UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterquarterly period ended JuneSeptember 30, 20192022
or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
☐ | 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: 001-38914
Commission file number:001-38914
Celularity Inc.
(Exact name of registrant as specified in its charter)
Delaware | 83-1702591 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
170 Park Ave,Florham Park,NJ (Address of principal executive offices) | 07932 (Zip Code) | |
|
(908)768-2170
1325 Avenue of the Americas, 25th Floor(Registrant’s telephone number, including area code)
New York, NY 10019
(Address of principal executive offices)
(212) 616-3700
(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 | |||||
Class A Common Stock, par value $0.0001 per share | CELU | The | |||||
Warrants, each exercisable for one share of Class A Common Stock | CELUW | The |
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 electronically 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 August 7, 2019, 28,750,000November 4, 2022, the registrant had 145,013,313 shares of Class A common stock, $0.0001 par value $0.0001 per share, were issued and outstanding and 7,187,500 sharesoutstanding.
Table of Class B common stock, par value $0.0001 per share, were issued and outstanding.Contents
GX ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2019
TABLE OF CONTENTS
Page | ||
PART I. | ||
Item 1. | 1 | |
1 | ||
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) | 2 | |
3 | ||
4 | ||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 33 |
Item 3. | Quantitative and Qualitative Disclosures | 41 |
Item 4. | 41 | |
PART II. | ||
Item 1. | 43 | |
Item | 43 | |
Item 2. | 43 | |
Item 3. | 43 | |
Item 4. | 43 | |
Item 5. | 43 | |
Item 6. | 44 | |
45 |
On July 16, 2021, we consummated the previously announced merger pursuant to that certain Merger Agreement and Plan of Reorganization, dated January 8, 2021, or the Merger Agreement, by and among us, our wholly-owned merger subs and Celularity LLC (formerly known as Celularity Inc.), or Legacy Celularity.
Pursuant to the terms of the Merger Agreement, we effected the business combination through the (a) merger of our wholly-owned merger sub with and into Legacy Celularity with Legacy Celularity surviving as our wholly-owned subsidiary and (b) immediately following the first merger and as part of the same overall transaction, the merger of the Legacy Celularity, as surviving corporation of the first merger, with and into a second wholly-owned merger sub, with such second wholly-owned merger sub as the surviving entity of the second merger, which ultimately resulted in Legacy Celularity becoming our wholly-owned direct subsidiary. We refer to these mergers as the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”. On the Closing Date, we changed our name from GX Acquisition Corp. to Celularity Inc.
Unless the context indicates otherwise, references in this quarterly report to the “Company,” “Celularity,” “we,” “us,” “our” and similar terms refer to Celularity Inc. (f/k/a GX Acquisition Corp.) and its consolidated subsidiaries (including Legacy Celularity). References to “GX” refer to the predecessor company prior to the consummation of the Business Combination.
The Celularity logo, Celularity IMPACT, Biovance, Interfyl, Lifebank, CentaFlex and other trademarks or service marks of Celularity Inc. appearing in this quarterly report are the property of Celularity Inc. This quarterly report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing herein are the property of their respective holders
i
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Some of the statements contained within this quarterly report on Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations, constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements relate to our future events, including our anticipated operations, research, development and commercialization activities, clinical trials, operating results and financial condition and may include, but are not limited to, statements about:
i
These forward-looking statements are based on information available as of the date of this quarterly report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties that could cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Some factors that could cause actual results to differ include:
ii
For a further discussion of these and other factors that could cause our future results, performance or transactions to differ significantly from those expressed in any forward-looking statement, please see the section titled “Risk Factors” in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2022, as amended July 15, 2022, or the 2021 Form 10-K.
iii
Given these risks, you should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Except to the extent required by applicable law, we are under no obligation (and expressly disclaim any such obligation) to update or revise their forward-looking statements whether as a result of new information, future events, or otherwise.
iv
PART I - I—FINANCIAL INFORMATION
Item 1. Financial Statements.
GX ACQUISITION CORP. Celularity Inc.
CONDENSED BALANCE SHEETS Condensed Consolidated Balance Sheets (Unaudited)
June 30, 2019 | December 31, 2018 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Current Assets | ||||||||
Cash | $ | 1,169,030 | $ | 24,707 | ||||
Prepaid expenses | 134,942 | — | ||||||
Total Current Assets | 1,303,972 | 24,707 | ||||||
Deferred offering costs | — | 149,750 | ||||||
Marketable securities held in Trust Account | 288,418,585 | — | ||||||
Total Assets | $ | 289,722,557 | $ | 174,457 | ||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
Current liabilities | ||||||||
Accounts payable and accrued expenses | $ | 56,058 | $ | 555 | ||||
Income taxes payable | 116,891 | — | ||||||
Promissory note - related party | — | 150,000 | ||||||
Total Current Liabilities | 172,949 | 150,555 | ||||||
Deferred tax liability | 51,784 | — | ||||||
Deferred underwriting fee payable | 10,812,500 | — | ||||||
Total Liabilities | 11,037,233 | 150,555 | ||||||
Commitments and Contingencies (Note 6) | ||||||||
Common stock subject to possible redemption, 27,297,161 and no shares at redemption value as of June 30, 2019 and December 31, 2018, respectively | 273,685,323 | — | ||||||
Stockholders’ Equity | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 1,452,839 and no shares issued and outstanding (excluding 27,297,161 and no shares subject to possible redemption) as of June 30, 2019 and December 31, 2018, respectively | 145 | — | ||||||
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 7,187,500 and 8,625,000 shares issued and outstanding as of June 30, 2019 and December 31, 2018, respectively(1) | 719 | 863 | ||||||
Additional paid-in capital | 4,365,696 | 24,137 | ||||||
Retained earnings/(Accumulated deficit) | 633,441 | (1,098 | ) | |||||
Total Stockholders’ Equity | 5,000,001 | 23,902 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 289,722,557 | $ | 174,457 |
(in thousands, except share and per share data)
|
| September 30, |
|
| December 31, |
| ||
|
|
|
|
|
|
| ||
Assets |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 42,649 |
|
| $ | 37,240 |
|
Accounts receivable, net of allowance of $1,264 and $283 as of September 30, |
|
| 4,452 |
|
|
| 2,745 |
|
Notes receivable |
|
| 3,920 |
|
|
| 2,488 |
|
Inventory |
|
| 5,239 |
|
|
| 9,549 |
|
Prepaid expenses and other current assets |
|
| 6,837 |
|
|
| 7,078 |
|
Total current assets |
|
| 63,097 |
|
|
| 59,100 |
|
Property and equipment, net |
|
| 77,032 |
|
|
| 90,625 |
|
Goodwill |
|
| 123,304 |
|
|
| 123,304 |
|
Intangible assets, net |
|
| 121,547 |
|
|
| 123,187 |
|
Right-of-use assets - operating leases |
|
| 13,042 |
|
|
| - |
|
Restricted cash |
|
| 14,832 |
|
|
| 14,836 |
|
Inventory, net of current portion |
|
| 23,861 |
|
|
| 2,721 |
|
Other long-term assets |
|
| 401 |
|
|
| 355 |
|
Total assets |
| $ | 437,116 |
|
| $ | 414,128 |
|
Liabilities, Redeemable Convertible Preferred Stock and Stockholders’ Equity |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 9,216 |
|
| $ | 9,317 |
|
Accrued expenses and other current liabilities |
|
| 18,507 |
|
|
| 11,661 |
|
Current portion of financing obligation |
|
| - |
|
|
| 3,051 |
|
Short-term debt ($39,255 at fair value and $40,000 unpaid principal balance at September 30, 2022) |
|
| 39,255 |
|
|
| - |
|
Deferred revenue |
|
| 2,241 |
|
|
| 2,196 |
|
Total current liabilities |
|
| 69,219 |
|
|
| 26,225 |
|
Deferred revenue, net of current portion |
|
| 2,120 |
|
|
| 1,871 |
|
Acquisition-related contingent consideration |
|
| 158,781 |
|
|
| 232,222 |
|
Noncurrent lease liabilities - operating |
|
| 27,917 |
|
|
| - |
|
Financing obligations |
|
| - |
|
|
| 28,085 |
|
Warrant liabilities |
|
| 14,094 |
|
|
| 25,962 |
|
Deferred income tax liabilities |
|
| 10 |
|
|
| 10 |
|
Other liabilities |
|
| 740 |
|
|
| 335 |
|
Total liabilities |
|
| 272,881 |
|
|
| 314,710 |
|
Commitments and Contingencies (Note 10) |
|
|
|
|
|
| ||
Stockholders’ equity |
|
|
|
|
|
| ||
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at September 30, 2022 and December 31, 2021 |
|
| - |
|
|
| - |
|
Common Stock, $0.0001 par value, 730,000,000 shares authorized, 144,524,190 issued |
|
| 14 |
|
|
| 12 |
|
Additional paid-in capital |
|
| 833,915 |
|
|
| 763,087 |
|
Accumulated other comprehensive income |
|
| 236 |
|
|
| - |
|
Accumulated deficit |
|
| (669,930 | ) |
|
| (663,681 | ) |
Total stockholders’ equity |
|
| 164,235 |
|
|
| 99,418 |
|
Total liabilities, redeemable convertible preferred stock and stockholders’ equity |
| $ | 437,116 |
|
| $ | 414,128 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GX ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS1
(Unaudited)Celularity Inc.
Three Months Ended June 30, | Six Months June 30, | |||||||
2019 | 2019 | |||||||
Operating and formation costs | $ | 115,250 | $ | 115,371 | ||||
Loss from operations | (115,250 | ) | (115,371 | ) | ||||
Other income: | ||||||||
Interest income on marketable securities held in Trust Account | 671,993 | 671,993 | ||||||
Unrealized gain on marketable securities held in Trust Account | 246,592 | 246,592 | ||||||
Other income | 918,585 | 918,585 | ||||||
Income before provision for income taxes | 803,335 | 803,214 | ||||||
Provision for income taxes | (168,675 | ) | (168,675 | ) | ||||
Net income | $ | 634,660 | $ | 634,539 | ||||
Weighted average shares outstanding, basic and diluted(1) | 7,258,681 | 7,378,674 | ||||||
Basic and diluted net loss per common share(2) | $ | (0.00 | ) | $ | (0.00 | ) |
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)
(in thousands, except share and per share data)
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales and rentals |
| $ | 1,041 |
|
| $ | 849 |
|
| $ | 2,920 |
|
| $ | 2,734 |
|
Services |
|
| 1,405 |
|
|
| 1,343 |
|
|
| 4,061 |
|
|
| 4,204 |
|
License, royalty and other |
|
| 1,689 |
|
|
| 8,430 |
|
|
| 6,865 |
|
|
| 9,541 |
|
Total revenues |
|
| 4,135 |
|
|
| 10,622 |
|
|
| 13,846 |
|
|
| 16,479 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenues (excluding amortization of acquired intangible assets) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales and rentals |
|
| 812 |
|
|
| 638 |
|
|
| 1,711 |
|
|
| 2,025 |
|
Services |
|
| 899 |
|
|
| 923 |
|
|
| 3,112 |
|
|
| 2,218 |
|
Licenses, royalties and other |
|
| 5,502 |
|
|
| 750 |
|
|
| 9,595 |
|
|
| 750 |
|
Research and development |
|
| 20,351 |
|
|
| 23,765 |
|
|
| 67,373 |
|
|
| 63,666 |
|
Selling, general and administrative |
|
| 14,907 |
|
|
| 21,644 |
|
|
| 46,941 |
|
|
| 58,133 |
|
Change in fair value of contingent consideration liability |
|
| (33,243 | ) |
|
| (48,549 | ) |
|
| (73,441 | ) |
|
| (17,845 | ) |
Amortization of acquired intangible assets |
|
| 553 |
|
|
| 553 |
|
|
| 1,640 |
|
|
| 1,640 |
|
Total operating expenses |
|
| 9,781 |
|
|
| (276 | ) |
|
| 56,931 |
|
|
| 110,587 |
|
(Loss) income from operations |
|
| (5,646 | ) |
|
| 10,898 |
|
|
| (43,085 | ) |
|
| (94,108 | ) |
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest income |
|
| 108 |
|
|
| 55 |
|
|
| 155 |
|
|
| 324 |
|
Interest expense |
|
| - |
|
|
| (843 | ) |
|
| - |
|
|
| (2,412 | ) |
Change in fair value of warrant liabilities |
|
| 9,333 |
|
|
| 39,937 |
|
|
| 31,613 |
|
|
| 2,258 |
|
Change in fair value of debt |
|
| (291 | ) |
|
| - |
|
|
| (291 | ) |
|
| - |
|
Other income (expense), net |
|
| 1,278 |
|
|
| (109 | ) |
|
| 1,366 |
|
|
| (2,140 | ) |
Total other income (expense) |
|
| 10,428 |
|
|
| 39,040 |
|
|
| 32,843 |
|
|
| (1,970 | ) |
Income (loss) before income taxes |
|
| 4,782 |
|
|
| 49,938 |
|
|
| (10,242 | ) |
|
| (96,078 | ) |
Income tax benefit |
|
| (17 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
Net income (loss) |
| $ | 4,799 |
|
| $ | 49,938 |
|
| $ | (10,242 | ) |
| $ | (96,078 | ) |
Change in fair value of debt due to change in credit risk, net of tax |
|
| 236 |
|
|
| - |
|
|
| 236 |
|
|
| - |
|
Other comprehensive income |
|
| 236 |
|
|
| - |
|
|
| 236 |
|
|
| - |
|
Comprehensive income (loss) |
| $ | 5,035 |
|
| $ | 49,938 |
|
| $ | (10,006 | ) |
| $ | (96,078 | ) |
Share information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) per share - basic |
| $ | 0.03 |
|
| $ | 0.47 |
|
| $ | (0.07 | ) |
| $ | (2.00 | ) |
Weighted average shares outstanding - basic |
|
| 142,676,953 |
|
|
| 106,369,910 |
|
|
| 137,787,645 |
|
|
| 48,071,685 |
|
Net income (loss) per share - diluted |
| $ | 0.03 |
|
| $ | 0.40 |
|
| $ | (0.07 | ) |
| $ | (2.00 | ) |
Weighted average shares outstanding - diluted |
|
| 150,546,268 |
|
|
| 123,582,822 |
|
|
| 137,787,645 |
|
|
| 48,071,685 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
GX ACQUISITION CORP.
CONDENSED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY2
THREE AND SIX MONTHS ENDED JUNE 30, 2019Celularity Inc.
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Equity (Deficit) (Unaudited)
Class A Common Stock | Class B Common Stock | Additional Paid-in | (Accumulated Deficit)/ Retained | Total Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Earnings | Equity | ||||||||||||||||||||||
Balance – January 1, 2019 | — | $ | — | 8,625,000 | $ | 863 | $ | 24,137 | $ | (1,098 | ) | $ | 23,902 | |||||||||||||||
Net loss | — | — | — | (121 | ) | (121 | ) | |||||||||||||||||||||
Balance – March 31, 2019 (unaudited) | — | — | 8,625,000 | 863 | 24,137 | (1,219 | ) | 23,781 | ||||||||||||||||||||
Sale of 28,750,000 Units, net of underwriting discounts and offering expenses | 28,750,000 | 2,785 | — | — | 271,024,008 | — | 271,026,883 | |||||||||||||||||||||
Sale of 7,000,000 Private Placement Warrants | — | — | — | — | 7,000,000 | — | 7,000,000 | |||||||||||||||||||||
Forfeiture of Founder Shares | — | — | (1,437,500 | ) | (144 | ) | 144 | — | — | |||||||||||||||||||
Common stock subject to possible redemption | (27,297,161 | ) | (2,730 | ) | — | — | (273,682,593 | ) | — | (273,685,323 | ) | |||||||||||||||||
Net income | — | — | — | — | — | 634,660 | 634,660 | |||||||||||||||||||||
Balance – June 30, 2019 (unaudited) | 1,452,839 | $ | 145 | 7,187,500 | $ | 719 | $ | 4,365,696 | $ | 633,441 | $ | 5,000,001 |
(in thousands, except share amounts)
The accompanying notes are an integral part of the condensed financial statements.
|
| Series A Redeemable |
|
| Series B Redeemable |
|
| Series X Redeemable |
|
|
| Common Stock |
|
| Treasury Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated Other Comprehensive |
|
| Total |
| |||||||||||||||||||||||||||||
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
|
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Income |
|
| (Deficit) |
| ||||||||||||||
Balances at December 31, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
| 124,307,884 |
|
| $ | 12 |
|
|
| - |
|
| $ | - |
|
| $ | 763,087 |
|
| $ | (663,681 | ) |
| $ | - |
|
| $ | 99,418 |
|
Cumulative effect adjustment ASU 2016-02 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 3,996 |
|
|
| - |
|
|
| 3,996 |
|
Reclassification of previously exercised stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 131,253 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 441 |
|
|
| - |
|
|
| - |
|
|
| 441 |
|
Exercise of warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 13,281,386 |
|
|
| 2 |
|
|
| - |
|
|
| - |
|
|
| 46,483 |
|
|
| - |
|
|
| - |
|
|
| 46,485 |
|
Exercise of stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 10,255 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 21 |
|
|
| - |
|
|
| - |
|
|
| 21 |
|
Purchase and retirement of common shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| (3,058 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (11 | ) |
|
| - |
|
|
| - |
|
|
| (11 | ) |
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 2,422 |
|
|
| - |
|
|
| - |
|
|
| 2,422 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (62,867 | ) |
|
| - |
|
|
| (62,867 | ) |
Balances at March 31, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
| 137,727,720 |
|
| $ | 14 |
|
|
| - |
|
| $ | - |
|
| $ | 812,443 |
|
| $ | (722,552 | ) |
| $ | - |
|
| $ | 89,905 |
|
Cumulative effect adjustment ASU 2016-02 |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (3 | ) |
|
| - |
|
|
| (3 | ) |
Issuance of common stock to PIPE investor, net of issuance costs |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 4,054,055 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 7,651 |
|
|
| - |
|
|
| - |
|
|
| 7,651 |
|
Exercise of warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 304 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4 |
|
|
| - |
|
|
| - |
|
|
| 4 |
|
Exercise of stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 609,529 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 313 |
|
|
| - |
|
|
| - |
|
|
| 313 |
|
Purchase and retirement of common shares |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| (7,441 | ) |
|
| - |
|
|
| - |
|
|
| - |
|
|
| (75 | ) |
|
| - |
|
|
| - |
|
|
| (75 | ) |
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,529 |
|
|
| - |
|
|
| - |
|
|
| 4,529 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 47,826 |
|
|
| - |
|
|
| 47,826 |
|
Balances at June 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
| 142,384,167 |
|
| $ | 14 |
|
|
| - |
|
| $ | - |
|
| $ | 824,865 |
|
| $ | (674,729 | ) |
| $ | - |
|
| $ | 150,150 |
|
Exercise of warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 100 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 1 |
|
Exercise of stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 322,093 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 399 |
|
|
| - |
|
|
| - |
|
|
| 399 |
|
Issuance of common stock in ATM offering, net of commissions and offering expenses |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 1,817,830 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,131 |
|
|
| - |
|
|
| - |
|
|
| 4,131 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,519 |
|
|
| - |
|
|
| - |
|
|
| 4,519 |
|
Change in fair value of debt due to change in credit risk, net of tax |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 236 |
|
|
| 236 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 4,799 |
|
|
| - |
|
|
| 4,799 |
|
Balances at September 30, 2022 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
| 144,524,190 |
|
| $ | 14 |
|
|
| - |
|
| $ | - |
|
| $ | 833,915 |
|
| $ | (669,930 | ) |
| $ | 236 |
|
| $ | 164,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
Balances at December 31, 2020 |
|
| 29,484,740 |
|
| $ | 184,247 |
|
|
| 41,205,482 |
|
| $ | 290,866 |
|
|
| 11,953,274 |
|
| $ | 75,000 |
|
|
|
| 18,529,453 |
|
| $ | 1 |
|
|
| (90,834 | ) |
| $ | (256 | ) |
| $ | 32,418 |
|
| $ | (563,563 | ) |
| $ | - |
|
| $ | (531,400 | ) |
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 1,009 |
|
|
| - |
|
|
| - |
|
|
| 1,009 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (81,539 | ) |
|
| - |
|
|
| (81,539 | ) |
Balances at March 31, 2021 |
|
| 29,484,740 |
|
| $ | 184,247 |
|
|
| 41,205,482 |
|
| $ | 290,866 |
|
|
| 11,953,274 |
|
| $ | 75,000 |
|
|
|
| 18,529,453 |
|
| $ | 1 |
|
|
| (90,834 | ) |
| $ | (256 | ) |
| $ | 33,427 |
|
| $ | (645,102 | ) |
| $ | - |
|
| $ | (611,930 | ) |
Exercise of stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 3,711 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
|
| - |
|
|
| - |
|
|
| 14 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 28,188 |
|
|
| - |
|
|
| - |
|
|
| 28,188 |
|
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (64,477 | ) |
|
| - |
|
|
| (64,477 | ) |
Balances at June 30, 2021 |
|
| 29,484,740 |
|
| $ | 184,247 |
|
|
| 41,205,482 |
|
| $ | 290,866 |
|
|
| 11,953,274 |
|
| $ | 75,000 |
|
|
|
| 18,533,164 |
|
| $ | 1 |
|
|
| (90,834 | ) |
| $ | (256 | ) |
| $ | 61,629 |
|
| $ | (709,579 | ) |
| $ | - |
|
| $ | (648,205 | ) |
Recapitalization from GX Acquisition Corp. merger, net of redemptions and equity issuance and merger costs |
|
| (29,484,740 | ) |
|
| (184,247 | ) |
|
| (41,205,482 | ) |
|
| (290,866 | ) |
|
| (11,953,274 | ) |
|
| (75,000 | ) |
|
|
| 94,122,404 |
|
|
| 8 |
|
|
| 90,834 |
|
|
| 256 |
|
|
| 485,332 |
|
|
| - |
|
|
| - |
|
|
| 485,596 |
|
Equity classification of Legacy Celularity warrants |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 96,398 |
|
|
| - |
|
|
| - |
|
|
| 96,398 |
|
Issuance of common stock to Palantir |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 2,000,000 |
|
|
|
|
|
| - |
|
|
|
|
|
| 20,000 |
|
|
| - |
|
|
| - |
|
|
| 20,000 |
| ||
Issuance of common stock to PIPE Investors |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 8,340,000 |
|
|
| 1 |
|
|
| - |
|
|
| - |
|
|
| 83,399 |
|
|
| - |
|
|
| - |
|
|
| 83,400 |
|
Exercise of stock options |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| 468,545 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 209 |
|
|
| - |
|
|
| - |
|
|
| 209 |
|
Stock-based compensation expense |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 8,880 |
|
|
| - |
|
|
| - |
|
|
| 8,880 |
|
Net income |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 49,938 |
|
|
| - |
|
|
| 49,938 |
|
Balances at September 30, 2021 |
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
| - |
|
| $ | - |
|
|
|
| 123,464,113 |
|
| $ | 10 |
|
|
| - |
|
| $ | - |
|
| $ | 755,847 |
|
| $ | (659,641 | ) |
| $ | - |
|
| $ | 96,216 |
|
GX ACQUISITION CORP.
