of the years ended December 31, 2023 and 2022 was less than $0.1 million and $0.3 million,
respectively. Other tax credits was greater in 2022 due to receiving the Employee Retention Credit under the CARES Act which encourages
businesses to keep employees on their payroll. Eligible businesses receive a refundable tax credit of up to 50% of up to $10,000 in wages
paid.
Other
(Expense) Income, net: Other expense for the years ended December 31, 2023 and 2022 was $0.4 million and $0.8 million,
respectively. Other expense for 2023 decreased mainly as a result of non-operating lawsuit expenses of $1.4 million in 2022,
compared to less than $0.1 million in 2023. This decrease was partially offset by realized losses on sales of marketable securities
of $0.3 million, write-offs of intangible assets of $0.3 million and reduced benefit of tax credits of $0.3 million. Also recorded
in other (expense) income in 2022 was approximately $27,000 for a gain resulting from foreign currency changes and $27,000 of
sublease rental income.
Net Loss:
Net loss increased to approximately $21.4 million for the year ended December 31, 2023, from a net loss of $18.8 million for the
same period in 2022. The increase in the net loss of $2.6 million, or 14%, was for reasons outlined above.
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Cash Flows
The following
table summarizes our sources and uses of cash for the period presented for the (in thousands):
Year Ended December 31,
Net cash used in operating activities $ (19,002 ) $ (13,969 )
Net cash proved by (used in) investing activities 8,186 (677 )
Net cash provided by (used in) financing activities 5,262 (509 )
Net decrease in cash and cash equivalents $ (5,554 ) $ (15,155 )
Operating Activities. We have incurred losses
since inception. Net cash used in operating activities for the year ended December 31, 2023 was $19.0 million, consisting primarily of
our net loss of $21.4 million and payments for accounts payable of $1.1 million and payment of the non-operating lawsuit of $1.4 million.
This was partially offset by non-cash expenses of $2.0 million in equity-based compensation expenses, $0.9 million in depreciation and
amortization, and $0.3 million for the write-off of intangible assets, as well as an increase in accrued expenses of $1.5 million. Net
cash used in operating activities for the year ended December 31, 2022 was $14.0 million, consisting primarily of our net loss of $18.8
million, partially offset by $1.4 million in non-operating lawsuit expenses not paid until May 2023 and other non-cash expenses of $2.2
million in equity-based compensation expenses and $0.9 million in depreciation and amortization expenses.
Investing Activities. Net cash provided by investing
activities for the year ended December 31, 2023 was $8.2 million consisting primarily of proceeds from the sale of marketable securities
of $8.9 million, which was partially offset by additions to intangible assets of $0.4 million and purchases of equipment of $0.3 million.
Net cash used in investing activities for year ended December 31, 2022 was $0.7 million, consisting primarily of an increase in purchases
of equipment of $0.6 million and purchases of intangibles of $0.3 million.
Financing
Activities. Net cash provided by financing activities for the year ended December 31, 2023 was $5.3 million consisting
primarily of $5.4 million of net proceeds received from the October 2023 and December 2023 Offerings. Net cash used in financing activities
for the year ended December 31, 2022 was $0.5 million consisting primarily of $0.5 million in payment of taxes and consultants.
LIQUIDITY
AND CAPITAL RESOURCES
Since our
inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses as we advance
the preclinical and clinical development of our programs. We expect that our sales, research and development and general and administrative
costs will remain substantial in connection with conducting additional preclinical studies and clinical trials for our current and future
programs and product candidates, contracting with CROs to support preclinical studies and clinical trials, expanding our intellectual
property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital
to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other
sources.
To date,
we have financed our operations primarily through our IPO, registered and private placement equity financings, grant awards, and fees
generated from the Bahamas Registry Trials and contract manufacturing services. Since we were formed, we have raised approximately $83.9
million in gross proceeds from the issuance of equity. As of December 31, 2023, the Company had cash and cash equivalents of $4.9 million,
marketable securities of $0.4 million and working capital of approximately $2.0 million.
We
believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure
requirements into the second quarter of 2024. We have based these estimates on assumptions that may prove to be imprecise, and we
could utilize our available capital resources sooner than we expect. We are actively seeking financing opportunities to extend our
cash runaway while taking measures to reduce our cash expenditures as we focus our resources on our primary strategic program in
HLHS. These cost saving measures include the discontinuation of our Aging-related Frailty clinical trial in Japan, related staff
reductions, and continued prudent management of discretionary spend.
