UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.WASHINGTON, DC 20549
FORM 10-Q
(MARK ONE)Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterquarterly period ended March 31, 20212024
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number: File Number: 001-39866
LOCUST WALK ACQUISITION CORP.
eFFECTOR Therapeutics, Inc.
(Exact Namename of Registrant as Specifiedspecified in Itsits Charter)
Delaware | 85-3306396 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer
| |
142 North Cedros Avenue, Suite B Solana Beach, CA | 92075 | |
(Address of principal executive offices) | (Zip Code) |
200 Clarendon Street, 51st Floor,Registrant’s telephone number, including area code: (858) 925-8215
Boston, MA 02116
(Address of principal executive offices)
(415) 697-0763
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Common stock, $0.0001 par value per share | EFTR | Nasdaq Capital Market | ||
Warrants to purchase common stock | EFTRW | Nasdaq Capital Market | ||
CheckIndicate by check mark whether the issuerregistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the pastpreceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”,filer,” “accelerated filer”,filer,” “smaller reporting company”,company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||||||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||||||
Emerging growth company | ☒ | |||||||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☒☐ No ☐☒
As of June 3, 2021, there were 17,500,000April 30, 2024, the registrant had 4,704,409 shares of Class A common stock, $0.0001 par value and 4,511,250 sharesper share, outstanding.
Table of Class B common stock, $0.0001 par value, issued and outstanding.Contents
LOCUST WALK ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2021
Page | |||||
PART I. | 1 | ||||
| |||||
Item 1. | 1 | ||||
1 | |||||
2 | |||||
3 | |||||
4 | |||||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | ||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 | ||||
Quantitative and Qualitative Disclosures | 27 | ||||
27 | |||||
PART II. | 29 | ||||
Item 1. | 29 | ||||
Item 1A. | 29 | ||||
Item 2. | 29 | ||||
29 | |||||
Item 4. | 29 | ||||
Item 5. | 29 | ||||
Item 6. | 30 | ||||
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
LOCUST WALK ACQUISITION CORP.
| March 31, 2021 | December 31, 2020 | |||||||
| (unaudited) | ||||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 1,467,723 | $ | 12,031 | ||||
Prepaid expenses | 344,648 | — | ||||||
Due from sponsor | 625 | |||||||
|
|
|
| |||||
Total Current Assets | 1,812,996 | 12,031 | ||||||
Marketable securities held in Trust Account | 175,003,740 | — | ||||||
Deferred offering costs | — | 177,937 | ||||||
|
|
|
| |||||
TOTAL ASSETS | $ | 176,816,736 | $ | 189,968 | ||||
|
|
|
| |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 240,998 | $ | 758 | ||||
Accrued offering costs | — | 105,841 | ||||||
Promissory note – related party | — | 60,375 | ||||||
|
|
|
| |||||
Total Current Liabilities | 240,998 | 166,974 | ||||||
Warrant liabilities | 3,674,600 | — | ||||||
Deferred underwriting fee payable | 6,565,000 | — | ||||||
|
|
|
| |||||
Total Liabilities | 10,480,598 | 166,974 | ||||||
|
|
|
| |||||
Commitments and Contingencies | ||||||||
Class A common stock subject to possible redemption, $10.00 per shares redemption value; 16,133,613 and no shares as of March 31, 2021 and December 31, 2020, respectively | 161,336,130 | — | ||||||
Stockholders’ Equity | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 1,911,387 and no shares issued and outstanding (excluding 16,333,613 and no shares subject to possible redemption) as of March 31, 2021 and December 31, 2020, respectively | 191 | — | ||||||
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 4,511,250 and 4,535,000 shares issued and outstanding as of March 31, 2021 and December 31, 2020, respectively (1) | 452 | 454 | ||||||
Additional paid-in capital | 4,952,534 | 24,546 | ||||||
Retained earnings (accumulated deficit) | 46,831 | (2,006 | ) | |||||
|
|
|
| |||||
Total Stockholders’ Equity | 5,000,008 | 22,994 | ||||||
|
|
|
| |||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 176,816,736 | $ | 189,968 | ||||
|
|
|
| |||||
|
i
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements.
eFFECTOR THERAPEUTICS, INC.
Condensed Consolidated Balance Sheets
(in thousands, except share and par value data)
(Unaudited)
|
| March 31, |
|
| December 31, |
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 15,508 |
|
| $ | 14,875 |
|
Short-term investments |
|
| 9,875 |
|
|
| 3,495 |
|
Prepaid expenses and other current assets |
|
| 867 |
|
|
| 1,468 |
|
Total current assets |
|
| 26,250 |
|
|
| 19,838 |
|
Property and equipment, net |
|
| 190 |
|
|
| 140 |
|
Operating lease right-of-use assets |
|
| 225 |
|
|
| 53 |
|
Other assets |
|
| 466 |
|
|
| 513 |
|
Total assets |
| $ | 27,131 |
|
| $ | 20,544 |
|
Liabilities and stockholders' equity (deficit) |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 1,713 |
|
| $ | 2,330 |
|
Accrued expenses |
|
| 3,787 |
|
|
| 2,921 |
|
Current term loans, net |
|
| 18,916 |
|
|
| 19,385 |
|
Accrued final payment on term loans, current |
|
| 1,100 |
|
|
| 1,100 |
|
Lease liabilities, current portion |
|
| 53 |
|
|
| 60 |
|
Total current liabilities |
|
| 25,569 |
|
|
| 25,796 |
|
Other accrued liabilities, non-current |
|
| 516 |
|
|
| 503 |
|
Non-current warrant liability |
|
| 40 |
|
|
| 40 |
|
Non-current lease liabilities |
|
| 179 |
|
|
| — |
|
Total liabilities |
|
| 26,304 |
|
|
| 26,339 |
|
Commitments and contingencies |
|
|
|
|
|
| ||
Stockholders' equity (deficit): |
|
|
|
|
|
| ||
Preferred stock, $0.0001 par value; 100,000,000 shares authorized at March 31, 2024 |
|
| — |
|
|
| — |
|
Common stock, $0.0001 par value; 40,000,000 shares authorized at March 31, 2024 |
|
| — |
|
|
| — |
|
Additional paid-in capital |
|
| 189,038 |
|
|
| 173,582 |
|
Accumulated other comprehensive income (loss) |
|
| — |
|
|
| — |
|
Accumulated deficit |
|
| (188,211 | ) |
|
| (179,377 | ) |
Total stockholders' equity (deficit) |
|
| 827 |
|
|
| (5,795 | ) |
Total liabilities and stockholders' equity (deficit) |
| $ | 27,131 |
|
| $ | 20,544 |
|
The accompanying notes are an integral part of thethese condensed consolidated financial statements.
1
eFFECTOR THERAPEUTICS, INC.
LOCUST WALK ACQUISITION CORP.Condensed Consolidated Statements of Operations and Comprehensive Loss
CONDENSED STATEMENT OF OPERATIONS(in thousands, except share and per share data)
FOR THE THREE MONTHS ENDED MARCH 31, 2021(Unaudited)
(UNAUDITED)
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Operating expenses: |
|
|
|
|
|
| ||
Research and development |
|
| 5,306 |
|
|
| 6,609 |
|
General and administrative |
|
| 3,090 |
|
|
| 2,927 |
|
Total operating expenses |
|
| 8,396 |
|
|
| 9,536 |
|
Operating loss |
|
| (8,396 | ) |
|
| (9,536 | ) |
Other income (expense) |
|
|
|
|
|
| ||
Interest income |
|
| 323 |
|
|
| 226 |
|
Interest expense |
|
| (749 | ) |
|
| (689 | ) |
Other expense |
|
| (12 | ) |
|
| (15 | ) |
Total other income (expense) |
|
| (438 | ) |
|
| (478 | ) |
Net loss |
| $ | (8,834 | ) |
| $ | (10,014 | ) |
Comprehensive loss: |
|
|
|
|
|
| ||
Net loss |
| $ | (8,834 | ) |
| $ | (10,014 | ) |
Other comprehensive income |
|
| — |
|
|
| 19 |
|
Comprehensive loss |
| $ | (8,834 | ) |
| $ | (9,995 | ) |
Net loss per share, basic and diluted |
| $ | (2.16 | ) |
| $ | (5.96 | ) |
Weighted-average common shares outstanding, basic and diluted |
|
| 4,081,580 |
|
|
| 1,680,032 |
|
Operations and formation costs | ||||
Operational costs | $ | 318,012 | ||
Franchise tax | 50,758 | |||
|
| |||
Total operations and formation costs | 368,770 | |||
|
| |||
Loss from operations | (368,770 | ) | ||
|
| |||
Other income (expense): | ||||
Interest earned on marketable securities held in Trust Account | 3,740 | |||
Transaction costs incurred in connection with warrant liabilities | (242,333 | ) | ||
Change in fair value of warrant liabilities | 656,200 | |||
|
| |||
Other income | 417,607 | |||
|
| |||
Net income | $ | 48,837 | ||
|
| |||
Weighted average shares outstanding of Class A redeemable common stock | 17,500,000 | |||
|
| |||
Basic and diluted income per share, Class A redeemable common stock | $ | 0.00 | ||
|
| |||
Weighted average shares outstanding of Class A and Class B non-redeemable common stock (1) | 4,922,417 | |||
|
| |||
Basic and diluted net income per share, Class A and Class B non-redeemable common stock | $ | 0.01 | ||
|
|
|
The accompanying notes are an integral part of thethese condensed consolidated financial statements.
2
eFFECTOR THERAPEUTICS, INC.
LOCUST WALK ACQUISITION CORP.Condensed Consolidated Statements of Stockholders’ Equity (Deficit)
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY(in thousands, except share data)
FOR THE THREE MONTHS ENDED MARCH 31, 2021(Unaudited)
(UNAUDITED)
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
| Total |
| ||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Stockholders' |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Income |
|
| Deficit |
|
| Equity (Deficit) |
| ||||||
Balance at December 31, 2023 |
|
| 2,982,679 |
|
| $ | — |
|
| $ | 173,582 |
|
| $ | — |
|
| $ | (179,377 | ) |
| $ | (5,795 | ) |
Stock option and pre-funded warrant exercises |
|
| 497,834 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock, net of issuance costs |
|
| 421,796 |
|
|
| — |
|
|
| 14,446 |
|
|
| — |
|
|
| — |
|
|
| 14,446 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 1,010 |
|
|
| — |
|
|
| — |
|
|
| 1,010 |
|
Unrealized gain on short-term investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (8,834 | ) |
|
| (8,834 | ) |
Balance at March 31, 2024 |
|
| 3,902,309 |
|
| $ | — |
|
| $ | 189,038 |
|
| $ | — |
|
| $ | (188,211 | ) |
| $ | 827 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
| Accumulated |
|
|
|
|
|
|
| |||||||||
|
|
|
|
|
|
|
| Additional |
|
| Other |
|
|
|
|
| Total |
| ||||||
|
| Common Stock |
|
| Paid-in |
|
| Comprehensive |
|
| Accumulated |
|
| Stockholders' |
| |||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Loss |
|
| Deficit |
|
| Equity (Deficit) |
| ||||||
Balance at December 31, 2022 |
|
| 1,667,602 |
|
| $ | — |
|
| $ | 147,480 |
|
| $ | (18 | ) |
| $ | (143,566 | ) |
| $ | 3,896 |
|
Stock option exercises |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Issuance of common stock, net of issuance costs |
|
| 16,433 |
|
|
| — |
|
|
| 119 |
|
|
| — |
|
|
| — |
|
|
| 119 |
|
Stock-based compensation expense |
|
| — |
|
|
| — |
|
|
| 1,167 |
|
|
| — |
|
|
| — |
|
|
| 1,167 |
|
Unrealized loss on short-term investments |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
|
| — |
|
|
| 19 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| (10,014 | ) |
|
| (10,014 | ) |
Balance at March 31, 2023 |
|
| 1,684,035 |
|
| $ | — |
|
| $ | 148,766 |
|
| $ | 1 |
|
| $ | (153,580 | ) |
| $ | (4,813 | ) |
| Class A Common Stock | Class B Common Stock (1) | Additional Paid-in | Retained Earnings (Accumulated | Total Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit) | Equity | ||||||||||||||||||||||
Balance — January 1, 2021 | — | $ | — | 4,535,000 | $ | 454 | $ | 24,546 | $ | (2,006 | ) | $ | 22,994 | |||||||||||||||
Sale of 17,500,000 Units, net of underwriting discounts, initial value of public warrants and other offering costs | 17,500,000 | 1,750 | — | — | 160,943,357 | — | 160,945,107 | |||||||||||||||||||||
Sale of 545,000 Placement Units | 545,000 | 55 | — | — | 5,319,145 | — | 5,319,200 | |||||||||||||||||||||
Forfeiture of Founder Shares | — | — | (23,750 | ) | (2 | ) | 2 | — | — | |||||||||||||||||||
Class A Common stock subject to possible redemption | (16,133,613 | ) | (1,614 | ) | — | — | (161,334,516 | ) | — | (161,336,130 | ) | |||||||||||||||||
Net income | — | — | — | — | — | 48,837 | 48,837 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Balance – March 31, 2021 | 1,911,387 | $ | 191 | 4,511,250 | $ | 452 | $ | 4,952,534 | $ | 46,831 | $ | 5,000,008 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
|
The accompanying notes are an integral part of the unauditedthese condensed consolidated financial statements.
3
eFFECTOR THERAPEUTICS, INC.
LOCUST WALK ACQUISITION CORP.Condensed Consolidated Statements of Cash Flows
CONDENSED STATEMENT OF CASH FLOWS(in thousands)
FOR THE THREE MONTHS ENDED MARCH 31, 2021(Unaudited)
(UNAUDITED)
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (8,834 | ) |
| $ | (10,014 | ) |
Adjustments to reconcile net loss to cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization expense |
|
| 28 |
|
|
| 28 |
|
Accretion of discount and amortization of premium on investments, net |
|
| (60 | ) |
|
| (119 | ) |
Stock-based compensation |
|
| 1,010 |
|
|
| 1,167 |
|
Other expense related to equity purchase agreement |
|
| 12 |
|
|
| 15 |
|
Non-cash interest expense |
|
| 87 |
|
|
| 76 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Prepaid expenses and other current assets |
|
| 267 |
|
|
| (180 | ) |
Other non-current assets |
|
| 53 |
|
|
| 48 |
|
Accounts payable |
|
| (716 | ) |
|
| 2,225 |
|
Accrued expenses |
|
| 875 |
|
|
| (886 | ) |
Operating lease right-of-use assets and liabilities, net |
|
| — |
|
|
| 3 |
|
Net cash used in operating activities |
|
| (7,278 | ) |
|
| (7,637 | ) |
Investing activities: |
|
|
|
|
|
| ||
Purchases of fixed assets |
|
| — |
|
|
| (13 | ) |
Maturities of short-term investments |
|
| 3,500 |
|
|
| 12,000 |
|
Purchases of short-term investments |
|
| (9,821 | ) |
|
| (2,960 | ) |
Net cash provided by (used in) investing activities |
|
| (6,321 | ) |
|
| 9,027 |
|
Financing activities: |
|
|
|
|
|
| ||
Repayment of term loans |
|
| (556 | ) |
|
| — |
|
Proceeds from exercise of common stock options and pre-funded warrants |
|
| 1 |
|
|
| — |
|
Proceeds from issuance of common stock, net of issuance costs |
|
| 14,787 |
|
|
| 212 |
|
Net cash provided by financing activities |
|
| 14,232 |
|
|
| 212 |
|
Net increase in cash and cash equivalents |
|
| 633 |
|
|
| 1,602 |
|
Cash and cash equivalents at beginning of period |
|
| 14,875 |
|
|
| 8,708 |
|
Cash and cash equivalents at end of period |
| $ | 15,508 |
|
| $ | 10,310 |
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Interest paid |
| $ | 655 |
|
| $ | 589 |
|
Operating lease liabilities arising from obtaining right-of-use assets |
|
| 186 |
|
|
| — |
|
Supplemental disclosure of non-cash investing and financing activities: |
|
|
|
|
|
| ||
Accrued issuance costs |
| $ | 109 |
|
| $ | 170 |
|
Cash Flows from Operating Activities: | ||||
Net income | $ | 48,837 | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||
Change in fair value of warrant liability | (656,200 | ) | ||
Transaction costs allocated to warrant liabilities | 242,333 | |||
Interest earned on marketable securities held in Trust Account | (3,740 | ) | ||
Changes in operating assets and liabilities: | ||||
Prepaid expenses and other current assets | (344,648 | ) | ||
Accounts payable and accrued expenses | 240,241 | |||
|
| |||
Net cash used in operating activities | (473,177 | ) | ||
|
| |||
Cash Flows from Investing Activities: | ||||
Investment into trust account | (175,000,000 | ) | ||
|
| |||
Net cash used in investing activities | (175,000,000 | ) | ||
|
| |||
Cash Flows from Financing Activities | ||||
Proceeds from sale of Units, net of underwriting discounts paid | 171,940,000 | |||
Proceeds from sale of Placement Units | 5,450,000 | |||
Repayment of promissory note – related party | (61,000 | ) | ||
Payment of offering costs | (400,131 | ) | ||
|
| |||
Net cash provided by financing activities | 176,928,869 | |||
|
| |||
Net Change in Cash | 1,455,692 | |||
Cash – Beginning of period | 12,031 | |||
|
| |||
Cash – End of period | $ | 1,467,723 | ||
|
| |||
Non-cash investing and financing activities: | ||||
Deferred underwriting fee payable | $ | 6,565,000 | ||
|
| |||
Initial classification of common stock subject to possible redemption | $ | 161,045,270 | ||
|
| |||
Forfeiture of Founder Shares | $ | (2 | ) | |
|
| |||
Change in value of common stock subject to possible redemption | $ | 290,860 | ||
|
|
The accompanying notes are an integral part of thethese condensed consolidated financial statements.
4
eFFECTOR THERAPEUTICS, INC.
(Unaudited)
LOCUST WALK ACQUISITION CORP.1. Organization and Basis of Presentation
NOTES TO CONDENSED FINANCIAL STATEMENTSDescription of Business
MARCH 31, 2021
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Locust Walk Acquisition Corp. (the “Company”("LWAC”) is a blank check company incorporated in Delawarewas initially formed on October 2, 2020. The Company was2020 as a Delaware corporation formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business transaction with one or more operating businesses or assets (a “Business Combination”).businesses.