CONDENSED STATEMENT OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 2019
(Unaudited)
Cash Flows from Operating Activities: | ||||
Net income | $ | 634,539 | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||
Interest earned on marketable securities held in Trust Account | (671,993 | ) | ||
Unrealized gain on marketable securities held in Trust Account | (246,592 | ) | ||
Deferred income tax provision | 51,784 | |||
Changes in operating assets and liabilities: | ||||
Prepaid expenses | (134,942 | ) | ||
Accounts payable and accrued expenses | 55,503 | |||
Income taxes payable | 116,891 | |||
Net cash used in operating activities | (194,810 | ) | ||
Cash Flows from Investing Activities: | ||||
Investment of cash in Trust Account | (287,500,000 | ) | ||
Net cash used in investing activities | (287,500,000 | ) | ||
Cash Flows from Financing Activities: | ||||
Proceeds from sale of Units, net of underwriting discounts paid | 282,500,000 | |||
Proceeds from sale of Private Placement Warrants | 7,000,000 | |||
Proceeds from promissory notes – related party | 130,000 | |||
Repayment of promissory notes – related party | (280,000 | ) | ||
Payment of offering costs | (510,867 | ) | ||
Net cash provided by financing activities | 288,839,133 | |||
Net Change in Cash | 1,144,323 | |||
Cash – Beginning | 24,707 | |||
Cash – Ending | $ | 1,169,030 | ||
Non-cash investing and financing activities: | ||||
Initial classification of common stock subject to redemption | $ | 273,048,700 | ||
Change in value of common stock subject to possible redemption | $ | 636,623 | ||
Deferred underwriting fee payable | $ | 10,812,500 |
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
Celularity Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited) (in thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2022 |
|
| 2021 |
| ||
Cash flow from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (10,242 | ) |
| $ | (96,078 | ) |
Adjustments to reconcile net loss to net cash used in operations: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 6,997 |
|
|
| 6,211 |
|
Non cash lease expense |
|
| (41 | ) |
|
| - |
|
Deferred income taxes |
|
| - |
|
|
| (1,356 | ) |
Provision for doubtful accounts |
|
| 981 |
|
|
| 113 |
|
Change in fair value of warrant liabilities |
|
| (31,613 | ) |
|
| (2,258 | ) |
Stock-based compensation expense |
|
| 11,470 |
|
|
| 38,077 |
|
Change in fair value of contingent consideration |
|
| (73,441 | ) |
|
| (17,845 | ) |
Change in fair value of contingent stock consideration |
|
| 415 |
|
|
| - |
|
Change in fair value of debt |
|
| 291 |
|
|
| - |
|
Other, net |
|
| (1,432 | ) |
|
| 3,206 |
|
Changes in assets and liabilities: |
|
|
|
|
|
| ||
Accounts receivable |
|
| (2,688 | ) |
|
| (754 | ) |
Inventory |
|
| (16,830 | ) |
|
| (3,778 | ) |
Prepaid expenses and other assets |
|
| 510 |
|
|
| (1,522 | ) |
Sale of net operating loss and R&D tax credits |
|
| - |
|
|
| 1,356 |
|
Accounts payable |
|
| 297 |
|
|
| 1,364 |
|
Accrued expenses and other liabilities |
|
| 6,546 |
|
|
| 3,846 |
|
Right-of-use assets and lease liabilities |
|
| 195 |
|
|
| - |
|
Deferred revenue |
|
| 294 |
|
|
| (8,633 | ) |
Net cash used in operating activities |
|
| (108,291 | ) |
|
| (78,051 | ) |
Cash flow from investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (4,457 | ) |
|
| (3,900 | ) |
Proceeds from promissory note |
|
| - |
|
|
| 300 |
|
Net cash used in investing activities |
|
| (4,457 | ) |
|
| (3,600 | ) |
Cash flow from financing activities: |
|
|
|
|
|
| ||
Proceeds from short term borrowings - related party |
|
| - |
|
|
| 5,000 |
|
Payment of short term borrowings - related party |
|
| - |
|
|
| (5,000 | ) |
Cash received from GX Acquisition Corp. on recapitalization |
|
| - |
|
|
| 5,386 |
|
Proceeds from the exercise of stock options |
|
| 647 |
|
|
| 223 |
|
Proceeds from the exercise of warrants |
|
| 46,490 |
|
|
| - |
|
Proceeds from PIPE financing |
|
| 30,000 |
|
|
| 83,400 |
|
Proceeds from the sale of common stock in ATM offering |
|
| 4,570 |
|
|
| - |
|
Proceeds from short-term debt |
|
| 39,200 |
|
|
| - |
|
Proceeds from Palantir investment |
|
| - |
|
|
| 20,000 |
|
Payments of ATM offering costs and commissions |
|
| (205 | ) |
|
| - |
|
Payments of PIPE/SPAC related costs |
|
| (2,549 | ) |
|
| (9,433 | ) |
Net cash provided by financing activities |
|
| 118,153 |
|
|
| 99,576 |
|
Net increase in cash, cash equivalents and restricted cash |
|
| 5,405 |
|
|
| 17,925 |
|
Cash, cash equivalents and restricted cash at beginning of period |
|
| 52,076 |
|
|
| 69,513 |
|
Cash, cash equivalents and restricted cash at end of period |
| $ | 57,481 |
|
| $ | 87,438 |
|
|
|
|
|
|
|
| ||
Supplemental disclosure of cash flow information: |
|
|
|
|
|
| ||
Cash paid for income taxes |
| $ | - |
|
| $ | 11 |
|
Supplemental non-cash investing and financing activities: |
|
|
|
|
|
| ||
Property and equipment included in accounts payable and accrued expenses |
| $ | (1,014 | ) |
| $ | (1,601 | ) |
Conversion of Series A, Series B and Series X preferred stock into common stock |
| $ | - |
|
| $ | 550,113 |
|
Cancellation of treasury stock |
| $ | - |
|
| $ | 256 |
|
Non-cash assets acquired from the merger with GX Acquisition Corp. |
| $ | - |
|
| $ | 163 |
|
Warrant liability assumed from the merger with GX Acquisition Corp. |
| $ | - |
|
| $ | 59,202 |
|
Issuance of common stock as payment for PIPE/merger related costs |
| $ | - |
|
| $ | 10,795 |
|
Reclassification of warrant liabilities to equity |
| $ | - |
|
| $ | 96,398 |
|
ATM related costs included in accounts payable and accrued expenses |
| $ | (234 | ) |
| $ | - |
|
PIPE related costs included in accrued expenses |
| $ | (55 | ) |
| $ | - |
|
Reclassification of option liabilities to equity |
| $ | 441 |
|
| $ | - |
|
Change in PIPE/SPAC related costs captured in accounts payable |
| $ | - |
|
| $ | 1,103 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
Celularity Inc.
Notes to Unaudited Condensed Consolidated Financial Statements
(in thousands, except share and per share amounts)
4
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Celularity Inc., (“Celularity” or the “Company”), formerly known as GX Acquisition Corp. (the “Company”(“GX”) is, was a blank check company incorporated in Delaware on August 24, 2018.2018. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businessesbusinesses.
On July 16, 2021 (the “Business Combination”“Closing Date”).The, the Company is an early stageconsummated the previously announced merger pursuant to the Merger Agreement and emerging growthPlan of Reorganization, dated January 8, 2021 (the “Merger Agreement”), by and among GX, Alpha First Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of GX (“First Merger Sub”), Celularity LLC (f/k/a Alpha Second Merger Sub LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of GX (“Second Merger Sub”), and the entity formerly known as Celularity Inc., incorporated under the laws of the state of Delaware on August 29, 2016 (“Legacy Celularity”). Upon completion of the merger transaction GX changed its name to Celularity Inc. The business combination was accounted for as a reverse recapitalization in conformity with accounting principles generally accepted in the United States (see Note 3).
Description of Business
Celularity is a clinical-stage biotechnology company leading the next evolution in cellular medicine by developing off-the-shelf placental-derived allogeneic T cells engineered with chimeric antigen receptor (“CAR”) T cells, natural killer (“NK”) cells and mesenchymal-like adherent stromal cells (“MLASCs”), targeting indications across cancer, infectious and degenerative diseases. Celularity is headquartered in Florham Park, NJ. Legacy Celularity acquired Anthrogenesis Corporation (“Anthrogenesis”) in August 2017 from Celgene Corporation (“Celgene”), a global biotechnology company that merged with Bristol Myers Squibb Company. Previously, Anthrogenesis operated as Celgene Cellular Therapeutics, Celgene’s cell therapy division. Celularity currently has three active clinical trials and is in the process of working with the U.S. Food and Drug Administration (“FDA”) to resolve its questions on an investigational new drug application (“IND”) it submitted in the first quarter of 2022 before commencing an additional clinical trial.
The Celularity IMPACT platform capitalizes on the benefits of placenta-derived cells to target multiple diseases, and provides seamless integration, from bio sourcing through manufacturing cryopreserved and packaged allogeneic cells at its purpose-built U.S.-based 147,215 square foot facility. Celularity’s placental-derived cells are allogeneic, meaning they are intended for use in any patient, as compared to autologous cells, which are derived from an individual patient for that patient’s use. From a single source material, the postpartum human placenta, Celularity derives four allogeneic cell types: T cells, unmodified NK cells, genetically-modified NK cells and MLASCs, which have resulted in five key cell therapeutic programs: CYCART-19, CYNK-001, CYNK-101, APPL-001 and PDA-002, focused on six initial indications. CYCART-19 is a placental-derived CAR-T cell therapy, in development for the treatment of B-cell malignancies, initially targeting the CD19 receptor. CYNK-001 is a placental-derived unmodified NK cell in development for the treatment of acute myeloid leukemia (“AML”), a blood cancer, and for glioblastoma multiforme (“GBM”), a solid tumor cancer. CYNK-101 is a placental-derived genetically modified NK cell in development, to be evaluated in combination with a monoclonal antibody to target HER2+ cancers, such as gastric cancer. APPL-001 is a placenta-derived MLASC being developed for the treatment of Crohn’s disease. PDA-002 is a placenta-derived MLASC being developed for the treatment of facioscapulohumeral muscular dystrophy ("FSHD").
The Company is subject to allrisks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations. Drug candidates currently under development will require significant additional approval prior to commercialization, including extensive preclinical and clinical testing and regulatory approval. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.
COVID-19
On March 10, 2020, the World Health Organization declared the COVID-19 outbreak a pandemic. The virus and actions taken to mitigate its spread have had, and are expected to continue to have, a broad adverse impact on the economies and financial markets of many countries, including the geographical areas in which the Company operates and conducts its business and which the Company’s partners operate and conduct their business. The Company is currently following the recommendations of local health authorities to minimize exposure risk for its team members and visitors. However, the scale and scope of this pandemic is unknown and the duration of the business disruption and related financial impact cannot be reasonably estimated at this time. While management has implemented specific business continuity plans to reduce the potential impact of COVID-19, there is no guarantee that the Company’s continuity plans will be successful.
5
Although the Company was able to operate continuously since the pandemic began, the Company implemented work-from-home policies as needed following local health recommendations for non-essential employees and employees whose roles are able to be performed remotely. Because certain elements of the Company’s operations (such as processing placental tissue, certain biological assays, translational research and storage of cord blood) cannot be performed remotely, the Company instituted controls and protocols including mandatory temperature checking, symptom assessment forms, incremental cleaning and sanitization of common surfaces to mitigate risks associated with early stageto employees.
Due to a broad decline in economic activity and emerging growth companies.
restrictions on physical access to certain medical facilities, the Company did experience a decrease in the net revenues of its degenerative disease business due to the pandemic in 2021. As for clinical trials, the Company did not cancel or postpone enrollment solely due to the risks of June 30, 2019,COVID-19. However, enrollment in the clinical trial evaluating CYNK-001 for AML experienced some delays in the first half of 2020 as sites assessed their safety protocols and experienced high volumes of COVID-19 patients. Enrollment has continued in the AML trial and remains ongoing. As a result, during 2020 the Company had a year-over-year increase in research and development expenses notwithstanding the enrollment delays. The Company also initiated a clinical trial evaluating CYNK-001 in patients with COVID-19, which necessitated additional research and development and project management resources. The Company believes that it would have deployed its human and capital resources to other efforts, such as its CYCART-19 clinical development program, had the COVID-19 pandemic not yet commencedstruck.
COVID-19 did not have a material negative impact on oncology clinical trial patient accrual rates during 2021 and 2022. During 2021, Celularity continued to utilize mandatory temperature checking and symptom assessment forms and, commencing with the third quarter of 2021, instituted additional safety protocols for unvaccinated employees. Celularity also utilized a liaison to help schedule vaccination appointments for employees.
The extent to which COVID-19 or any other health epidemic may impact the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. Accordingly, COVID-19 could have a material adverse effect on the Company’s business, results of operations, financial condition, and prospects.
Going Concern
In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.
Since its inception, Legacy Celularity funded its operations primarily with proceeds from the sales of preferred stock as well as revenues generated through its biobanking and degenerative disease commercial operations. All activityThe Company has incurred recurring losses since its inception, including net losses of $10,242 and $100,118 for the period August 24, 2018 (inception) through Junenine months ended September 30, 2019 relates to2022, and the Company’s formation,year ended December 31, 2021, respectively. In addition, as of September 30, 2022, the initial public offering (the “Initial Public Offering”), which is described below, and identifying a target company for a Business Combination.Company had an accumulated deficit of $669,930. The Company expects to continue to generate operating losses for the foreseeable future. As of September 30, 2022, the Company expects that its cash and cash equivalents will not generatebe sufficient to fund its operating expenses and capital expenditure requirements through at least 12 months from the issuance of the condensed consolidated financial statements.
The Company believes its existing cash and cash equivalents as of September 30, 2022 will fund it into the first quarter of 2023. The Company has based this estimate on a number of assumptions regarding its development programs and commercial operations that may prove to be wrong, and could utilize its cash and cash equivalents sooner than expected. The Company is seeking additional funding through the issuance of equity, convertible or debt securities through private investments in public equity or public offerings or the exercise of existing convertible securities. The Company may not be able to obtain financing on acceptable terms, or at all, and the terms of any operating revenues until afterfinancing may adversely affect the completionholdings or the rights of its initial Business Combination, atstockholders. Alternatively, the earliest. Company may have to reduce spend by postponing certain of its development activities.
Based on its recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional capital to finance its future operations, the Company has concluded that there is substantial doubt about its ability to continue as a going concern.
The Company will generate non-operating income in the form of interest incomeaccompanying condensed consolidated financial statements do not include any adjustments that might result from the proceeds derived fromoutcome of this uncertainty. Accordingly, the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering was declared effective on May 20, 2019. On May 23, 2019, the Company consummated the Initial Public Offering of 28,750,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), which includes the full exercise by the underwriter of the over-allotment option to purchase an additional 3,750,000 Units, at $10.00 per Unit, generating gross proceeds of $287,500,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 7,000,000 warrants (the “Private Placement Warrants”) at a price of $1.00 per Private Placement Warrant in a private placement to the Company’s sponsor, GX Sponsor LLC (the “Sponsor”), generating gross proceeds of $7,000,000, which is described in Note 4.
Transaction costs amounted to $16,473,117, consisting of $5,000,000 of underwriting fees, $10,812,500 of deferred underwriting fees and $660,617 of other offering costs. In addition, $1,218,001 of cash was held outside of the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public Offering on May 23, 2019, an amount of $287,500,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Warrants was placed in a trust account (the “Trust Account”), whichunaudited condensed consolidated financial statements have been 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”), withprepared on a maturity of 180 days or less or in any open-ended investment companybasis that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the funds in the Trust Account to the Company’s shareholders, as described below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (as defined below) (less any deferred underwriting commissions and taxes payable on income earned on the Trust Account) at the time of the signing a definitive agreement to enter a Business Combination. The Company will only complete a Business Combination if the post-Business Combination 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. There is no assurance thatassumes the Company will be able to successfully effect a Business Combination.
The Company will provide its holders of the outstanding Public Shares (the “public shareholders”) 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 shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.
If the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and Restated Certificate of Incorporation provides that, a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert orcontinue as a “group” (as defined under Section 13going concern and which contemplates the realization of the Securities Exchange Actassets and satisfaction of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.
5
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
The public shareholders will be entitled to redeem their shares for a pro rata portion of the amount thenliabilities and commitments in the Trust Account (initially $10.00 per 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 shareholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter (as discussed in Note 6). There will be no redemption rights upon the completionordinary course of a Business Combination with respect to the Company’s warrants.business.
6
Basis of Presentation
If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (the “SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Company’s Sponsor has agreed (a) to vote its Founder Shares (as defined in Note 5), the common stock included in the Private Units (the “Private Shares”) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Founder Shares) and Private Placement Warrants (including underlying securities) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the Company’s Amended and Restated Certificate of Incorporation relating to shareholders’ rights of pre-Business Combination activity and (d) that the Founder Shares and Private Placement Warrants (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
The Company will have until May 23, 2021 to complete a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no 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 interest earned on the funds held in the Trust Account and not previously released to the Company to pay taxes (less 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 liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete 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 assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
Our Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to us, or a prospective target business with which we have entering into a written letter of intent, confidentiality or similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the day of liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under our indemnity of the underwriter of this offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, we have not asked our Sponsor to reserve for such indemnification obligations, nor have we independently verified whether our Sponsor has sufficient funds to satisfy its indemnity obligations and believe that our Sponsor’s only assets are securities of our company. Therefore, we cannot assure you that our Sponsor would be able to satisfy those obligations. None of our officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
6
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have beenare prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim. The unaudited condensed consolidated financial statements include the accounts of wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The unaudited condensed consolidated financial information andpresented herein reflects all financial information that, in accordance with the instructions to Form 10-Q and Article 8opinion 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 the information and footnotesmanagement, is necessary for a complete presentationfair statement of consolidated financial position, results of operations or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unauditedCompany’s condensed consolidated financial statements are prepared in accordance with the U.S. Securities and Exchange Commission’s rules for the presentation of interim financial statements, which permit certain disclosures to be condensed or omitted. These financial statements should be read in conjunction with the Company’s prospectusannual financial statements as filed withof and for the SEC on May 21, 2019, as well asyear ended December 31, 2021.
In the opinion of management, the accompanying interim financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s Current Reports on Form 8-K,financial position as filed withof September 30, 2022, and its results of operations, statement of changes in stockholder’s equity (deficit) and cash flows for the SEC onMay 24, 2019nine months ended September 30, 2022 andMay 30, 2019. The interim 2021. Operating results for the three and sixnine months ended JuneSeptember 30, 20192022, are not necessarily indicative of the results tothat may be expected for the year ending December 31, 2022. The interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and related notes as of and for the year ended December 31, 20192021 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2022, as amended July 15, 2022, (the “2021 Form 10-K”).
Use of Estimates
The preparation of the Company’s condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, assumptions related to the Company’s goodwill and intangible impairment assessment, the valuation of inventory, contingent consideration, short-term debt, and contingent stock consideration, determination of incremental borrowing rates, accrual of research and development expenses, and the valuations of stock options and stock warrants. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.
Fair Value Measurements
Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:
• Level 1 — Quoted prices in active markets for identical assets or liabilities.
• Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.
• Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.
Leases
In accordance with Accounting Standards Update (“ASU”) No. 2016-02, Leases (Topic 842) (“ASU 2016-02” or “ASC 842”), the Company classifies leases at the lease commencement date. At the inception of an arrangement, the Company determines whether the arrangement is or contains a lease based on the circumstances present. Leases with a term greater than one year will be recognized on the condensed consolidated balance sheets as right-of-use assets (“ROU”), lease liabilities, and if applicable, long-term lease
7
liabilities. The Company includes renewal options to extend the lease in the lease term where it is reasonably certain that it will exercise these options. Lease liabilities and the corresponding ROU are recorded based on the present values of lease payments over the terms. The interest rate implicit in lease contracts is typically not readily determinable. As such, the Company utilizes the appropriate incremental borrowing rates, which are the rates that would be incurred to borrow on a collateralized basis, over similar terms, amounts equal to the lease payments in a similar economic environment. Variable payments that do not depend on a rate or index are not included in the lease liability and are recognized as incurred. Lease contracts do not include residual value guarantees nor do they include restrictions or other covenants. Certain adjustments to ROUs may be required for items such as initial direct costs paid, incentives received, or lease prepayments. If significant events, changes in circumstances, or other events indicate that the lease term or other inputs have changed, the Company would reassess lease classification, remeasure the lease liability using revised inputs as of the reassessment date, and adjust the ROU.