83
Capital
Raising Efforts
In our IPO,
we sold 2,910,000 shares of Class A common stock at a public offering price of $10.00 per share for aggregate gross proceeds of $29.1
million, inclusive of the underwriter’s partial exercise of its over-allotment option, prior to deducting underwriting discounts,
commissions, and other offering expenses.
The underwriter
received warrants to purchase 106,400 Class A common stock shares. The warrants are exercisable at any time and from time to time, in
whole or in part, during the four and a half-year period commencing August 12, 2021, at a price of $12.00 per Class A common stock share.
During 2021, the underwriters assigned 95,760 of the warrants to its employees. As of December 31, 2023, 51,061 warrants have been exercised,
which provided net proceeds to the Company of $0.6 million.
On December
3, 2021, we closed our 2021 PIPE Offering, whereby we undertook a private purchase and sale to certain accredited investors of an aggregate
of 1,169,288 shares of our Class A common stock and Purchase Warrants to purchase 1,169,288 shares of Class A common stock at an initial
exercise price of $17.50 per share, resulting in aggregate gross proceeds of $20.5 million prior to deducting fees and offering
expenses. We also issued Representative Warrants exercisable for 46,772 shares of Class A common stock to affiliates of Placement Agent
with an initial exercise price of $17.50 per share.
On August
16, 2023, the Company announced its rights offering, which triggered the downward pricing mechanism on certain warrants of the 2021 PIPE
Offering, at which time these warrants were adjusted downward to an exercise price of $5.25 for the period remaining through expiration.
On June 27,
2023, the Company filed a registration statement with the SEC to conduct a tradeable subscription rights offering for up to $30.0 million
of shares of Class A common stock to its stockholders and holders of certain warrants to purchase common stock On July 28, 2023, the
Company filed a first amendment to the registration statement. On August 16, 2023, the registration statement was declared effective
by the SEC, and on August 22, 2023, the Company launched the subscription rights offering at a subscription price of $3.00 per share
of Class A common stock. On September 21, 2023, the subscription period for the rights offering of the Company expired. At the end of
the subscription period, the Company sold 108,497 shares of its Class A common stock at a price of $3.00 per share. There were no net
proceeds to the Company after deducting the $0.3 million of expenses associated with the rights offering.
On October
11, 2023 the Company entered into a securities purchase agreement with an institutional and accredited investor (the “Purchaser”)
relating to the registered direct offering and sale of an aggregate of 2,365,000 shares of the Company’s Class A common stock,
par value $0.001 per share and pre-funded warrants to purchase up to 59,243 shares of Class A common stock at an exercise price of $0.001
per share, at a purchase price of $1.65 per share of common stock and $1.649 per pre-funded Warrant (the “October 2023 Registered
Direct Offering”), which Offering closed and was funded on October 13, 2023.
In a concurrent
private placement with the October 2023 Registered Direct Offering, the Company also sold to the Purchaser unregistered Series A warrants
to purchase up to an aggregate of 2,424,243 shares of its Class A common stock and unregistered Series B warrants to purchase up to an
aggregate of 2,424,243 shares of its Class A common stock (the “October 2023 Private Placement” and together with the October
2023 Registered Direct Offering, the “October 2023 Offering”). The unregistered Series A warrants have an exercise price
of $1.65 per share, became exercisable on December 26, 2023, following receipt of stockholder approval of the issuance of the shares
issuable upon exercise of the Series A warrants, and have a term of five and one-half years from the date of issuance. The unregistered
Series B warrants have an exercise price of $1.65 per share, became exercisable the same times as the Series A warrants, and have a term
of eighteen months from the date of issuance. Each warrant is exercisable for one share of Class A common stock. The net proceeds to
the Company from the Offering and Private Placement was approximately $3.4 million, after deducting placement agent fees and other offering
expenses paid by the Company.
84
On December
20, 2023 the Company entered into a securities purchase agreement with an institutional and accredited investor (the “Purchaser”)
relating to the registered direct offering and sale of an aggregate of 1,355,301 shares of the Company’s Class A common stock,
par value $0.001 per share, at a purchase price of $1.745 per share of common stock (the “December 2023 Registered Direct Offering”),
which Offering closed and was funded on December 22, 2023.