The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of March 31, 2021, the Company had not yet commenced operations. All activity through March 31, 2021 relates to the Company’s formation, its initial public offering (the “IPO”), which is described below and, subsequent to the IPO, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds of the IPO.
On May 26, 2021, the CompanyLWAC entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, with Locust Walk Merger Sub, Inc., a Delaware corporation and a wholly owned Subsidiarysubsidiary of the CompanyLWAC (“Merger Sub”), and eFFECTOR Therapeutics, Inc., a Delaware corporation (“ Old eFFECTOR”). For more information, see the “Merger” described below.
The registration statement for the Company’s IPO was declared effective on January 12, 2021. On January 12, 2021, the Company consummated the IPO of 17,500,000 units (the “Units” and, with respectPursuant to the Class A common stock includedterms of the Merger Agreement, a business combination between LWAC and Old eFFECTOR was effected through the merger of the Merger Sub with and into Old eFFECTOR, with Old eFFECTOR becoming the surviving company and a wholly-owned subsidiary of LWAC with the name of eFFECTOR Therapeutics Operations, Inc. On August 25, 2021, and in the Units sold, the “Public Shares”), which includes the partial exercise by the underwriter of its over-allotment option in the amount of 2,200,000 Units, at $10.00 per Unit, generating gross proceeds of $175,000,000 (Note 4).
Simultaneouslyconnection with the closing of the IPO,business combination (the "Business Combination"), LWAC was renamed eFFECTOR Therapeutics, Inc. ("eFFECTOR" or the "Company"). All outstanding preferred shares of Old eFFECTOR converted into common shares of Old eFFECTOR on a 1:1 basis, which were then converted, along with all outstanding common shares of Old eFFECTOR, into common shares of the surviving eFFECTOR company through application of an exchange ratio of approximately 0.09657.
The Company is a clinical-stage biopharmaceutical company focused on pioneering the development of a new class of oncology drugs the Company consummated the sale of 545,000 units (the “Placement Units”) at a price of $10.00 per Placement Unit in a private placementrefers to Locust Walk Sponsor, LLC (the “Sponsor”), that closed simultaneously with the IPO, generating gross proceeds of $5,450,000 (Note 5).
Transaction costs amounted to $10,097,226, consisting of $3,060,000 in cash underwriting fees, $6,565,000 of deferred underwriting fees and $472,226 of other offering costs.
Following the closing of the IPO, $175,000,000 was placed in a trust account (the “Trust Account”) and invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”selective translation regulator inhibitors ("STRIs"), with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the consummation of a Business Combination; (ii) the redemption of any Public Shares in connection with a stockholder vote to amend the Company’s Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete an initial Business Combination within 24 months from the consummation of the IPO (the “Combination Period”); or (iii) the distribution of the Trust Account, as described below, except that interest earned on the Trust Account can be released to pay the Company’s tax obligations, if the Company is unable to complete an initial Business Combination within the Combination Period or upon any earlier liquidation of the Company.
. The Company’s managementprincipal operations are in the United States, with its headquarters in Solana Beach, California. The Company has broad discretion with respect to the specific application of the net proceeds from the IPO, althoughdevoted substantially all of its resources to raising capital, identifying potential product candidates, establishing its intellectual property portfolio, conducting preclinical studies and clinical trials, establishing arrangements with third parties for the net proceeds are intended to be applied toward consummating a Business Combination. There is no assurance thatmanufacture of its product candidates and related raw materials, and providing general and administrative support for these operations. The Company has not generated revenues from its principal operations, other than from licensing and grant revenue, through March 31, 2024.
Reverse Stock Split
On January 9, 2024, the Company will be able to successfully effectfiled a Business Combination. Rules of the Nasdaq Capital Market (“Nasdaq”) provide that the Company must complete a Business Combination with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (as defined below) (excluding the deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of signing a definitive agreement in connection with a Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The Company will provide stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made solely by the Company. The stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then on deposit in the Trust Account (initially approximately $10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the representative (Note 7). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. The common stock subject to redemption will be recorded at redemption value and classified as temporary equity upon the completion of the IPO, in accordance with Accounting Standards Codification (“ASC”) Topic 480 Distinguishing Liabilities from Equity (“ASC 480”).
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (the “SEC”), and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor and the Company’s officers and directors (together with the Sponsor, the “Insiders”) have agreed to vote their Founder Shares (Note 6), the shares of Class A common stock included in the Placement Units (the “Placement Shares”) and any Public Shares held by them in favor of approving a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
The Company will also provide stockholders with the opportunity to redeem all or a portion of their Public Shares in connection with any stockholder vote to approve an amendmentAmendment to the Company’s Amended and Restated Certificate of Incorporation, that would affectas amended to date, with the substance or timingSecretary of State of the Company’s obligationState of Delaware to redeem 100% of Public Shares if it does not complete an initial Business Combination within the Combination Period. Stockholders will be entitled to redeem their shares foreffect a pro rata portion of the amount then on deposit in the Trust Account (initially approximately $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account, net of taxes payable). The per share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the representative (as discussed in Note 7). There will be no redemption rights with respect to the Company’s warrants in connection with such a stockholder vote to approve such an amendment to the Company’s Amended and Restated Certificate of Incorporation. Notwithstanding the foregoing, the Company may not redeem shares in an amount that would cause its net tangible assets to be less than $5,000,001. The Insiders have agreed to vote any Founder Shares and any Public Shares held by them in favor of any such amendment.
The Company will have until the expiration of the Combination Period to consummate its initial Business Combination. If the Company is unable to consummate a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purposes of winding up; (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including any interest earned on the Trust Account not previously released to the Company to pay its tax obligations and up to $100,000 of interest to pay dissolution expenses, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and; (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The Insiders have agreed to waive their redemption rights with respect to any Founder Shares and Placement Shares, as applicable, (i) in connection with the consummation of a Business Combination, (ii) in connection with a stockholder vote to amend its Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period, and (iii) if the Company fails to consummate a Business Combination within the Combination Period. The Insiders have also agreed to waive their redemption rights with respect to any Public Shares held by them in connection with the consummation of a Business Combination and in connection with a stockholder vote to amend its Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if it does not complete its initial Business Combination within the Combination Period. However, the Insiders will be entitled to redemption rights with respect to Public Shares if the Company fails to consummate a Business Combination or liquidates within the Combination Period. The representative has agreed to waive its rights to deferred underwriting commissions held in the Trust Account in the event the Company does not consummate a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be less than the initial public offering price per Unit in the IPO. Placing funds in the Trust Account may not protect those funds from third-party claims against the Company. Although the Company will seek to have all vendors, service providers (except our independent registered public accounting firm), prospective target businesses or other entities it engages, execute agreements with the Company waiving any claim of any kind in or to any monies held in the Trust Account, there is no guarantee that such persons will execute such agreements. The Sponsor has agreed that it will be liable under certain circumstances to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or vendors or other entities that are owed money by the Company for service rendered, contracted for or products sold to the Company. However, it may not be able to satisfy those obligations should they arise.
Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its Business Combination and it does not conduct redemptions in connection with its Business Combination pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to an aggregate of 20.0% or more of the shares sold in the IPO. However, there is no restriction on the Company’s stockholders’ ability to vote all of their shares for or against a Business Combination.
The Merger
On May 26, 2021, the Company entered into the Merger Agreement by and among the Company, Merger Sub, a Delaware corporation and a wholly-owned subsidiary of the Company, and eFFECTOR. Pursuant to the Merger Agreement, at the closing of the transactions contemplated thereby (the “Closing”), Merger Sub will merge with and into eFFECTOR (the “Merger”) with eFFECTOR surviving the Merger as a wholly-owned subsidiary of the Company. In addition, in connection with the consummation of the Merger, the Company will be renamed “eFFECTOR Therapeutics, Inc.”
At the effective time of the Merger (the “Effective Time”), by virtue of the consummation of the Merger and without any further action on the part of the Company, Merger Sub or eFFECTOR (after eFFECTOR causes each share of eFFECTOR preferredreverse stock that is issued and outstanding immediately prior to the consummation of the Merger to be automatically converted immediately prior to the consummation of the Merger into a number of shares of eFFECTOR common stock at the then-effective conversation rate as calculated in accordance with eFFECTOR’s organizational documents and after eFFECTOR causes each outstanding warrant to purchase shares of eFFECTOR capital stock to be exercised in full on a cash or cashless basis or terminated without exercise), each share of eFFECTOR common stock issued and outstanding immediately prior to the Effective Time shall be canceled and automatically converted into the right to receive a number of sharessplit of the Company’s common stock, par value $0.0001 at a ratio of 1-for-25 (the “Reverse Stock Split”), as calculated basedauthorized at the Company’s 2023 annual meeting of stockholders held on June 22, 2023. The Company effected the Exchange Ratio (as defined below) andReverse Stock Split on January 12, 2024. No fractional shares were issued in connection with the Reverse Stock Split. Stockholders who otherwise were entitled to a fractional share of common stock were entitled to receive a proportional cash payment. The number of Earn-Out Shares (as defined below) as set forthshares of common stock that the Company is authorized to issue was proportionally reduced from 1,000,000,000 shares to 40,000,000 shares and the par value of its common stock remains unchanged at $0.0001 per share.
The Company has retroactively restated the share and per share amounts in the Merger Agreement. “Exchange Ratio” is defined inconsolidated financial statements as of December 31, 2023 and for the Merger Agreementthree months ended March 31, 2024 and 2023. Proportionate adjustments were made to be 34,000,000 divided bythe per share exercise price and number of shares of common stock issuable under all outstanding stock options and warrants. In addition, proportionate adjustments have been made to the number of shares of fully diluted eFFECTOR capital stock (which equals the outstanding shares of eFFECTOR common stock reserved for the Company’s equity incentive compensation plans. The consolidated statements of stockholders’ equity (deficit) and options to purchase shares of eFFECTOR common stock as of immediately prior tobalance sheets reflect the Effective Time, after giving effect to the conversionimpact of the eFFECTOR preferred stock and exercise of the eFFECTOR warrants and as further adjusted pursuantReverse Stock Split by reclassifying from “common stock” to the Merger Agreement).
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
At the Effective Time, each outstanding option to purchase shares of eFFECTOR common stock will be converted into“additional paid-in capital” in an option to purchase shares of the Company’s common stockamount equal to the number of shares subject to such option prior to the Effective Time multiplied by the Exchange Ratio, with the per-share exercise price equal to the exercise price prior to the Effective Time divided by the Exchange Ratio.
Following the Closing, former holders of shares of eFFECTOR common stock (including shares received as a resultpar value of the conversiondecreased shares resulting from the Reverse Stock Split.
Basis of eFFECTOR preferred stock and exercise of the eFFECTOR warrants) and eFFECTOR stock options will be entitled to receive their pro rata share of up to 5,000,000 additional shares of the Company’s common stock (the “Earn-Out Shares”) if, within a two-year period following the Closing (the “Earn-Out Period”), the closing share price of the Company’s common stock equals or exceeds $20.00 over at least 20 trading days within a 30-day trading period (the “Triggering Event”) and, in respect of each former holder of eFFECTOR stock options, such holder continues to provide services to the Company or one of its subsidiaries at the time of such Triggering Event. Presentation
The Earn-Out Shares will also be earned and issuable in the event of a change in control of the Company during the Earn-Out Period that results in the holders of the Company’s common stock receiving a per-share price equal to or in excess of $20.00.
The Merger Agreement contains customary representations and warranties of the parties thereto with respect to, among other things, (a) entity organization, good standing and qualification, (b) capital structure, (c) authorization to enter into the Merger Agreement, (d) compliance with laws and permits, (e)accompanying unaudited condensed consolidated financial statements and internal controls, (f) absenceas of certain changesMarch 31, 2024 and undisclosed liabilities, (g) litigation, (h) labor and employee matters, (i) environmental matters, (j) tax matters, (k) real and personal property, (l) intellectual property, (m) insurance, (n) material contracts, (o) brokers and finders, (p) regulatory compliance and (q) transactions with affiliates.
The Merger Agreement includes customary covenants of the parties with respect to operation of their respective businesses prior to consummation of the Merger and efforts to satisfy conditions to consummation of the Merger. The Merger Agreement also contains additional covenants of the parties, including, among others, covenants providing for the Companythree months ended March 31, 2024 and eFFECTOR2023 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and pursuant to use reasonable best efforts to cooperate in the preparationArticle 10 of the Registration Statement and Proxy Statement (as each such term is defined in the Merger Agreement) required to be filed in connection with the Merger and to obtain all requisite approvalsRegulation S-X of their respective stockholders including, in the case of the Company, approvals of the Merger Agreement and the Merger, the restated certificate of incorporation, the share issuance under the rules of Nasdaq and the incentive award plan and employee stock purchase plan of the combined company.
The Closing is subject to certain customary conditions of the respective parties, including, among other things, (i) receipt of the Company’s stockholder approval and eFFECTOR stockholder approval, (ii) the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, (iii) the absence of any governmental order, statute, rule or regulation enjoining or prohibiting the consummation of the transactions contemplated by the Merger Agreement, (iv) the effectiveness of the Registration Statement (as defined in the Merger Agreement) under the Securities Act of 1933, as amended (the “Securities Act”), (v) the Company having at least $5,000,001 of net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Exchange Act), (vi) the common stock of the combined company to be issued pursuant to the Merger Agreement being listed or having been approved for listing on Nasdaq, (vii) the consummation of the private placement financing concurrent with the Closing, (viii) solely with respect to the Company, (A) the representations and warranties of eFFECTOR being true and correct to applicable standards in the Merger Agreement and each of the covenants of eFFECTOR having been performed or complied with in all material respects, (B) since the date of the Merger Agreement there not having been a material adverse effect on eFFECTOR that is continuing and (C) the approval of the settlement of the eFFECTOR warrants pursuant to the terms of such warrants and such settlement of the eFFECTOR warrants having been consummated and (ix) solely with respect to eFFECTOR, (A) the representations and warranties of the Company being true and correct to applicable standards in the Merger Agreement and each of the covenants of the Company having been performed or complied with in all material respects, (B) since the date of the Merger Agreement there not having been a material adverse effect on the Company that is continuing, (C) the effective resignations of certain directors and executive officers of the Company, and (D) the amount of Closing Parent Cash (as defined in the Merger Agreement) being equal to or exceeding $100,000,000.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
In connection with the execution of the Merger Agreement, the Company entered into subscription agreements (collectively, the “Subscription Agreements”) with certain parties subscribing for shares of the Company’s common stock (the “Subscribers”), pursuant to which the Subscribers have agreed to purchase, and the Company has agreed to sell to the Subscribers, an aggregate of 6,000,000 shares of the Company’s common Stock, for a purchase price of $10.00 per share, resulting in an aggregate purchase price of $60,000,000 (the “PIPE Financing”). The obligations to consummate the transactions contemplated by the Subscription Agreements are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Merger Agreement.
In connection with the Merger, the Company plans to file with the SEC a Registration Statement on Form S-4, that includes a preliminary proxy statement/prospectus, and, when available, the Company intends to file a definitive proxy statement and final prospectus to call a special meeting of the holders of the Company common stock to vote at the meeting (the “Special Meeting”). The holders of the majority of the voting power of the Company’s common stock present in person or represented by proxy at the Special Meeting must approve the Merger Agreement, the Merger and certain other actions related thereto, as provided in the Delaware General Corporation Law, the Company’s Amended and Restated Certificate of Incorporation and applicable listing rules of Nasdaq.
The Merger Agreement may be terminated by the Company or eFFECTOR under certain circumstances, including (i) by mutual written consent of the Company and eFFECTOR; (ii) by either the Company or eFFECTOR if the Closing has not occurred on or before November 26, 2021; or (iii) by either the Company or eFFECTOR if the Company has not obtained the necessary stockholder approvals.
The Merger Agreement, Subscription Agreements and other support agreements have been filed as exhibits to and described in the Company’s Current Report on Form 8-K filed with the SEC on May 27, 2021.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all of the information and footnotes necessarynotes required by GAAP for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanyingstatements. These unaudited condensed financial statements include allonly normal and recurring adjustments consisting of a normal recurring nature, whichthat the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for a fair presentationthe three months ended March 31, 2024 are not necessarily indicative of the financial position, operating results and cash flowsexpected for the periods presented.
full fiscal year or any subsequent interim period. The accompanying unaudited condensedbalance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all the disclosures required by GAAP for complete financial statements. Because all of the disclosures required by GAAP for complete financial
5
statements are not included herein, these unaudited financial statements and the notes accompanying them should be read in conjunction with the Company’s prospectusaudited financial statements for the year ended December 31, 2023 included in its IPO asAnnual Report on Form 10-K filed with the SECSecurities and Exchange Commission (“SEC”) on January 7, 2021. March 26, 2024.
Liquidity
The interim resultsCompany has a limited operating history and the sales and income potential of the Company’s business and market are unproven. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.
Management is required to perform a two-step analysis over its ability to continue as a going concern. Management must first evaluate whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (step 1). If management concludes that substantial doubt is raised, management is also required to consider whether its plans alleviate that doubt (step 2).
The Company has experienced net losses and negative cash flows from operating activities since its inception, aside from the years ended December 31, 2021 and December 31, 2020 when net income was realized as a result of a gain in fair value recognized associated with the earn-out liability and revenue in connection with the Research Collaboration and License Agreement with Pfizer, respectively. The Company has an accumulated deficit of $188.2 million at March 31, 2024. For the three months ended March 31, 2024, the Company used $7.3 million in cash for operations. At March 31, 2024, the Company had cash and cash equivalents and short-term investments of $25.4 million. The Company anticipates that its expenses will increase significantly in connection with its ongoing activities to support its research and development efforts, and it expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future. Management has prepared cash flow forecasts which indicate that based on the Company’s expected operating losses and negative cash flows, there is substantial doubt about the Company’s ability to continue as a going concern within twelve months from the date that these financial statements for the three months ended March 31, 20212024 are not necessarily indicative ofissued. The principal payments due under the results to be expected for the year ending December 31, 2021 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” asOxford Loans (as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)below), and it may take advantagethe related accrued final payment, have been classified as current liabilities as of certain exemptions from various reporting requirementsMarch 31, 2024, due to the considerations discussed above and the assessment that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registeredmaterial adverse change clause under the Exchange Act) are required to comply withOxford Loans is not within the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable.Company’s control. The Company has elected not been notified of an event of default by the lender as of the date of issuance of these financial statements.