The Company has elected the “package of 3” practical expedients permitted under the transition guidance, which eliminates the requirements to reassess prior conclusions about lease identification, lease classification, and initial direct costs. The Company also adopted an accounting policy which provides that leases with an initial term of 12 months or less and no purchase option that the Company is reasonably certain of exercising will not be included within the lease right-of-use assets and lease liabilities on its condensed consolidated balance sheets.
Refer to Note 9 for further information.
Comprehensive Income (Loss)
Comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to accumulated other comprehensive income (loss). The Company’s other comprehensive income (loss) is comprised of the portion of the total change in fair value of indebtedness accounted for under the fair value option that is attributable to changes in instrument-specific credit risk.
Net Income (Loss) per Share
Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted net income (loss) per share of common stock includes the effect, if any, future interim periods.from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, convertible debt, stock options, restricted stock units and warrants, which would result in the issuance of incremental shares of common stock. However, potential common shares are excluded if their effect is anti-dilutive. For diluted net income (loss) per share in periods where the Company has a net loss, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. For the three months ended September 30, 2022, the Company was in a net income position and calculated the diluted net income per share by dividing the Company’s net income by the dilutive weighted average number of share outstanding during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share calculations are as follows:
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
|
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| ||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss) |
| $ | 4,799 |
|
| $ | 49,938 |
|
| $ | (10,242 | ) |
| $ | (96,078 | ) |
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Weighted average shares outstanding, basic |
|
| 142,676,953 |
|
|
| 106,369,910 |
|
|
| 137,787,645 |
|
|
| 48,071,685 |
|
|
Weighted average dilutive stock options |
|
| 7,857,031 |
|
|
| 14,107,842 |
|
|
| - |
|
|
| - |
|
|
Weighted average restricted stock units |
|
| 12,284 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
Weighted average dilutive warrants |
|
| - |
|
|
| 3,105,070 |
|
|
| - |
|
|
| - |
|
|
Weighted average shares outstanding, diluted |
|
| 150,546,268 |
|
|
| 123,582,822 |
|
|
| 137,787,645 |
|
|
| 48,071,685 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income (loss), basic |
| $ | 0.03 |
|
| $ | 0.47 |
|
| $ | (0.07 | ) |
| $ | (2.00 | ) |
|
Net income (loss), diluted |
| $ | 0.03 |
|
| $ | 0.40 |
|
| $ | (0.07 | ) |
| $ | (2.00 | ) |
|
8
The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, prior to the use of the two-class method, as they would be anti-dilutive:
Emerging growth company
|
| For the Three Months Ended September 30, |
|
| For the Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Stock options |
|
| 16,398,802 |
|
|
| 2,967,611 |
|
|
| 27,135,949 |
|
|
| 28,498,069 |
|
Restricted stock units |
|
| 2,474,613 |
|
|
| - |
|
|
| 2,526,949 |
|
|
| - |
|
Convertible debt |
|
| 2,733,018 |
|
|
| - |
|
|
| 2,733,018 |
|
|
| - |
|
Warrants |
|
| 33,458,460 |
|
|
| 8,499,999 |
|
|
| 33,458,460 |
|
|
| 42,686,195 |
|
|
|
| 55,064,893 |
|
|
| 11,467,610 |
|
|
| 65,854,376 |
|
|
| 71,184,264 |
|
Segment Information
Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company manages its operations through an evaluation of three distinct businesses segments: Cell Therapy, Degenerative Disease and BioBanking. These segments are presented for the three and nine months ended September 30, 2022 and 2021 in Note 15.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. The Company generally maintains balances in various operating accounts at financial institutions that management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents or restricted cash and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.
The Company is an “emerging growth company,” as definedsubject to credit risk from trade accounts receivable related to both degenerative disease product sales and biobanking services. All trade accounts receivables are a result from product sales and services performed in Section 2(a)the United States. As of December 31, 2021, one of the Securities Act,Company’s customers comprised approximately 47% of the Company’s total outstanding accounts receivable. As of September 30, 2022, one of the Company’s customers (Customer A) comprised approximately 42% of the total outstanding gross accounts receivable and another customer (Customer B) comprised 27% of the total outstanding gross accounts receivable. The same two customers also provided approximately 36% of the Company’s revenues earned during the nine months ended September 30, 2022. No single customer provided 10% or more of the revenue earned during the nine months ended September 30, 2021.
In November 2017, the FDA provided guidance that established an updated framework for regulation of Human Cell & Tissue Products (“HCT/P”). The Company’s Interfyl products meet the criteria for minimal manipulation and homologous use as modifiedoutlined within the applicable guidance and has an official designation from the FDA as an HCT/P product. As a result, the Company did not stop selling its Interfyl products when the FDA ended its enforcement discretion on May 31, 2021. However, the Center for Medicare and Medicaid Services (“CMS”) began rejecting claims for Interfyl submitted by Customer A. The Company believes that CMS is not distinguishing the Interfyl products from its competitors’ products. While the Company and Customer A continue to work with CMS to resolve the rejected claims, a reserve of $1,100 was recorded on Customer A’s accounts receivable balance as of September 30, 2022.
Emerging Growth Company
Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements 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 shareholder approval of any golden parachute payments not previously approved.
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 of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act)Act of 1934, as amended “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that aan emerging growth 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 an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
9
This may make comparison of the Company’s condensed consolidated financial statements with another public company whichthat is neither an emerging growth company nor an emerging growth company and whichthat has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Recently Adopted Accounting Pronouncements
On January 1, 2022, the Company adopted ASU 2016-02, which sets out the principles for the recognition, measurement, presentation and disclosure of leases for both parties to a contract (i.e., lessees and lessors). The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a ROU asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less may be accounted for similar to the prior guidance for operating leases.
UseThe Company adopted ASU 2016-02 utilizing the modified retrospective transition method in the first quarter of estimatesfiscal 2022 and did not restate comparative periods. The Company has elected the package of practical expedients permitted under the transition guidance within the new standard, which among other things, allowed it to carry forward the historical lease classification. Refer to Note 9 for further information on the impact of the adoption of ASU 2016-02 on the Company’s condensed consolidated financial statements.
The Company recorded ROU assets and lease liabilities of $13,001 and $27,723, respectively, on the condensed consolidated balance sheets. Incremental borrowing rates as of January 1, 2022, the date the new standard was adopted, were used to calculate the present value of the Company’s lease portfolio as of that date. Leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in Accounting Standards Codification ("ASC") 2016-02. The impact of the derecognition of the build-to-suit lease was a net reduction of $3,993 to accumulated deficit calculated as of January 1, 2022. The standard did not materially impact the consolidated net income (losses) or operating cash flows.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt - Modifications and Extinguishments (Subtopic 470-50), Compensation - Stock Compensation (Topic 718), and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (“ASU 2021-04”). ASU 2021-04 provides guidance as to how an issuer should account for a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option (i.e., a warrant) that remains equity-classified after modification or exchange as an exchange of the original instrument for a new instrument. An issuer should measure the effect of a modification or exchange as the difference between the fair value of the modified or exchanged warrant and the fair value of that warrant immediately before modification or exchange and then apply a recognition model that comprises four categories of transactions and the corresponding accounting treatment for each category (equity issuance, debt origination, debt modification, and modifications unrelated to equity issuance and debt origination or modification). The preparationCompany adopted ASU 2021-04 effective January 1, 2022 and considered this guidance when evaluating the amendment of the Company’s warrants in March 2022 (See Note 11.)
In August 2020, the FASB issued ASU 2020-06, (Subtopic 470-20): Debt — Debt with Conversion and Other Options (“ASU 2020-06”) to address the complexity associated with applying GAAP to certain financial instruments with characteristics of liabilities and equity. ASU 2020-06 includes amendments to the guidance on convertible instruments and the derivative scope exception for contracts in an entity’s own equity and simplifies the accounting for convertible instruments which include beneficial conversion features or cash conversion features by removing certain separation models in Subtopic 470-20. Additionally, ASU 2020-06 will require entities to use the “if-converted” method when calculating diluted earnings per share for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023 (fiscal year 2024 for the Company), including interim periods within those fiscal years with early adoption permitted. The Company adopted ASU 2020-06 effective January 1, 2022 and considered this guidance when evaluating the warrants issued in May 2022 (See Note 11), and when calculating diluted earnings per share above.
Recently Issued Accounting Pronouncements
In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (“ASU 2016-13”), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. ASU 2016-13 also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual periods beginning after December 15, 2022 (fiscal year 2023 for the Company), and interim periods within those periods, with early adoption permitted. The Company is currently evaluating the impact that the adoption of ASU 2016-13 will have on its condensed consolidated financial statementsstatements.
10
On July 16, 2021, the Company consummated the previously announced merger pursuant to the Merger Agreement, by and among GX, First Merger Sub, Second Merger Sub and Legacy Celularity (see Note 1).
Pursuant to the terms of the Merger Agreement, a business combination between GX and Legacy Celularity was effected through the (a) merger of First Merger Sub with and into Legacy Celularity with Legacy Celularity surviving as a wholly-owned subsidiary of GX (Legacy Celularity, in its capacity as the surviving corporation of the merger, the “Surviving Corporation”) (the “First Merger”) and (b) immediately following the First Merger and as part of the same overall transaction as the First Merger, the merger of the Surviving Corporation with and into Second Merger Sub, with Second Merger Sub as the surviving entity of the Second Merger, which ultimately resulted in Legacy Celularity becoming a wholly-owned direct subsidiary of GX (the “Second Merger” and, together with the First Merger, the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”). On the Closing Date, the Company changed its name from GX Acquisition Corp. to Celularity Inc.
Immediately prior to the effective time of the Mergers (the “Effective Time”), each share of preferred stock of Legacy Celularity (the “Legacy Celularity Preferred Stock”) that was issued and outstanding was automatically converted into a number of shares of common stock of Legacy Celularity, par value $0.0001 per share (the “Legacy Celularity Common Stock”) at the then-effective conversion rate as calculated pursuant to the Amended and Restated Certificate of Incorporation of Legacy Celularity, dated March 16, 2020, as amended (the “Legacy Celularity Charter”), such that each converted share of Legacy Celularity Preferred Stock was no longer outstanding and ceased to exist, and each holder of Legacy Celularity Preferred Stock thereafter ceased to have any rights with respect to such securities (the “Legacy Celularity Preferred Stock Conversion”).
At the Effective Time, by virtue of the First Merger and without any action on the part of GX, First Merger Sub, Legacy Celularity or the holders of any of the following securities:
The Business Combination was accounted for as a reverse recapitalization in conformity with GAAP requiresaccounting principles generally accepted in the United States. Under this method of accounting, GX was treated as the “acquired” company for financial reporting purposes. This determination was primarily based on existing Legacy Celularity stockholders comprising a relative majority of the voting power of the combined company, Legacy Celularity’s operations prior to the acquisition comprising the only ongoing operations
11
of Celularity, the majority of Celularity’s board of directors appointment by Legacy Celularity, and Legacy Celularity’s senior management comprising a majority of the senior management of Celularity. Accordingly, for accounting purposes, the financial statements of the combined entity represented a continuation of the financial statements of Legacy Celularity with the business combination being treated as the equivalent of Legacy Celularity issuing stock for the net assets of GX, accompanied by a recapitalization. The Company recorded the net assets of GX at historical costs, with no goodwill or other intangible assets recorded. Operations prior to make estimatesthe business combination are those of Legacy Celularity. Reported shares and assumptions that affectearnings (losses) per share available to holders of the reported amountsClass A Common Stock, prior to the Business Combination, have been retroactively restated as shares reflecting the exchange ratio established in the business combination (1.00 share of assetsLegacy Celularity for approximately 0.7686 shares of Class A Common Stock).
Net proceeds from this transaction totaled $108,786. These proceeds were comprised of $5,386 held in GX’s trust account, $83,400 received from the completion of a concurrent private investment in public equity financing (“July 2021 PIPE Financing”) and liabilities$20,000 received from an investment by Palantir Technologies, Inc. (“Palantir”). The Company incurred $21,658 in transaction costs relating to the merger with GX of which $10,795 were satisfied by the issuance of Class A Common Stock, which has been offset against additional paid-in capital in the condensed consolidated statements of convertible preferred stock and disclosurestockholders’ equity (deficit).
Pursuant to the terms of contingent assetsthe Merger Agreement, the existing stockholders of Legacy Celularity exchanged their interests for shares of Class A Common Stock. In addition, GX had previously issued public warrants and liabilities atprivate placement warrants (collectively, the “GX Warrants”) as part of the Units in its IPO in May 2019. None of the terms of the GX Warrants were modified as a result of the Business Combination. On the date of the Business Combination, the Company recorded a liability related to the GX Warrants of $59,202, with an offsetting entry to additional paid-in capital. During the period ended September 30, 2022, the fair value of the GX Warrants decreased to $10,281, resulting in an expense reduction of $6,132 and $15,682 in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022. During the period from July 17, 2021 to September 30, 2021, the fair value of the GX Warrants decreased to $37,186, resulting in an expense reduction of $22,016 in the condensed consolidated statement of operations for the three and nine months ended September 30, 2021.
Upon consummation of the Business Combination, Legacy Celularity warrants qualified for equity classification. As a result, the transaction date fair value of the Legacy Celularity warrants of $96,398 was reclassified from warrant liability to additional paid-in capital (see Note 4).
Immediately following the Business Combination, there were 122,487,174 shares of Class A Common Stock with a par value of $0.0001 issued and outstanding, options to purchase an aggregate of 21,723,273 shares of Class A Common Stock and 42,686,195 warrants outstanding to purchase shares of Class A Common Stock.
July 2021 PIPE Financing (Private Placement)
On the Closing Date, certain significant stockholders of Legacy Celularity or their affiliates (including Sorrento Therapeutics, Inc. (“Sorrento”), Starr International Investments Ltd. and Dragasac Limited, an indirect wholly owned subsidiary of Genting Berhad, collectively, the “Subscribers”) purchased from Celularity an aggregate of 8,340,000 shares of Class A Common Stock (the “July 2021 PIPE Shares”), for a purchase price of $10.00 per share and an aggregate purchase price of $83,400, pursuant to separate subscription agreements dated January 8, 2021 (collectively, the “Subscription Agreements”). Pursuant to the Subscription Agreements, the Company agreed to provide the Subscribers with certain registration rights with respect to the July 2021 PIPE Shares.
Arrangement with Palantir Technologies Inc.
Pursuant to the subscription agreement entered into by GX with Palantir on May 5, 2021, Palantir purchased 2,000,000 shares of Class A Common Stock at a price of $10.00 per share and an aggregate purchase price of $20,000, upon closing of the Business Combination and closing of the July 2021 PIPE financing.
The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:
12
|
| Fair Value Measurements as of September 30, 2022 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents - money market funds |
| $ | 40,234 |
|
| $ | — |
|
| $ | — |
|
| $ | 40,234 |
|
Convertible note receivable |
|
| — |
|
|
| — |
|
|
| 3,920 |
|
|
| 3,920 |
|
|
| $ | 40,234 |
|
| $ | — |
|
| $ | 3,920 |
|
| $ | 44,154 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Contingent stock consideration |
| $ | — |
|
| $ | — |
|
| $ | 415 |
|
| $ | 415 |
|
Acquisition-related contingent consideration obligations |
|
| — |
|
|
| — |
|
|
| 158,781 |
|
|
| 158,781 |
|
Short-term debt - Yorkville |
|
| — |
|
|
| — |
|
|
| 39,255 |
|
|
| 39,255 |
|
Warrant liability - May 2022 PIPE Warrants |
|
| — |
|
|
| — |
|
|
| 3,813 |
|
|
| 3,813 |
|
Warrant liability - Sponsor Warrants |
|
| — |
|
|
| — |
|
|
| 4,675 |
|
|
| 4,675 |
|
Warrant liability - Public Warrants |
|
| 5,606 |
|
|
| — |
|
|
| — |
|
|
| 5,606 |
|
|
| $ | 5,606 |
|
| $ | — |
|
| $ | 206,939 |
|
| $ | 212,545 |
|
|
| Fair Value Measurements as of December 31, 2021 |
| |||||||||||||
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
|
| Total |
| ||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash equivalents - money market funds |
| $ | 36,700 |
|
| $ | — |
|
| $ | — |
|
| $ | 36,700 |
|
Convertible note receivable |
|
| — |
|
|
| — |
|
|
| 2,488 |
|
|
| 2,488 |
|
|
| $ | 36,700 |
|
| $ | — |
|
| $ | 2,488 |
|
| $ | 39,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Acquisition-related contingent consideration obligations |
| $ | — |
|
| $ | — |
|
| $ | 232,222 |
|
| $ | 232,222 |
|
Warrant liability - Sponsor Warrants |
|
| — |
|
|
| — |
|
|
| 13,600 |
|
|
| 13,600 |
|
Warrant liability - Public Warrants |
|
| 12,362 |
|
|
| — |
|
|
| — |
|
|
| 12,362 |
|
|
| $ | 12,362 |
|
| $ | — |
|
| $ | 245,822 |
|
| $ | 258,184 |
|
During the nine months ended September 30, 2022 and 2021, there were no transfers between Level 1, Level 2 and Level 3.
The Company’s cash equivalents consisted of money market funds. The money market fund was valued using inputs observable in active markets for similar securities, which represents a Level 1 measurement in the fair value hierarchy.
The carrying values of accounts receivable and accounts payable approximate fair value in the accompanying condensed consolidated financial statements anddue to the reported amountsshort-term nature of revenues and expenses during the reporting period.those instruments.
Valuation of Contingent Consideration
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimateThe fair value measurement of the effectcontingent consideration obligations is determined using Level 3 inputs and is based on a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions.
13
The following table presents a reconciliation of contingent consideration obligations measured on a condition, situation or set of circumstances that existed at the date of the condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and cash equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalentsrecurring basis using Level 3 inputs as of JuneSeptember 30, 20192022 and December 31, 2018.2021:
|
| Balance as of |
|
| Net |
|
| Purchases, |
|
| Fair value |
|
| Balance as of |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contingent stock consideration |
| $ | — |
|
| $ | — |
|
| $ | — |
|
| $ | 415 |
|
| $ | 415 |
|
Acquisition-related contingent consideration obligations |
|
| 232,222 |
|
|
| — |
|
|
| — |
|
|
| (73,441 | ) |
|
| 158,781 |
|
|
| $ | 232,222 |
|
| $ | — |
|
| $ | — |
|
| $ | (73,026 | ) |
| $ | 159,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Balance as of |
|
| Net |
|
| Purchases, |
|
| Fair value |
|
| Balance as of |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Acquisition-related contingent consideration obligations |
| $ | 273,367 |
|
| $ | — |
|
| $ | — |
|
| $ | (41,145 | ) |
| $ | 232,222 |
|
Marketable securities held in Trust Account
At June 30, 2019, substantially allThe fair value of the assets heldliability to make potential future milestone and earn-out payments was estimated by the Company at each reporting date based, in part, on the Trust Account were held in U.S. Treasury Bills.
7
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
Common stock subject to possible redemption
results of a third-party valuation using a discounted cash flow analysis based on various assumptions, including the probability of achieving specified events, discount rates, and the period of time until earn-out payments are payable and the conditions triggering the milestone payments are met. The Company accounts for its common stock subject to possible redemption in accordance withactual settlement of contingent consideration could differ from current estimates based on the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” 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 theactual occurrence of uncertain events not solely withinthese specified events.
At each reporting date, the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are consideredCompany revalues the contingent consideration obligation to be outside of the Company’s controlestimated fair value and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemptionrecords changes in fair value as temporary equity, outside of the stockholders’ equity section ofincome or expense in the Company’s condensed balance sheet.
Income taxes
The Company complies withconsolidated statements of operations. Changes in the accounting and reporting requirementsfair value 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 willcontingent consideration obligations may result from changes in future taxable or deductible amounts, based on enacted tax lawsdiscount periods and rates, applicable to the periodschanges 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.
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 penalties as of June 30, 2019 and December 31, 2018. The Company is currently not aware of any issues under review that could result 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,revenue estimates and changes in probability assumptions with respect to the nexuslikelihood of income amongachieving the 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.
Net loss per common share
Net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating earnings per share. Shares of common stock subject to possible redemption at June 30, 2019, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings.contingent consideration obligations. The Company has not consideredclassified all of the effect of warrants soldcontingent consideration as a long-term liability in the Initial Public Offering and private placement to purchase 21,375,000 sharescondensed consolidated balance sheets as of common stock in the calculation of diluted net loss per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted net loss per common share is the same as basic net loss per common share for the periods presented.
8
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNESeptember 30, 2019
(Unaudited)
Reconciliation of net loss per common share
The Company’s net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted net loss per common share is calculated as follows:
Three Months Ended June 30, | Six Months Ended June 30, | |||||||
2019 | 2019 | |||||||
Net income | $ | 634,660 | $ | 634,539 | ||||
Less: Income attributable to common stock subject to possible redemption | (664,565 | ) | (664,565 | ) | ||||
Adjusted net loss | $ | (29,905 | ) | $ | (30,026 | ) | ||
Weighted average shares outstanding, basic and diluted | 7,258,681 | 7,378,674 | ||||||
Basic and diluted net loss per common share | $ | (0.00 | ) | $ | (0.00 | ) |
Concentration of credit risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution, which, at times may exceed the Federal Depository Insurance Coverage of $250,000. At June 30, 20192022 and December 31, 2018,2021. See Note 10, “Commitment and Contingencies”, for more information on contingent consideration.