In a concurrent
private placement on December 22, 2023, the Company also sold to the Purchaser unregistered long-term warrants to purchase up to an aggregate
of 1,355,301 shares of its Class A common stock (the “December 2023 Private Placement”, and together with the December 2023
Registered Direct Offering, the “December 2023 Offering”). The unregistered December 2023 Private Placement warrants have
an exercise price of $1.62 per share, became immediately exercisable upon issuance, and expire on June 20, 2029, and have a term of five
and one-half years from the date of issuance. The net proceeds to the Company from the 2023 December 2023 Offering was approximately
$2.0 million, after deducting placement agent fees and other offering expenses paid by the Company.
Grant
Awards
From inception
through December 31, 2023, we have been awarded approximately $11.9 million in governmental and non-profit association grants, which
have been used to fund our clinical trials, research and development, production and overhead. Grant awards are recognized as revenue,
and depending on the funding mechanism, are deposited directly in our accounts as lump sums, which are staggered over a predetermined
period or drawn down from a federal payment management system account for reimbursement of expenses incurred. Revenue recognition occurs
when the grant related expenses are incurred or supplies and materials are received. As of December 31, 2023, and 2022, the amount of
unused grant funds that were available for us to draw was approximately $0.1 million and $0.8 million, respectively. The following
table summarizes the grants awarded.
Longeveron Project Funding Agency(1) Total Amount ($) Status of Award
Aging-related frailty Phase 2b Trial SBIR (DHHS) NIA 3,957,813 Complete
Aging-related frailty Phase 2b Trial SBIR (DHHS) NIA 283,040 Complete
Alzheimer’s Disease Phase 1 Trial(2) Alzheimer’s Association 3,000,000 Complete
Alzheimer’s Disease Phase 1 Trial Alzheimer’s Association 1,000,000 Complete
The Metabolic Syndrome Sub-Study STTR (DHHS) NIA 150,000 Complete
The Metabolic Syndrome Sub-Study STTR (DHHS) NIA 901,486 Complete
HLHS Phase 1 Trial MSCRF - TEDCO 750,000 Complete
HLHS Phase 2 Trial(3) UG3 (DHHS) NHLBI 477,566 Ongoing
ARDS Phase 1 MSCRF - TEDCO 650,000 Complete
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Terms
and Conditions of Grant Awards
Grant projects
are typically divided into periods (e.g., a three-year grant may have three one-year periods), and the total amount awarded is divided
according to the number of periods. At pre-specified time points, which are detailed in the grant award notifications, we are required
to submit interim financial and scientific reports to the granting agency totaling funds spent, and in some cases, detailing use of proceeds
and progress made during the reporting period. After funding the initial period, receipt of additional grant funds is contingent upon
satisfactory submission of our interim reports to the granting agency.
Grant awards
arise from submitting detailed research proposals to granting agencies, and winning a highly competitive and rigorous application review
and process that is judged on the merits of the proposal. There are typically multiple applicants applying and competing for a finite
amount of funds. As such we cannot be sure that we will be awarded grant funds in the future despite our past success in receiving such
awards.
Funding
Requirements
Our operating
costs will continue to be substantial for the foreseeable future in connection with our ongoing activities. In past years we have been
able to fund a large portion of our clinical programs and our administrative overhead with the use of grant funding.
Specifically,
we will incur expenses to:
● maintain, expand and protect our intellectual property portfolio;
We
believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure
requirements into the second quarter of 2024. We have based these estimates on assumptions that may prove to be imprecise, and we
could utilize our available capital resources sooner than we expect. We are actively seeking financing opportunities to extend our
cash runaway while taking measures to reduce our cash expenditures as we focus our resources on our primary strategic program in
HLHS. These cost saving measures include the discontinuation of our Aging-related Frailty clinical trial in Japan, related staff
reductions, and continued prudent management of discretionary spend.
86
Because of
the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, it is difficult
to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors,
including:
Further,
our operating results may change in the future, and we may need additional funds to meet operational needs and capital requirements associated
with such operating plans. Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect
to finance our cash needs through a combination of equity offerings, debt financings, grant awards, collaboration agreements, other third-party
funding, strategic alliances, licensing arrangements and marketing and distribution arrangements.
We currently
have no credit facility or committed sources of capital. Debt financing and preferred equity financing, if available, may involve agreements
that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital
expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic
alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies,
future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are
unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate
our biologic drug development or future commercialization efforts or grant rights to develop and market products or product candidates
that we would otherwise prefer to develop and market ourselves.
In order
to meet our operational goals, we will need to obtain additional capital, which we will likely obtain through a variety of means, including
through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic
collaborations. To the extent that we raise additional capital through the sale of convertible debt or equity securities, current stockholder
ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect stockholder rights.