The Company’s ability to opt out of such extended transition period which means that whencontinue as a standardgoing concern is issueddependent upon its ability to receive additional capital. Management intends to raise additional capital through equity offerings or revisedother capital sources, including potential additional collaborations, licenses and it has different application dates for public or private companies,other similar arrangements. Additionally, the Company may receive additional milestone payments from the Research Collaboration and License Agreement with Pfizer (described in Note 10), through the issuance of common stock under the equity purchase agreement with Lincoln Park Capital Fund, LLC (described in Note 8) or through the issuance of common stock under the at-the-market offering program (described in Note 8) with Cantor Fitzgerald & Co. However, the Company may not be able to secure additional financing in a timely manner or on favorable terms, if at all, and may not receive any milestone payments. Without additional capital, the Company may be forced to delay, scale back or eliminate some of its research and development activities, or other operations and potentially delay product development in an effort to provide sufficient funds to continue its operations, or may be required to pursue merger or acquisition strategies, all of which could adversely affect the holdings or the rights of its stockholders.
Research and Development Costs
Research and development expenses primarily consist of costs associated with the preclinical and clinical development of the Company’s product candidates. Research and development costs are expensed as an emerging growth company, can adoptincurred.
Clinical Trial Accruals and Preclinical Studies
The Company records expenses resulting from our obligations under contracts with vendors and consultants, CROs and clinical sites in connection with conducting clinical trials and preclinical studies. The financial terms of these contracts are subject to negotiations which vary from contract to contract and may result in payment flows that do not match the newperiods over which materials or revised standardservices are provided under such contracts. The Company reflects clinical trial and preclinical study expenses in the financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the clinical trial or preclinical study as measured by the timing of various aspects of the clinical trial, preclinical study, or related activities. The Company determines accrual estimates based on the underlying contracts, correspondence with clinical and other key personnel and third-party service providers as to the progress of the clinical trials, preclinical studies, or other services being conducted, and amounts invoiced or paid to date. During the course of a clinical trial or preclinical study, the Company adjusts the rate of expense recognition if actual results differ from estimates.
6
Public and Private Placement Warrants
Upon completion of the Business Combination, the Company assumed public and private placement warrants that were issued by LWAC in connection with their initial public offering in January 2021 whereby holders of the public and private placement warrants are entitled to acquire common stock of the Company. The Company has concluded that the public warrants are equity-classified. Since the settlement value of the private placement warrants is dependent, in part, on who holds the warrants at the time private companies adoptof settlement, they are not considered indexed to the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires management to make estimatesCompany's stock and assumptions that affect the reported amounts of assets andare therefore recorded as liabilities. Warrants classified as liabilities and disclosure of contingent assets and liabilitiesare recorded at their estimated fair value on the date of the financial statementsissuance and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It isare revalued at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at theeach subsequent balance sheet date, of the financial statements, which management consideredwith fair value changes recognized in formulating its estimate, could changeother income (expense), net in the near term due to one or more future confirming events. Oneaccompanying consolidated statements of the more significant accountingoperations and comprehensive income (loss). The Company estimates included in these financial statements is the determination of the fair value of these warrants using the warrant liability. Accordingly,Black-Scholes option pricing model.
Stock-Based Compensation Expense
Stock-based compensation expense represents the actual results could differ significantly from those estimates.cost of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards (usually the vesting period) on a straight-line basis. The Company estimates the fair value of stock option grants using the Black-Scholes option-pricing model. The Company accounts for stock options granted to non-employees using the fair value approach.
The Black-Scholes option-pricing model requires the use of subjective assumptions, including the risk-free interest rate, the expected stock price volatility, the expected term of stock options, and the expected dividend yield. The Company has limited historical stock option activity and therefore estimates the expected term of stock options granted using the simplified method, which represents the average of the contractual term of the stock option and its weighted-average vesting period. The fair value of the underlying common stock used within the Black-Scholes option-pricing model is based on the closing price of common stock on the date of grant.
Comprehensive Loss
Comprehensive loss consists of net loss and unrealized gains or losses on available-for-sale investments. The Company presents comprehensive loss and its components as part of the consolidated statements of operations and comprehensive loss.
Cash, Cash Equivalents and Short-term Investments
Cash and Cash Equivalents
The Company considers all short-termhighly liquid investments with insignificant interest rate risk and an original maturity of three months or less when purchasedat the date of purchase to be cash equivalents. Cash and cash equivalents consist of money market funds and U.S. Treasury securities with an original maturity of less than three months at the date of purchase.
Short-term Investments
Short-term investments consist of U.S. Treasury securities, classified as available-for-sale securities and have maturities of greater than three months but less than one year. The Company didhas classified all of its available-for-sale securities as current assets on the balance sheets because these are considered highly liquid securities and are available for use in current operations. The Company carries these securities at fair value and reports unrealized gains and losses as a separate component of accumulated other comprehensive loss. Amortization and accretion of any purchase premiums or discounts is included in interest income in the consolidated statements of operations and comprehensive loss.
Recent Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board ("FASB") or other standard setting bodies and adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes, based on its preliminary assessment, that the impact of recently issued standards that are not yet effective will not have any cash equivalents asa material impact on their financial position or results of March 31, 2021 and December 31, 2020.operations upon adoption.
Net Loss Per Share
Marketable Securities Held in Trust Account
At March 31, 2021, substantially allBasic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss by the sum of the assets heldweighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is antidilutive. The Company’s potentially dilutive securities have been excluded from the computation of diluted net loss per share as
7
they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the Trust Account were invested in Morgan Stanley’s Institution Liquid Treasury Securities Portfolio. The fund invests in U.S. Treasury obligation with maturities notnumber of shares used to exceeding 397 dayscalculate basic and will maintain a dollar net asset value.
Offering Costs
Offering costs, consisting of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that are directly relateddiluted shares outstanding due to the IPO, amounting to approximately $9,800,000 were charged to stockholders’ equity upon the completion of the IPO. Company’s net loss position.
For the three months ended March 31, 2021, approximately $242,000 of costs are included in transaction costs incurred in connection with warrant liabilities in the unaudited condensed statement of operations.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At2024, all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at March 31, 2021, 16,133,613 shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ equity section of the condensed balance sheet.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Warrant Liability
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modifiedpre-funded warrants that meet allwere issued during the January 2024 Registered Direct Offering (as defined below) with an exercise price of the criteria for equity classification, the warrants are required to be recorded as a component$0.001, regardless of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statement of operations. The Company’s public warrants (the “Public Warrants”) for periods where no observable traded price was available are valued using a Monte Carlo simulation. The warrants to purchase the Company’s Class A common stock included within the Placement Units (the “Placement Warrants”) are valued using a closed form Black-Scholes model.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, Income Taxes, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. As of March 31, 2021, the Company had a deferred tax asset of approximately $77,077, which had a full valuation allowance recorded against it The Company’s deferred tax assetswhether they were deemed to be de minimis as of December 31, 2020.
Current taxable income primarily consists of interest earned on the Trust Account. The Company’s general and administrative costs are generally considered start-up costs and are not currently deductible. The change in fair value of the warrant liability is a permanent difference. During the three months ended March 31, 2021, the Company recorded no income tax expense. The Company’s effective tax rate for three months ended March 31, 2021 was 0%, which differs from the expected income tax rate due to the start-up costs.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penaltiesexercised as of March 31, 2021 and December 31, 2020. The Company is currently not aware of any issues under review that could result2024, were considered outstanding in significant payments, accruals or material deviation from its position.
The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. The Company is subject to income tax examinations by major taxing authorities since inception.
Net income per Share of Common Stock
Net income per share is computed by dividing net income by the weighted average number of shares of common stock outstanding for the period. The Company has not considered the effect of warrants sold in the IPO and private placement to purchase 6,015,000 shares of Class A common stock in the calculation of diluted net income per share, since the exercise price of the warrants was above the average market price for the period.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The condensed statement of operations includes a presentation of income per share of common stock subject to possible redemption in a manner similar to the two-class method of net income per share. Net income per share of common stock, basic and diluted, for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of shares of Class A redeemable common stock outstanding since original issuance. Net loss per share, basic and diluted, for Class B non-redeemable common stock is calculated by dividing the net loss, adjusted for income attributable to Class A redeemable common stock, net of applicable franchise and income taxes, by the weighted average number of shares of Class B non-redeemable common stock outstanding for the period. Class B non-redeemable common stock includes the Founder Shares as these shares do not have any redemption features and do not participate in the income earned on the Trust Account.
The following table reflects the calculation of basic and diluted net incomeloss per share (See Note 7 for details about pre-funded warrants).
Potentially dilutive securities as of March 31, 2024 and 2023 are as follows (in common stock (in dollars, except per share amounts)equivalent shares):
Three Months Ended March 31, | ||||
| 2021 | ||||
Redeemable Class A Common Stock | ||||
Numerator: Earnings allocable to Redeemable Class A common stock | ||||
Interest income | $ | 3,740 | ||
Income and franchise tax | (3,740 | ) | ||
|
| |||
Net Income | — | |||
Denominator: Weighted average Redeemable Class A common stock | ||||
Redeemable Class A common stock, Basic and Diluted | 17,500,000 | |||
|
| |||
Basic and diluted income per share, Class A redeemable common stock | $ | — | ||
|
| |||
Non-redeemable Class A and B common stock | ||||
Numerator: Net Income minus redeemable net income | ||||
Net income | $ | 48,837 | ||
Redeemable net income | — | |||
|
| |||
Non-redeemable net income | 48,837 | |||
Denominator: Weighted average Non-Redeemable Class A and B common stock | ||||
Non-redeemable Class A and B common stock, Basic and Diluted | 4,922,417 | |||
|
| |||
Basic and diluted net income per share, Class A and Class B non-redeemable common stock | $ | 0.01 | ||
|
| |||
|
| For the Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
|
|
|
|
|
|
| ||
Common stock warrants |
|
| 2,257,426 |
|
|
| — |
|
Placement agent warrants |
|
| 158,017 |
|
|
| — |
|
Public warrants |
|
| 233,332 |
|
|
| 233,332 |
|
Private placement warrants |
|
| 7,266 |
|
|
| 7,266 |
|
Earn-Out Shares |
|
| — |
|
|
| 200,000 |
|
Unvested sponsor shares |
|
| 12,000 |
|
|
| 12,000 |
|
Stock options outstanding |
|
| 694,764 |
|
|
| 473,900 |
|
Total |
|
| 3,362,805 |
|
|
| 926,498 |
|
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on these accounts, and management believes the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, Fair Value Measurement, approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
3. Fair Value Measurements
The accounting guidance defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is defined as an exit price, representing the priceamount that would be received for sale ofto sell an asset or paid forto transfer of a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants atwould use in pricing an asset or liability. As a basis for considering such assumptions, the measurement date. GAAPaccounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:value as follows:
Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
Level 2, defined as inputs other than1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
Level 2: Quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active, or inputs which are observable, either directly or indirectly, for substantially the full term of the asset or liability.
Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (i.e. supported by little or no market activity).
The Company’s cash equivalents are classified using Level 1 inputs within the fair value hierarchy because they are valued using quoted market prices, broker or dealer quotations, or alternative pricing sources with reasonable levels of price transparency. None of the Company’s non-financial assets or liabilities are recorded at fair value on a non-recurring basis. No transfers between levels have occurred during the periods presented.
The Company estimates the fair value of its warrant liabilities at the time of issuance and subsequent remeasurement using the Black-Scholes option pricing model at each reporting date, if required, based on the following inputs: the risk-free interest rates; the expected dividend rates; the remaining contractual life of the warrants; the fair value of the underlying stock; and the expected volatility of the price of the underlying stock. The estimates are based, in part, on subjective assumptions and could differ materially in the future. Changes to these assumptions as well as the fair value of the Company’s stock on the reporting date can have a significant impact on the fair value of the warrant liability.
8
The following table summarizes the Company’s assets and liabilities that require fair value measurements on a recurring basis and their respective input levels based on the fair value hierarchy as of March 31, 2024 and December 31, 2023 (in thousands):
|
|
|
|
| Fair Value Measurements Using |
| ||||||||||
|
| March 31, |
|
| Quoted Prices |
|
| Significant |
|
| Significant |
| ||||
|
| 2024 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds |
| $ | 6,048 |
|
| $ | 6,048 |
|
| $ | — |
|
| $ | — |
|
U.S. Treasury securities |
|
| 9,460 |
|
|
| — |
|
|
| 9,460 |
|
|
| — |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
|
| 9,875 |
|
|
| — |
|
|
| 9,875 |
|
|
| — |
|
Total assets |
| $ | 25,383 |
|
| $ | 6,048 |
|
| $ | 19,335 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Private placement warrant liability |
| $ | 40 |
|
| $ | — |
|
| $ | — |
|
| $ | 40 |
|
Total liabilities |
| $ | 40 |
|
| $ | — |
|
| $ | — |
|
| $ | 40 |
|
|
|
|
|
| Fair Value Measurements Using |
| ||||||||||
|
| December 31, |
|
| Quoted Prices |
|
| Significant |
|
| Significant |
| ||||
|
| 2023 |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Money market funds |
| $ | 10,887 |
|
| $ | 10,887 |
|
| $ | — |
|
| $ | — |
|
U.S. Treasury securities |
|
| 3,988 |
|
|
| — |
|
|
| 3,988 |
|
|
| — |
|
Short-term investments: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
U.S. Treasury securities |
|
| 3,495 |
|
|
| — |
|
|
| 3,495 |
|
|
| — |
|
Total assets |
| $ | 18,370 |
|
| $ | 10,887 |
|
| $ | 7,483 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Private placement warrant liability |
| $ | 40 |
|
| $ | — |
|
| $ | — |
|
| $ | 40 |
|
Total liabilities |
| $ | 40 |
|
| $ | — |
|
| $ | — |
|
| $ | 40 |
|
Cash Equivalents and Short-Term Investments
Financial assets measured at fair value on a recurring basis consist of the Company’s cash equivalents and short-term investments. Cash equivalents consisted of money market funds and U.S. Treasury securities with an original maturity of less than three months at the date of purchase and short-term investments consisted of U.S. Treasury securities with an original maturity of more than three months at the date of purchase. The Company obtains pricing information from its investment manager and generally determines the fair value of investment securities using standard observable inputs, including reported trades, broker/dealer quotes, and bids and/or offers.
Investments are classified as Level 1 within the fair value hierarchy if their quoted prices are available in active markets for identical securities. Investments in money market funds of $6.0 million and $10.9 million as of March 31, 2024 and December 31, 2023, respectively, were classified as Level 1 instruments and were included in cash and cash equivalents.
Investments in marketable securities are valued using Level 2 inputs. Level 2 securities are initially valued at the transaction price and subsequently valued and reported upon utilizing inputs other than quoted prices that are observable either directly or indirectly, such as quotes from third-party pricing vendors. Fair values determined by Level 2 inputs, which utilize data points that are observable such as quoted prices, interest rates and yield curves, require the exercise of judgment and use of estimates, that if changed, could significantly affect the Company’s financial position and results of operations. The marketable securities of $19.3 million as of March 31, 2024 were classified as Level 2 instruments, $9.5 million of which is included in cash and cash equivalents and $9.9 million of which is included in short-term investments. The marketable securities of $7.5 million as of December 31, 2023 were classified as Level 2 instruments, $4.0 million of which is included in cash and cash equivalents and $3.5 million of which is included in short-term investments. Accrued interest receivable related to short-term investments was $17,000 and $52,000 as of March 31, 2024 and December 31, 2023, respectively, and included as part of prepaid expenses and other current assets in the condensed balance sheets.
9
The following tables summarize the Company’s short-term investments accounted for similar instrumentsas available-for-sale securities as of March 31, 2024 and December 31, 2023 (in thousands):
|
|
|
|
|
|
| March 31, 2024 |
| ||||||||||
|
| Maturity |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Estimated |
| ||||
|
| (in years) |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
U.S. Treasury securities |
| 1 year or less |
| $ | 9,875 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,875 |
|
|
|
|
| $ | 9,875 |
|
| $ | — |
|
| $ | — |
|
| $ | 9,875 |
|
|
|
|
|
|
|
| December 31, 2023 |
| ||||||||||
|
| Maturity |
| Amortized |
|
| Unrealized |
|
| Unrealized |
|
| Estimated |
| ||||
|
| (in years) |
| Cost |
|
| Gains |
|
| Losses |
|
| Fair Value |
| ||||
U.S. Treasury securities |
| 1 year or less |
| $ | 3,495 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,495 |
|
|
|
|
| $ | 3,495 |
|
| $ | — |
|
| $ | — |
|
| $ | 3,495 |
|
Private Placement Warrant Liability
In connection with the Business Combination, the Company assumed the public and private placement warrants described in active markets or quoted prices for identical or similar instruments in markets thatNote 2. The private placement warrants are precluded from equity treatment and are recorded as liabilities as they are not active; and
Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2020-06, Debt — Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows. Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
NOTE 3 — RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENT
The Company previously accounted for its outstanding Public Warrants (Note 4) and Placement Warrants (collectively, with the Public Warrants, the “Warrants”) issued in connection with its IPO as components of equity instead of as derivative liabilities. The warrant agreement governing the Warrants (the “Warrant Agreement”) includes a provision that provides for potential changes to the settlement amounts dependent upon the characteristics of the holder of the Warrant. In addition, the Warrant Agreement includes a provision that in the event of a tender offer or exchange offer made to and accepted by holders of more than 50% of the outstanding shares of a single class of stock, all holders of the Warrants would be entitled to receive cash for their Warrants (the “tender offer provision”).