Valuation of Warrant Liability
The warrant liability at September 30, 2022 is composed of the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fairfair value of financial instrumentswarrants to purchase shares of Class A Common Stock. The private placement warrants assumed upon the Business Combination (the “Sponsor Warrants”) and the May 2022 PIPE Warrants (see Note 11) were recorded at their respective Closing Date fair values based on a Black-Scholes option pricing model that utilizes inputs for: (i) value of the underlying asset, (ii) the exercise price, (iii) the risk-free rate, (iv) the volatility of the underlying asset, (v) the dividend yield of the underlying asset and (vi) maturity. The Black-Scholes option pricing model’s primary unobservable input utilized in determining the fair value of the Sponsor Warrants and May 2022 Pipe Warrants is the expected volatility of the Class A Common Stock. Prior to the Mergers, Legacy Celularity was historically a private company and lacks company-specific historical and implied volatility information for its stock. Therefore, it estimates its expected stock price volatility based on the historical volatility of publicly traded peer companies. Inputs to the Black-Sholes option pricing model for the warrants are updated each reporting period to reflect fair value. The public warrants assumed upon the Business Combination (the “Public Warrants”) were recorded at the closing date fair value based on the close price of such warrants. Each subsequent reporting period, the Public Warrants are marked-to-market based on the period-end close price.
As of September 30, 2022 and December 31, 2021, the fair value of the warrant liabilities was $14,094 and $25,962, respectively. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the estimated remaining term of the warrants.
14
The following table provides a roll-forward of the aggregate fair values of the Company’s warrant liabilities for which fair values are determined using either Level 1 or Level 3 inputs:
Balance as of December 31, 2020 |
| $ | 76,640 |
|
Gain recognized in earnings from change in fair value |
|
| (13,482 | ) |
Warrant liability assumed at Closing Date (Sponsor Warrants) |
|
| 34,764 |
|
Warrant liability assumed at Closing Date (Public Warrants) |
|
| 24,438 |
|
Reclassification of Legacy Celularity Warrants to equity |
|
| (96,398 | ) |
Balance as of December 31, 2021 |
| $ | 25,962 |
|
|
|
|
| |
Balance as of December 31, 2021 |
| $ | 25,962 |
|
May 2022 PIPE warrant issuance |
|
| 19,745 |
|
Gain recognized in earnings from change in fair value |
|
| (31,613 | ) |
Balance as of September 30, 2022 |
| $ | 14,094 |
|
The fair value of the Public Warrants was $5,606 and $12,362 as of September 30, 2022 and December 31, 2021, respectively, based on the publicly stated closing price. The fair value of the Sponsor Warrants was $4,675 and $13,600 as of September 30, 2022 and December 31, 2021, respectively. The fair value of the May 2022 PIPE Warrants was $3,813 as of September 30, 2022.
Significant inputs for the Sponsor Warrants are as follows:
|
| September 30, |
|
| December 31, |
| ||
Common share price |
| $ | 2.31 |
|
| $ | 5.12 |
|
Exercise price |
| $ | 11.50 |
|
| $ | 11.50 |
|
Dividend yield |
|
| 0 | % |
|
| 0 | % |
Term (years) |
|
| 3.8 |
|
|
| 4.5 |
|
Risk-free interest rate |
|
| 4.17 | % |
|
| 1.19 | % |
Volatility |
|
| 78.0 | % |
|
| 63.0 | % |
Significant inputs for the May 2022 PIPE Warrants are as follows:
|
| September 30, |
| |
Common share price |
| $ | 2.31 |
|
Exercise price |
| $ | 8.25 |
|
Dividend yield |
|
| 0 | % |
Term (years) |
|
| 4.6 |
|
Risk-free interest rate |
|
| 4.06 | % |
Volatility |
|
| 82.0 | % |
Valuation of the Convertible Note Receivable
The convertible note receivable was received in connection with the disposition of the UltraMIST/MIST business in 2020. At any time on or after January 1, 2021, at the sole discretion of the Company, amounts outstanding under the convertible note receivable (including accrued interest) may be converted into Sanuwave common stock at a defined rate. The convertible promissory note was to be paid on or before August 6, 2021, however, remains outstanding in full at September 30, 2022. As of September 30, 2022 and December 31, 2021, the Company utilized Level 3 inputs on a probability weighted model based on outcomes of a default, repayment and conversion of the note. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s assetsown assumptions.
Significant inputs for the convertible note valuation model are as follows:
|
| September 30, |
|
| December 31, |
| ||
Face value |
| $ | 4,000 |
|
| $ | 4,000 |
|
Coupon rate |
| 12% - 17% |
|
| 12% - 17% |
| ||
Stock price |
| $ | 0.06 |
|
| $ | 0.17 |
|
Term (years) |
| .76 - 3.45 |
|
| .7 - 3.19 |
| ||
Risk-free interest rate |
| 3.99% - 4.16% |
|
|
| 0.29 | % | |
Volatility |
| n/a |
|
| n/a |
|
15
Valuation of the Contingent Stock Consideration
The contingent stock consideration liability at September 30, 2022, is comprised of the fair value of potential future issuance of Class A Common Stock to CariCord participating shareholders pursuant to a settlement agreement signed during the year ended December 31, 2021 (see Note 10). The fair value measurement of the contingent stock consideration obligation is determined using Level 3 inputs and liabilities, which qualifyis based on a probability-weighted expected return methodology (“PWERM”). The measurement is largely based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions. As of December 31, 2021, the applicable procurement targets were not probable of being achieved.
The following table presents a reconciliation of the contingent stock consideration obligation measured on a recurring basis using Level 3 inputs as of September 30, 2022 and December 31, 2021:
|
| Balance as of |
|
| Net |
|
| Purchases, |
|
| Fair value |
|
| Balance as of |
| |||||
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Contingent stock consideration |
| $ | - |
|
| $ | — |
|
| $ | — |
|
| $ | 415 |
|
| $ | 415 |
|
The fair value of the liability to issue future shares of Class A Common Stock was estimated by the Company at each reporting date based on the results of a third-party valuation using a PWERM based on various inputs and assumptions, including the Company’s common share price, discount rates, and the probability of achieving specified future operational targets. The actual settlement of contingent stock consideration could differ from current estimates based on the actual achievement of these specified targets and movements in the Company’s common share price.
At each reporting date, the Company revalues the contingent stock consideration obligation to estimated fair value and records changes in fair value as income or expense in the Company’s condensed consolidated statements of operations. Changes in the fair value of the contingent stock consideration obligation may result from changes in discount rates, changes in the Company’s common share price, and changes in probability assumptions with respect to the likelihood of achieving specified operational targets. The Company has classified all of the contingent stock consideration as a long-term liability in the condensed consolidated balance sheets as of September 30, 2022. See Note 10, “Commitments and Contingencies”, for more information on contingent stock consideration.
Valuation of Short-Term Debt - Yorkville
The Company elected the fair value option to account for the financial instruments under ASC Topic 820, “Fair Value Measurementsinstrument with Yorkville signed on September 15, 2022 (see Note 8). The estimate of the fair value was determined using a binomial lattice model. The fair value measurement of the debt is determined using Level 3 inputs and Disclosures,” approximatesassumptions unobservable in the carrying amounts representedmarket. Changes in the fair value of debt that is accounted for at fair value, inclusive of related accrued interest expense, are presented as gains or losses in the accompanying condensed balance sheets, primarily dueconsolidated statements of operations and comprehensive income (loss) under change in fair value of debt. The portion of total changes in fair value of debt attributable to theirchanges in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of comprehensive income (loss) in the accompanying condensed consolidated statements of operations and comprehensive income (loss). The actual settlement of the short-term nature.
Recently issued accounting standards
Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effectdebt could differ from current estimates based on the timing of when and if Yorkville elects to convert amounts into common shares, potential cash repayment by the Company prior to maturity, and movements in the Company’s condensed financial statements.common share price.
The following table presents a reconciliation of the Yorkville debt measured on a recurring basis using Level 3 inputs as of the initial valuation date of September 15, 2022 and as of September 30, 2022:
Liabilities: |
|
|
| |
Balance as of September 15, 2022 |
| $ | 39,200 |
|
Fair value adjustment through earnings |
|
| 291 |
|
Fair value adjustment through accumulated other comprehensive income or loss |
|
| (236 | ) |
Balance as of September 30, 2022 |
| $ | 39,255 |
|
NOTE 3. INITIAL PUBLIC OFFERING
16
Significant inputs for the Yorkville short-term debt valuation model are as follows:
Pursuant
|
| September 30, 2022 |
| |
Common share price |
| $ | 2.31 |
|
Credit spread |
|
| 14.82 | % |
Dividend yield |
|
| 0 | % |
Term (years) |
|
| 1.0 |
|
Risk-free interest rate |
|
| 4.04 | % |
Volatility |
|
| 45.0 | % |
Discount yield |
|
| 18.86 | % |
The Company’s major classes of inventories were as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Raw materials |
| $ | 9,565 |
|
| $ | 2,359 |
|
Work in progress |
|
| 9,942 |
|
|
| 5,902 |
|
Finished goods |
|
| 9,797 |
|
|
| 4,057 |
|
Inventory, gross |
|
| 29,304 |
|
|
| 12,318 |
|
Less: inventory reserves |
|
| (204 | ) |
|
| (48 | ) |
Inventory, net |
|
| 29,100 |
|
|
| 12,270 |
|
Balance Sheet Classification: |
|
|
|
|
|
| ||
Inventory |
|
| 5,239 |
|
|
| 9,549 |
|
Inventory, net of current portion |
|
| 23,861 |
|
|
| 2,721 |
|
|
| $ | 29,100 |
|
| $ | 12,270 |
|
Inventory, net of current portion includes inventory expected to remain on hand beyond one year in both periods.
Property and equipment, net consisted of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Building (1) |
| $ | - |
|
| $ | 12,513 |
|
Leasehold improvement (2) |
|
| 70,114 |
|
|
| 71,468 |
|
Laboratory and production equipment |
|
| 13,425 |
|
|
| 11,395 |
|
Machinery, equipment and fixtures |
|
| 7,780 |
|
|
| 7,974 |
|
Construction in progress |
|
| 4,163 |
|
|
| 2,054 |
|
Property and equipment |
|
| 95,482 |
|
|
| 105,404 |
|
Less: Accumulated depreciation and amortization (3) |
|
| (18,450 | ) |
|
| (14,779 | ) |
Property and equipment, net |
| $ | 77,032 |
|
| $ | 90,625 |
|
(1) Includes $12,513 at December 31, 2021 under financing lease resulting from a failed sale leaseback (see Note 9).
(2) Includes $70,959 at December 31, 2021, respectively, under financing lease resulting from a failed sale leaseback (see Note 9).
(3) Includes $5,971 at December 31, 2021, respectively, under financing lease resulting from a failed sale leaseback (see Note 9).
For the three months ended September 30, 2022 and 2021, depreciation and amortization expense was $1,841 and $1,792, respectively. For the nine months ended September 30, 2022 and 2021, depreciation and amortization expense was $5,357 and $4,571, respectively.
17
The carrying values of goodwill assigned to the Initial Public Offering,Company’s operating segments are as follows:
|
| September 30, 2022 |
|
| December 31, 2021 |
| ||
Cell Therapy |
| $ | 112,347 |
|
| $ | 112,347 |
|
Degenerative Disease |
|
| 3,610 |
|
|
| 3,610 |
|
Biobanking |
|
| 7,347 |
|
|
| 7,347 |
|
|
| $ | 123,304 |
|
| $ | 123,304 |
|
Intangible Assets, Net
Intangible assets, net consisted of the following:
|
| September 30, 2022 |
|
| December 31, 2021 |
|
| Estimated | ||
Amortizable intangible assets: |
|
|
|
|
|
|
|
| ||
Developed technology |
| $ | 16,810 |
|
| $ | 16,810 |
|
| 11-16 years |
Customer relationships |
|
| 2,413 |
|
|
| 2,413 |
|
| 10 years |
Trade names & trademarks |
|
| 570 |
|
|
| 570 |
|
| 10-13 years |
Reacquired rights |
|
| 4,200 |
|
|
| 4,200 |
|
| 6 years |
|
|
| 23,993 |
|
|
| 23,993 |
|
|
|
Less: Accumulated amortization |
|
|
|
|
|
|
|
| ||
Developed technology |
|
| (6,253 | ) |
|
| (5,376 | ) |
|
|
Customer relationships |
|
| (1,369 | ) |
|
| (1,170 | ) |
|
|
Trade names & trademarks |
|
| (261 | ) |
|
| (220 | ) |
|
|
Reacquired rights |
|
| (3,063 | ) |
|
| (2,540 | ) |
|
|
|
|
| (10,946 | ) |
|
| (9,306 | ) |
|
|
Amortizable intangible assets, net |
|
| 13,047 |
|
|
| 14,687 |
|
|
|
|
|
|
|
|
|
|
|
| ||
Non-amortized intangible assets |
|
|
|
|
|
|
|
| ||
Acquired IPR&D product rights |
|
| 108,500 |
|
|
| 108,500 |
|
| indefinite |
|
| $ | 121,547 |
|
| $ | 123,187 |
|
|
|
For the three months ended September 30, 2022 and 2021, amortization expense for intangible assets was $553 and $553, respectively. For the nine months ended September 30, 2022 and 2021, amortization expense for intangible assets was $1,640 and $1,640, respectively.
No impairment charges were recorded for the three and nine months ended September 30, 2022 and 2021.
Yorkville
On September 15, 2022, the Company sold 28,750,000 Unitsentered into a Pre-Paid Advance Agreement (the “PPA”) with YA II PN, Ltd. ("Yorkville"), pursuant to which the Company may request advances of up to $40,000 in cash from Yorkville (or such greater amount that the parties may mutually agree) (each, a “Pre-Paid Advance”) over an 18-month period, with an aggregate limitation of $150,000. Pre-Paid Advances are issued at a purchase price2% discount, bear interest at an annual rate equal to 6% (increased to 15% in the event of $10.00 per Unit, which includesdefault as described in the full exercisePPA) and may be offset by the underwriterissuance of itsshares of common stock, at Yorkville’s option, at a price per share calculated pursuant to purchase an additional 3,750,000 Units at $10.00the PPA, which in no event will be less than $0.75 per Unit. Each Unit consistsshare. The issuance of one sharethe shares under the PPA is subject to certain limitations, including that the aggregate number of shares of common stock issued pursuant to the PPA cannot exceed 19.9% of the Company’s Class A commonoutstanding stock $0.0001 par value, and one-halfas of one redeemable warrant (“Public Warrant”)September 15, 2022, as well as a beneficial ownership limitation of 4.99%. Each Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per whole share (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 7,000,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant ($7,000,000 in the aggregate), each exercisable to purchase one share of Class A common stock at a price of $11.50 per share. The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering 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 Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
9
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In September 2018, the Company issued an aggregate of 8,625,000 shares (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $25,000 in cash. In April 2019, the Sponsor contributed back to the Company, for no consideration, 1,437,500 Founder Shares, resulting in an aggregate of 7,187,500 Founder Shares outstanding. The 7,187,500 Founder Shares included an aggregate of up to 937,500 shares subject to forfeiture by the Sponsor to the extent that the underwriter’s over-allotment was not exercised in full or in part, so that the Sponsor would collectively own 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering and excluding the Private Placement Warrants and underlying securities). As a result of the underwriter’s election to fully exercise its over-allotment option, 937,500 Founder Shares are no longer subject to forfeiture.
The Sponsor hasFurther, Yorkville agreed not to transfer, assign or sellpurchase any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the shareholders having the right to exchange their shares of common stock for cash, securities60 days following entry into the PPA, nor may Yorkville purchase more than $6,000 of shares of common stock during a 30-day period, in each case at a price per share less than the Fixed Price, as defined in the PPA.
In connection with the entry into the PPA, the Company received the initial Pre-Paid Advance of $40,000 gross or other property. Notwithstanding$39,200 net of discount. Each Pre-Paid Advance has a maturity of 12 months. Further Pre-Paid Advances will be based upon the foregoing, ifmutual agreement of the last sale priceparties. At issuance, the Company concluded that certain features of the PPA would be considered a derivative that would require bifurcation. In lieu of bifurcation, the Company elected the fair value option for this financial instrument and will record changes in fair
18
value within the statements of operations and comprehensive income (loss) at the end of each reporting period. Under the fair value option, upon derecognition the Company will include in net income the cumulative amount of the gain or loss on the debt that resulted from changes in instrument-specific credit risk. Direct costs and fees related to the PPA were recognized in earnings. As of September 30, 2022, the fair value of the debt was $39,255. Refer to Note 4 for additional details regarding the fair value measurement.
Lease Agreements
As discussed in Note 2, on January 1, 2022, the Company adopted ASU 2016-06 issued by the FASB related to leases that outlines a comprehensive lease accounting model and supersedes the prior lease guidance. The Company adopted this guidance using the modified retrospective approach and elected the optional transition method. As a result, comparative prior periods in the Company’s condensed consolidated financial statements are not adjusted for the impacts of the new standard.
Adoption of ASU 2016-02 resulted in the recording of additional net lease assets and lease liabilities of approximately $13,001 and $27,723, respectively, as of January 1, 2022. Incremental borrowing rates as of January 1, 2022, the date the new standard was adopted, were used to calculate the present value of the Company’s Class A common stock equalslease portfolio as of that date. Leases previously identified as build-to-suit leases were derecognized pursuant to the transition guidance provided for build-to-suit leases in ASU 2016-02. The impact of the derecognition of the build-to-suit lease was a net reduction of $3,993 to accumulated deficit calculated as of January 1, 2022. The standard did not materially impact the consolidated net income (losses) or exceeds $12.00 per share (as adjustedoperating cash flows.
ROU assets represent the Company’s right to use an underlying asset for stock splits, stock dividends, reorganizations, recapitalizationsthe lease term and lease liabilities represent the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the Business Combination, the Founder Shares will be releasedCompany’s obligation to make lease payments arising from the lock-up.
Promissory Note – Related Party
On September 24, 2018,lease. The Company’s lease ROU assets and liabilities are recognized at the Sponsor agreed to loanlease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes. Variable lease payments that are not based on an aggregateindex or that result from changes to an index subsequent to the initial measurement of upthe corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to $300,000extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐line basis over the expected lease term. Rent expense was $2,880 and $760 for the nine months ended September 30, 2022 and 2021, respectively. Rent expense was $957 and $0 for the three months ended September 30, 2022 and 2021, respectively.
On March 13, 2019, Legacy Celularity entered into a lease agreement for a 147,215 square foot facility consisting of office, manufacturing and laboratory space in Florham Park, New Jersey, which expires in 2036. The Company has the option to cover expensesrenew the term of the lease for two additional five-year terms so long as the lease is then in full force and effect. The lease term commenced on March 1, 2020 subject to an abatement of the fixed rent for the first 13 months following the lease commencement date. The initial monthly base rent is approximately $230 and will increase annually. The Company is obligated to pay real estate taxes and costs related to the Initial Public Offeringpremises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. In connection with entering into this lease agreement, Legacy Celularity issued a letter of credit of $14,722 which is classified as restricted cash (non-current) on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021. The lease agreement allows for a landlord provided tenant improvement allowance of $14,722 to be applied to the costs of the construction of the leasehold improvements.
The Company is not the legal owner of the leased space. However, in accordance with ASC 840, Leases, the Company was deemed to be the owner of the leased space, including the building shell, during the construction period because of the Company’s expected level of direct financial and operational involvement in the substantial tenant improvement. As discussed in Note 2, leases previously identified as build-to-suit leases were derecognized pursuant to a promissory note (the “Note”). the transition guidance provided for build-to-suit leases in ASU 2016-02.
The Note was non-interest bearing and was payable on the earlier of March 31, 2019 or the completionimpact of the Initial Public Offering. On March 29, 2019,adoption of ASC 842 is as follows:
19
|
| Balance as of December 31, 2021 |
|
| Adjustments due to adoption of ASC 842 |
|
| Balance as of January 1, 2022 |
| |||
Assets |
|
|
|
|
|
|
|
|
| |||
Property and equipment, net |
| $ | 90,625 |
|
| $ | (12,421 | ) |
| $ | 78,204 |
|
Operating lease right-of-use-assets |
|
| - |
|
|
| 13,001 |
|
|
| 13,001 |
|
Liabilities |
|
|
|
|
|
|
|
|
| |||
Current lease liabilities - operating |
|
| - |
|
|
| - |
|
|
| - |
|
Current portion of financing obligation |
|
| 3,051 |
|
|
| (3,051 | ) |
|
| - |
|
Noncurrent lease liabilities - operating |
|
| - |
|
|
| 27,723 |
|
|
| 27,723 |
|
Financing obligations |
|
| 28,085 |
|
|
| (28,085 | ) |
|
| - |
|
Stockholders' equity |
|
|
|
|
|
|
|
|
| |||
Accumulated deficit |
|
| (663,681 | ) |
|
| 3,993 |
|
|
| (659,688 | ) |
The components of the SponsorCompany’s lease costs are classified on its condensed consolidated statements of operations as follows:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||
|
| 2022 |
|
| 2022 |
| ||
|
|
|
|
|
|
| ||
Operating lease cost |
| $ | 759 |
|
| $ | 2,278 |
|
Variable lease cost |
|
| 448 |
|
|
| 1,140 |
|
Total operating lease cost |
| $ | 1,207 |
|
| $ | 3,418 |
|
Short term lease cost |
| $ | 46 |
|
| $ | 126 |
|
The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:
|
| Nine Months Ended September 30, |
| |
|
| 2022 |
| |
|
|
|
| |
Cash paid related to lease liabilities: |
|
|
| |
Operating cash flows from operating leases |
| $ | 2,125 |
|
|
|
|
| |
Non-cash lease liability activity: |
|
|
| |
Right-of-use assets obtained in exchange for lease obligations: |
|
|
| |
Operating leases |
| $ | - |
|
As of September 30, 2022, the maturities of the Company’s operating lease liabilities were as follows:
2022 (remaining three months) |
| $ | 708 |
|
2023 |
|
| 2,895 |
|
2024 |
|
| 2,969 |
|
2025 |
|
| 3,042 |
|
2026 |
|
| 3,116 |
|
2027 |
|
| 3,190 |
|
Thereafter |
|
| 70,342 |
|
Total lease payments |
|
| 86,262 |
|
Less imputed interest |
|
| (58,345 | ) |
Total |
| $ | 27,917 |
|
20
As of September 30, 2022, the weighted average remaining lease term of the Company’s operating lease was 23.4 years, and the weighted average discount rate used to determine the lease liability for the operating lease was 11.12%.