Such financing will likely result in dilution to stockholders, and may result in imposition of debt covenants, increased fixed payment
obligations or other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments
pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates, or grant
licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic
considerations even if we believe we have sufficient funds for our current or future operating plans.
Contractual
Obligations and Commitments
As of December
31, 2023, we have $2.0 million in operating lease obligations and $1.5 million in CRO payment obligations. We enter into contracts in
the normal course of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other
services and products for operating purposes. These contracts generally provide for termination following a certain period after notice
and therefore we believe that our non-cancelable obligations under these agreements are not material.
We have not
included milestone or royalty payments or other contractual payment obligations if the timing and amount of such obligations are unknown
or uncertain.
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Critical
Accounting Policies and Use of Estimates
Our management’s
discussion and analysis of financial condition, results of operations and liquidity are based on our financial statements, which have
been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). The preparation of our
financial statements and related disclosures requires us to make estimates, judgements and assumptions that affect the reported amounts
of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. We base our estimates on historical experience, known trends and events
and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions
on an ongoing basis. Our actual results may materially differ from these estimates under different assumptions or conditions. On an on-going
basis, we review our estimates to ensure that they appropriately reflect changes in our business or new information as it becomes available.
While our
significant accounting policies are described in more detail in the notes to our financial statements included in this 10-K, we believe
that the following accounting policies are those most critical due to the judgments and estimates used in the preparation of our financial
statements.
Impairment
of Long-Lived Assets. We evaluate long-lived assets for impairment, including property and equipment and intangible assets, when
events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon the occurrence of a triggering
event, the asset is reviewed to assess whether the estimated undiscounted cash flows expected from the use of the asset plus the residual
value from the ultimate disposal exceeds the carrying value of the asset. If the carrying value exceeds the estimated recoverable amounts,
the asset is written down to the estimated fair value. Any resulting impairment loss is reflected on the statements of operations. Management
determined that there was no impairment of long-lived assets during the years ended December 31, 2023 and 2022.
Revenue
recognition. Effective January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, which establishes a single
and comprehensive framework on how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue
to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects
to be entitled in exchange for those goods or services. Revenue will be recognized by a vendor when control over the goods or services
is transferred to the customer.
We recognize
revenue when performance obligations related to respective revenue streams are met. For grant revenue, we consider the performance obligation
met when the grant related expenses are incurred or supplies and materials are received. For clinical trial revenue, we consider the
performance obligation met when the participant has received the therapy. For Contract Manufacturing Revenue, we consider the performance
obligation met when the contractual obligation and / or statement of work has been satisfied.
Research
and development expense. Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research
and Development. Research and development include costs such as clinical trial expenses, contracted research and license agreement fees
with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, property and equipment
depreciation and allocation of various corporate costs. We accrue for costs incurred by external service providers, including contract
research organizations and clinical investigators, based on estimates of service performed and costs incurred. These estimates include
the level of services performed by the third parties, subject enrollment in clinical trials, administrative costs incurred by the third
parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record
payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are
rendered.
88
Emerging
Growth Company Status
We are an
“emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, which is a law intended to
encourage funding of small businesses in the U.S. by easing many of the country’s securities regulations, and we may take advantage
of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth
companies from being required to comply with new or revised financial accounting standards until private companies are required to comply
with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting
standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company
effective dates. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting
under Sarbanes-Oxley Act Section 404(b).
We will remain
an “emerging growth company” until the earliest of (1) the last day of the fiscal year in which we have total annual gross
revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our IPO,
(3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on
which we are deemed to be a large accelerated filer under the rules of the SEC, which generally is when a company has more than $700
million in market value of its reported class of stock held by non-affiliates and has been a public company for at least 12 months and
have filed at least one Annual Report on Form 10-K.
Recent
Accounting Pronouncements
A description
of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed
in Note 2 to our audited financial statements included in Item 8 of this 10-K.
Item 7A.
Quantitative and Qualitative Disclosures about Market Risk.
We are exposed
to market risks in the ordinary course of our business. These risks primarily include interest rate sensitivities. We held cash, cash
equivalents and marketable securities of approximately $5.4 million as of December 31, 2023. We generally hold our cash in interest-bearing
money market accounts. Our primary exposure to market risk is interest rate sensitivity, which is affected by changes in the general
level of U.S. interest rates. Due to the short-term maturities of our cash equivalents and the low risk profile of our investments, an
immediate 100 basis point change in interest rates would not have a material effect on the fair market value of our cash equivalents.
Item 8.