On April 12, 2021, the Acting Director of the Division of Corporation Finance and Acting Chief Accountant of the SEC together issued a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “SEC Statement”). Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the Warrant Agreement.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
In further consideration of the SEC Statement, the Company’s management evaluated the Warrants under ASC Subtopic 815-40, Contracts in Entity’s Own Equity. ASC Section 815-40-15 addresses equity versus liability treatment and classification of equity-linked financial instruments, including warrants, and states that a warrant may be classified as a component of equity only if, among other things, the warrant isconsidered indexed to the issuer’sCompany's common stock. Under ASC Section 815-40-15,The private placement warrant liability is measured at fair value, using a warrant is not indexed to the issuer’s common stock if the termscombination of observable and unobservable inputs. The change in fair value of the private placement warrant require an adjustment toliability is recorded in other income (expense) on the exercise price upon a specified eventstatement of operations and that event is not an input tocomprehensive loss. The following key assumptions were used in determining the fair value of the warrant. Based on management’s evaluation,private placement warrant liability valued using the Company’s audit committee, in consultation with management, concluded thatBlack-Scholes option pricing model as of March 31, 2024 and December 31, 2023:
| March 31, |
|
| December 31, |
| ||
Common stock price | $ | 14.39 |
|
| $ | 11.69 |
|
Expected volatility |
| 125.0 | % |
|
| 125.0 | % |
Risk-free interest rate |
| 4.5 | % |
|
| 4.1 | % |
Expected term (in years) |
| 2.4 |
|
|
| 2.7 |
|
Expected dividend yield |
| — |
|
|
| — |
|
The following table presents activity for the Placement Warrants are not indexed toprivate placement warrant liability measured at fair value using significant unobservable Level 3 inputs during the common stock in the manner contemplated by ASC Section 815-40-15 because the holderthree months ended March 31, 2024 (in thousands):
|
| Private Placement Warrant Liability |
| |
Balance at December 31, 2023 |
| $ | 40 |
|
Change in fair value |
|
| — |
|
Balance at March 31, 2024 |
| $ | 40 |
|
4. Property and Equipment, net
Property and equipment, net consists of the instrument is not an input into the pricingfollowing (in thousands):
|
| March 31, |
|
| December 31, |
| ||
|
|
|
|
|
|
| ||
Lab equipment |
| $ | 108 |
|
| $ | 30 |
|
Computer and office equipment |
|
| 154 |
|
|
| 154 |
|
Furniture and fixtures |
|
| 78 |
|
|
| 78 |
|
Leasehold improvements |
|
| 188 |
|
|
| 188 |
|
Construction in process |
|
| 14 |
|
|
| 14 |
|
|
| 542 |
|
|
| 464 |
| |
Less accumulated depreciation and amortization |
|
| (352 | ) |
|
| (324 | ) |
|
| $ | 190 |
|
| $ | 140 |
|
The Company recorded depreciation and amortization expense of a fixed-for-fixed option on equity shares. In addition, based on management’s evaluation, the audit committee, in consultation with management, concluded that the tender offer provision fails the “classified in stockholders’ equity” criteria as contemplated by ASC Section 815-40-25.
In accordance with ASC Topic 340, Other Assets and Deferred Costs, as a resultapproximately $28,000 for each of the classificationthree months ended March 31, 2024 and 2023.
10
5. Accrued Expenses
Accrued expenses consist of the Warrants as derivative liabilities,following (in thousands):
|
| March 31, |
|
| December 31, |
| ||
Employee compensation |
| $ | 978 |
|
| $ | 1,587 |
|
Research and development |
|
| 2,461 |
|
|
| 1,036 |
|
Professional and outside services |
|
| 131 |
|
|
| 75 |
|
Interest |
|
| 217 |
|
|
| 223 |
|
| $ | 3,787 |
|
| $ | 2,921 |
| |
6. Term Loans
Oxford Term Loans
In March 2021, Old eFFECTOR entered into a Loan and Security Agreement (“Oxford LSA”) with Oxford Finance LLC (“Oxford”), pursuant to which the Company expensed a portionmay borrow up to $30.0 million, issuable in two separate tranches of $20.0 million (“Term A Loans”) and $10.0 million (“Term B Loans”), collectively referred to as the Oxford Loans. In March 2021, the Company borrowed $20.0 million of the offering costs originally recorded as a reduction in equity.Term A Loans. The portion of offering costs that was expensed was determined based on the relative fair value of the Public Warrants and Class A common stock included in the Units.
As a result of the above, the Company should have classified the Warrants as derivative liabilities in its previously issued financial statement as of January 12, 2021. Under this accounting treatment, the Company is required to measuremake a final payment equal to 5.5% of the Term A Loans at maturity, which has been recorded as a debt discount for the Term A Loans and is being amortized over the term of the debt arrangements. In connection with the Oxford LSA, the Company issued warrants to purchase a total of 1,503 shares of Series C Preferred Stock at an exercise price of $133.25 per share.
On February 22, 2022, the Company entered into an amendment to the Oxford LSA whereby the interest only period for the Term A Loans ended on March 1, 2024. In connection with the amendment, the maturity of the Term A Loans was extended from March 18, 2026 to February 1, 2027. Additionally, Term B Loans would have become available to the Company after January 1, 2023 upon achievement of certain clinical development milestones, until the earlier of (i) June 30, 2023, (ii) 45 days after the achievement of certain clinical development milestones, and (iii) the occurrence of an event of default. As the Company did not achieve the clinical development milestones by June 30, 2023, it no longer has access to the additional $10.0 million under the Term B Loans. The amendment was accounted for as a debt modification as the modified debt was not substantially different from the original debt and the cash flows were not significantly changed.
The Oxford Loans carry a variable interest rate equal to the greater of (i) 7.7% and (ii) the sum of the prime rate plus 4.45%. The Company has the option to prepay all, but not less than all, of the borrowed amounts, and there is no prepayment fee for a prepayment made after the third anniversary of the effective date of the Oxford LSA and prior to the maturity date.
The Company’s obligations under the Oxford LSA are secured by a first priority security interest in substantially all of its current and future assets, other than its owned intellectual property. The Company is also obligated to comply with various other customary covenants, including restrictions on its ability to encumber intellectual property assets without consent.
The Company recorded a debt discount of $1.6 million for the estimated fair value of warrants, debt issuance costs, and final payment to be made, which is being amortized to interest expense over the Warrants at the end of each reporting period as well as re-evaluate the treatmentterm of the loan using the effective-interest method. As of March 31, 2024, the Company had $19.4 million of outstanding principal under the Term A Loans of which $18.9 million is reflected on the balance sheet net of debt discounts. As of December 31, 2023, the Company had $20.0 million of outstanding principal under the Term A Loans of which $19.4 million is reflected on the balance sheet net of debt discounts. Interest expense, including amortization of debt discount related to the Oxford Term A Loans, totaled $0.7 million for each of the three months ended March 31, 2024 and 2023. The Company is in compliance with all covenants under the Oxford LSA as of March 31, 2024. The Term A Loans include customary events of default, including instances of a material adverse change in our operations, that may require prepayment of the outstanding Term A Loans. The principal payments due under the Oxford Loans, and the related accrued final payment, have been classified as current liabilities as of March 31, 2024, due to the considerations discussed in the Liquidity section of Note 1. The Company has not been notified of an event of default by the lender as of the date of issuance of these financial statements.
11
Based on the outstanding principal amounts for the Company’s Term A Loans, the following table sets forth by year the Company’s required future principal payments as of March 31, 2024 (in thousands):
As of March 31, 2024 |
|
|
| |
Remainder of 2024 |
| $ | 5,000 |
|
2025 |
|
| 6,667 |
|
2026 |
|
| 6,667 |
|
2027 |
|
| 1,110 |
|
Required future principal payments |
| $ | 19,444 |
|
Unamortized debt discount |
|
| (528 | ) |
Current term loans, net as of March 31, 2024 |
| $ | 18,916 |
|
7. Warrants
Assumed Public Warrants and recognize changes inPrivate Placement Warrants
Following the fair valueconsummation of the Business Combination, holders of the public warrants and private placement warrants are entitled to acquire common stock of the Company. The warrants became exercisable on January 12, 2022, which is 12 months from the prior period inclosing of the operating results forLWAC's initial public offering. Each warrant entitles the current period.
The Company’s accounting for the Warrants as components of equity instead of as derivative liabilities did not have any effect on the previously reported investments held in trust or cash.
| As Previously Reported | Restatement | As Restated | ||||||||||
Balance sheet as of January 12, 2021 (audited) | ||||||||||||
Warrant Liability – Public Warrants | $ | — | $ | 4,200,000 | $ | 4,200,000 | ||||||
Warrant Liability – Placement Warrants | — | 130,800 | 130,800 | |||||||||
Total Warrant Liabilities | — | 4,330,800 | 4,330,800 | |||||||||
Class A Common Stock Subject to Possible Redemption | 165,376,070 | (4,330,800 | ) | 161,045,270 | ||||||||
Class A Common Stock | 151 | 44 | 195 | |||||||||
Additional Paid-in Capital | 5,001,101 | 242,289 | 5,243,390 | |||||||||
Accumulated Deficit | (1,698 | ) | (242,333 | ) | (244,031 | ) | ||||||
Number of Class A Common Stock Subject to Possible Redemption | 16,537,607 | (433,080 | ) | 16,104,527 | ||||||||
NOTE 4. PUBLIC OFFERING
Pursuant to the IPO, the Company sold 17,500,000 Units, which includes a partial exercise by the underwriter of its over-allotment option in the amount of 2,200,000 Units, at a purchase price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-third of one Public Warrant. Each whole Public Warrant entitles theregistered holder to purchase one share of Class A common stock at an exercise price of $11.50 (see Note 9).
NOTE 5. PRIVATE PLACEMENT
Simultaneously with$287.50 per share. The public warrants and private placement warrants will expire on August 25, 2026, which is five years after the closingcompletion of the IPO,Business Combination.
Once the Sponsor purchased an aggregate of 545,000 Placement Unitspublic warrants and private placement warrants became exercisable, the Company has the right to redeem the outstanding warrants in whole and not in part at a price of $10.00$0.25 per Placement Unit, for $5,450,000. Each whole Placement Warrant is exercisable for one sharewarrant upon a minimum of Class A30 days’ prior written notice of redemption, if and only if the last sale price of the common stock atequals or exceeds $450.00 per share for any 20 trading days within a30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
The private placement warrants are identical to the public warrants except that, so long as they are held by the sponsor or its permitted transferees: (i) they will not be redeemable by the Company; (ii) they may be exercised by the holders on a cashless basis; and (iii) they are subject to registration rights.
Private placement warrants are liability-classified (See Note 3) and the public warrants are equity-classified. The following table summarizes the number of outstanding public warrants and private placement warrants and the corresponding exercise price as of March 31, 2024 and December 31, 2023:
|
| March 31, |
|
| December 31, |
|
| Exercise Price |
|
| Expiration Date | |||
Public warrants |
|
| 233,332 |
|
|
| 233,332 |
|
| $ | 287.50 |
|
| August 24, 2026 |
Private placement warrants |
|
| 7,266 |
|
|
| 7,266 |
|
| $ | 287.50 |
|
| August 24, 2026 |
Warrants - Registered Direct Offerings
In May 2023, the Company completed a registered direct offering (“May 2023 Registered Direct Offering”) which included the issuance of 270,015 shares of common stock in the form of pre-funded warrants with a purchase price of $11.50$16.35 per share and an exercise price of $0.025 (the “May 2023 Pre-Funded Warrants”). The May 2023 Pre-Funded Warrants were immediately exercised. Additionally, in a concurrent private placement, the Company issued warrants to purchase up to 458,015 shares of common stock (the “May 2023 Common Stock Warrants”) with an exercise price of $13.25 per share. The proceedsMay 2023 Common Stock Warrants will expire on November 30, 2028, which is five and one-half years from the Placement Units were added to the proceeds from the IPO held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Placement Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Placement Units, including all underlying securities, will expire worthless. There will be no redemption rights or liquidating distributions from the Trust Account with respect to the Placement Units or its underlying securities.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
In October 2020,issuance date. Further, the Company issued an aggregatewarrants to designees of 3,867,500the placement agent to purchase up to 32,060 shares of Class B common stock to("May 2023 Placement Agent Warrants") with an exercise price of $20.47 per share. The May 2023 Placement Agent Warrants will expire on May 26, 2028, which is five years following the Sponsor (the “Founder Shares”commencement of sales in the May 2023 Registered Direct Offering. See Note 8 for additional detail surrounding the May 2023 Registered Direct Offering.
In June 2023, the Company completed a registered direct offering (“June 2023 Registered Direct Offering”) for an aggregatewhich included the issuance of 72,578 shares of common stock in the form of pre-funded warrants with a purchase price of $25,000.$28.10 per share and an exercise price of $0.025 (the “June 2023 Pre-Funded Warrants”). The June 2023 Pre-Funded Warrants were immediately exercised. Additionally, in a concurrent private placement, the Company effected a stock dividend on January 7, 2021 of 1.17259212issued warrants to purchase up to 310,577 shares of Class B common stock for each share(the “June 2023 Common Stock Warrants”) with an exercise price of Class B$25.00 per share. The June 2023 Common Stock Warrants will expire on December 8, 2028, which is five and one-half years from the issuance date. Further, the Company issued warrants to designees of the placement agent to purchase up to 21,739 shares of common stock outstanding prior("June 2023 Placement Agent Warrants") with an exercise price of $35.1575 per share. The June 2023 Placement Agent Warrants will expire on June 6, 2028, which is five years
12
following the commencement of sales in the June 2023 Registered Direct Offering. See Note 8 for additional detail surrounding the June 2023 Registered Direct Offering.
In January 2024, the Company completed a registered direct offering (“January 2024 Registered Direct Offering”) which included the issuance of 1,150,834 shares of common stock in the form of pre-funded warrants with a purchase price of $10.074 per share and an exercise price of $0.001 (the “January 2024 Pre-Funded Warrants”), of which 497,834 were exercised as of March 31, 2024. Additionally, the Company concurrently issued warrants to purchase up to 1,488,834 shares of common stock (the “January 2024 Common Stock Warrants”) with an exercise price of $9.95 per share. The January 2024 Common Stock Warrants will expire on July 29, 2027, which is three and one-half years from the dividend and, as a result,issuance date. Further, the Sponsor held 4,535,000 Founder Shares. As a resultCompany issued warrants to designees of the underwriters’ electionplacement agent to only partially exercise their over-allotment option, the Sponsor forfeited 23,750purchase up to 104,218 shares of Class B common stock resulting in 4,511,250 Founder Shares outstanding.("January 2024 Placement Agent Warrants") with an exercise price of $12.5938 per share. The January 2024 Placement Agent Warrants will expire on July 29, 2027, which is three and one-half years from the issuance date. See Note 8 for additional detail surrounding the January 2024 Registered Direct Offering.
The common stock warrants, placement agent warrants and pre-funded warrants are equity-classified. The following table summarizes the number of outstanding common stock warrants, placement agent warrants and pre-funded warrants and the corresponding exercise price as of March 31, 2024 and December 31, 2023:
|
| March 31, |
|
| December 31, |
|
| Exercise Price |
|
| Expiration Date | |||
May 2023 Common Stock Warrants |
|
| 458,015 |
|
|
| 458,015 |
|
| $ | 13.25 |
|
| November 30, 2028 |
May 2023 Placement Agent Warrants |
|
| 32,060 |
|
|
| 32,060 |
|
| $ | 20.47 |
|
| May 26, 2028 |
June 2023 Common Stock Warrants |
|
| 310,577 |
|
|
| 310,577 |
|
| $ | 25.00 |
|
| December 8, 2028 |
June 2023 Placement Agent Warrants |
|
| 21,739 |
|
|
| 21,739 |
|
| $ | 35.1575 |
|
| June 6, 2028 |
January 2024 Pre-funded Warrants |
|
| 653,000 |
|
|
| — |
|
| $ | 0.001 |
|
| N/A |
January 2024 Common Stock Warrants |
|
| 1,488,834 |
|
|
| — |
|
| $ | 9.95 |
|
| July 29, 2027 |
January 2024 Placement Agent Warrants |
|
| 104,218 |
|
|
| — |
|
| $ | 12.5938 |
|
| July 29, 2027 |
8. Preferred Stock and Stockholders’ Equity (Deficit)
Purchase Agreement
On January 24, 2022, the Company entered into an equity purchase agreement (the “Purchase Agreement”) and a registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”) which provides for the sale to Lincoln Park up to $50.0 million of shares (the “Purchase Shares”) of the Company's common stock over the thirty-six (36) month term of the Purchase Agreement. In connection with the Purchase Agreement, Lincoln Park made an initial purchase of $3.0 million of shares of common stock, which equated to 22,304 shares of common stock, and the Company issued 5,717 shares of common stock to Lincoln Park as a commitment fee in connection with entering into the Purchase Agreement. The Company recognized $0.8 million of other expense relating to the commitment fee share issuance. As of March 31, 2024, a total of 1,200 shares of common stock have been sold in addition to the upfront amount, with such shares sold during the three months ended June 30, 2022. There were no purchases under the Purchase Agreement during the three months ended March 31, 2024 and 2023.
Under the Purchase Agreement, the Company has sole discretion, subject to certain conditions, on any business day selected by the Company to require Lincoln Park to purchase up to 1,200 shares of common stock (the “Fully Adjusted Regular Purchase Share Limit”) at the Purchase Price (as defined below) per purchase notice (each such purchase, a “Regular Purchase”). The Fully Adjusted Regular Purchase Share Limit may be increased as follows: to up to 2,000 shares if the closing price is not below $125.00, and up to 3,000 shares if the closing price is not below $250.00. Lincoln Park’s committed obligation under each Regular Purchase is capped at $500,000, unless the Parties agree otherwise. The purchase price for Regular Purchases (the “Purchase Price”) shall be equal to the lesser of: (i) the lowest sale price of the common shares during the Purchase Date (as defined in the Purchase Agreement), or (ii) the average of the three (3) lowest closing sale prices of the common shares during the ten (10) business days prior to the Purchase Date.
In addition to Regular Purchases and subject to certain conditions and limitations, the Company in its sole discretion may require Lincoln Park on each Purchase Date to purchase on the following business day up to the lesser of (i) three (3) times the number of shares purchased pursuant to such Regular Purchase or (ii) 25% of the trading volume on the Accelerated Purchase Date (as defined in the Purchase Agreement) (the “Accelerated Purchase”) (unless the Parties agree otherwise) at a purchase price equal to the lesser of 97% of (i) the closing sale price on the Accelerated Purchase Date, or (ii) the Accelerated Purchase Date’s volume weighted average price (the “Accelerated Purchase Price”). The Company has the sole right to set a minimum price threshold for each Accelerated Purchase in the notice provided with respect to such Accelerated Purchase and under certain circumstances and in accordance with the Purchase Agreement the Company may direct multiple Accelerated Purchases in a day.