Contingent Consideration Related to Business Combinations
In connection with Legacy Celularity’s acquisition of HLI Cellular Therapeutics, LLC and Anthrogenesis, the Company for no consideration,has agreed to extend the maturity date of the Note from the earlier of March 31, 2019 or the completion of the Initial Public Offeringpay future consideration to the earlier of June 30, 2019 or the completion of the Initial Public Offering. The borrowings outstanding under the Note of $280,000 were repaidsellers upon the consummationachievement of the Initial Public Offering on May 23, 2019.
Related Party Loans
In order to finance transaction costs in connection withcertain regulatory and commercial milestones. As a Business Combination, the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loanresult, the Company fundsrecorded $158,781 and $232,222 as may be required (the “Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummationcontingent consideration as of a Business Combination, without interest, or, at the lender’s discretion. Up to $1,500,000 of notes may be converted upon consummation of a Business Combination into additional Private Units at a price of $10.00 per Unit. September 30, 2022 and December 31, 2021, respectively. See Note 4 for further discussion.
Indemnification Agreements
In the event that a Business Combination does not close,ordinary course of business, the Company may use a portionprovide indemnification of proceeds held outside the Trust Accountvarying scope and terms to repay the Working Capital Loansvendors, lessors, business partners and other parties with respect to certain matters including, but no proceeds held in the Trust Account would be usednot limited to, repay the Working Capital Loans.
Administrative Support Agreement
The Company entered into an agreement whereby, commencing on May 20, 2019, the Company will pay an affiliatelosses arising out of the Sponsor a totalbreach of $10,000 per month for office space, utilities and secretarial and administrative support. Upon completion of the Business Combinationsuch agreements or the Company’s liquidation, the Company will cease paying these monthly fees. For the three and six months ended June 30, 2019, the Company incurred $20,000 in fees for these services.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement entered into on May 20, 2019, the holders of the Founder Shares, Private Placement Warrants (and their underlying securities) and any Units that may be issued upon conversion of the Working Capital Loans (and underlying securities) will be entitled to registration rights. The holders of 25% of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities.from intellectual property infringement claims made by third parties. In addition, the holders haveCompany has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain “piggy-back” registration rightsliabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of September 30, 2022 or December 31, 2021.
Agreement with respectPalantir Technologies Inc.
On May 5, 2021, Legacy Celularity executed a Master Subscription Agreement with Palantir under which it will pay $40,000 over five years for access to registration statements filed subsequentPalantir’s Foundry platform along with certain professional services. The Company utilizes Palantir’s Foundry platform to the consummation of a Business Combination. The registration rights agreement will not contain liquidating damages or other cash settlement provisions resultingsecure deeper insights into data obtained from delays in registering the Company’s securities. Thediscovery and process development, as well as manufacturing and biorepository operations. For the nine months ended September 30, 2022 and 2021, the Company will bear the expenses incurred in connection with the filinghas recorded costs of any such registration statements.
10
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
Underwriter’s Agreement
The underwriter is entitled$6,000 and $2,500, respectively, on a straight-line basis related to this agreement, which was included as a deferred feecomponent of $10,812,500, which will become payable to the underwriter from the amounts heldresearch and development expense in the Trust Account solely in the event that the Company completes a Business Combination, subject to the termscondensed consolidated statements of the underwriting agreement.operations.
SirionLicense Agreement
Consulting Agreement
In June 2019,December 2021, the Company entered into a consulting arrangement for services to help identify and introducelicense agreement (“Sirion License”) with Sirion Biotech GmbH (“Sirion”). Under the Sirion License, Sirion granted the Company a license related to potential targetspatent rights and provide assistanceknow-how associated with poloxamers (“Licensed Product”). As part of the negotiations in connection withSirion License, the Company paid Sirion $136 as an upfront fee, a Business Combination.$113 annual maintenance fee and may owe up to $5,099 related to clinical and regulatory milestones for each Licensed Product during the term. The agreement providesCompany also agreed to pay Sirion low-single digit royalties on net sales on a Licensed Product-by-Licensed Product and country-by-country basis and until the later of: (i) expiration of the last to expire valid claim of the patents covering such Licensed Product, and (ii) 10 years after first Commercial Sale of a Licensed Product. In addition, the Sirion License is subject to termination rights including for monthly fee of $12,500. Fortermination for material breach and by the three and sixCompany for convenience upon 30 days written notice. During the nine months ended JuneSeptember 30, 2019,2022, no milestones have been achieved.
Legal Proceedings
At each reporting date, the Company incurred $15,500 in such fees.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock —evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company is authorizedexpenses as incurred the costs related to issue 1,000,000 sharessuch legal proceedings.
On March 24, 2021, CTH Biosourcing LLC (“CTH”) filed a petition and request for disclosure in the District Court of $0.0001 par value preferred stock. At June 30, 2019Travis County, Texas seeking declaratory relief challenging Legacy Celularity’s for-cause termination of a Tissue Procurement Agreement (“TPA”). During the fourth quarter of 2021, the Company entered into a tri-party settlement (the “Settlement Agreement”) with CTH and December 31, 2018, there were no preferred sharesthe CariCord participating shareholders, as interested parties, in which the Company agreed to amend the TPA in exchange for a full release of all claims underlying the aforementioned litigation. In addition, the Company issued or outstanding.
Class A Common Stock — The Company is authorized to issue up to 100,000,000743,771 shares of Class A $0.0001Common Stock to the CariCord participating shareholders, with an estimated fair value of $5,333 in exchange for a full release.
Pursuant to the Settlement Agreement, the CariCord participating shareholders are entitled to receive up to an additional 371,885 shares of Class A Common Stock if certain procurement targets are met by CTH under the TPA during a specified period of two years from the effective date of the Settlement Agreement. As of December 31, 2021, these procurement targets were not probable of being
21
achieved. As of September 30, 2022, the Company considered it probable that certain procurement targets would be met under the Settlement Agreement, resulting in a liability with an estimated fair value of $415 (see Note 4). Due to changes in the Company’s common share price and the contingent nature of these procurement targets, the Company cannot predict the amount of such potential issuances.
Common Stock
As of September 30, 2022, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 730,000,000 shares of $0.0001 par value Class A Common Stock.
Voting Power
Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock. Holdersstock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders.
Dividends
Holders of Class A Common Stock will be entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically.
Liquidation, Dissolution and Winding Up
In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied.
Preemptive or Other Rights
The Company’s stockholders have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to common stock.
Election of Directors
The Company’s board of directors is divided into three classes, Class I, Class II and Class III, with only one class of directors being elected in each share. At Juneyear and each class serving a three-year term, except with respect to the election of directors at the special meeting held in connection with the merger with GX, Class I directors are elected to an initial one-year term (and three-year terms subsequently), the Class II directors are elected to an initial two-year term (and three-year terms subsequently) and the Class III directors are elected to an initial three-year term (and three-year terms subsequently). There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.
Preferred Stock
The Company’s certificate of incorporation authorized 10,000,000 shares of preferred stock and provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s board of directors is authorized to fix the voting rights, if any, designations, powers and preferences, the relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series of preferred stock. The Company’s board of directors is able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and could have anti-takeover effects. The ability of the Company’s board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of Celularity or the removal of existing management. As of September 30, 20192022 and December 31, 2018, there2021, the Company does not have any outstanding preferred stock.
May 2022 PIPE
On May 18, 2022, the Company entered into a securities purchase agreement with an institutional accredited investor providing for the private placement of (i) 4,054,055 shares of Class A Common Stock and (ii) accompanying warrants to purchase up to 4,054,055 shares of Class A Common Stock (the “May 2022 PIPE Warrants”), for $7.40 per share and accompanying warrant, or an aggregate purchase price of approximately $30,000 gross, or $27,396 net of related costs of $2,604 which were 1,452,839recorded as a reduction to additional
22
paid-in-capital. The net proceeds were allocated to the warrant liability as noted below with the remainder of $7,651 recorded in additional paid-in capital. Each warrant has an exercise price of $8.25 per share, is immediately exercisable, will expire on May 20, 2027 (five years from the date of issuance) (the “May 2022 PIPE Financing”). The closing of the May 2022 PIPE Financing occurred on May 20, 2022. In the event of certain fundamental transactions involving the Company, the holders of May 2022 PIPE Warrants may require the Company to make a payment based on a Black-Scholes valuation, using specified inputs that are not considered indexed to the Company’s stock in accordance with ASC 815. Therefore, the Company accounted for the Warrants as liabilities and no shareswere recorded at the Closing Date fair value $19,745 which was based on a Black-Scholes option pricing model. The remainder of the proceeds were allocated to the Class A common stock issued and outstanding, excluding 27,297,161recorded as a component of equity.
ATM Agreement
On September 8, 2022, the Company entered into an At-the-Market Sales Agreement (the “ATM Agreement”) with BTIG, LLC, Oppenheimer & Co. Inc. and noB. Riley Securities, Inc., acting as sales agents and/or principals, pursuant to which the Company may offer and sell, from time to time in its sole discretion, shares of its common stock, having an aggregate offering price of up to $150,000, subject to certain limitations as set forth in the ATM Agreement. The Company is not obligated to make any sales of shares under the ATM Agreement.
Any shares offered and sold in the at-the-market offering will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 and the related prospectus supplement. Under the ATM Agreement, the sales agents may sell shares of common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended. The Company will pay the sales agents a commission rate of up to 3% of the gross sales proceeds of any shares sold and has agreed to provide the sales agents with customary indemnification, contribution and reimbursement rights. The ATM Agreement contains customary representations and warranties and conditions to the placements of the shares pursuant thereto.
During the three and nine months ended September 30, 2022, the Company received gross and net proceeds of $4,570 and $4,131, respectively, from the sale of 1,817,830 shares of its common stock at an average price of $2.51 per share under the ATM Agreement, which was recorded in additional paid-in capital.
Warrants
On March 1, 2022, Celularity and certain of the related party investors amended and restated the investors’ respective Legacy Celularity Warrants (the “A&R Warrants”) to (i) reduce the exercise price per share from $7.53 per share to $3.50 per share, subject to adjustment as set forth in the A&R Warrants, (ii) remove the transfer restrictions set forth in the A&R Warrants, and (iii) make other changes reflecting the impact of the business combination. In conjunction with the amendment, those investors exercised 13,281,386 of the A&R Warrants in exchange for 13,281,386 shares of Class A common stock subject to possible redemption, respectively.
Class B Common Stock — for gross proceeds of $46,485. The Company is authorizedaccounted for the amendment as a cost to issue upequity with the incremental fair value of $15,985 related to 10,000,000 sharesthe amendment recognized as an offset to the proceeds received. However, because these were equity classified warrants, the net impact to the condensed consolidated statements of convertible preferred stock and stockholders’ equity (deficit) was zero.
As of September 30, 2022, the Company had 33,458,460 outstanding warrants to purchase Class B, $0.0001 par value common stock. HoldersA Common Stock. A summary of the Company’s common stock are entitledwarrants is as follows:
|
| Number of |
|
| Exercise |
|
| Expiration | ||
Dragasac Warrant |
|
| 6,529,818 |
|
| $ | 6.77 |
| * | March 16, 2025 |
Public Warrants |
|
| 14,374,588 |
|
| $ | 11.50 |
|
| July 16, 2026 |
Sponsor Warrants |
|
| 8,499,999 |
|
| $ | 11.50 |
|
| July 16, 2026 |
May 2022 PIPE Warrants |
|
| 4,054,055 |
|
| $ | 8.25 |
|
| May 20, 2027 |
|
|
| 33,458,460 |
|
|
|
|
|
|
* The exercise price is the lessor of $6.77 per share or 80% of either (i) the value attributed to one vote for each share. The sharesshare of ClassLegacy Celularity Series 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 for stock splits, stock dividends, reorganizations, recapitalizations and the like. As a result of the underwriter’s election to fully exercise its over-allotment option, 937,500 Founder Shares are no longer subject to forfeiture. At June 30, 2019 and December 31, 2018, there were 7,187,500 and 8,625,000 shares of Class B common stock issued and outstanding, respectively.
The Company may issue additional common stock or preferred stock to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
Warrants — The Public Warrants will become exercisable on the later of (a) 30 days after thePreferred Stock upon consummation of a Business Combinationchange in control or (b) 12 months from the effective dateclosing of a strategic transaction or (ii) the registration statement relatingprice at which one share of common stock is sold to the Initial Public Offering. No Public Warrants will be exercisable for cash unless the Company haspublic market in an effective and current registration statement covering the common shares issuable upon exercise of the Public Warrants and a current prospectus relating to such common shares. Notwithstanding the foregoing, if a registration statement covering the common shares issuable upon the exercise of the Public Warrants is not effective within 90 days from the consummation of a Business Combination, the 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 the Public Warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants on a cashless basis. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.initial public offering.
The Company may call the Public Warrants for redemption (excluding the Private PlacementSponsor Warrants), in whole and not in part, at a price of $0.01$0.01 per warrant:
23
The Private PlacementSponsor Warrants are identical to the Public Warrants underlying the Unitsunits sold in the Initial Public Offering,GX’s initial public offering, except that the Private PlacementSponsor Warrants and the common shares issuable upon the exercise of the Private PlacementSponsor Warrants willwere not be transferable, assignable or salable until after the completion of athe Business Combination, subject to certain limited exceptions. Additionally, the Private PlacementSponsor Warrants will beare exercisable on a cashless basis and will beare non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private PlacementSponsor Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private PlacementSponsor Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
11
GX ACQUISITION CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2019
(Unaudited)
The exercise price and number of shares of Class A common stockCommon Stock issuable upon exercise of the warrantsPublic Warrants and Sponsor Warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. 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 its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial 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 described above will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
Additionally, in no event will the Company be required to net cash settle the Public 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 the respect to such warrants. Accordingly, the warrants may expire worthless. If the Company calls the Public Warrants for redemption, 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 Class A common shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. IfThe Public Warrants and Sponsor Warrants are liability classified and the changes in their fair value are recognized on the condensed consolidated statements of operations. See Note 4 for further details.
2021 Equity Incentive Plan
In July 2021, the Company’s board of directors adopted, and the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of incentive stock options (“ISOs”) to employees and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and consultants.
The number of shares of Class A Common Stock initially reserved for issuance under the 2021 Plan is 20,915,283. As of September 30, 2022, 14,847,802 shares remain available for future grant under the 2021 Plan. The number of shares reserved for issuance will automatically increase on January 1 of each year, for a period of 10 years, from January 1, 2022 through January 1, 2031, by 4% of the total number of shares of Celularity capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. Shares subject to stock awards granted under the 2021 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under the 2021 Plan. Additionally, shares issued pursuant to stock awards under the 2021 Plan that are repurchased or forfeited, as well as shares that are reacquired as consideration for the exercise or purchase price of a stock award or to satisfy tax withholding obligations related to a stock award, will become available for future grant under the 2021 Plan.
The 2021 Plan is administered by the Company’s board of directors. The Company’s board of directors, or a duly authorized committee thereof, may delegate to one or more officers the authority to (i) designate employees other than officers to receive specified stock awards and (ii) determine the number of shares to be subject to such stock awards. Subject to the terms of the 2021 Plan, the plan administrator has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for use under the 2021 Plan. The plan administrator has the power to modify outstanding awards under the 2021 Plan. Subject to the terms of the 2021 Plan and in connection with a corporate transaction or capitalization adjustment, the plan administrator may not reprice or cancel and regrant any award at a lower exercise price, strike price or purchase price or cancel any award with an exercise price, strike price or purchase price in exchange for cash, property or other awards without first obtaining the approval of the Company’s stockholders.
2017 Equity Incentive Plan
The 2017 Equity Incentive Plan (the “2017 Plan”) adopted by Legacy Celularity’s board of directors and approved by Legacy Celularity’s stockholders provided for Legacy Celularity to grant stock options to employees, directors and consultants of Legacy Celularity. In connection with the closing of the Business Combination and effectiveness of the 2021 Plan, no further grants will be made under the 2017 Plan.
The total number of stock options that could have been issued under the 2017 Plan was 32,342,049. Shares that expired, forfeited, canceled or otherwise terminated without having been fully exercised were available for future grant under the 2017 Plan.
24
The 2017 Plan is administered by the Company’s board of directors or, at the discretion of the Company’s board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of Legacy Celularity’s board of directors, or its committee if so delegated, except that the exercise price per share of stock options could not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option could not be greater than ten years. Stock options granted to employees, officers, members of the board of directors and consultants typically vested over a three or four year period.
Stock Option Valuation
Awards with Service Conditions
The fair value of each option is estimated on the date of grant using a Black-Scholes option pricing model that takes into account inputs such as the exercise price, the estimated fair value of the underlying common stock at grant date, expected term, expected stock price volatility, risk-free interest rate, and dividend yield. The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Certain of these inputs are subjective and generally required judgment to determine.
The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the nine months ended September 30, 2022:
Risk-free interest rate | 2.6 | % | ||||||||
Expected term (in years) | 5.9 | |||||||||
Expected volatility | 77.1 | % | ||||||||
Expected dividend yield | 0 | % |
The weighted average grant-date fair value per share of stock options granted during the nine months ended September 30, 2022 and year ended December 31, 2021 was $5.60 and $4.13, respectively.
The following table summarizes option activity with service conditions under the 2021 Plan and the 2017 Plan:
|
| Options |
|
| Weighted |
|
| Weighted |
|
| Aggregate |
| ||||
Balance at January 1, 2022 |
|
| 24,064,586 |
|
| $ | 4.23 |
|
|
| 7.4 |
|
| $ | 56,525 |
|
Granted |
|
| 3,237,347 |
|
| $ | 8.22 |
|
|
|
|
|
|
| ||
Exercised |
|
| (941,877 | ) |
| $ | 0.80 |
|
|
|
|
|
|
| ||
Forfeited |
|
| (274,107 | ) |
| $ | 6.17 |
|
|
|
|
|
|
| ||
Outstanding at September 30, 2022 |
|
| 26,085,949 |
|
| $ | 4.83 |
|
| 6.47 |
|
| $ | 17,340 |
| |
Vested and expected to vest September 30, 2022 |
|
| 26,085,949 |
|
| $ | 4.83 |
|
| 6.47 |
|
| $ | 17,340 |
| |
Exercisable at September 30, 2022 |
|
| 20,589,485 |
|
| $ | 3.95 |
|
|
| 5.77 |
|
| $ | 17,340 |
|
The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of Class A Common Stock for those options that had exercise prices lower than the fair value of Class A Common Stock.
During the nine months ended September 30, 2022, the aggregate intrinsic value was $587 for the stock options exercised.
25
The Company liquidatesrecorded stock-based compensation expense of $3,280 and $7,602 for the funds held in the Trust Account, holdersthree and nine months ended September 30, 2022, respectively. As of warrantsSeptember 30, 2022, unrecognized compensation cost for options issued with service conditions was $28,596, and will not receive anybe recognized over an estimated weighted-average amortization period of such funds2.75 years.
Awards with respectMarket Conditions
The Company awarded options to their warrants, nor will they receive any distribution fromacquire a total of 2,469,282 shares with an exercise price of $6.32 to the Company’s assets held outsidePresident in connection with the commencement of his employment. The grant was comprised of four equal tranches, which award will vest in up to five equal installments in respect of achieving certain share price targets between the third and fourth anniversary of the Trust Accounteffective date, subject to his continued employment with respect to such warrants. Accordingly, the warrants may expire worthless.
NOTE 8. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
Company. The fair value of the President’s award was determined based upon a Monte Carlo simulation valuation model. The Company’s financial assetsPresident resigned effective August 31, 2022, and liabilities reflects management’s estimate of amounts thatthe President’s award was terminated at such time and a consulting agreement was signed thereafter, refer to Note 16 for further details. The Company previously recognized $869 in stock-based compensation expense through the six months ended June 30, 2022 prior to resignation, which was reversed during the three months ended September 30, 2022.
Awards with Performance Conditions
In connection with the advisory agreement signed with Robin L. Smith, MD (see Note 16), the Company awarded options to acquire a total of 1,050,000 shares with an exercise price of $2.99 to Dr. Smith, a member of the Company’s board. The initial tranche of 250,000 stock options vested upon execution of the advisory agreement on August 16, 2022. The remaining 800,000 stock options are subject to vesting upon achievement of certain predefined milestones in relation to the expansion of the degenerative disease business. The fair value of the award was determined based on a Black-Scholes option-pricing model. The Company's grant date fair value assumptions were 79.9% expected volatility, 2.95% risk-free interest rate, 5 year expected term, and 0% expected dividend yield. The Company recorded stock-based compensation on the initial tranche of $489 for the three and nine months ended September 30, 2022. As of September 30, 2022, the remaining unrecognized compensation cost was $1,567, and will be recognized upon probable achievement of the milestones. On November 1, 2022, the second tranche of stock options vested upon achievement of the milestone.
Restricted Stock Units
The Company issues restricted stock units (“RSUs”) to employees that generally vest over a two-year period with 50% of awards vesting after 1 year and then the remaining 50% vesting after 2 years. Any unvested shares will be forfeited upon termination of services. The fair value of an RSU is equal to the fair market value price of the Company’s common stock on the date of grant. RSU expense is amortized straight-line over the vesting period.
The following table summarizes activity related to RSU stock-based payment awards:
|
|
|
|
|
| Number of shares |
|
| Weighted |
| ||
Outstanding at December 31, 2021 |
|
|
|
|
|
| 474,700 |
|
| $ | 7.20 |
|
Granted |
|
|
|
|
|
| 2,115,493 |
|
| $ | 8.11 |
|
Forfeited |
|
|
|
|
|
| (63,244 | ) |
| $ | 8.08 |
|
Outstanding at September 30, 2022 |
|
|
|
|
|
| 2,526,949 |
|
| $ | 7.94 |
|
The Company recorded stock-based compensation expense of $1,619 and $3,379 for the three and nine months ended September 30, 2022, respectively, related to RSUs. As of September 30, 2022, the total unrecognized expense related to all RSUs was $16,479, which the Company expects to recognize over a weighted-average period of 2.75 years.