Financial Statements and Supplementary Data
The information
required by this Item 8 is contained in the audited financial statements and accompanying notes located at the end of this 10-K and is
incorporated herein by reference.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures.
Our management,
with the participation of our principal executive officer and principal financial officer, conducted an evaluation of the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15 (e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)) as of December 31, 2023. Disclosure controls and procedures include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under
the Exchange Act is accumulated and communicated to its management, including its principal executive and principal financial officers,
or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes
that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their
objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
89
Management
did not identify material weaknesses in our internal control over financial reporting, which is an integral component of our disclosure
controls and procedures. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting,
such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis. However, we do believe we can design and maintain more effective controls in 2024. These may include additions
to personnel and or consultants; and formalizing and improving our accounting policies, procedures and controls.
Based on
the evaluation of our disclosure controls and procedures as of December 31, 2023, our principal executive officer and principal financial
officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.
Management’s
Responsibility for Financial Statements
Our
management is responsible for the integrity and objectivity of all information presented in this 10-K. The financial statements were
prepared in conformity with accounting principles generally accepted in the United States of America and include amounts based on management’s
best estimates and judgments. Management believes the financial statements fairly reflect the form and substance of transactions and
that the financial statements fairly represent the Company’s financial position and results of operations for the periods and as
of the dates stated therein.
The
Audit Committee of the Board of Directors, which is composed solely of independent directors, meets regularly with our independent registered
public accounting firm, Marcum LLP and representatives of management to review accounting, financial reporting, internal control, and
audit matters, as well as the nature and extent of the audit effort. The Audit Committee is responsible for the engagement of the independent
auditors. The independent auditors have free access to the Audit Committee.
Changes
in Internal Control over Financial Reporting
There were
no changes in our internal control over financial reporting identified in connection with the evaluation of such internal control required
by Rule 13a-15(d) and 15d-15(d) of the Exchange Act that occurred during the fiscal year ended December 31, 2023 that have materially
affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s
Annual Report on Internal Control over Financial Reporting
Our management,
including the Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
Our management,
including the Chief Executive Officer and Chief Financial Officer, assessed the effectiveness of our internal control over financial
reporting as of December 31, 2023. Management based this assessment on criteria for effective internal control over financial reporting
described in “Internal Control-Integrated Framework 2013” issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management determined that, as of December 31, 2023, we maintained effective internal control over
financial reporting.
Item 9B.
Other Information
Information
Required to be Disclosed on Form 8-K for the Fiscal Quarter Ended December 31, 2023, But Not Reported
None.
Trading
Arrangements
Neil Hare,
a member of the Company’s Board of Directors, adopted a “Rule 10b5-1 trading arrangement” during the Company’s
fiscal quarter ended December 31, 2023. The trading arrangement, adoptedDecember 29, 2023, and effective March 29, 2024, is intended
to satisfy the affirmative defense of Rule 10b5-1(c). The trading arrangement will remain in place per its terms until the earlier to
occur of September 29, 2024, completion of the sale of 45,044 shares of Longeveron Class A common stock, or upon the death or bankruptcy
of Mr. Hare.
Other than
Mr. Hare, none of the Company’s other directors or “officers,” as defined in Rule 16a-1(f) of the Securities Exchange
Act of 1934, as amended (the “Exchange Act”), adopted, modified, or terminated a “Rule 10b5-1 trading arrangement”
or a “non-Rule 10b5-1 trading arrangement,” as each term is defined in Item 408 of Regulation S-K, during the Company’s
fiscal quarter ended December 31, 2023.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
None.
90
PART
III
Item 10.
Directors, Executive Officers and Corporate Governance
The table
below contains information regarding the current members of the Board of Directors and executive officers. The ages of individuals are
provided as of February 1, 2024:
Name Age Position
Executive Officers
Wa’el Hashad 61 Chief Executive Officer and Director
Joshua M. Hare, M.D. 61 Co-Founder, Chief Science Officer, Chairman and Director
Lisa Locklear 63 Chief Financial Officer and Treasurer
Paul Lehr, J.D. 56 General Counsel, and Secretary
Nataliya Agafonova 54 Chief Medical Officer
Non-Executive Employees
Lisa McClain-Moss 53 Vice President of Manufacturing
Non-Employee Directors
Khoso Baluch 66 Director
Neil E. Hare 54 Director
Douglas Losordo, M.D.(1) 66 Director
Jeffrey Pfeffer 77 Director
Cathy Ross 56 Director
Rock Soffer 42 Director
Ursula Ungaro 73 Director
Executive