The aggregate number of shares that the Company can sell to Lincoln Park under the Purchase Agreement may not exceed 325,357 shares of the Common Shares (which is equal to approximately 19.99% of the shares of the Common Shares outstanding
13
immediately prior to the execution of the MergerPurchase Agreement) (the “Exchange Cap”), unless (i) shareholder approval is obtained to issue Purchase Shares above the Exchange Cap, in which the Exchange Cap will no longer apply, or (ii) the average price of all applicable sales of Common Shares to Lincoln Park under the Purchase Agreement equals or exceeds $160.50 per share; provided that at no time may Lincoln Park (together with its affiliates) beneficially own more than 4.99% of the SponsorCompany’s issued and outstanding Common Shares.
The Purchase Agreement contains customary representations, warranties, covenants, closing conditions, indemnification and termination provisions. The Purchase Agreement may be terminated by the Company at any time, at its sole discretion, without any cost or penalty, by giving one business day notice to Lincoln Park. Further, Lincoln Park has covenanted not to engage in any direct or indirect short selling or hedging of the Common Shares. There are no limitations on the use of proceeds, financial or business covenants, restrictions on future financings (other than restrictions on the Company’s ability to enter into a similar type of agreement or Equity Line of Credit during the Term, excluding an At-The-Market transaction with a registered broker-dealer), rights of first refusal, participation rights, penalties or liquidated damages in the Purchase Agreement.
At-the-Market Offering Program
In September 2022, the Company entered into a sponsor support agreement, dated as of May 26, 2021Controlled Equity Offering Sales Agreement (the “Sponsor Support Agreement”"Cantor Sales Agreement") with Cantor Fitzgerald & Co ("Cantor"), under which the Company and eFFECTOR, pursuantcould have sold, from time to which to which the Sponsor agreed to vote all of itstime, shares of the Company’s common stock having an aggregate offering price of up to $50.0 million in favor“at the market” offerings (the "ATM Offering Program") through Cantor. In August 2023, the Company supplemented its prospectus, dated September 9, 2022 (the “Prospectus Supplement”), to increase the aggregate offering amount under the ATM Offering Program to $50.0 million as the Company was no longer subject to General Instruction I.B.6. of Form S-3, which limited the amounts that the Company could sell under the ATM Offering Program. In April 2024, the Company supplemented the prospectus to reduce the aggregate offering amount under the ATM Offering Program to approximately $6.8 million, which was less than one-third of our public float, as calculated on the day of filing. Sales of the Mergershares of common stock were made at prevailing market prices at the time of sale, or as otherwise agreed with Cantor. Cantor received a commission from the Company of up to 3.0% of the gross proceeds of any shares of common stock sold under the Sales Agreement. During the three months ended March 31, 2024, the Company sold an aggregate of 83,948 shares of common stock at a weighted-average price of $11.07 per share for gross proceeds of approximately $0.9 million under the ATM Offering Program. Offering costs, including commissions, of approximately $0.1 million were recorded as an offset to gross proceeds within additional paid-in capital.
Registered Direct Offerings
The May 2023 Registered Direct Offering included the issuance and that it would not sell, assign or otherwise transfer anysale of itsan aggregate of 188,000 shares of the Company’s common stock subject to certain exceptions as permittedat a purchase price of $16.375 per share in a registered direct offering priced at-the-market under Nasdaq rules. In addition, the Sponsor Support Agreement.offering included the issuance of the May 2023 Pre-Funded Warrants, which were immediately exercised, and the May 2023 Common Stock Warrants. The Company received gross proceeds from the May 2023 Registered Direct Offering of $7.5 million with net proceeds of approximately $6.7 million after deducting $0.8 million in commissions and other transaction costs.
In connection with the executionMay 2023 Registered Direct Offering, the Company paid H.C. Wainwright & Co., LLC, as exclusive placement agent, an aggregate cash fee equal to 7.0% of the Merger Agreement,gross proceeds received by the Sponsor also entered intoCompany from the offering and a sponsor lock-up agreement, which shall become effective asmanagement fee equal to 1.0% of the Effective Time (the “Sponsor Lock-up Agreement”), withgross proceeds received by the Company pursuantfrom the offering. The Company also paid the placement agent $75,000 for non-accountable expenses and $15,950 for clearing fees. Additionally, the Company issued designees of the placement agent the May 2023 Placement Agent Warrants, equal to which, subject to certain limited exceptions,7.0% of the Sponsor has agreed not to transfer anyaggregate number of itsshares of common stock and pre-funded warrants placed in the offering.
The June 2023 Registered Direct Offering included the issuance and sale of an aggregate of 238,000 shares of the Company’s common stock duringat a purchase price of $28.125 per share in a registered direct offering priced at-the-market under Nasdaq rules. In addition, the period beginning onoffering included the dateissuance of the Closing (the “Closing Date”) and ending on the earlier of (x) 270 days after the Closing Date, (y) the date onJune 2023 Pre-Funded Warrants, which the price of the Company’s common stock equals or exceeds $12.00 for any 20 trading days within any 30 trading day period following the 90th day after the Closing Date, and (z) a Change of Control (as defined in the Sponsor Lock-up Agreement). The transfer restrictions set forth in the Sponsor Support Agreementwere immediately exercised, and the Sponsor Lock-up Agreement supersede and replace the transfer restrictions set forth in that certain letter agreement, dated January 7, 2021, between the Company, the Sponsor and the directors and officers of the Company.
Administrative Services Agreement
June 2023 Common Stock Warrants. The Company entered into an agreement, commencing on January 12, 2021 through the earlier of the consummation of a Business Combination and its liquidation, to pay the Sponsor or an affiliate of the Sponsor $10,000 per month for office space, administrative and shared personnel support services. For the three months ended March 31, 2021, the Company incurred $15,015, of which such amount is included in accounts payable and accrued expenses in the accompanying March 31, 2021 condensed balance sheet.
Promissory Note — Related Party
On October 6, 2020, as amended on December 7, 2020, the Company issued a promissory note to the Sponsor, pursuant to which the Sponsor agreed to loan the Company up to aggregate of $300,000 to be used for the payment of costs related to the IPO (the “Promissory Note”). The Promissory Note was non-interest bearing, unsecured and due on the earlier of (i) March 31, 2021 or (ii) the consummation of the IPO. As of March 31, 2021 and December 31, 2020, there was $0 and $60,375 outstanding under the Promissory Note, respectively. The Company overpaid the outstanding balance under the Promissory Note upon the closing of the IPO on January 12, 2021. The overpayment resulted in an immaterial balance due from the Sponsor.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s management team or any of their respective affiliates or other third parties may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”), which will be repaid only upon the consummation of a Business Combination. If the Company does not consummate a Business Combination, the Company may use a portion of any funds held outside the Trust Account to repay the Working Capital Loans; however, noreceived gross proceeds from the Trust Account may be used for such repayment. If such funds are insufficient to repay the Working Capital Loans, the unpaid amounts would be forgiven. Up to $1,500,000June 2023 Registered Direct Offering of the Working Capital Loans may be converted into units at a price$8.7 million with net proceeds of $10.00 per unit at the option of the holder. The units would be identical to the Placement Units. As of March 31, 2021approximately $7.8 million after deducting $0.9 million in commissions and December 31, 2020, there were no amounts outstanding under the Working Capital Loans.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 7. COMMITMENTS
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Registration Rights
Pursuant to a registration rights agreement entered into on January 7, 2021, the holders of the Founder Shares, Placement Units (including securities contained therein) and the warrants that may be issued upon conversion of the Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Placement Warrants or the warrants issued upon conversion of the Working Capital Loans) will be entitled to registration rights pursuant to a registration rights agreement requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders will have “piggy-back” registration rights to include such securities in other registration statements filed by the Company and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
PIPE Financing
In connection with the executionJune 2023 Registered Direct Offering, the Company paid H.C. Wainwright & Co., LLC, as exclusive placement agent, an aggregate cash fee equal to 7.0% of the Merger Agreement,gross proceeds received by the Company entered intofrom the Subscription Agreements with certain Subscribers, pursuantoffering and a management fee equal to which1.0% of the Subscribers agreed to purchase, andgross proceeds received by the Company agreedfrom the offering. The Company also paid the placement agent $50,000 for non-accountable expenses and $15,950 for clearing fees. Additionally, the Company issued designees of the placement agent the June 2023 Placement Agent Warrants, equal to sell to7.0% of the Subscribers,aggregate number of shares of common stock and pre-funded warrants placed in the offering.
The January 2024 Registered Direct Offering included the issuance and sale of an aggregate of 6,000,000338,000 shares of the Company’s common stock forat a purchase price of $10.00$10.075 per share resulting in a registered direct offering priced at-the-market under Nasdaq rules. In addition, the offering included the issuance of the January 2024 Pre-Funded Warrants and the January 2024 Common Stock Warrants. The Company received gross proceeds from the January 2024 Registered Direct Offering of $15.0 million with net proceeds of approximately $13.6 million after deducting $1.4 million in commissions and other transaction costs.
14
In connection with the January 2024 Registered Direct Offering, the Company paid H.C. Wainwright & Co., LLC, as exclusive placement agent, an aggregate purchase price of $60,000,000. For more information regarding the PIPE Financing, see the description of the Merger in Note 1 above.
Underwriting Agreement
As a result of the underwriter’s electioncash fee equal to partially exercise the over-allotment option to purchase an additional 2,200,000 Units, 95,000 over-allotment option Units have been forfeited.
The underwriter is entitled to a deferred underwriting fee of (i) 3.5%7.0% of the gross proceeds ofreceived by the initial 15,300,000 Units sold inCompany from the Initial Public Offering, or $5,355,000,offering and (ii) 5.5%a management fee equal to 1.0% of the gross proceeds received by the Company from the Units sold pursuantoffering. The Company also paid the placement agent $25,000 for non-accountable expenses, $50,000 for fees and expenses of legal counsel and other out-of-pocket expenses, and $15,950 for clearing fees. Additionally, the Company issued designees of the placement agent the January 2024 Placement Agent Warrants, equal to 7.0% of the overallotment option, or $1,210,000. The deferred underwriting fee will become payable to the underwriter from the amounts heldaggregate number of shares of common stock and pre-funded warrants placed in the Trust Account solely inoffering.
Preferred Stock
Upon closing of the event that the Company completes a Business Combination subjecttransaction, pursuant to the terms of the underwriting agreement.
NOTE 8. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 1,000,000Amended and Restated Certificate of Incorporation, 100,000,000 shares of preferred stock with a par value of $0.0001$0.0001 per share withwere authorized. eFFECTOR's Board of Directors (the "Board of Directors") has the authority, without further action by the stockholders to issue such designation, rights and preferences as may be determinedshares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, and to fix the dividend, voting, and other rights, preferences and privileges of the shares. There were no issued and outstanding shares of preferred stock immediately after the closing of the Business Combination and no preferred stock has been issued as of March 31, 2024.
Sponsor Shares
In connection with the closing of the Business Combination, the LWAC sponsor received 162,250 shares of eFFECTOR common stock, of which 12,000 shares were subject to vesting if, on or prior to August 25, 2024, the price of shares of common stock equals or exceeds $375.00 per share for a period of at least 20 trading days out of 30 consecutive trading days ending on the trading day immediately prior to the date of determination (the "Sponsor Shares"). The 12,000 Sponsor Shares subject to vesting meet the criteria for equity classification, but are not considered outstanding from an accounting perspective. These shares are considered issued but not outstanding as of March 31, 2024 and December 31, 2023, and have been excluded from outstanding shares in the calculation of loss per share for the three months ended March 31, 2024 and 2023.
Employee Stock Purchase Plan
The ESPP provides for six-month offering periods, and at the end of each offering period, employees are able to purchase shares at 85% of the lower of the fair market value of the Company’s common stock on the first trading day of the offering period or on the last trading day of the offering period. An aggregate of 35,200 shares were initially reserved and available for issuance under the ESPP. The ESPP provides that the number of shares reserved and available for issuance under the plan will automatically increase each January 1, by 1.0% of the outstanding number of shares of common stock on the immediately preceding December 31, or such lesser amount as determined by our Board of Directors.Directors; provided that the total number of shares of common stock that become available for issuance under the ESPP will never exceed 600,000. If our capital structure changes because of a stock dividend, stock split or similar event, the number of shares that can be issued under the ESPP will be appropriately adjusted. As of March 31, 2021 and December 31, 2020, there2024, 89,090 shares were no shares of preferred stock issued or outstanding.
Class A Common Stock — The Company is authorized to issue 100,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one votereserved for each share. At March 31, 2021, therefuture issuance under the ESPP. There were 1,911,387 shares of Class A common stock issued and outstanding, excluding 16,133,613 shares of Class A common stock subject to possible redemption. At December 31, 2020, there were no shares of Class A common stock issued or outstanding.
Class B Common Stock — The Company is authorized to issue 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of the Company’s Class B common stock are entitled to one vote for each share of common stock. At March 31, 2021 and December 31, 2020, there were 4,511,250 and 4,535,000 shares of common stock issued and outstanding, respectively, and 23,750 shares of Class B common stock were forfeited as a result of the underwriter’s election to partially exercise its over-allotment option, so that the number of Founder Shares would equal 20% of the Company’s issued and outstanding common stock after the IPO.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
Holders of Class B common stock will vote on the election of directors prior to the consummation of a Business Combination. Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law.
Shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in excess of the amounts offered in the IPO and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 2% of the sum of the total number of all shares of common stock issued and outstanding upon completion of this offering, including Placement Shares, plus all shares of Class A common stock and equity-linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in a Business Combination).
NOTE 9. WARRANTS
Warrants — As of March 31, 2021, there were 5,833,333 Public Warrants outstanding. At December 31, 2020, there were no Public Warrants outstanding. Public Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the IPO. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise for cash of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and the Company will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt from the registration or qualifications requirements of the securities laws of the state of residence of the registered holder of the warrants. Notwithstanding the foregoing, if a registration statement covering the shares of Class A common stock issuable upon exercise of the Public Warrants has not been declared effective by the end of 60 business days following the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act.
The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of a Business Combination, the Company will use its reasonable best efforts to file with the SEC, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the Warrants and to maintain a current prospectus relating to those shares of Class A common stock until the Warrants expire or are redeemed, as specified in the Warrant Agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the Warrants is not effective by the 60th business day after the closing of a Business Combination, Warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise the Warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, the Company will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the Warrants become exercisable, the Company may redeem the Public Warrants:
in whole and not in part;
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
at a price of $0.01 per Warrant;
upon not less than 30 days prior written notice of redemption; and
if, and only if, the reported last sale price of the Company’s Class A common stock (or the closing bid price of the common stock in the event shares of common stock are not traded on any specific day) equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30 trading day period ending three business days before the Company sends the notice of redemption to the Warrant holders.
If and when the Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption for cash, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the Warrant Agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Warrants.
If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Warrants will not receive any of such funds with respect to their Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Warrants. Accordingly, the Warrants may expire worthless.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share (with such issue price or effective issue price to be determined in good faith by the Company and in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Insiders or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 50% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the completion of a Business Combination (net of redemptions), and (z) the volume-weighted average trading price of the shares of Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company completes a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the Warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
As of March 31, 2021, there were 181,667 Placement Warrants outstanding. At December 31, 2020 there were no Placement Warrants outstanding. The Placement Warrants are identical to the Public Warrants underlying the Units sold in the IPO, except that the Placement Warrants and the Class A common stock issuable upon the exercise of the Placement Warrants will not be transferable, assignable or saleable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 10. FAIR VALUE MEASUREMENTS
At March 31, 2021, assets held in the Trust Account were comprised of $175,003,740 in money market funds which are invested primarily in U.S. Treasury Securities.
LOCUST WALK ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2021 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| Level | March 31, 2021 | |||||||
Assets: | ||||||||
Marketable securities held in Trust Account | 1 | $ | 175,003,740 | |||||
Liabilities: | ||||||||
Warrant liability – Public Warrants | 1 | $ | 3,558,333 | |||||
Warrant liability – Placement Warrants | 3 | $ | 116,267 | |||||
The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying March 31, 2021 condensed balance sheet. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed statement of operations.
The Public Warrants were initially valued using a Monte Carlo Simulation, and the Placement Warrants were valued using a Black-Scholes option pricing model (“Black-Scholes”), both of which are considered to be Level 3 fair value measurements. The primary unobservable input utilized in determining the fair value of the Placement Warrants is the expected volatility of the Company’s common stock. The expected volatility of the Company’s common stock was determined based on the implied volatility of the Public Warrants. For periods subsequent to the detachment of the Warrants from the Units, the close price of the Public Warrants was used as the fair value as of each relevant date.
The key inputs utilized in the Monte Carlo simulation model for the Public Warrants and Black-Scholes for the Placement Warrants are as follows:
| January 12, 2021 | ||||||||||||
| (Initial Measurement) | March 31, 2021 | |||||||||||
| Public | Placement | Placement | ||||||||||
Input | Warrants | Warrants | Warrants | |||||||||
Stock Price | $ | 10.32 | $ | 10.32 | $ | 9.75 | ||||||
Exercise Price | $ | 11.50 | $ | 11.50 | $ | 11.50 | ||||||
Volatility | 12.5 | % | 12.5 | % | 12.5 | % | ||||||
Term (years) | 5.00 | 5.00 | 5.00 | |||||||||
Dividend Yield | 0.00 | 0.00 | % | 0.00 | % | |||||||
Risk Free Rate | 0.50 | % | 0.09 | % | 0.92 | % | ||||||
The following presents the changes in the fair value of warrant liabilities:
| Placement Warrants | Public Warrants | Warrant Liabilities | ||||||||||
Fair value as of January 1, 2021 | $ | — | $ | — | $ | — | ||||||
Initial measurement on January 12, 2021 | 130,800 | 4,200,000 | 4,330,800 | |||||||||
Change in valuation inputs or other assumptions | (14,533 | ) | (641,667 | ) | (656,200 | ) | ||||||
|
|
|
|
|
| |||||||
Fair value as of March 31, 2021 | $ | 116,267 | $ | 3,558,333 | $ | 3,674,600 | ||||||
|
|
|
|
|
| |||||||
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period in which a change in valuation technique or methodology occurs. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurementESPP during the three months ended March 31, 2024 and 2023.