26
Stock-Based Compensation Expense
The Company recorded stock-based compensation expense in the following expense categories of its condensed consolidated statements of operations:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Cost of revenue |
| $ | 126 |
|
| $ | 12 |
|
| $ | 294 |
|
| $ | 44 |
|
Research and development |
|
| 661 |
|
|
| 2,682 |
|
|
| 1,650 |
|
|
| 10,345 |
|
Selling, general and administrative |
|
| 3,732 |
|
|
| 6,186 |
|
|
| 9,526 |
|
|
| 27,688 |
|
|
| $ | 4,519 |
|
| $ | 8,880 |
|
| $ | 11,470 |
|
| $ | 38,077 |
|
The following table provides information about disaggregated revenue by product and services:
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| ||||
Product sales and rentals, net |
| $ | 1,041 |
|
| $ | 849 |
|
| $ | 2,920 |
|
| $ | 2,734 |
|
Processing and storage fees, net |
|
| 1,405 |
|
|
| 1,343 |
|
|
| 4,061 |
|
|
| 4,204 |
|
License, royalty and other |
|
| 1,689 |
|
|
| 8,430 |
|
|
| 6,865 |
|
|
| 9,541 |
|
Net revenue |
| $ | 4,135 |
|
| $ | 10,622 |
|
| $ | 13,846 |
|
| $ | 16,479 |
|
The following table provides changes in deferred revenue from contract liabilities:
|
| 2022 |
|
| 2021 |
| ||
Balance at January 1 |
| $ | 4,067 |
|
| $ | 12,449 |
|
Deferral of revenue* |
|
| 3,699 |
|
|
| 3,528 |
|
Recognition of unearned revenue** |
|
| (3,405 | ) |
|
| (12,161 | ) |
Balance at September 30 |
| $ | 4,361 |
|
| $ | 3,816 |
|
* Deferral of revenue resulted from payments received in advance of performance under the biobanking services storage contracts that are recognized as revenue under the contract as performance is completed.
** During the third quarter of 2021, the Company terminated the license agreement with Sanuwave due to an uncured material breach. As a result, the Company recognized the remaining deferred revenue of $6,754 that was to be recognized on a straight-line basis over the non-cancelable term of the license agreement.
Services
The Company recognizes revenue separately for biobanking collection and processing services and storage services.
Revenue from process fees is recognized at the point in time of the successful completion of processing. Revenue from storage services is recognized ratably over the contractual storage period. The portion of the 18- and 25-year contract storage periods that are being recognized over the contractual storage period are included in deferred revenue in the condensed consolidated balance sheets and is classified as current if the Company expects to recognize the related revenue over the next 12 months from the balance sheet date.
The Company uses list prices to recognize revenue. Promotional discounts and other various incentives are estimated using the expected value method and are recognized in the same period the underlying revenue transaction is recognized.
Product sales and rentals and license, royalty and other revenues
The Company’s direct sales of degenerative disease products are included in product sales and rentals while sales through the Company’s network of distribution partners are included in license, royalty and other revenues.
The Company recognizes revenue for the sale of its Biovance ®, Interfyl ®, Biovance 3L ® and Centaflex ® products when the customer obtains control of the Company’s product based on the contractual shipping terms of a contract. Variable consideration (such as rebates, discounts and other deductions) is estimated using the expected value method and are recognized as revenue when the
27
Company transfer control to the customers. In addition, the Company offers volume-based discounts, rebates and prompt pay discounts and other various incentives which are estimated under the expected value method and recognized as a reduction in revenue in the same period the underlying revenue transaction is recognized.
Under the license agreement with Sanuwave which acquired certain assets comprising its MIST ® /UltraMIST ® business, the Company received a quarterly license fee and a defined royalty on each product sold. The nine months ended September 30, 2021, included the recognition of the quarterly license fee in license, royalty and other revenues. During the third quarter of 2021, the license agreement with Sanuwave was terminated due to an uncured material breach.
Sorrento Therapeutics, Inc. License and Transfer Agreement
The Company and Sorrento are party to a License and Transfer Agreement for the exclusive worldwide license to CD19 CAR-T constructs for use in placenta-derived cells and/or cord blood-derived cells for the treatment of any disease or disorder (the “2020 Sorrento License Agreement”). The Company retains the right to sublicense the rights granted under the agreement with Sorrento’s prior written consent. As consideration for the license, the Company is obligated to pay Sorrento a royalty equal to low single-digit percentage of net sales (as defined within the agreement) and a royalty equal to low double-digit percentage of all sublicensing revenues (as defined within the agreement). The 2020 Sorrento License Agreement will remain in effect until terminated by either the Company or Sorrento for uncured material breach upon 90 days written notice or, after the first anniversary of the effective date of the 2020 Sorrento License Agreement, by the Company for convenience upon six months’ written notice to Sorrento.
The Company and Sorrento are actively negotiating a new supply agreement related to the 2020 Sorrento License Agreement. The 2020 Sorrento Term Sheet details certain aspects of this supply agreement, including pricing terms on material and/or licensed product supplied under the 2020 Sorrento License Agreement. The Company did not incur incentive payments related to the 2020 Sorrento Term Sheet.
Genting Innovation PTE LTD Distribution Agreement
On May 4, 2018, concurrently with Dragasac’s equity investment in Legacy Celularity, Legacy Celularity entered into a distribution agreement with Genting Innovation PTE LTD (“Genting”) pursuant to which Genting was granted supply and distribution rights to certain Company products in select Asia markets (the “Genting Agreement”). The Genting Agreement grants Genting limited distribution rights to the Company’s then-current portfolio of degenerative disease products and provides for the automatic rights to future products developed by or on behalf of the Company.
The term of the Genting Agreement was renewed on January 31, 2022, and automatically renews for successive 12-month terms unless Genting provides written notice of its intention not to renew at least three months prior to a renewal term or the Genting Agreement is otherwise terminated by either party for cause.
Genting and Dragasac are both direct subsidiaries of Genting Berhad, a public limited liability company incorporated and domiciled in Malaysia.
Celgene Corporation License Agreement
The Company is party to a license agreement with Celgene (the “Celgene Agreement”) pursuant to which the Company granted Celgene two separate licenses to certain intellectual property. The Celgene Agreement grants Celgene a royalty-free, fully-paid up, worldwide, non-exclusive license to the certain intellectual property (“IP”) for pre-clinical research purposes in all fields and a royalty-free, fully-paid up, worldwide license, with the right to grant sublicenses, for the development, manufacture, commercialization and exploitation of products in the field of the construction of any CAR, the modification of any T-lymphocyte or NK cell to express such a CAR, and/or the use of such CARs or T-lymphocytes or NK cells for any purpose, including prophylactic, diagnostic, and/or therapeutic uses thereof. The Celgene Agreement will remain in effect until its termination by either party for cause.
Exclusive Supply and Distribution Agreements
On May 7, 2021, Legacy Celularity entered into a six-year supply and distribution agreement with Arthrex, Inc. (“Arthrex”) whereby Arthrex would have receivedreceive exclusive rights to distribute and commercialize the Company’s placental-derived biomaterial products for orthopedics and sports medicine in the United States.
Under the Arthrex Supply and Distribution Agreement, the Company and Arthrex will establish a joint steering committee to oversee commercialization activities of the products. Membership of the joint steering committee will be comprised of an equal number of employees of each respective party.
28
On September 1, 2021, the Company entered into a three-year supply and distribution agreement with Evolution Biologyx, LLC (“Evolution”) that includes an exclusive Interfyl license for the distribution and commercialization within the United States within any medical specialty where Interfyl is administered in an in-office or in-patient setting and is reimbursed through Medicare Part B or any successor, equivalent or similar category established by the Center for Medicare Services or other government authority, except in the medical specialty of orthopedic surgery excluding trauma or spine applications in the medical specialty or orthopedic or neurologic surgery (the “Evolution Supply and Distribution Agreement”). The Evolution Supply and Distribution Agreement will automatically renew for terms of two-year periods unless either party gives notice of non-renewal at least 12 months in advance of the current term. Per the terms of the Evolution Supply and Distribution Agreement, Evolution will forfeit its exclusive license if it fails to purchase a minimum dollar amount of product.
The Company regularly reviews its segments and the approach used by management to evaluate performance and allocate resources. Prior to the third quarter of 2020, Legacy Celularity managed operations as one segment. The Company manages its operations through an evaluation of three distinct business segments: Cell Therapy, Degenerative Disease, and BioBanking. This change was prompted by certain organizational and personnel changes. The chief operating decision maker uses the revenues and earnings (losses) of the operating segments, among other factors, for performance evaluation and resource allocation among these segments.
The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to therapies the Company is researching and developing. Therapies being researched are unproven and in various phases of development. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets. Biobanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use.
The Company manages its assets on a total company basis, not by operating segment. Therefore, the chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, asset information is not reported by operating segment. Total assets were $437,116 and $414,128 as of September 30, 2022 and December 31, 2021, respectively.
Financial information by segment for the three months ended September 30, 2022 and 2021 is as follows:
|
| Three Months Ended September 30, 2022 |
| |||||||||||||||||
|
| Cell |
|
| BioBanking |
|
| Degenerative |
|
| Other |
|
| Total |
| |||||
Net sales |
| $ | - |
|
| $ | 1,405 |
|
| $ | 2,730 |
|
| $ | - |
|
| $ | 4,135 |
|
Gross profit |
|
| - |
|
|
| 506 |
|
|
| (3,584 | ) |
|
| - |
|
|
| (3,078 | ) |
Direct expenses |
|
| 19,863 |
|
|
| 432 |
|
|
| 3,194 |
|
|
| 11,965 |
|
|
| 35,454 |
|
Segment contribution |
| $ | (19,863 | ) |
| $ | 74 |
|
| $ | (6,778 | ) |
|
| (11,965 | ) |
|
| (38,532 | ) |
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
| (32,886 | ) | (a) |
| (32,886 | ) | |||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (5,646 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(a) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
| (33,243 | ) |
|
|
| ||||
Change in fair value of contingent stock consideration |
|
|
|
|
|
|
|
|
|
|
| (196 | ) |
|
|
| ||||
Amortization |
|
|
|
|
|
|
|
|
|
|
| 553 |
|
|
|
| ||||
Total other |
|
|
|
|
|
|
|
|
|
| $ | (32,886 | ) |
|
|
|
29
|
| Three Months Ended September 30, 2021 |
| |||||||||||||||||
|
| Cell |
|
| BioBanking |
|
| Degenerative |
|
| Other |
|
| Total |
| |||||
Net sales |
| $ | - |
|
| $ | 1,343 |
|
| $ | 9,279 |
|
| $ | - |
|
| $ | 10,622 |
|
Gross profit |
|
| - |
|
|
| 420 |
|
|
| 7,891 |
|
|
| - |
|
|
| 8,311 |
|
Direct expenses |
|
| 22,690 |
|
|
| 505 |
|
|
| 2,601 |
|
|
| 19,613 |
|
|
| 45,409 |
|
Segment contribution |
| $ | (22,690 | ) |
| $ | (85 | ) |
| $ | 5,290 |
|
|
| (19,613 | ) |
|
| (37,098 | ) |
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
| (47,996 | ) | (b) |
| (47,996 | ) | |||
Income from operations |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | 10,898 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(b) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
| (48,549 | ) |
|
|
| ||||
Amortization |
|
|
|
|
|
|
|
|
|
|
| 553 |
|
|
|
| ||||
Total other |
|
|
|
|
|
|
|
|
|
| $ | (47,996 | ) |
|
|
|
Financial information by segment for the nine months ended September 30, 2022 and 2021 is as follows:
|
| Nine Months Ended September 30, 2022 |
| |||||||||||||||||
|
| Cell |
|
| BioBanking |
|
| Degenerative |
|
| Other |
|
| Total |
| |||||
Net sales |
| $ | - |
|
| $ | 4,061 |
|
| $ | 9,785 |
|
| $ | - |
|
| $ | 13,846 |
|
Gross profit |
|
| - |
|
|
| 949 |
|
|
| (1,521 | ) |
|
| - |
|
|
| (572 | ) |
Direct expenses |
|
| 65,896 |
|
|
| 1,314 |
|
|
| 7,832 |
|
|
| 38,857 |
|
|
| 113,899 |
|
Segment contribution |
| $ | (65,896 | ) |
| $ | (365 | ) |
| $ | (9,353 | ) |
|
| (38,857 | ) |
|
| (114,471 | ) |
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
| (71,386 | ) | (c) |
| (71,386 | ) | |||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (43,085 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(c) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
| (73,441 | ) |
|
|
| ||||
Change in fair value of contingent stock consideration |
|
|
|
|
|
|
|
|
|
|
| 415 |
|
|
|
| ||||
Amortization |
|
|
|
|
|
|
|
|
|
|
| 1,640 |
|
|
|
| ||||
Total other |
|
|
|
|
|
|
|
|
|
| $ | (71,386 | ) |
|
|
|
|
| Nine Months Ended September 30, 2021 |
| |||||||||||||||||
|
| Cell |
|
| BioBanking |
|
| Degenerative |
|
| Other |
|
| Total |
| |||||
Net sales |
| $ | - |
|
| $ | 4,204 |
|
| $ | 12,275 |
|
| $ | - |
|
| $ | 16,479 |
|
Gross profit |
|
| - |
|
|
| 1,986 |
|
|
| 9,500 |
|
|
| - |
|
|
| 11,486 |
|
Direct expenses |
|
| 61,082 |
|
|
| 1,499 |
|
|
| 6,765 |
|
|
| 52,453 |
|
|
| 121,799 |
|
Segment contribution |
| $ | (61,082 | ) |
| $ | 487 |
|
| $ | 2,735 |
|
|
| (52,453 | ) |
|
| (110,313 | ) |
Indirect expenses |
|
|
|
|
|
|
|
|
|
|
| (16,205 | ) | (d) |
| (16,205 | ) | |||
Loss from operations |
|
|
|
|
|
|
|
|
|
|
|
|
| $ | (94,108 | ) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
(d) Components of other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Change in fair value of contingent consideration liability |
|
|
|
|
|
|
|
|
|
|
| (17,845 | ) |
|
|
| ||||
Amortization |
|
|
|
|
|
|
|
|
|
|
| 1,640 |
|
|
|
| ||||
Total other |
|
|
|
|
|
|
|
|
|
| $ | (16,205 | ) |
|
|
|
30
Consulting Agreement with Dr. Andrew Pecora
On September 1, 2017, Legacy Celularity entered into a scientific and clinical advisor agreement (the “SAB Agreement”) with Dr. Andrew Pecora, a member of Legacy Celularity’s board of directors, for the provision of consulting and advisory services. The SAB Agreement was superseded by a new SAB Agreement executed by Legacy Celularity on February 1, 2019.
On April 13, 2020, Legacy Celularity executed the First Amendment of the SAB Agreement with Dr. Pecora. The term of the First Amendment was six months. It provided for the payment of $20 per month and the issuance of a stock option to purchase 153,718 shares of Legacy Celularity’s common stock. This consideration was in addition to consideration defined in prior agreements. Upon the execution of the agreement, 76,859 of the options were vested. The remaining 76,859 options were vested upon Dr. Pecora’s achievement of a performance objective.
On October 15, 2020, Legacy Celularity executed the Second Amendment to the SAB Agreement with Dr. Pecora. Under the Second Amendment, Dr. Pecora agreed to provide Legacy Celularity with strategic advice on clinical development operations and strategy and assist in establishing a long-range clinical development plan. Compensation under the arrangement includes: (i) cash consideration of $20 per month, (ii) a one-time cash bonus of $50 upon consummation of a merger, combination, consolidation or similar transaction involving Legacy Celularity in relation to a transaction with GX, (iii) a non-qualified stock option to purchase 153,718 shares of Legacy Celularity’s common stock. This non-qualified stock option was granted during the second quarter of 2021. The original expiration of the Second Amendment was January 31, 2021. On January 31, 2021, the Company executed the amended and restated second amendment to the SAB Agreement which extended the term of the Second Amendment to September 30, 2021, unless earlier terminated by the Company for cause.
Pursuant to the SAB Agreements, the Company paid Dr. Pecora $370 for the nine months ended September 30, 2021. On September 15, 2021, the Company hired Dr. Pecora to serve as President. Upon hiring Dr. Pecora, the SAB Agreement was terminated.
Effective August 31, 2022, Dr. Pecora resigned as the Company’s President, and subsequently entered into a consulting agreement with the Company dated September 21, 2022, to receive a $10 monthly fee for an initial six-month term and will be automatically renewed for one additional six- month term if either party does not provide notice of non-renewal. Simultaneously, the Company entered into a SAB Agreement, effective as of September 1, 2022, whereby Dr. Pecora agreed to serve as co-chair of the Company’s scientific and clinical advisory board for a $10 monthly fee and a one-time grant of RSUs having a value of $125 on the grant date and will vest equally over four years. The SAB Agreement has a one-year term and may be renewed for successive one-year terms upon mutual agreement of both parties. The Company paid Dr. Pecora total fees of $20 for the three and nine months ended September 30, 2022.
Advisory Agreement with Robin L. Smith MD
On August 16, 2022, the Company entered into an advisory agreement with Robin L. Smith, MD, a member of the Company’s board of directors, to receive $20 per month for advisory fees, an equity grant for a total amount of 1,050,000 stock options with the initial tranche of 250,000 stock options vesting upon execution of the advisory agreement and the remaining shares subject to vesting upon achievement of certain predefined milestones. The agreement also provides for a one-time cash bonus of $1,500 upon the successful achievement of the trigger event, as defined in the agreement. The Company paid advisory fees of $20 for the three and nine months ended September 30, 2022.
CURA Foundation
During the nine months ended September 30, 2022 and 2021, the Company made $0 and $500, respectively, in contributions to the CURA Foundation in support of the International Vatican. Dr. Robin L. Smith serves on the Company’s board of directors, previously served on the board of directors of Legacy Celularity and is the president and chairperson of the board of the CURA Foundation.
COTA, Inc
In November 2020, Legacy Celularity and COTA, Inc. (“COTA”) entered into an Order Schedule (the “Order Schedule No. 2”), to the Master Data License Agreement between Legacy Celularity and COTA, dated October 29, 2018, pursuant to which COTA will provide the licensed data in connection with AML patients. The COTA Order Schedule No. 2 will terminate on the saleone-year anniversary following the final licensed data deliverable described therein. Andrew Pecora, M.D., Celularity’s President, is the Founder and Chairman of the assets or paid in connection with the transferBoard of COTA and Dr. Robin L. Smith, a member of the liabilitiesCompany’s Board, is an investor in an orderly transaction between market participants atCOTA. The Company paid COTA $86 and $149 for the measurement date. In connection with measuringnine months ended September 30, 2022 and 2021, respectively.
31
Cryoport Systems, Inc
During the fair value of its assetsnine months ended September 30, 2022 and liabilities,2021, the Company seeksmade payments totaling $56 and $78, respectively to maximizeCryoport Systems, Inc (“Cryoport”) for transportation of cryopreserved materials. The Company’s Chief Executive Officer and director, Dr. Robert Hariri, M.D, Ph.D., has served on Cryoport’s board of directors since September 2015.
Sorrento Therapeutics, Inc.
In September 2020, the useCompany entered into the 2020 Sorrento Agreement, with Sorrento. Henry Ji, Ph.D., a member of observable inputs (market data obtained from independent sources)Legacy Celularity’s board of directors, currently serves as President and to minimize the useChief Executive Officer of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchySorrento. Sorrento is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
The following table presents information about the Company’s assets that are measured at fair value onalso a recurring basis at June 30, 2019, and indicates the fair value hierarchysignificant stockholder of the valuation inputsCompany and invested in the July 2021 PIPE Financing. During the nine months ended September 30, 2022 and 2021, the Company utilizedmade payments totaling $1,821 and $0, respectively, to determine such fair value:Sorrento for supply of products pursuant to the supply agreement.
Description | Level | June 30, 2019 | ||||
Assets: | ||||||
Marketable securities held in Trust Account | 1 | $ | 288,418,585 |
NOTE 9. SUBSEQUENT EVENTS
TheFor its condensed consolidated financial statements as of September 30, 2022, the Company has evaluated subsequent events and transactions that occurred after the balance sheet date up tothrough November 10, 2022, the date that the condensedon which these financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.issued, and there are no items requiring additional disclosure.
32
12
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of OperationsOperations.
References in this report (the “Quarterly Report”) to “we,” “us” orYou should read the “Company” refer to GX Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to GX Sponsor, LLC. The following discussion and analysis of the Company’sour financial condition and results of operations should be read in conjunctiontogether with the unaudited interim condensed consolidated financial statements and the notes thereto containedincluded elsewhere in this Quarterly Report. Certainreport and other financial information containedincluded in thethis report. The following discussion may contain predictions, estimates and analysis set forth below includesother forward-looking statements that involve risks and uncertainties.
Specialstatements. See “Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaningStatements.”These forward-looking statements involve a number of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties, thatincluding those discussed in this report and under “Part I — Item 1A. Risk Factors” in the 2021 Form 10-K. These risks could cause our actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, 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” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events orany 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 discussed in the forward-looking statements. 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’s final prospectus for its Initial Public Offering filed with the SEC. 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 obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.suggested below.
Overview
Overview
We are a blank checkclinical-stage biotechnology company formedleading the next evolution in cellular medicine by developing off-the-shelf placental-derived allogeneic cell therapies for the treatment of cancer and immune and infectious diseases. We are developing a pipeline of off-the-shelf placental-derived allogenic cell therapy product candidates including T cells engineered with a CAR, natural killer, or NK, cells, and mesenchymal-like adherent stromal cells or MLASCs. These therapeutic candidates target indications across cancer, infectious and degenerative diseases. We believe that by harnessing the placenta’s unique biology and ready availability, we will be able to develop therapeutic solutions that address a significant unmet global need for effective, accessible and affordable therapeutics. We currently have three active clinical trials and we are in the process of working with the FDA to resolve its questions on an IND we submitted in the first quarter of 2022 before commencing an additional clinical trial. With the appointment of our new Chief Medical Officer, Dr. Adrian Kilcoyne, we are currently evaluating our clinical development plans and we may determine that certain programs do not meet our criteria for continued development in light of difficult capital market conditions and our current liquidity. In addition, we are actively evaluating opportunities to increase organizational efficiencies which may result in a reduction in headcount.
Our Celularity IMPACT platform capitalizes on the benefits of placenta-derived cells to target multiple diseases, and provides seamless integration, from bio sourcing through manufacturing cryopreserved and packaged allogeneic cells, in our purpose-built U.S.-based 147,215 square foot facility. We believe the use of placental-derived cells, sourced from the placentas of full-term healthy informed consent donors, has potential inherent advantages, from a scientific and an economic perspective. First, relative to adult-derived cells, placental-derived cells demonstrate greater stemness, meaning the ability to expand and persist. Second, placental-derived cells are immunologically naïve, meaning the cells have never been exposed to a specific antigen, and suggesting the potential for less toxicity and for low or no graft versus host disease in transplant. Third, our placental-derived cells are allogeneic, meaning they are intended for use in any patient, as compared to autologous cells, which are derived from an individual patient for that patient’s sole use. We believe this a key difference that will enable readily available off-the-shelf treatments that can be delivered faster, more reliably, at greater scale and to more patients.
From a single source material, the postpartum human placenta, we derive four allogeneic cell types: T cells, unmodified NK cells, genetically modified NK cells and MLASCs, which are used in five key cell therapeutic programs—CYCART-19, CYNK-001, CYNK-101, APPL-001, and PDA-002—that in turn are focused on six initial indications. CYCART-19 is a placental-derived CAR-T cell therapy, in development for the treatment of B-cell malignancies, initially targeting the CD19 receptor, the construct and related CARs for which are in-licensed from Sorrento. We submitted an IND to investigate CYCART-19 for treatment of B-cell malignancies and in late May 2022, received formal written communication from FDA requesting additional information before we can proceed with the planned Phase 1/2 clinical trial. We are in the process of working with the FDA in an effort to resolve its questions as promptly as possible. We expect to commence the trial, if the IND is cleared, in 2023. CYNK-001 is a placental-derived unmodified NK cell in development for the treatment of acute myeloid leukemia, or AML, a blood cancer, and for glioblastoma multiforme, or GBM, a solid tumor cancer. CYNK-001 is currently in Phase 1 trial for AML and a Phase 1/2a trial for GBM, respectively. CYNK-101 is genetically modified version of a placental-derived NK-cell. In July 2022, we treated the first patient in the Phase 1 portion of the Phase 1/2a clinical trial of CYNK-101 in patients with HER2+ gastric and gastroesophageal cancers. CYNK-101 will be evaluated in combination with monoclonal antibodies, or mAbs to target HER2+ (traztuzumab) and PDl-1 (pembrolizumab). APPL-001 is a placenta-derived MLASC being developed for the treatment of Crohn’s disease, a degenerative disease. PDA-002 is a placenta-derived MLASC being developed for the treatment of facioscapulohumeral muscular dystrophy, or FSHD.
Our Celularity IMPACT manufacturing process is a seamless, fully integrated process designed to optimize speed and scalability from the sourcing of placentas from full-term healthy informed consent donors through the use of proprietary processing methods, cell selection, product-specific chemistry, manufacturing and controls, advanced cell manufacturing and cryopreservation. The result is a suite of allogeneic inventory-ready, on demand placental-derived cell therapy products. In addition, we have non-core legacy operations that are complementary to our work in placenta-derived cell therapeutics, including biobanking operations that include the collection, processing and cryogenic storage of certain birth byproducts for third-parties, and our degenerative disease business consists of the manufacture and sale of our Biovance and Interfyl products, directly and through our third-party distribution agreements.
Our current science is the product of the cumulative background and effort over two decades of our seasoned and experienced management team. We have our roots in Anthrogenesis, a company founded under the lawsname Lifebank in 1998 by Robert J. Hariri, M.D., Ph.D., our founder and Chief Executive Officer, and acquired in 2002 by Celgene. The team continued to hone their expertise in the
33
field of placental-derived technology at Celgene through August 2017, when we acquired Anthrogenesis. We have a robust global intellectual property portfolio comprised of over 1,500 patents and patent applications protecting our Celularity IMPACT platform, our processes, technologies and current key cell therapy programs. We believe this know-how, expertise and intellectual property will drive the Staterapid development and, if approved, commercialization of Delaware on August 24, 2018these potentially lifesaving therapies for patients with unmet medical needs.
Since inception, we have had significant operating losses. We had a net loss of $10.2 million and $100.1 million for the purposenine months ended September 30, 2022 and year ended December 31, 2021, respectively. We had an accumulated deficit of effecting a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceeds of Initial Public Offering and the sale of the Private Placement Warrants, our securities, debt or a combination$669.9 million at September 30, 2022. Our primary use of cash securitiesis to fund operations, which consist primarily of research and debt. Our efforts to identify a prospective target business will not be limiteddevelopment expenses, and to a particular geographic region or industry.
The issuancelesser extent, selling, general and administrative expenses. Cash used to fund operating expenses is impacted by the timing of additional shareswhen we pay these expenses, as reflected in connection with an initial business combination to the owners of the target or other investors:
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
change in our outstanding accounts payable and accrued expenses. We expect to continue to incur significantnet losses for the foreseeable future, and expect our research and development expenses, selling, general and administrative expenses, and capital expenditures will continue to increase. In particular, we expect our expenses and losses to increase as we continue development of, and seek regulatory approvals for, our therapeutic candidates, and begin to commercialize any approved therapeutics, as well as hire additional personnel, develop commercial infrastructure for therapeutics, pay fees to outside consultants, lawyers and accountants, and incur increased costs inassociated with being a public company such as expenses related to services associated with maintaining compliance with Nasdaq listing rules and SEC requirements, insurance and investor relations costs. Our net losses may fluctuate significantly depending on the pursuittiming of our initial business combination plans. We cannot assure youclinical trials and our expenditures on other research and development activities.
Based upon our current operating plan, we do not believe that our plans to raise capital or to complete our initial Business Combinationexisting cash and cash equivalents as of September 30, 2022 will be successful.
Results of Operations
Wesufficient to fund our operating expenses and capital expenditure requirements through the next 12 months. To date, we have neither engaged innot had any operations norcellular therapeutics approved for sale and have not generated any revenues to date. Our only activities from August 24, 2018 (inception) through June 30, 2019 were organizational activitiesthe sale of our cellular therapeutics. We generate limited revenues from our biobanking and those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a Business Combination.degenerative disease businesses. We do not expect to generate any operating revenues from cellular therapeutic product sales unless and until after the completionwe successfully complete development and obtain regulatory approval for one or more of our therapeutic candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to therapeutic sales, marketing, manufacturing and distribution as our current commercialization efforts are limited to our biobanking and degenerative disease businesses. As a result, until such time, if ever, as we can generate substantial revenue from therapeutics, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements, including drawdowns under the ATM program and the Yorkville pre-paid advance agreement, and we continue to explore licensing and collaboration arrangements for our cellular therapeutics as well as distribution arrangements for our degenerative disease business. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce or terminate planned activities to reduce costs.
COVID-19 Pandemic
The COVID-19 pandemic resulted in increased unemployment, commodity and stock market volatility during the acute phase of the epidemic. Increases in vaccination rates and lower levels of reported cases suggest that the worst part of the pandemic may have passed. Should a new or mutated variant arise that results in further measures to combat its spread, there could be an adverse material impact to our financial condition, operating results, and timing and amounts of cash flows.
Although we were able to operate continuously throughout 2020, 2021 and thus far in 2022, we implemented “work from home” policies as needed following local health recommendations for non-essential employees and employees whose roles are able to be performed remotely. Management of remote workers can present special challenges and productivity may not be as high for remote workers. Because certain elements of our operations (such as processing placental tissue, certain biological assays, translational research and storage of cord blood) cannot be performed remotely, we instituted controls and protocols including mandatory temperature checking, symptom assessment forms, incremental cleaning and sanitization of common surfaces to mitigate risks to employees. Although we have not experienced any material disruption to date, there can be no assurance that our mitigation measures will continue to be effective and that there will not be a disruption to an important element of our business in the future.
Due to a broad decline in economic activity and restrictions on physical access to certain medical facilities, we did experience a decrease in the net revenues of our degenerative disease business due to the pandemic. As for clinical trials, we did not cancel or postpone enrollment solely due to the risks of COVID-19. However, enrollment in the clinical trial evaluating CYNK-001 for AML experienced some delays in the first half of 2020 and in mid-2021 as sites assessed their safety protocols and experienced high volumes of COVID-19 patients. We had a year-over-year increase in research and development expenses in 2021 notwithstanding the enrollment delays.
The extent to which COVID-19 or any other health epidemic may impact our results will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of COVID-19 and the
34
actions to contain COVID-19 or treat its impact, among others. Accordingly, COVID-19 could have a material adverse effect on our business, results of operations, financial condition, and prospects.
Business Segments
We manage our operations through an evaluation of three distinct business segments: Cell Therapy, Degenerative Disease, and BioBanking. The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to cellular therapies we are researching and developing, which are unproven and in various phases of development. All of the cell therapy programs fall into the Cell Therapy segment. We have no approved cell therapy product and have not generated revenue from the sale of cellular therapies to date. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets, such as Biovance and Interfyl. We sell products in this segment both using our own sales force as well as independent distributors. We are developing additional tissue-based products for the Degenerative Disease segment. BioBanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use. We operate in the biobanking business primarily under the LifebankUSA brand. For more information about our reportable business segments refer to Note 15, “Segment Information” of our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
Acquisitions and Divestitures
Our current operations reflect strategic acquisitions and divestures that we have made since formation. Additional details regarding the following acquisitions can be found in Note 1, “Nature of Business” to our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
In May 2017, we acquired HLI Cellular Therapeutics, LLC, or HLI CT, from Human Longevity Inc., or Human Longevity. HLI CT operated LifebankUSA, a private umbilical cord blood stem cell and cord tissue bank that offers parents the option to collect, process and cryogenically preserve newborn umbilical cord blood stem cells and cord tissue units. The HLI CT acquisition also provided us with rights to a portfolio of biomaterial assets, including Biovance and Interfyl. At the time of the HLI CT acquisition, Biovance and Interfyl were subject to an exclusive distribution arrangement with Alliqua Biomedical, Inc., or Alliqua. In May 2018, we acquired certain assets from Alliqua, including Alliqua’s biologic wound care business, which included the marketing and distribution rights to Biovance and Interfyl.
In August 2017, we acquired Anthrogenesis, a wholly-owned subsidiary of Celgene. The Anthrogenesis acquisition included a portfolio of pre-clinical and clinical stage assets, including key cellular therapeutic assets that we continue to develop. The Anthrogenesis acquisition gives us access to Anthrogenesis’ proprietary technologies and processes for the recovery of large quantities of high-potential stem cells and cellular therapeutic products derived from postpartum human placentas, each an Anthrogenesis Product. As part of the Anthrogenesis acquisition, some of the inventors of the Anthrogenesis Products and other key members of the Anthrogenesis Product development team joined us.
In October 2018, we acquired CariCord Inc., or CariCord, a family cord blood bank established by ClinImmune Labs University of Colorado Cord Blood Bank and the Regents of the University of Colorado, a body corporate, for and on behalf of the University of Colorado School of Medicine.
Licensing Agreements
In the ordinary course of business, we license intellectual property and other rights from third parties and have also out-licensed our intellectual property and other rights, including in connection with our acquisitions and divestitures, described above. Additional details regarding our licensing agreements can be found in Note 14, “License and Distribution Agreements” to our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.
In September 2020, we entered into a license and transfer agreement, or the Sorrento Agreement, with Sorrento. Henry Ji, Ph.D., a former member of Legacy Celularity’s board of directors, currently serves as President and Chief Executive Officer of Sorrento. Sorrento is also a significant stockholder of our company and invested in the July 2021 PIPE Financing concurrent with the closing of the Business Combination. Pursuant to the Sorrento Agreement, we obtained a worldwide license for the CD19 CAR construct that forms the basis of the genetic modification for CYCART-19. We generate non-operating incomeare currently in the formprocess of interest incomenegotiating a supply agreement with Sorrento for the manufacturing and supply of the CD19 CAR construct licensed from Sorrento.
In August 2017, in connection with the Anthrogenesis acquisition, we entered into a license agreement, or the Celgene License, with Celgene, which has since been acquired by Bristol Meyers Squibb. Pursuant to the Celgene License, we granted Celgene a worldwide, royalty-free, fully-paid up, non-exclusive license, without the right to grant sublicenses (other than to its affiliates), under Anthrogenesis’ intellectual property in existence as of the date of the Celgene License or as developed by Celgene in connection with any transition services activities related to the merger for non-commercial pre-clinical research purposes, as well as to develop,
35
manufacture, commercialize and fully exploit products and services that relate to the construction of any CAR, the modification of any T-cell or NK cell to express such a CAR, and/or the use of such CARs or T-cells or NK cells for any purpose, which commercial license is sublicensable. Either party may terminate the Celgene License upon an uncured material breach of the agreement by the other party or insolvency of the other party.
In August 2017, Legacy Celularity also issued shares of its Series X Preferred Stock to Celgene as merger consideration and entered into a contingent value rights agreement, or the CVR Agreement, with Celgene pursuant to which Legacy Celularity issued one contingent value right or CVR, in respect of each share of Legacy Celularity Series X Preferred Stock issued to Celgene in connection with the Anthrogenesis acquisition. The CVR Agreement entitles the holders of the CVRs to an aggregate amount, on a per program basis, of $50 million in regulatory milestones and an aggregate $125 million in commercial milestone payments with respect to certain of our investigational therapeutic programs. In addition, with respect to each such program and calendar year, the CVR holders will be entitled to receive a royalty equal to a mid-teen percentage of the annual net sales for such program’s therapeutics from the date of the first commercial sale of such program’s therapeutic in a particular country until the latest to occur of the expiration of the last to expire of any valid patent claim covering such program therapeutic in such country, the expiration of marketing exclusivity with respect to such therapeutic in such country, and August 2027 (i.e., the tenth anniversary of the closing of the acquisition of Anthrogenesis). No payments under the CVR Agreement have been made to date. We estimate the liability associated with the CVR quarterly. Changes to that liability include but are not limited to changes in our clinical programs, assumptions about the commercial value of those programs and the time value of money.
Components of Operating Results
Net revenues
Net revenues include: (i) sales of human cells, tissues and cellular and tissue-based products, or HCT/P’s, including Biovance, Biovance 3L, Interfyl and MIST/UltraMIST Therapy System equipment and single-use applicators of which our direct sales are included in Product Sales and Rentals while sales through our network of distribution partners are included in License, Royalty and Other; (ii) the collection, processing and storage of umbilical cord and placental blood and tissue after full-term pregnancies, collectively, Services; and, (iii) license fees and royalties received under the license agreement with Sanuwave through the third quarter of 2021 included in License, Royalty and Other.
Cost of revenues
Cost of revenues consists of labor, material and overhead costs associated with our two existing commercial business segments, biobanking and degenerative disease. Biobanking costs include the cost of storage and transportation kits for newly banked materials as well as tank and facility overhead costs for cord blood and other units in storage. Degenerative disease costs include costs associated with procuring placentas, qualifying the placental material and processing the placental tissue into a marketable securities heldproduct. Costs in the Trust Account. We are incurringdegenerative disease segment include labor and overhead costs associated with the production of the Biovance, Biovance 3L and Interfyl product lines. License, royalty and other costs reflect expenses incurred related to our distribution agreements.
Research and development expense
Our research and development expenses primarily relate to basic scientific research into placentally derived allogeneic cells, pre-clinical studies to support our current and future clinical programs in cellular medicine, clinical development of our NK cell programs and facilities, depreciation and other direct and allocated expenses incurred as a result of research and development activities. We incur expenses for third party CROs, that assist in running clinical trials, personnel expenses for research scientists, specialized chemicals and reagents used to conduct biologic research, expense for third party testing and validation and various overhead expenses including rent and facility maintenance expense. Basic research, research collaborations involving partners and research designed to enable successful regulatory submissions is critical to our current and future success in cell therapy. We anticipate that our research and development expenditures will increase as we engage in further clinical trials, investigate incremental CAR constructs for our allogeneic T-cell and NK cell platforms and conduct further pre-clinical studies on CYNK-101 in conjunction with various antibody candidates. The amount of increase will depend on numerous factors, including the timing of clinical trials, preliminary evidence of efficacy in clinical trials and the number of indications that we choose to pursue.
General and administrative expense
General and administrative expense consists primarily of personnel costs including salaries, bonuses, stock compensation and benefits for specialized staff that support our core business operations. Executive management, finance, legal, human resources and information technology are key components of general and administrative expense and those expenses are recognized when incurred. We expect that as we engage in more clinical trials and potentially prepare for commercialization of any approved therapies that our general and administrative costs will increase over time. The magnitude and timing of any increase in general and administrative expense
36
will depend on the progress of clinical trials, the release of new products within the degenerative disease portfolio, changes in the regulatory environment or incremental staffing needs to support the growth of the business as well as any incremental expenses associated with being a public companycompany.
Change in fair value of contingent consideration liability
Because the acquisitions of Anthrogenesis from Celgene and HLI CT from Human Longevity were accounted for as business combinations, we recognized acquisition-related contingent consideration on the balance sheets in accordance with the acquisition method of accounting. See “— Acquisitions and Divestitures” for more information. The fair value of contingent consideration liability is determined based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving regulatory and commercial milestone obligations and royalty obligations. The fair value of acquisition related contingent consideration is remeasured each reporting period with changes in fair value recorded in the condensed consolidated statements of operations. Changes in contingent consideration fair value estimates result in an increase or decrease in our contingent consideration obligation and a corresponding charge or reduction to operating results. Key elements of the contingent consideration are regulatory milestone payments, sales milestone payments and royalty payments. Regulatory payments are due on regulatory approval of certain cell types in the United States and the European Union. Regulatory milestone payments are one time but are due prior to any potential commercial success of a cell type in a specific indication. Royalty payments are a percentage of net sales. Sales milestone payments are due when certain aggregate sales thresholds have been met. Management must use substantial judgement in evaluating the value of the contingent consideration. Estimates used by management include but are not limited to: (i) the number and type of clinical programs that we are likely to pursue based on the quality of our preclinical data, (ii) the time required to conduct clinical trials, (iii) the odds of regulatory success in those trials, (iv) the potential number of patients treatable for the indications in which we are successful and (v) the pricing of treatments that achieve commercial status. All of these areas involve substantial judgement on the part of management and are inherently uncertain.
Results of Operations
Comparison of Three Months Ended September 30, 2022 to September 30, 2021
|
| Three Months Ended |
|
|
|
|
| Percent |
| |||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| Increase |
|
| Increase |
| ||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales and rentals |
| $ | 1,041 |
|
| $ | 849 |
|
| $ | 192 |
|
|
| 22.6 | % |
Services |
|
| 1,405 |
|
|
| 1,343 |
|
|
| 62 |
|
|
| 4.6 | % |
License, royalty and other |
|
| 1,689 |
|
|
| 8,430 |
|
|
| (6,741 | ) |
|
| (80.0 | )% |
Total revenues |
|
| 4,135 |
|
|
| 10,622 |
|
|
| (6,487 | ) |
|
| (61.1 | )% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenues (excluding amortization of acquired |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales and rentals |
|
| 812 |
|
|
| 638 |
|
|
| 174 |
|
|
| 27.3 | % |
Services |
|
| 899 |
|
|
| 923 |
|
|
| (24 | ) |
|
| (2.6 | )% |
License, royalty and other |
|
| 5,502 |
|
|
| 750 |
|
|
| 4,752 |
|
|
| 633.6 | % |
Research and development |
|
| 20,351 |
|
|
| 23,765 |
|
|
| (3,414 | ) |
|
| (14.4 | )% |
Selling, general and administrative |
|
| 14,907 |
|
|
| 21,644 |
|
|
| (6,737 | ) |
|
| (31.1 | )% |
Change in fair value of contingent consideration liability |
|
| (33,243 | ) |
|
| (48,549 | ) |
|
| 15,306 |
|
|
| (31.5 | )% |
Amortization of acquired intangible assets |
|
| 553 |
|
|
| 553 |
|
|
| — |
|
|
| — |
|
Total operating expenses |
|
| 9,781 |
|
|
| (276 | ) |
|
| 10,057 |
|
|
| (3643.8 | )% |
(Loss) income from operations |
| $ | (5,646 | ) |
| $ | 10,898 |
|
| $ | (16,544 | ) |
|
| (151.8 | )% |
Net Revenues and Cost of Revenues
Net revenues for the three months ended September 30, 2022 was $4.1 million, a decrease of $6.5 million, or 61.1% compared to the prior year period. The decrease was primarily due to a decrease in license, royalty and other revenues because the prior year period reflected recognition of $6.8 million of previously deferred revenue as a result of the termination of the Sanuwave license agreement.
Cost of revenues for the three months ended September 30, 2022 was $7.2 million, an increase of $4.9 million, or 212.1% compared to the prior year period. The increase was due to the recognition of previously deferred inventory material costs variances of $4.5 million in license, royalty and other cost of revenues as a result of a change in production plans related to lower degenerative disease sales than previously forecasted.