2013 Equity Incentive Plan
Prior to the Business Combination, Old eFFECTOR maintained its 2013 Equity Incentive Plan (the “2013 Plan”), under which Old eFFECTOR granted incentive stock options, restricted stock awards, and other stock-based awards to employees, directors, and non-employee consultants. Upon the completion of the Business Combination, the Company ceased granting awards under the 2013 Plan and, as described below, all awards under the 2013 Plan were converted into awards under the 2021 Plan with the same terms and conditions. In connection with the completion of the Business Combination and the adoption of the 2021 Plan, no further awards will be granted under the 2013 Plan. As of March 31, 2024, the number of shares reserved and options outstanding under the 2013 Plan was approximately $3.6130,617.
2021 Equity Incentive Plan
In connection with the consummation of the Business Combination on August 25, 2021, the Board of Directors approved the adoption of the 2021 Equity Incentive Plan (the “2021 Plan”). As of March 31, 2024, 596,440 shares of common stock are authorized for issuance pursuant to awards under the 2021 Plan, inclusive of any shares of common stock subject to stock options, restricted stock awards or other awards that were assumed in the Business Combination. As of March 31, 2024, 607,306 options to purchase common shares have been awarded and 32,293 shares remain available for issuance under the 2021 Plan. The 2021 Plan permits the granting of incentive stock options, restricted stock awards, other stock-based award or other cash-based awards to employees, directors, and non-employee consultants.
Options granted under the 2021 Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their date of grant, or in the case of certain non-statutory options, ten years from the date of grant. The exercise price of
15
each option shall be determined by the Board of Directors based on the fair market value of the Company’s stock on the date of the option grant, defined as the closing sales price of the Company's common stock. In the case of incentive stock options, the exercise price shall not be less than 100% of the fair market value of the Company’s common stock at the time the option is granted. For holders of more than 10% of the Company’s total combined voting power of all classes of stock, incentive stock options may not be granted at less than 110% of the fair market value of the Company’s stock at the date of grant and for a term not to exceed five years.
A summary of the Company’s stock option activity under the plans is as follows (in thousands, except share and per share amounts and years):
|
| Shares |
|
| Weighted- |
|
| Weighted- |
|
| Aggregate |
| ||||
Outstanding at December 31, 2023 |
|
| 480,875 |
|
| $ | 51.67 |
|
|
| 7.3 |
|
| $ | — |
|
Granted |
|
| 231,800 |
|
|
| 11.32 |
|
|
| 9.9 |
|
|
|
| |
Cancelled or forfeited |
|
| (17,911 | ) |
|
| 13.53 |
|
|
| 3.9 |
|
|
|
| |
Outstanding at March 31, 2024 |
|
| 694,764 |
|
| $ | 39.19 |
|
|
| 7.9 |
|
| $ | 1,039 |
|
Vested and exercisable at March 31, 2024 |
|
| 325,122 |
|
| $ | 56.29 |
|
|
| 6.3 |
|
| $ | 151 |
|
For the three months ended March 31, 2024 the total fair value of vested options was $1.0 million.
LOCUST WALK ACQUISITION CORP.Stock-Based Compensation Expense
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)
NOTE 12. SUBSEQUENT EVENTS
The Company evaluated subsequent events recognized stock-based compensation expense specifically related to stock options of $1.0 millionand transactions that occurred after$1.2 million for three months ended March 31, 2024 and 2023, respectively. The assumptions used in the balance sheet date upBlack-Scholes option pricing model to determine the fair value of the stock option grants were as follows:
|
| Three Months Ended March 31, | ||
|
| 2024 |
| 2023 |
Risk-free interest rate |
| 4.3% |
| 3.6% - 4.1% |
Expected volatility |
| 84% - 85% |
| 84% |
Expected term (in years) |
| 5.3 - 6.0 |
| 5.3 - 6.1 |
Expected dividend yield |
| 0% |
| 0% |
Risk-free interest rate. The risk-free rate assumption is based on the U.S. Treasury instruments, the terms of which were consistent with the expected term of the Company’s stock options.
Expected volatility. Due to the date thatCompany’s limited operating history and lack of company-specific historical or implied volatility, the condensed financial statements were issued. Based upon this review, other thanexpected volatility assumption was determined by examining the historical volatilities of a group of industry peers whose share prices are publicly available.
Expected term. The expected term of stock options represents the weighted-average period the stock options are expected to be outstanding. The Company uses the simplified method for estimating the expected term as provided by the SEC. The simplified method calculates the expected term as the weighted average of the time-to-vesting and the contractual life of the options.
Expected dividend yield. The expected dividend assumption is based on the Company’s history and expectation of dividend payouts. The Company has not paid and does not intend to pay dividends.
Forfeitures. The Company reduces stock-based compensation expense for actual forfeitures during the period in which they occur.
As of March 31, 2024, the unrecognized compensation cost related to outstanding employee options was $5.6 million and is expected to be recognized as expense over approximately 2.8 years. Unrecognized compensation cost related to outstanding nonemployee options was $0.6 million as of March 31, 2024, and is expected to be recognized as expense over approximately 1.0 year.
16
Common Stock Reserved for Future Issuance
Common stock reserved for future issuance consists of the following paragraphs,as of March 31, 2024 and December 31, 2023:
|
| March 31, |
|
| December 31, |
| ||
Stock options issued and outstanding |
|
| 694,764 |
|
|
| 480,875 |
|
Public warrants issued and outstanding |
|
| 233,332 |
|
|
| 233,332 |
|
Private placement warrants issued and outstanding |
|
| 7,266 |
|
|
| 7,266 |
|
Common stock warrants issued and outstanding |
|
| 2,257,426 |
|
|
| 768,592 |
|
Placement agent warrants issued and outstanding |
|
| 158,017 |
|
|
| 53,799 |
|
Pre-funded warrants |
|
| 653,000 |
|
|
| — |
|
Unvested sponsor shares |
|
| 12,000 |
|
|
| 12,000 |
|
Authorized for future stock awards or option grants |
|
| 32,293 |
|
|
| 96,449 |
|
Authorized for future issuances under the ESPP |
|
| 89,090 |
|
|
| 59,144 |
|
Total |
|
| 4,137,188 |
|
|
| 1,711,457 |
|
9. License Agreements
In May 2013, the Company did not identify any subsequent eventsentered into an agreement with the Regents of the University of California (“UCSF”) which provides the Company with an exclusive license to UCSF’s patent rights in certain inventions (the “UCSF Translational Profiling Patent Rights”) relating to translational profiling laboratory techniques initially developed at UCSF. Under the agreement, the Company is permitted to research, develop, make and sell products that would have required adjustment or disclosure init discovers and develops utilizing the condensed financial statements. On May 26,UCSF Translational Profiling Patent Rights, which the Company refers to as licensed products, and use certain licensed processes utilizing the UCSF Translational Profiling Patent Rights and to sublicense such licensed products and processes.
In July 2021, the Company entered into an amendment to the Merger Agreement by and amonglicense agreement to confirm the impact of the Business Combination on the license agreement, including clarifying that in connection with the closing of the Business Combination, the Company Merger Sub,would pay UCSF a wholly-owned subsidiaryone-time cash payment of approximately $1.0 million. The $1.0 million payment was made to UCSF in August 2021 in connection with the close of the Business Combination. The Company is also required to make cash milestone payments to UCSF upon the completion of certain clinical and eFFECTOR. regulatory milestones for the licensed products. No milestone events occurred during the three months ended March 31, 2024 and March 31, 2023. The aggregate remaining potential milestone payments are approximately $375,000.
The Company pays an annual minimum royalty of $15,000 to UCSF. All license related fees are recorded as research and development expense.
10. Research Collaboration and License Agreement
In December 2019, the Company entered into a Research Collaboration and License Agreement (the “Pfizer Agreement”) with Pfizer to research and develop small molecules that target eIF4E.
Under the Pfizer Agreement, the Company was responsible for initial research in collaboration with Pfizer, and Pfizer is responsible for all further development of the program, including submission of an investigational new drug application and conducting all clinical development and commercialization activities. Pfizer is obligated to use commercially reasonable efforts to develop and seek regulatory approval for a licensed product, and commercialize a licensed product where Pfizer has received regulatory approval, in the United States and certain other countries. In the event the Company exercises its co-funding and co-promotion option, a joint steering committee will oversee the development plan and budget of the co-developed product, and the Company will have the responsibility to conduct a portion of product marketing presentations to healthcare providers.
Pursuant to the termsPfizer Agreement, the Company received an upfront, one-time, non-refundable, non-creditable payment of $15 million from Pfizer. Pfizer was obligated to reimburse the Company for costs incurred for research performed, up to a specified cap in the low double-digit millions. Upon the achievement of specified early development and conditions ofregulatory milestones, Pfizer will be obligated to pay the Merger Agreement,Company up to $80 million in the aggregate. For other non-early stage development milestones Pfizer’s payment obligations to the Company depends upon the closing, Merger Sub will merge with and into eFFECTOR with eFFECTOR surviving the Merger as a wholly-owned subsidiary of the Company. The Board of Directors ofwhether the Company has unanimously approvedexercised its co-funding and co-promotion option: 1) if it does not exercise the Mergeroption, non-early stage development payments may total up to $165 million in aggregate, and resolved2) if it does exercise the option, non-early stage development payments may total up to recommend approval of the Merger Agreement to the stockholders of the Company. Consummation of the Merger is subject to approval by the Company’s stockholders and the satisfaction or waiver of certain other customary closing conditions.$70 million in aggregate. Upon the consummationachievement of specified sales milestones, Pfizer is also obligated to make tiered milestone payments of up to $235 million in aggregate. On a product-by-product basis, Pfizer will also be required to pay the Merger,Company high single-digit percentage royalties on annual net sales of each licensed product. If the Company exercises its co-promotion and co-funding option, royalty payments will exclude sales in the United States and the Company will be renamed “eFFECTOR Therapeutics, Inc.”share with Pfizer profits from sale of the relevant licensed product in the United States.
eFFECTOR is17
The initial transaction price of $27.0 million was allocated to the two performance obligations on a biopharmaceutical company focusedrelative standalone value basis, with $25.6 million allocated to the license and $1.4 million allocated to the research activities, which were completed in 2020. The value attributable to the license was recognized upon delivery of the license to Pfizer and the value attributable to the research activities was recognized pro-rata based on pioneering the developmentactual costs incurred by the Company compared to the total estimated costs of selective translation regulation inhibitorsthe research activities from the time of execution to the end of the research program.
There was no revenue recorded in connection with this agreement for the treatment of cancer.three months ended March 31, 2024 and 2023 because all development and sales milestones (variable consideration) were fully constrained.
11. Commitments and Contingencies
Leases
In connection with the Merger,September 2021, the Company has entered intoa non-cancelable three-year lease for certain office space in Solana Beach, California, with an option to renew for an additional three-year term. In January 2024, the Subscription AgreementsCompany executed a three-year extension to the lease with certain parties for a fully committed $60 million financingnew expiration date of Company common stock to be issued at $10.00 per share.October 31, 2027. The obligations to consummate the transactions contemplated by the Subscription Agreements are conditioned upon, among other things, customary closing conditions and the consummationinitial term of the transactions contemplated bylease started on November 1, 2021, and is serving as the Merger Agreement.Company's headquarters. Rent expense under this lease was $18,000 and $16,000 for the three months ended March 31, 2024 and 2023, respectively.
During the three months ended March 31, 2024 and 2023, the Company paid $19,000 and $14,000 in lease payments, respectively, which were included in operating activities in the statements of cash flows.
The following table summarizes supplemental balance sheet information related to leases as of March 31, 2024 and December 31, 2023 (in thousands):
|
| March 31, |
|
| December 31, |
| ||
Assets: |
|
|
|
|
|
| ||
Operating lease right-of-use assets |
| $ | 225 |
|
| $ | 53 |
|
Total right-of-use assets |
|
| 225 |
|
|
| 53 |
|
Liabilities |
|
|
|
|
|
| ||
Operating lease liabilities, current |
|
| 53 |
|
|
| 60 |
|
Operating lease liabilities, non-current |
|
| 179 |
|
|
| — |
|
Total operating lease liabilities |
| $ | 232 |
|
| $ | 60 |
|
As of March 31, 2024, the future minimum annual lease payments under the existing operating leases were as follows (in thousands, except for weighted-average remaining lease term and weighted-average discount rate):
Remainder of 2024 |
| $ | 56 |
|
2025 |
|
| 77 |
|
2026 |
|
| 79 |
|
2027 |
|
| 68 |
|
Total remaining lease payments |
|
| 280 |
|
Less: imputed interest |
|
| (48 | ) |
Total operating lease liabilities |
|
| 232 |
|
Less: current portion |
|
| (53 | ) |
Long-term operating lease liabilities |
| $ | 179 |
|
Weighted-average remaining lease term (in years) |
|
| 3.60 |
|
Weighted-average discount rate |
|
| 11.5 | % |
12. Employee Benefits
The Company has a defined contribution 401(k) plan available to eligible employees. Under the terms of the plan, employees may make voluntary contributions as a percent of compensation, limited to the maximum amount allowable under federal tax regulations. The Company, at its discretion, may make certain contributions to the 401(k) plan. Through March 31, 2024, the Company made no matching contributions.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
ReferencesUnless the context otherwise requires, all references in this report (the “Quarterly Report”)section to “we,” “our,” “us” or the “Company”“eFFECTOR” refer to Locust Walk Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and referencesthe business of eFFECTOR Therapeutics, Inc. prior to the “Sponsor” refer to Locust Walk Acquisition Corp.consummation of the Business Combination, which is our business following the consummation of the Business Combination. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with theour unaudited condensed consolidated financial statements and the notes thereto containedincluded elsewhere in this Quarterly Report. Certain information containedReport on Form 10-Q and with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K, filed with the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.SEC on March 26, 2024.
SpecialCautionary Note Regarding Forward-lookingForward-Looking Statements
This Quarterly Report includes “forward-looking statements”contains forward-looking statements within the meaning of Section 27A21E of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected.of 1934, as amended (the “Exchange Act”). All statements other than statements of historical factfacts contained in this Quarterly Report, including statements regarding our future results of operations or financial condition, research and development plans, the anticipated timing, costs, design and conduct of our ongoing and planned preclinical studies and planned clinical trials for our product candidates, the timing and likelihood of regulatory filings and approvals for our product candidates, our ability to commercialize our product candidates, if approved, the potential to develop future product candidates, the potential benefits of strategic collaborations, the timing and likelihood of success, plans and objectives of management for future operations, and future results of anticipated product development efforts, are forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “could,” “expect,” “intend,” "target," “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “continue,” or the negative of these terms or other similar expressions. These forward-looking statements are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements speak only as of the date of this Quarterly Report and are subject to a number of risks, uncertainties and assumptions, including those described in Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q and in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K, filed with the SEC on March 26, 2024. The events and circumstances reflected in our forward-looking statements may not be achieved or occur, and actual results could differ materially from those projected in the forward-looking statements. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise.
Overview
We are a clinical-stage biopharmaceutical company focused on pioneering the development of a new class of oncology drugs we refer to as STRIs. Translation is the process in cells whereby the production of proteins is directed by information contained in genetic sequences. We utilized our proprietary selective translation regulation technology platform to internally discover a portfolio of small molecule STRI product candidates. Our product candidates target the eIF4F complex and its activating kinase, mitogen-activated protein interacting kinase (“MNK”). The eIF4F complex is a central node where two of the most frequently mutated signaling pathways in cancer, the PI3K-AKT and RAS-MEK pathways, converge to activate the translation of select mRNA into proteins that are frequent culprits in key disease-driving processes. Inhibition of any one of these targets simultaneously downregulates multiple disease-driving proteins before they are produced. Each of our product candidates is designed to act on a single protein that drives the expression of a network of multiple functionally related proteins, including oncoproteins, which are proteins whose aberrant function can cause cancer, immunosuppressive proteins in T cells and proteins known to drive drug resistance that together control tumor growth, survival and immune evasion.
Our lead product candidate, zotatifin, is an inhibitor of eIF4A, a component of the eIF4F complex, and is currently being evaluated in a Phase 1/2 clinical trial in patients with certain solid tumors. We have completed the initial dose escalation portion of this trial as well as the initial Phase 2 expansion portion in certain indications, including the evaluation of zotatifin in combination with fulvestrant and abemaciclib (“ZFA triplet”) in patients with ER+ breast cancer. In light of the favorable safety results observed in the Phase 1/2 clinical trial and target engagement data generated to date, we resumed dose escalation of zotatifin dosed every other week, initially in combination with fulvestrant ("ZF doublet"), in patients with ER+ breast cancer to determine if a higher dose of zotatifin can be utilized in future clinical studies. Subsequently we also initiated dose escalation in the ZFA triplet. In the first quarter of 2024, dose escalation of the ZF doublet concluded with the determination of 0.2 mg/kg zotatifin Q2W as the RP2D for the doublet.
To date, we’ve reported interim data from five cohorts including patients with ER+ breast cancer, which demonstrated that zotatifin was generally well tolerated and showed signals of activity, including partial responses in heavily pretreated ER+ breast cancer patients. We reported topline results for the fully enrolled ZFA triplet cohort in ER+ breast cancer at the American Society of Clinical Oncology (“ASCO”) 2023 Annual Meeting in June, where partial responses were observed in 5 of 19 (26%) evaluable patients treated with the ZFA triplet. In addition, a partial response was observed in 1 of 3 (33%) patients in the first resumed dose escalation cohort of the ZF doublet. Both ZFA and ZF combinations were generally well tolerated with a large majority of adverse events Grade 1 or 2. We reported mature data for the ZFA triplet cohort at the 2023 San Antonio Breast Cancer Symposium
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(SABCS®) in December, where median PFS was 7.4 months. We anticipate reporting additional data, including the RP2D for the ZFA triplet, in the second half of 2024.
If zotatifin continues to demonstrate an adequate safety profile and sufficient signals of activity, we plan to continue clinical development of zotatifin, potentially as a combination in a randomized trial against a relevant comparator control group. We are currently evaluating plans to test the ZFA triplet in a randomized trial after we finalize the dose and schedule in the second half of 2024. We anticipate interacting with FDA on development strategy utilizing the fast-track designation received in 2023.