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Research and Development Expenses
Research and development expenses for the three months ended September 30, 2022 were $20.4 million, a decrease of $3.4 million, or 14.4% compared to the prior year period. The decrease was primarily due to a $3.3 million reduction in executive allocation costs because the prior year period included an allocated portion of stock-based compensation expense for awards granted to our board of directors and senior management.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the three months ended September 30, 2022 were $14.9 million, a decrease of $6.7 million, or 31.1% compared to the prior year period. The primary reason for the decrease was because the prior year period included a charge related to a legal settlement with CTH Biosourcing LLC (“CTH”).
Change in Fair Value of Contingent Consideration Liability
The change in fair value of contingent consideration liability for the three months ended September 30, 2022 was $33.2 million, an increase of $15.3 million, or 31.5% compared to the period year period. The increase resulted from a change in market-based assumptions (for legal,more information about changes in the fair value of contingent consideration liability refer to Note 4, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial reporting, accounting and auditing compliance), as well as for due diligence expenses.statements included elsewhere in this quarterly report on Form 10-Q).
Other Income (Expense)
|
| Three Months Ended |
|
|
|
|
| Percent |
| |||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| Increase |
|
| Increase |
| ||||
Interest income |
| $ | 108 |
|
| $ | 55 |
|
| $ | 53 |
|
|
| 96.4 | % |
Interest expense |
|
| — |
|
|
| (843 | ) |
|
| 843 |
|
|
| (100.0 | )% |
Change in fair value of warrant liabilities |
|
| 9,333 |
|
|
| 39,937 |
|
|
| (30,604 | ) |
|
| (76.6 | )% |
Change in fair value of debt |
|
| (291 | ) |
|
| — |
|
|
| (291 | ) |
|
| 100.0 | % |
Other, net |
|
| 1,278 |
|
|
| (109 | ) |
|
| 1,387 |
|
|
| (1272.5 | )% |
Total other income |
| $ | 10,428 |
|
| $ | 39,040 |
|
| $ | (28,612 | ) |
|
| (73.3 | )% |
For the three months ended JuneSeptember 30, 2019, we had net2022, other income of $634,660, which consisted of interest income on marketable securities helddecreased by $28.6 million compared to the prior year period. The decrease was primarily related to a change in the Trust Accountfair value of $671,993the warrant liabilities due to the decrease in the price of our common stock (see Note 4, “Fair Value of Financial Assets and unrealized gain on marketable securities heldLiabilities” in our Trust Accountunaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Comparison of $246,592,Nine Months Ended September 30, 2022 to September 30, 2021
|
| Nine Months Ended |
|
|
|
|
| Percent |
| |||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| Increase |
|
| Increase |
| ||||
Net revenues |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales and rentals |
| $ | 2,920 |
|
| $ | 2,734 |
|
| $ | 186 |
|
|
| 6.8 | % |
Services |
|
| 4,061 |
|
|
| 4,204 |
|
|
| (143 | ) |
|
| (3.4 | )% |
License, royalty and other |
|
| 6,865 |
|
|
| 9,541 |
|
|
| (2,676 | ) |
|
| (28.0 | )% |
Total revenues |
|
| 13,846 |
|
|
| 16,479 |
|
|
| (2,633 | ) |
|
| (16.0 | )% |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenues (excluding amortization of acquired |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Product sales and rentals |
|
| 1,711 |
|
|
| 2,025 |
|
|
| (314 | ) |
|
| (15.5 | )% |
Services |
|
| 3,112 |
|
|
| 2,218 |
|
|
| 894 |
|
|
| 40.3 | % |
License, royalty and other |
|
| 9,595 |
|
|
| 750 |
|
|
| 8,845 |
|
|
| 1179.3 | % |
Research and development |
|
| 67,373 |
|
|
| 63,666 |
|
|
| 3,707 |
|
|
| 5.8 | % |
Selling, general and administrative |
|
| 46,941 |
|
|
| 58,133 |
|
|
| (11,192 | ) |
|
| (19.3 | )% |
Change in fair value of contingent consideration liability |
|
| (73,441 | ) |
|
| (17,845 | ) |
|
| (55,596 | ) |
|
| 311.5 | % |
Amortization of acquired intangible assets |
|
| 1,640 |
|
|
| 1,640 |
|
|
| — |
|
|
| — |
|
Total operating expenses |
|
| 56,931 |
|
|
| 110,587 |
|
|
| (53,656 | ) |
|
| (48.5 | )% |
Loss from operations |
| $ | (43,085 | ) |
| $ | (94,108 | ) |
| $ | 51,023 |
|
|
| (54.2 | )% |
38
Net Revenues and Cost of Revenues
Net revenues for the nine months ended September 30, 2022 was $13.8 million, a decrease of $2.6 million, or 16% compared to the prior year period. The decrease was primarily due to a $2.7 million decrease in license, royalty and other revenues because the nine months ended September 30, 2021 included the recognition of $6.8 million of previously deferred revenue as a result of the termination of the Sanuwave license agreement partially offset by operatingincreased product sales to distribution partners.
Cost of revenues for the nine months ended September 30, 2022 was $14.4 million, an increase of $9.4 million, or 188.8% compared to the prior year period. The increase was primarily due to a $8.8 million increase in license, royalty and other cost of revenues, which includes recognition of previously deferred inventory material costs variances of $115,250$4.5 million as a result of a change in production plans related to lower degenerative disease sales than previously forecasted, higher sales to distribution partners corresponding to our increase in license, royalty and other revenues, and higher cost resulting from product mix as well as increased material and labor costs.
Research and Development Expenses
Research and development expenses for the nine months ended September 30, 2022 were $67.4 million, an increase of $3.7 million, or 5.8% compared to the prior year period. The increase was primarily due to higher personnel costs, the Palantir platform fees, clinical trial costs, and laboratory supplies to support cell therapy process development, partially offset by a provisionreduction in allocated costs as the prior year period included an allocated portion of stock-based compensation expense for income taxesawards granted to our board of $168,675.directors and senior management.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the nine months ended September 30, 2022 were $46.9 million, a decrease of $11.2 million, or 19.3% compared to the prior year period. The decrease was primarily due to a $27.8 million reduction in stock-based compensation expense related to awards granted to our board of directors and senior management in the prior year period, a portion of which was allocated to research and development expense, as well as a charge related to a legal settlement with CTH, all of which were partially offset by higher personnel, professional services, and insurance costs to support operations of a public company.
Change in Fair Value of Contingent Consideration Liability
Change in fair value of contingent consideration liability for the nine months ended September 30, 2022 was $73.4 million, a decrease of $55.6 million, or 311.5% compared to the prior year period. The decrease resulted from a change in market-based assumptions (for more information about changes in the fair value of contingent consideration liability refer to Note 4, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Other Income (Expense)
|
| Nine Months Ended |
|
|
|
|
| Percent |
|
| |||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| Increase |
|
| Increase |
|
| ||||
Interest income |
| $ | 155 |
|
| $ | 324 |
|
| $ | (169 | ) |
|
| (52.2 | )% |
|
Interest expense |
|
| — |
|
|
| (2,412 | ) |
|
| 2,412 |
|
|
| (100.0 | )% |
|
Change in fair value of warrant liabilities |
|
| 31,613 |
|
|
| 2,258 |
|
|
| 29,355 |
|
|
| 1300.0 | % |
|
Change in fair value of debt |
|
| (291 | ) |
|
| — |
|
|
| (291 | ) |
|
| 100.0 | % |
|
Other, net |
|
| 1,366 |
|
|
| (2,140 | ) |
|
| 3,506 |
|
|
| (163.8 | )% |
|
Total other income (expense) |
| $ | 32,843 |
|
| $ | (1,970 | ) |
| $ | 34,813 |
|
|
| (1767.2 | )% |
|
For the sixnine months ended JuneSeptember 30, 2019, we had2022, other income (expense), net income of $634,539, which consisted of interest income on marketable securities heldincreased by $34.8 million compared to the prior year period. The increase was primarily related to a change in the Trust Accountfair value of $671,993the warrant liabilities due to the decrease in the price of our common stock (see Note 4, “Fair Value of Financial Assets and unrealized gain on marketable securities heldLiabilities” in our Trust Account of $246,592, offset by operating costs of $115,371 and a provision for income taxes of $168,675.unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).
Liquidity and Capital Resources
On May 23, 2019, we consummated the Initial Public Offering of 27,500,000 Units, which includes the full exercise by the underwriter of the over-allotment option to purchase an additional 3,750,000 Units, at $10.00 per Unit, generating gross proceeds of $287,500,000. Simultaneously with the closing of the Initial Public Offering, we consummatedSince inception through September 30, 2022, Legacy Celularity funded its operations primarily through the sale of 7,000,000 Private Placement Warrants, at $1.00 per Private Placement Warrant, to our Sponsor, generating grossconvertible preferred stock, sale of common stock and via the Business Combination and has raised aggregate net cash proceeds of $7,000,000.
Transaction costs amounted to $16,473,117, consisting of $5,000,000 of underwriting fees, $10,812,500 of deferred underwriting fees and $660,617 of other offering costs.
For the six months ended June 30, 2019, cash used in operating activities was $194,810. Net income of $634,539 was affected by interest earned on marketable securities held in the Trust Account of $671,993, an unrealized gain on marketable securities held in our Trust Account of $246,592 and a deferred tax provision of $51,784. Changes in operating assets and liabilities provided $37,452 of cash.
$556.7 million. As of JuneSeptember 30, 2019,2022, we had marketable securities held in the Trust Account$42.6 million of $288,418,585 (including approximately $919,000cash and cash equivalents and an accumulated deficit of interest income and unrealized gains) consisting$669.9 million. Our primary use of U.S. Treasury Bills with a maturity of 180 days or less. 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 deferred underwriting commissions) to complete a Business Combination. We may withdraw interest to pay taxes. Through June 30, 2019, we did not withdraw any interest earned on the Trust Account. To the extent that our capital stock or debtresources is used, in whole or in part, as considerationfunding our operating expenses, which consist primarily of funding the research and development of our cellular therapeutic candidates, and to complete a Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business.lesser extent, selling, general and administrative expenses.
39
As of June 30, 2019,Based upon our current operating plan, we had cash of $1,169,030 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate prospective acquisition candidates, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses, review corporate documents and material agreements of prospective target businesses, select the target business to acquire 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, our initial stockholders, officers and directors or their affiliates may, but are not obligated to, loan us funds from time to time or at any time, as may be required. If we complete a Business Combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. 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 to repay such loaned amounts. Up to $1,500,000 of such loans may be convertible into private warrants at a price of $1.00 per private warrant at the option of the lender. The private warrants would be identical to the Private Placement Warrants.
We do not believe that our existing cash and cash equivalents as of September 30, 2022, will be sufficient to fund our operating expenses and capital expenditure requirements through the next 12 months. We believe our existing cash and cash equivalents as of September 30, 2022 will fund us into the first quarter of 2023. We have based this estimate on a number of assumptions regarding our development programs and commercial operations that may prove to be wrong, and we willcould utilize our cash and cash equivalents sooner than we expect. We are seeking additional funding through the issuance of equity, convertible or debt securities through private placements or public offerings or through the exercise of existing convertible securities. We may not be able to obtain financing on acceptable terms, or at all, and the terms of any financing may adversely affect the holdings or the rights of our stockholders. Alternatively, we may have to reduce spend by postponing certain of our development activities. Based on our recurring losses from operations incurred since inception, expectation of continuing operating losses for the foreseeable future, and need to raise additional fundscapital to finance our future operations, we have concluded that there is substantial doubt about our ability to continue as a going concern.
We expect to incur substantial expenses in orderthe foreseeable future for the development and potential commercialization of our cellular therapeutic candidates and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, to meetcomplete our current and future preclinical studies and clinical trials, and to complete the expenditures requiredprocess of obtaining regulatory approval for operatingour therapeutic candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our cellular therapeutic candidates, if approved, we may require substantial additional funding in the future.
To date, inflation has not had a significant impact on our business. However, ifany significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our estimatefuture operating results.
Cash Flows
The following table summarizes our cash flows for the nine months ended September 30, 2022 and 2021:
|
| Nine Months Ended |
| |||||||||
|
| September 30, 2022 |
|
| September 30, 2021 |
|
| Change |
| |||
Cash provided by (used in) |
|
|
|
|
|
|
|
|
| |||
Operating activities |
| $ | (108,291 | ) |
| $ | (78,051 | ) |
| $ | (30,240 | ) |
Investing activities |
|
| (4,457 | ) |
|
| (3,600 | ) |
|
| (857 | ) |
Financing activities |
|
| 118,153 |
|
|
| 99,576 |
|
|
| 18,577 |
|
Net change in cash, cash equivalents and restricted cash |
| $ | 5,405 |
|
| $ | 17,925 |
|
| $ | (12,520 | ) |
Operating Activities
Net cash used in operations for the nine months ended September 30, 2022 was $30.2 million higher than the prior year period, primarily due to lower net loss adjusted for non-cash items and build up of inventory.
Investing Activities
We used $4.5 million and $3.6 million of net cash in investing activities for the nine months ended September 30, 2022 and 2021, respectively, which consisted of capital expenditures in each period offset by $0.3 million in gross proceeds from promissory note for the nine months ended September 30, 2021.
Financing Activities
We generated $118.2 million of net cash from financing activities for the nine months ended September 30, 2022, which consisted primarily of $46.5 million in cash proceeds from the exercise of warrants to acquire 13,281,386 shares of common stock, $27.4 million in cash proceeds from the May 2022 PIPE financing, $39.2 million in cash proceeds from the Yorkville pre-paid advance agreement, and $4.4 million in cash proceeds from the sale of common stock in the ATM offering. For the nine months ended September 30, 2021 we generated $99.6 million of net cash in financing activities, which consisted primarily of proceeds from the Business Combination, the July 2021 PIPE Financing, and the Palantir investment offset by payments for professional services related to the aforementioned transactions.
40
Critical Accounting Estimates
Our significant accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies,” included within the Notes to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q and in Note 2 to our annual financial statements included in the 2021 Form 10-K.
During the nine months ended September 30, 2022, there were additions to our critical accounting estimates compared with those previously disclosed in the 2021 Form 10-K as a result of the costsimplementation of identifyingAccounting Standards Update 2016-02. We cannot readily determine the interest rate implicit in the lease, therefore, we use our incremental borrowing rate, or IBR, to measure lease liabilities. The IBR is the rate of interest that we would have to pay to borrow over a target business, undertaking in-depth due diligencesimilar term, and negotiatingwith a Business Combination are less thansimilar security, the actual amountsfunds necessary to do so,obtain an asset of a similar value to the right-of-use, or ROU, asset in a similar economic environment. The IBR therefore reflects what we may‘would have insufficient fundsto pay’, which requires estimation when no observable rates are available or when they need to operate our business priorbe adjusted to reflect the terms and conditions of the lease. We estimate the IBR using observable inputs (such as market interest rates) when available and are required to make certain entity and asset-specific estimates. The IBR used in the calculation of the present value of lease payments in calculating lease liabilities and the corresponding ROU requires the use of significant judgment by management. Additionally, during the three months ended September 30, 2022, we elected the fair value option on the pre-paid advance agreement with Yorkville in accordance with the fair value hierarchy included within Accounting Standards Codification 820 Fair Value Measurement.
Recent Accounting Pronouncements
See Note 2 to our Business Combination. Moreover,unaudited condensed consolidated financial statements included herein and Note 2 to our annual financial statements for the year ended December 31, 2021 included in the 2021 Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we may needhave made one, of their potential impact on our financial condition and results of operations.
JOBS Act Accounting Election
We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to obtain additional financing eitherthe enactment of the JOBS Act until such time as those standards apply to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon completion of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.private companies.
Off-Balance Sheet Arrangements
We have no obligations, assetselected to use this extended transition period to enable us to comply with new or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2019. We do not participate in transactionsrevised accounting standards that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been establisheddifferent effective dates 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 an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilitiespublic and secretarial and administrative services. We began incurring these fees on May 20, 2019 and will continue to incur these fees monthlyprivate companies until the earlier of the completiondate that we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a Business Combination and the Company’s liquidation.
Critical Accounting Policies
The preparation of condensedresult, our financial statements and related disclosures in conformitymay not be comparable to companies that comply with accounting principles generally accepted in the United States of America 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 critical accounting policies:
Common stock subject to possible redemption
We account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” 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 are either within the control of the holdernew 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, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.
Net loss per common share
We apply the two-class method in calculating earnings per share. Shares of common stock subject to possible redemption, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.
Recent accounting standards
Management does not believe that any recently issued, but not yet effective,revised accounting pronouncements if currently adopted, would have a material effect on our condensed financial statements. as of public company effective dates.
Item 3. Quantitative and Qualitative Disclosures About Market RiskRisk.
Not applicable.
Following the consummation of our Initial Public Offering, the net proceeds of our Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in US treasuries. Due to the short-term nature of these investments, we do not believe that there will be an associated material exposure to interest rate risk.
Item 4.Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
DisclosureThe term “disclosure controls and procedures areprocedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in ourthe reports filedthat it files or submittedsubmits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in ourthe reports filedthat it files or submittedsubmits under the Exchange Act is accumulated and communicated to ourthe company’s management, including our Chief Executive Officerits principal executive and Chief Financial Officer,principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.
EvaluationOur management, with the participation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our ChiefPrincipal Executive Officer and ChiefPrincipal Financial Officer, carried out an evaluation ofevaluated the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2019.the end of the period covered in this quarterly report Form 10-Q. Based upon theiron
41
that evaluation, our Chief Executive Officer and Chief Financial Officermanagement concluded that ourthe disclosure controls and procedures (as definedwere not effective, at the reasonable assurance level, as of the end of the period covered by this quarterly report on Form 10-Q, as a result of the material weaknesses in Rules 13a-15 (e) and 15d-15 (e) underinternal control over financial reporting discussed below.
We previously identified the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no changefollowing material weaknesses in our internal control over financial reporting:
We are currently implementing our remediation plan to address the material weaknesses identified above. Such measures include:
Changes in Internal Control over Financial Reporting
Other than in connection with executing upon the continued implementation of the remediation measures referenced above, there were no changes in our internal controls over financial reporting that hasoccurred during our third fiscal quarter ended September 30, 2022 that materially affected, or isare reasonably likely to materially affect, our internal control over financial reporting.
42
PART II - II—OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
FactorsFrom time to time, we may be subject to various legal proceedings and claims that could causearise in the ordinary course of our actualbusiness activities. Although the results of litigation and claims cannot be predicted with certainty, we do not believe we are party to differ materially from thoseany claim or litigation the outcome of which, if determined adversely to us, would individually or in this Quarterly Report are any of the risks described in our final prospectus for our Initial Public Offering filed with the SEC on May 21, 2019. Any of these factors could result inaggregate be reasonably expected to have a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Asbusiness. Regardless of the dateoutcome, litigation can have an adverse effect on us because of this Quarterly Report, there have been no material changes to the risk factors disclosed in our final prospectus dated May 21, 2019 filed with the SEC.defense and settlement costs, diversion of management resources and other factors.
Item 1A. Risk Factors.
Not applicable.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
On May 23, 2019, we consummated the Initial Public Offering of 28,750,000 Units, which includes the full exercise by the underwriter of the over-allotment option to purchase an additional 3,750,000 Units. The Units sold in the Initial Public Offering were sold at an offering price of $10.00 per Unit, generating total gross proceeds of $287,500,000. Cantor Fitzgerald & Co., acted as sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on a registration statement onForm S-1 (No. 333-231074). The SEC declared the registration statement effective on May 20, 2019.
Simultaneous with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 7,000,000 warrants, each exercisable to purchase one share of the Company’s Class A common stock for $11.50 per share (“Private Placement Warrants”), to the Sponsor at a price of $1.00 per Private Placement Warrant, generating total proceeds of $7,000,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
Of the gross proceeds received from the Initial Public Offering and the Private Placement Warrants, $287,500,000 was placed in a Trust Account. We paid a total of $5,000,000 in underwriting discounts and commissions and $660,617 for other costs and expenses related to the Initial Public Offering. In addition, the underwriters agreed to defer $10,812,500 in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item 3. Defaults Upon Senior Securities.
None.
None
Item 4. Mine Safety Disclosures.
Not applicable.
Not Applicable.
Item 5. Other Information.
None.
None.43
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibits.
Exhibit Number | Description | |
3.1 | Amended and Restated Certificate of | |
3.2 | Amended and Restated Bylaws of the Company ( | |
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6# | ||
10.7# | Employment Agreement, as of April 1, 2022, by and between Celularity Inc. and David C. Beers. | |
10.8# | Employment Agreement, as of April 1, 2022, by and between Celularity Inc. and John R. Haines. | |
10.9# | Employment Agreement, as of July 13, 2022, by and between Celularity Inc. and Kyle H. Fletcher. | |
10.10# | Employment Agreement, as of July 13, 2022, by and between Celularity Inc. and Keary Dunn. | |
10.11# | Employment Agreement, as of October 4, 2022, by and between Celularity Inc. and Bradley Glover. | |
10.12# | Employment Agreement, as of September 29, 2022, by and between Celularity Inc. and Adrian Kilcoyne. | |
31.1 | ||
31.2 | ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | ||
Inline XBRL Taxonomy Extension Definition Linkbase Document | ||
101.LAB | Inline XBRL Taxonomy Extension | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | The cover page for the Company’s quarterly report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101 |
SIGNATURES
# Indicates a management contract or any compensatory plan, contract or agreement.
* The certifications attached as Exhibits 32.1 and 32.2 accompanying this report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Celularity Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing.
44
SIGNATURES
Pursuant 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.
CELULARITY INC. | |||
Date: November 10, 2022 | By: | /s/ Robert J. Hariri | |
Robert J. Hariri, M.D., Ph.D. | |||
Chief Executive Officer | |||
( | |||
Date: | By: | /s/ | |
David C. Beers | |||
Chief Financial Officer | |||
(Principal Financial and Accounting Officer) |
45
18