Our other clinical-stage product candidate, tomivosertib, is an oral small-molecule inhibitor of MNK that we tested in combination with inhibitors of anti-PD-(L)1 therapy, for the treatment of patients with solid tumors. In the second quarter of 2021, we initiated dosing in KICKSTART, our randomized Phase 2b clinical trial evaluating tomivosertib in combination with pembrolizumab in patients with metastatic non-small cell lung cancer (“NSCLC”) with PD-L1 expression level greater than or equal to 50% (“PD-L1≥50%”). Pembrolizumab is owned and marketed by Merck for frontline NSCLC and several other indications. We reported topline results from the primary analysis of this trial in April 2024. The hazard ratio for progression free survival, based on 36 events, was 0.62 (95% confidence intervals 0.3 to 1.3) using a stratified COX proportional hazards model, with a two-sided p value for PFS of 0.21, which did not meet the pre-specified threshold of 0.2. Based on the totality of the data available as of the primary analysis, we do not see an obvious path forward to continue developing tomivosertib in frontline NSCLC.
Since our inception in 2012 we have devoted substantially all of our resources to raising capital, identifying potential product candidates, establishing our intellectual property portfolio, conducting preclinical studies and clinical trials, establishing arrangements with third parties for the manufacture of our product candidates and related raw materials, and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. As of March 31, 2024, we have raised a total of $341.8 million to fund our operations, comprised of aggregate gross proceeds of $150.0 million from the sale and issuance of convertible preferred stock, gross proceeds of $67.0 million from the issuance of common stock in connection with the Business Combination in August 2021, $42.0 million in collaboration revenue under our research collaboration and license agreement with Pfizer ("Pfizer Agreement"), $35.0 million from loans under credit facilities, $31.2 million in gross proceeds from the sale of common stock in the May 2023 Registered Direct Offering (as defined below), June 2023 Registered Direct Offering (as defined below) and January 2024 Registered Direct Offering (as defined below), $8.5 million in gross proceeds from the sale of common stock under our Controlled Equity Offering Sales Agreement (“Sales Agreement”) with Cantor Fitzgerald & Co ("Cantor") ("ATM Offering Program"), $5.0 million in grant revenue under the Research Subaward Agreement with The Regents of the University of California, on behalf of its San Francisco campus ("UCSF"), and $3.1 million in gross proceeds from the sale of common stock under the equity purchase agreement ("Purchase Agreement") with Lincoln Park Capital Fund, LLC ("Lincoln Park"). Other than with respect to the net income generated as a result of revenue under the Pfizer Agreement generated in 2020 and the net income generated in 2021 as a result of the change in valuation of the earn-out liability in 2021, we have incurred significant operating losses since our inception. Our net loss for the three months ended March 31, 2024 was $8.8 million and our net income for the three months ended March 31, 2023 was $10.0 million. As of March 31, 2024, we had an accumulated deficit of $188.2 million. Substantially all of our operating losses resulted from expenses incurred in connection with the research and development of our product candidates and general and administrative costs associated with our operations.
We expect to continue to incur significant expenses and losses for at least the next several years. We anticipate our expenses will increase substantially as we continue our development of, seek regulatory approval for and potentially commercialize any approved product candidates, hire additional personnel, protect our intellectual property and incur additional costs associated with being a public company. Our net losses may fluctuate significantly from quarter-to-quarter and year-to-year, depending on the timing of our clinical trials and preclinical studies and our expenditures on other research and development activities. As of March 31, 2024, we had $25.4 million in cash, cash equivalents and short-term investments. To fund further operations, we will need to raise additional capital. Our current capital resources will not be sufficient for us to complete the clinical development of any of our product candidates or, if applicable, to prepare for commercializing any product candidate which may receive approval from the FDA or comparable foreign regulatory authority. Accordingly, we expect to finance our cash needs through a combination of equity offerings, debt financings, or other capital sources, including potential additional collaborations, licenses, and other similar arrangements. Adequate funding may not be available to us on acceptable terms, if at all. Our failure to raise capital or enter into such other arrangements when needed would have a negative impact on our financial condition and could force us to delay, limit, reduce, or terminate our research and development programs or other operations, or grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.
Reverse Stock Split
On January 9, 2024, we filed a Certificate of Amendment to our Amended and Restated Certificate of Incorporation, as amended to date, with the Secretary of State of the State of Delaware to effect a reverse stock split of our common stock at a ratio of 1-for-25 (the “Reverse Stock Split”), as authorized at our 2023 annual meeting of stockholders held on June 22, 2023. We effected the Reverse Stock Split on January 12, 2024. The number of shares of common stock that we are authorized to issue was proportionally reduced from 1,000,000,000 shares to 40,000,000 shares and the par value of its common stock remains unchanged at $0.0001 per share.
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Share and per share amounts in this Quarterly Report are presented after giving effect to the Reverse Stock Split. Proportionate adjustments were made to the per share exercise price and number of shares of common stock issuable under all outstanding stock options and warrants. In addition, proportionate adjustments have been made to the number of shares of common stock reserved for our equity incentive compensation plans.
Financial Operations Overview
Revenue
We currently have no products approved for sale, and all revenue generated has been from the Pfizer Agreement along with grant revenue. In the future, we may generate additional revenue from collaboration, grant or license agreements we have entered into, or may enter into, with respect to our product candidates, as well as product sales from any approved product. Our ability to generate product revenues will depend on the successful development and eventual commercialization of our product candidates. If we fail to complete the development of our product candidates in a timely manner or to obtain regulatory approval for our product candidates, our ability to generate future revenue and our results of operations and financial position would be materially adversely affected.
Pfizer Agreement
In December 2019, we entered into the Pfizer Agreement, to research and develop small molecules that target eIF4E. Pursuant to the Pfizer Agreement, we granted Pfizer a worldwide, exclusive license, with a right to sublicense, under certain of our patents, know-how, and materials to use, develop, manufacture, commercialize, and otherwise exploit compounds or products targeting eIF4E, for any and all indications. Under the agreement, we were responsible for initial research in collaboration with Pfizer, and Pfizer is responsible for all further development of this development program, including submission of an IND and conducting all clinical development and commercialization activities.
Pursuant to the Pfizer Agreement, we received an upfront, one-time, non-refundable, non-creditable payment of $15 million dollars from Pfizer. Pfizer was obligated to reimburse us for costs incurred for research performed, up to a specified cap in the low double-digit millions. Upon the achievement of specified development, regulatory and sales milestones, Pfizer will be obligated to pay us up to $480 million dollars in the aggregate, as well as to pay us high single-digit percentage royalties on annual net sales of each licensed product. See “Business — Our Collaboration and License Agreements” in our Annual Report on Form 10-K filed with the SEC on March 26, 2024, for additional information about this agreement, including with respect to potential payments to us thereunder.
Operating Expenses
Research and Development Expenses
Research and development expenses primarily consist of costs associated with the preclinical and clinical development of our product candidates. Our research and development expenses include:
We expense research and development costs as incurred. We account for nonrefundable advance payments for goods and services that will be used in future research and development activities as expenses when the service has been performed or when the goods have been received. We track external expenses on a development program and other program specific basis. However, we do not track internal costs on a program specific basis because these costs primarily relate to personnel and facilities, which are deployed across multiple programs under development.
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The following table summarizes our research and development expenses for the periods indicated (in thousands).
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
External development program expenses: |
|
|
|
|
|
| ||
tomivosertib (eFT508) |
| $ | 2,053 |
|
| $ | 2,552 |
|
zotatifin (eFT226) |
|
| 1,481 |
|
|
| 2,218 |
|
Unallocated internal research and development expenses: |
|
|
|
|
|
| ||
Personnel related |
|
| 1,344 |
|
|
| 1,305 |
|
Other |
|
| 428 |
|
|
| 534 |
|
Total research and development expenses |
| $ | 5,306 |
|
| $ | 6,609 |
|
We expect our research and development expenses to increase substantially for the foreseeable future as we continue the development of our product candidates, particularly as we move into later stages of clinical development which typically cost more. The process of conducting clinical trials and preclinical studies necessary to obtain regulatory approval is costly and time-consuming. We may never succeed in achieving marketing approval for any of our product candidates. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. We anticipate we will make determinations as to which product candidates and programs to pursue and how much funding to direct to each product candidate and program on an ongoing basis in response to clinical and preclinical results, regulatory developments, ongoing assessments as to each product candidate’s and program’s commercial potential, and our ability to enter into collaborations, to the extent we determine the resources or expertise of a collaborator would be beneficial for a given product candidate or program.
Our development costs may vary significantly based on factors such as:
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation and benefits, and consulting fees for finance, accounting, and other administrative functions. Other costs include legal fees relating to patent and corporate matters, insurance, and facility costs not otherwise included in research and development expenses.
We expect our general and administrative expenses will increase substantially for the foreseeable future as we advance our product candidates through clinical development. In addition, if we obtain regulatory approval for any of our product candidates, we expect to incur expenses associated with building a sales and marketing team if we choose to commercialize such product candidates on our own.
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Other Income (Expense)
Interest Income
Interest income consists of interest earned on our cash equivalents and short-term investments.
Interest Expense
Interest expense recorded in the three months ended March 31, 2024 and 2023 consisted of amounts attributable to our outstanding term loan with Oxford Financial LLC (“Oxford”).
Other Income (Expense)
We assumed private placement warrants in connection with the Business Combination transaction that are required to be accounted for as liabilities and remeasured to fair value at each reporting date, with changes in the fair value reported as a component of other income (expense).
In January 2022, we entered into the Purchase Agreement with Lincoln Park. We record other expense in connection with costs paid to maintain the Lincoln Park facility.
Results of Operations
Comparison of the three months ended March 31, 2024 and 2023
The following table sets forth our results of operations for the three months ended March 31, 2024 and 2023 (in thousands):
| Three Months Ended March 31, |
| Period-to- |
| |||||
| 2024 |
| 2023 |
| Change |
| |||
Operating expenses: |
|
|
|
|
|
| |||
Research and development |
| 5,306 |
|
| 6,609 |
|
| (1,303 | ) |
General and administrative |
| 3,090 |
|
| 2,927 |
|
| 163 |
|
Total operating expenses |
| 8,396 |
|
| 9,536 |
|
| (1,140 | ) |
Loss from operations |
| (8,396 | ) |
| (9,536 | ) |
| 1,140 |
|
Other income (expense) |
| (438 | ) |
| (478 | ) |
| 40 |
|
Net loss | $ | (8,834 | ) | $ | (10,014 | ) | $ | 1,180 |
|
Research and Development Expenses
Research and development expenses were $5.3 million and $6.6 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in research and development expenses of $1.3 millionwas primarily due to a $0.7 million decrease for the zotatifin program due to decreased clinical cost related to the oncology trial and a $0.5 million decrease for the tomivosertib program due to reduced costs associated with the KICKSTART trial, along with decreased costs related to drug product manufacturing. Further, there was a $0.1 million decrease in consultant costs in the three months ended March 31, 2024 as compared to the same period in 2023.
General and Administrative Expenses
General and administrative expenses were $3.1 million and $2.9 million for the three months ended March 31, 2024 and 2023, respectively. The increase in general and administrative expenses of $0.2 million was primarily due to a $0.2 million increase in personnel-related costs, and a $0.1 million increase each in consultant and legal costs for the three months ended March 31, 2024 as compared to the three months ended March 31, 2023. These increases were partially offset by a $0.2 milliondecreasein premiums paid on directors and officers insurance.
Other Income (Expense)
Other expense was $0.4 million and $0.5 million for the three months ended March 31, 2024 and 2023, respectively.
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Liquidity and Capital Resources
Sources of Liquidity
From our inception through March 31, 2024, we have raised a total of $341.8 million to fund our operations, comprised of aggregate gross proceeds of $150.0 million from the sale and issuance of convertible preferred stock, gross proceeds of $67.0 million from the issuance of common stock in connection with the Business Combination in August 2021, $42.0 million in collaboration revenue under our research collaboration and license agreement with Pfizer, $35.0 million from loans under credit facilities, $31.2 million in gross proceeds from the sale of common stock in the May 2023 Registered Direct Offering, June 2023 Registered Direct Offering and January 2024 Registered Direct Offering, $8.5 million in gross proceeds from the sale of common stock under the ATM Offering Program, $5.0 million in grant revenue under the Research Subaward Agreement with UCSF, and $3.1 million in gross proceeds from the sale of common stock to Lincoln Park under the Purchase Agreement ($46.9 million remaining available for sale under the Purchase Agreement as of March 31, 2024).
Our cash and cash equivalents and short-term investments totaled $25.4 million as of March 31, 2024. Until required for use in our business, we typically invest our cash in investments that are highly liquid, readily convertible to cash with original maturities of 1 year or less at the date of purchase. We attempt to minimize the risks related to our cash and cash equivalents and investments by maintaining balances in accounts only with accredited financial institutions and, consequently, we do not believe we are subject to unusual credit risk beyond the normal credit risk associated with ordinary commercial banking relationships.
Oxford Loan Facility
In March 2021, we entered into a Loan and Security Agreement (“Oxford LSA”) with Oxford, pursuant to which we could borrow up to $30.0 million, issuable in two separate tranches of $20.0 million (“Term A Loan”) and $10.0 million (“Term B Loan”), collectively referred to as the Oxford Loans. In March 2021, we borrowed $20.0 million of the Term A Loan. The Term A Loan had an interest-only period that commenced upon the borrowing with interest due and payable upon the first day of each month.
On February 22, 2022, we entered into an amendment to the Oxford LSA whereby the interest only period for the Term A Loans ended on March 1, 2024. In connection with the amendment, the maturity of the Term A Loans was extended from March 18, 2026 to February 1, 2027. We began principal repayment in March 2024 and will make principal payments of approximately $0.6 million on the first of each month through the maturity date of February 1, 2027. The principal payments due under the Oxford Loans, and the related accrued final payment, have been classified as current liabilities as of December 31, 2023 and March 31, 2024, due to our assessment that the material adverse change clause under the Oxford Loans is not within our control. We have not been notified of an event of default by the lender as of the date of this Form 10-Qreport.
The Term B Loan would have become available upon achievement of certain clinical development milestones, and was available until the earlier of (i) June 30, 2023, (ii) forty-five days after the occurrence of such clinical development milestone, and (iii) the occurrence of an event of default. As we did not achieve the clinical development milestones by June 30, 2023, we no longer have access to the additional $10.0 million under the Term B Loan.
We are required to make a final payment equal to 5.5% of each funded tranche at maturity, which has been recorded as a debt discount and is being amortized over the term of the debt arrangements.
Equity Purchase Agreement with Lincoln Park
On January 24, 2022, we entered into the Purchase Agreement with Lincoln Park which provides for the sale to Lincoln Park up to $50.0 million of shares of our common stock over the thirty-six (36) month term of the Purchase Agreement, subject to certain conditions. In connection with the Purchase Agreement, Lincoln Park made an initial purchase of $3.0 million of shares of common stock, which equated to 22,304 shares of common stock, and we issued 5,717 shares of common stock to Lincoln Park as a commitment fee in connection with entering into the Purchase Agreement. As of March 31, 2024, a total of 1,200 shares of common stock have been sold in addition to the upfront amount, with such shares sold during the three months ended June 30, 2022. The minimum price that we can sell shares to Lincoln Park is $1.00 per share. No assurance can be given that we will sell any additional shares of common stock under the Purchase Agreement, or, if we do, as to the price or amount of shares of common stock that we sell or the dates when such sales will take place.
At-the-Market Offering Program with Cantor
In September 2022, we entered into the Cantor Sales Agreement with Cantor, under which we may, from time to time, sell shares of our common stock having an aggregate offering price of up to $50.0 million (the "ATM Offering Program"). Sales of the shares of common stock will be made at prevailing market prices at the time of sale, or as otherwise agreed with Cantor. We will pay a commission to Cantor of up to 3.0% of the gross proceeds of any shares of common stock sold under the Cantor Sales Agreement. During the three months ended March 31, 2024, we sold an aggregate of 83,948 shares of common stock at a weighted-average price of $11.07 per share for gross proceeds of approximately $0.9 million under the ATM Offering Program. We incurred offering costs in
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connection with the ATM Offering Program, including without limitation,commissions, of approximately $0.1 million during the three months ended March 31, 2024.
Registered Direct Offerings
In May 2023, we entered into a securities purchase agreement with a single institutional investor in which 188,000 shares of common stock were issued in a registered direct offering (the "May 2023 Registered Direct Offering"). In connection with the May 2023 Registered Direct Offering, we issued 270,015 shares of common stock in the form of pre-funded warrants, which were immediately exercised. In a concurrent private placement, we issued warrants to purchase up to 458,015 shares of common stock with an exercise price of $13.25 per share ("May 2023 Common Stock Warrants"). The May 2023 Common Stock Warrants were exercisable immediately upon issuance and will expire on November 30, 2028, which is five and one-half years from the issuance date. Additionally, we issued H.C. Wainwright & Co., LLC (the "Placement Agent") warrants to purchase up to 32,060 shares of common stock with an exercise price of $20.47 per share ("May 2023 Placement Agent Warrants"). The May 2023 Placement Agent Warrants will expire on May 26, 2028, which is five years following the commencement of sales in the May 2023 Registered Direct Offering. We received gross proceeds from the May 2023 Registered Direct Offering of $7.5 million with net proceeds of approximately $6.7 million after deducting $0.8 million in commissions and other transaction costs.
In June 2023, we entered into an additional securities purchase agreement with the same institutional investor in which 238,000 shares of common stock were issued in a registered direct offering (the "June 2023 Registered Direct Offering"). In connection with the June 2023 Registered Direct Offering, we issued 72,578 shares of common stock in the form of pre-funded warrants, which were immediately exercised. In a concurrent private placement, we issued warrants to purchase up to 310,577 shares of common stock with an exercise price of $25.00 per share ("June 2023 Common Stock Warrants"). The June 2023 Common Stock Warrants were exercisable immediately upon issuance and will expire on December 8, 2028, which is five and one-half years from the issuance date. Additionally, we issued the Placement Agent warrants to purchase up to 21,739 shares of common stock with an exercise price of $35.1575 per share ("June 2023 Placement Agent Warrants"). The June 2023 Placement Agent Warrants will expire on June 6, 2028, which is five years following the commencement of sales in the June 2023 Registered Direct Offering. We received gross proceeds from the June 2023 Registered Direct Offering of $8.7 million with net proceeds of approximately $7.8 million after deducting $0.9 million in commissions and other transaction costs.
In January 2024, we entered into an additional securities purchase agreement with a new single institutional investor in which 338,000 shares of common stock were issued in a registered direct offering (the "January 2024 Registered Direct Offering"). In connection with the January 2024 Registered Direct Offering, we issued 1,150,834 shares of common stock in the form of pre-funded warrants, 497,834 of which were subsequently exercised. We concurrently issued warrants to purchase up to 1,488,834 shares of common stock with an exercise price of $9.95 per share ("January 2024 Common Stock Warrants"). The January 2024 Common Stock Warrants were exercisable immediately upon issuance and will expire on July 29, 2027, which is three and one-half years from the issuance date. Additionally, we issued the Placement Agent warrants to purchase up to 104,218 shares of common stock with an exercise price of $12.5938 per share (“January 2024 Placement Agent Warrants"). The January 2024 Placement Agent Warrants will expire on July 29, 2027, which is three and one-half years following the commencement of sales in the January 2024 Registered Direct Offering. We received gross proceeds from the January 2024 Registered Direct Offering of $15.0 million with net proceeds of approximately $13.6 million after deducting $1.4 million in commissions and other transaction costs.
As of March 15, 2024, our public float was approximately $65.6 million, based on 3,914,309 shares of outstanding common stock held by non-affiliates and at a price of $16.95 per share, which was the last reported sale price of our common stock on the Nasdaq Capital Market on March 4, 2024. As a result of our public float being below $75 million, we were limited by the baby shelf rules until such time as our public float exceeded $75 million, which means we only had the capacity to sell shares up to one-third of our public float under shelf registration statements in any twelve-month period. On April 5, 2024, our public float exceeded $75 million, based on 4,437,540 shares of outstanding common stock held by non-affiliates and at a price of $16.95 per share, the closing price of our common stock on March 4, 2024 which was the highest reported sale price of our common stock on the Nasdaq Capital Market within 60 days of April 5, 2024. As a result of our public float being above $75 million, we are no longer subject to the baby shelf rules.
Funding Requirements
As of March 31, 2024, we had $25.4 million in cash and cash equivalents and short-term investments, which we estimate is sufficient to fund operations into the first quarter of 2025. However, we have prepared cash flow forecasts which indicate that based on our expected operating cash flows, without taking into account future projected cash inflows, there is substantial doubt about our ability to continue as a going concern within twelve months after the date that the financial statements for the three months ended March 31, 2024, are issued. We have based this “Management’sestimate on assumptions that may prove to be wrong, and we could use our capital resources sooner than we expect. Furthermore, our operating plans may change and we may need additional funds sooner than
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planned. Additionally, the process of testing product candidates in clinical trials is costly, and the timing of progress in these trials is uncertain. Our future capital requirements are difficult to forecast and will depend on many factors, including but not limited to:
We have no other committed sources of capital, other than potential future sales under the Purchase Agreement with Lincoln Park and the ATM Offering Program with Cantor. Until we can generate a sufficient amount of product revenue to finance our cash requirements, if ever, we expect to finance our future cash needs primarily through equity offerings, debt financings or other capital sources, including potential additional collaborations, licenses and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be or could be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of our common stockholders. Debt 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 collaborations or licensing arrangements with third parties, 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 research and development programs or other operations, or grant rights to develop and market product candidates to third parties that we would otherwise prefer to develop and market ourselves.
Cash Flows
The following table sets forth a summary of the net cash flow activity for each of the periods indicated (in thousands):
|
| Three Months Ended March 31, |
| |||||
|
| 2024 |
|
| 2023 |
| ||
Net cash provided by (used in): |
|
|
|
|
|
| ||
Operating activities |
| $ | (7,278 | ) |
| $ | (7,637 | ) |
Investing activities |
|
| (6,321 | ) |
|
| 9,027 |
|
Financing activities |
|
| 14,232 |
|
|
| 212 |
|
Net increase in cash and cash equivalents |
| $ | 633 |
|
| $ | 1,602 |
|
Operating Activities
During the three months ended March 31, 2024, net cash used in operating activities was $7.3 million, which resulted from a net loss of $8.8 million adjusted for changes in operating assets and liabilities and non-cash charges. Non-cash charges and other adjustments included $1.0 million in stock-based compensation, $0.1 million in accretion of discount and amortization of premium on investments, and $0.1 million in non-cash interest expense.Changes in operating assets and liabilities included a $0.7 million decrease in accounts payable due to timing of invoices paid, a $0.9 million increase in accrued expenses due to an increase in research and
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development accruals, and a $0.3 million decrease in prepaid expenses and other assets related to a decrease in prepaid research and development balance and the amortization of prepaid public company insurance policies.
During the three months ended March 31, 2023, net cash used in operating activities was $7.6 million, which resulted from a net loss of $10.0 million adjusted for changes in operating assets and liabilities and non-cash charges. Non-cash charges and other adjustments included $1.2 million in stock-based compensation, $0.1 million in accretion of discount and amortization of premium on investments, and $0.1 million in non-cash interest expense.Changes in operating assets and liabilities included a $2.2 million increase in accounts payable due to timing of invoices paid, a $0.9 million decrease in accrued expenses due to a decrease in accrued audit fees and decrease in accrued bonus, and a $0.1 million increase in prepaid expenses and other assets related to an increase in prepaid research and development balance offset by the amortization of prepaid public company insurance policies.
Investing Activities
During the three months ended March 31, 2024, net cash used in investing activities was $6.3 million as a result of the purchases of short-term investments, partially offset by maturities during the period.
During the three months ended March 31, 2023, net cash provided by investing activities was $9.0 million as a result of the maturities of short-term investments, partially offset by purchases during the period.
Financing Activities
During the three months ended March 31, 2024, net cash provided by financing activities was $14.2 million, which was primarily the result of net proceeds from the issuance of common stock in the January 2024 Registered Direct Offering as well as net proceeds from the issuance of common stock under the ATM Offering Program during the period.
During the three months ended March 31, 2023, net cash provided by financing activities was $0.2 million, which was the result of net proceeds from the issuance of common stock under the ATM Offering Program during the period.
Critical Accounting Policies and Estimates
There have been no material changes to our critical accounting policies and estimates during the three months ended March 31, 2024 as compared to those disclosed in "Management's Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s future results of operationsOperations - Critical Accounting Policies and financial position, the Merger and the transactions contemplated thereby, including the PIPE Financing and entry into the Subscription Agreements, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek,” “project,” “strategy,” “future,” “opportunity,” “plan,” “may,” “should,” “will,” “would,” “will be,” “will continue,” “will likely result,” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussedEstimates," in the forward-looking statements, including that the conditions under the Merger Agreement are not satisfied. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’sour Annual Report on Form 10-K for the year ended December 31, 20202023, filed with the SEC on March 29, 2021. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation26, 2024.
Recent Accounting Pronouncements
See Note 2 to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on October 2, 2020 for the purpose of effecting a Business Combination. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Placement Units, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
The Merger
On May 26, 2021, we entered into the Merger Agreement, by and among the Company, Merger Sub and eFFECTOR, as further described in Note 1 and Note 12 to the financial statements includedcontained elsewhere in Item 1 of this Quarterly Report on Form 10-Q.
Pursuant to the terms and conditions of the Merger Agreement, upon the closing, Merger Sub will merge with and into eFFECTOR with eFFECTOR surviving the Merger as a wholly-owned subsidiary of the Company. The Board of Directors of the Company has unanimously approved the Merger and resolved to recommend approval of the Merger Agreement to the stockholders of the Company. Consummation of the Merger is subject to approval by the Company’s stockholders and the satisfaction or waiver of certain other customary closing conditions. Upon the consummation of the Merger, the Company will be renamed “eFFECTOR Therapeutics, Inc.”
eFFECTOR is a biopharmaceutical company focused on pioneering the development of selective translation regulation inhibitors10-Q for the treatment of cancer.
In connection with the Merger, the Company has entered into the Subscription Agreements with certain parties for a fully committed $60 million financing of Company common stock to be issued at $10.00 per share. The obligations to consummate the transactions contemplated by the Subscription Agreements are conditioned upon, among other things, customary closing conditions and the consummation of the transactions contemplated by the Merger Agreement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from October 2, 2020 (inception) through March 31, 2021 were organizational activities, those necessary to prepare for the IPO, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company, as well as for due diligence expenses.
For the three months ended March 31, 2021, we had net income of $48,837, which consists of income of $656,200 derived from the changes in fair value of the warrant liabilities offset by operations and franchise tax costs of $318,012 and $50,758, respectively and transaction costs allocated to warrant liabilities of $242,333.
Liquidity and Capital Resources
On January 12, 2021, we consummated the IPO of 17,500,000 Units at $10.00 per Unit, generating gross proceeds of $175,000,000. Simultaneously with the closing of the IPO, we consummated the sale of 545,000 Placement Units”) at a price of $10.00 per Placement Unit in a private placement to the Sponsor, that closed simultaneously with the IPO, generating gross proceeds of $5,450,000.
Following the IPO, the partial exercise of the over-allotment option, and the sale of the Private Units, a total of $175,000,000 was placed in the Trust Account. We incurred $10,097,226 in IPO-related costs, consisting of $3,060,000 in cash underwriting fees, $6,565,000 of deferred underwriting fees and $472,226 of other offering costs.
For the three months ended March 31, 2021, cash used in operating activities was $473,177. Net income of $48,837 was affected by non-cash charges (income) related to the change in fair value of the warrant liability of $656,200, interest earned on marketable securities held in trust account of $3,740 and transaction costs associated with the warrant liability of approximately $242,333. Changes in operating assets and liabilities used $104,407 of cash for operating activities.
As of March 31, 2021, we had marketable securities held in the Trust Account of $175,003,740 (including approximately $3,740 of interest income) consisting of U.S. Treasury Bills with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through March 31, 2021, we have not withdrawn any interest earned from the Trust Account.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of March 31, 2021, we had cash of $1,467,723. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of the Working Capital Loans may be converted into units at a price of $10.00 per unit at the option of the holder. The units would be identical to the Placement Units. As of March 31, 2021, there were no amounts outstanding under the Working Capital Loans.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
Off-balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay to pay the Sponsor or an affiliate of the Sponsor, a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on January 12, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriter is entitled to a deferred underwriting fee of (i) 3.5% of the gross proceeds of the initial 15,300,000 Units sold in the IPO, or $5,355,000, and (ii) 5.5% of the gross proceeds from the Units sold pursuant to the over-allotment option, or $1,210,000. The deferred underwriting fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following criticalinformation concerning recent accounting policies:pronouncements.
Warrant Liability
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC480, Distinguishing Liabilities from Equity (ASC 480) and Derivatives and Hedging (ASC 815). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, shares of Class A common stock subject to possible redemption are presented as temporary equity, outside of the stockholders’ equity section of our balance sheets.
Net Income (Loss) Per Share of Common Stock
We apply the two-class method in calculating net income per share. Net income per share of common stock, basic and diluted for Class A redeemable common stock is calculated by dividing the interest income earned on the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A redeemable common stock outstanding for the period. Net loss per share of common stock, basic and diluted for Class A and Class B non-redeemable common stock is calculated by dividing the net income, less income attributable to Class A redeemable common stock, by the weighted average number of Class A and Class B non-redeemable common stock outstanding for the period presented.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market RiskRisk.
Not requiredAs of March 31, 2024, there have been no material changes surrounding our market risk, including interest rate risk, foreign currency exchange risk, and inflation risk, from the discussion provided in “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Quantitative and Qualitative Disclosures About Market Risk” in our Annual Report on Form 10-K for smaller reporting companies.the year ended December 31, 2023, filed with the SEC on March 26, 2024.
Item 4. Controls and ProceduresProcedures.
Evaluation
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
DisclosureWe maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in our reports that we file or submit pursuant to the Exchange Act, reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officerChief Executive Officer and principal financial officer or persons performing similar functions,Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure.
In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Under the supervision and with the participation of our management, including our principal executive officerChief Executive Officer and principal financial and accounting officer,our Chief Financial Officer, we conductedcarried out an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of the end of the fiscal quarter ended March 31, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation and in light of the material weakness in internal controls described below, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective. Our internal control over financial reporting did not result in the proper accounting classification of the Placement Warrants and Public Warrants we issued in January 2021 which, due to its impact on our financial statements, we determined to be a material weakness. This mistake in classification was brought to our attention only when the SEC issued the SEC Statement on April 12, 2021. The SEC Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we issued at the time of our IPO in January 2021.report.
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Changes in Internal Control over Financial Reporting
During the fiscal quarter ended March 31, 2021, thereThere has been no change in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rules 13a-15 or 15d-15 under the Exchange Act that occurred during the three months ended March 31, 2024, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Management has identified a material weakness in internal controls related to the accounting for warrants issued in connection with our IPO, as described above. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
PART II - II—OTHER INFORMATION
Item 1. Legal ProceedingsProceedings.
NoneWe are not currently a party to any material legal proceedings. However, from time to time, we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources and other factors, and there can be no assurances that favorable outcomes will be obtained.
Factors that could cause our actual resultsWe do not believe there have been any material changes to differ materially from those in this report include the risk factors below as well as those describeddisclosed in the section titled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20202023, filed with the SEC on March 29, 2021.26, 2024.
Our warrants are accounted for as liabilities and the changes in value of our warrants could have a material effect on our financial results.
On April 12, 2021, the SEC issued the SEC Statement, wherein it expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the its balance sheet as opposed to being treated as equity. Specifically, the SEC Statement focused on certain settlement terms and provisions related to certain tender offers following a business combination, which terms are similar to those contained in the Warrant Agreement governing our Warrants. As a result of the SEC Statement, we reevaluated the accounting treatment of our Warrants and, pursuant to the guidance in ASC 815, determined the Warrants should be classified as derivative liabilities measured at fair value on our balance sheet, with any changes in fair value to be reported each period in earnings on our statement of operations.
As a result of the recurring fair value measurement, our financial statements may fluctuate quarterly, based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our Warrants each reporting period and that the amount of such gains or losses could be material.
We have identified a material weakness in our internal control over financial reporting as of March 31, 2021. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.
Following this issuance of the SEC Statement, after consultation with our management and our audit committee concluded that, in light of the SEC Statement, we identified a material weakness in our internal controls over financial reporting.
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 and corrected on a timely basis.
Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. We continue to evaluate steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.
If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
We, and following our initial Business Combination, the post-Business Combination company, may face litigation and other risks as a result of the material weakness in our internal control over financial reporting.
As a result of the material weakness in our internal controls over financial reporting described above, the change in accounting for the Warrants, and other matters raised or that may in the future be raised by the SEC, we face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weaknesses in our internal control over financial reporting and the preparation of our financial statements. As of the date of this Form 10-Q, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition or our ability to complete a Business Combination.
As the number of SPACs evaluating targets increases, attractive targets may become scarcer and there may be more competition for attractive targets. This could increase the cost of our initial Business Combination and could even result in our inability to find a target or to consummate an initial Business Combination.
In recent years, the number of SPACs that have been formed has increased substantially. Many potential targets for SPACs have already entered into an initial business combination, and there are still many SPACs seeking targets for their initial business combination, as well as many such companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, more effort and more resources to identify a suitable target and to consummate an initial business combination.
In addition, because there are more SPACs seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause targets companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions, or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find and consummate an initial Business Combination, and may result in our inability to consummate an initial Business Combination on terms favorable to our investors altogether.
Changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial Business Combination.
In recent months, the market for directors and officers liability insurance for SPACs has changed. The premiums charged for such policies have generally increased and the terms of such policies have generally become less favorable. There can be no assurance that these trends will not continue.
The increased cost and decreased availability of directors and officers liability insurance could make it more difficult and more expensive for us to negotiate an initial Business Combination. In order to obtain directors and officers liability insurance or modify its coverage as a result of becoming a public company, the post-Business Combination entity might need to incur greater expense, accept less favorable terms or both. However, any failure to obtain adequate directors and officers liability insurance could have an adverse impact on the post-Business Combination’s ability to attract and retain qualified officers and directors.
In addition, even after we were to complete an initial Business Combination, our directors and officers could still be subject to potential liability from claims arising from conduct alleged to have occurred prior to the initial Business Combination. As a result, in order to protect our directors and officers, the post-Business Combination entity will likely need to purchase additional insurance with respect to any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-Business Combination entity, and could interfere with or frustrate our ability to consummate an initial Business Combination on terms favorable to our investors.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On January 12, 2021, we consummated the IPO of 17,500,000 Units. The Units were sold at an offering price of $10.00 per unit, resulting in gross proceeds of $175,000,000. The securities in the offering were registered under the Securities Act on registration statement on Form S-1 (Nos. 333-251496 & 333-251951). The SEC declared the registration statements effective on January 7, 2021.Not applicable.
Simultaneous with the consummation of the IPO, the Company consummated the issuance and sale of 545,000 Placement Units in a private placement transaction at a price of $10.00 per Placement Unit, generating gross proceeds of $5,450,000. The Placement Units were purchased by the Sponsor. Each Private Unit consists of one share of Class A common stock and one-third of one Placement Warrant. Each whole Placement Warrant is exercisable to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Placement Warrants are identical to the Public Warrants, except that the Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.
Of the gross proceeds received from the IPO, the partial exercise of the over-allotment option and the Placement Units, an aggregate of $175,000,000 was placed in the Trust Account.
We paid a total of $10,097,226, consisting of $3,060,000 in cash underwriting fees, $6,565,000 of deferred underwriting fees and $472,226 of other offering costs and expenses related to the IPO.
For a description of the use of the proceeds generated in our IPO, see Part I, Item 2 of this Form 10-Q.
Item 3. Defaults Upon Senior SecuritiesSecurities.
NoneNone.
Item 4. Mine Safety DisclosuresDisclosures.
NoneNot applicable.
Item 5. Other InformationInformation.
NoneDuring the three months ended March 31, 2024, none of our officers or directors adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of our securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non Rule 10b5-1 trading arrangement."
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The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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* This certification is deemed not filed for purpose of Section 18 of the Exchange Act or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act.
SIGNATURES
In accordance withPursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| eFFECTOR Therapeutics, Inc. | |||||||
Date: May 9, 2024 | By: | /s/ Stephen Worland | ||||||
Stephen Worland, Ph.D. | ||||||||
President and Chief Executive Officer | ||||||||
(Principal Executive Officer) | ||||||||
| ||||||||
Date: May 9, 2024 | By: | /s/ Michael Byrnes | ||||||
Michael Byrnes | ||||||||
Chief Financial Officer | ||||||||
(Principal Financial and Accounting Officer) | ||||||||
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