[10-Q] Ernexa Therapeutics Inc. Quarterly Earnings Report
Ernexa Therapeutics Inc. reported Q3 2025 results with a net loss of $1.24 million, a sharp improvement from a loss of $26.60 million a year ago. Year‑to‑date net loss was $12.58 million versus $38.78 million in 2024. There was no revenue in Q3 2025, compared with $0.49 million in Q3 2024, reflecting the prior assignment of its customer contract to Factor Bioscience.
Operating expenses were stable to lower: research and development was $1.04 million (vs. $1.00 million), while general and administrative fell to $0.96 million (vs. $3.38 million), aided by the absence of prior-year lease and professional fee items. Other income included a $0.73 million gain from writing off time‑barred payables. Year‑to‑date other expense was driven by a $5.85 million non‑cash forward sales contract expense tied to a 2025 private placement.
Cash was $3.05 million as of September 30, 2025, up from $1.73 million at year‑end, after $7.20 million of gross proceeds from common stock and pre‑funded warrant sales in 2025 and repayment of $2.3 million promissory notes. The company used $5.87 million in operating cash year‑to‑date and states there is substantial doubt about its ability to continue as a going concern without additional capital. A 1‑for‑15 reverse stock split became effective on June 12, 2025; 7,848,889 common shares were outstanding as of November 7, 2025.
- None.
- Going concern: Management states substantial doubt about continuing operations without additional capital.
- Cash constraints: Cash of $3.05M at 9/30/25 versus $5.87M operating cash use year‑to‑date.
Insights
Improved loss run-rate, but cash is tight and going concern flagged.
Ernexa narrowed quarterly losses: Q3 net loss was
Liquidity remains the main constraint. Cash was
Management states there is “substantial doubt” about continuing as a going concern without new financing. Actual impact depends on accessing additional capital; subsequent filings may detail future funding steps.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For
the quarterly period ended
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _____________
Commission
file number:
(Exact name of registrant as specified in its charter)
| (State of incorporation) | (I.R.S. Employer Identification No.) |
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| (Address of principal executive offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading symbol | Name of each exchange on which registered | ||
| The
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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 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.
Indicate
by check mark whether the registrant has submitted electronically every interactive data file required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
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 definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | 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 November 7, 2025, the registrant had outstanding shares of common stock, $ par value per share.
TABLE OF CONTENTS
| Page | ||
| PART I – FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements (unaudited) | |
| Condensed Consolidated Balance Sheets as of September 30, 2025 and December 31, 2024 | 1 | |
| Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2025 and 2024 | 2 | |
| Condensed Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the three and nine months ended September 30, 2025 and 2024 | 3 | |
| Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2025 and 2024 | 4 | |
| Notes to Condensed Consolidated Financial Statements | 5 | |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 19 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 26 |
| Item 4. | Controls and Procedures | 26 |
| PART II – OTHER INFORMATION | ||
| Item 1. | Legal Proceedings | 27 |
| Item 1A. | Risk Factors | 27 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 27 |
| Item 3. | Defaults Upon Senior Securities | 27 |
| Item 4. | Mine Safety Disclosures | 27 |
| Item 5. | Other Information | 27 |
| Item 6. | Exhibits | 28 |
| Signatures | 29 | |
| i |
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” as that term is defined under the Private Securities Litigation Reform Act of 1995 (“PSLRA”), Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements include statements related to future events, results, performance, prospects and opportunities, including statements related to our strategic plans, capital needs, and our financial position. Forward-looking statements are based on information currently available to us, on our current expectations, estimates, forecasts, and projections about the industries in which we operate and on the beliefs and assumptions of management. Forward looking statements often contain words such as “expects,” “anticipates,” “could,” “targets,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “may,” “will,” “would,” and similar expressions. In addition, any statements that refer to projections of our future financial performance, our anticipated growth and trends in our business, and other characterizations of future events or circumstances, are forward-looking statements. Forward-looking statements by their nature address matters that are, to different degrees, subject to risks and uncertainties that could cause actual results to differ materially and adversely from those expressed in any forward-looking statements. For us, particular factors that might cause or contribute to such differences include those risks and uncertainties described in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2025, in Part II, Item 1A “Risk Factors” of this Quarterly Report on Form 10-Q, and in other documents we file from time to time with the SEC.
Readers are urged not to place undue reliance on the forward-looking statements in this Quarterly Report on Form 10-Q, which speak only as of the date of this Quarterly Report on Form 10-Q. We are including this cautionary note to make applicable, and take advantage of, the safe harbor provisions of the PSLRA. Except as required by law, we do not undertake, and expressly disclaim any obligation, to disseminate, after the date hereof, any updates or revisions to any such forward-looking statements to reflect any change in expectations or events, conditions or circumstances on which any such statements are based.
We believe that the expectations reflected in forward-looking statements in this Quarterly Report on Form 10-Q are based upon reasonable assumptions at the time made. However, given the risks and uncertainties, you should not rely on any forward-looking statements as a prediction of actual results, developments or other outcomes. You should read these forward-looking statements with the understanding that we may be unable to achieve projected results, developments or other outcomes and that actual results, developments or other outcomes may be materially different from what we expect.
Unless stated otherwise or the context otherwise requires, all references in this Quarterly Report on Form 10-Q to “Ernexa” refer to Ernexa Therapeutics Inc., and references to the “Company,” “we,” “us” or “our” refer to Ernexa and its subsidiaries, including Ernexa TX2 Inc., Novellus, Inc. and Novellus Therapeutics Limited.
| ii |
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
(unaudited)
| September 30, 2025 | December 31, 2024 | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Right-of-use assets - operating leases | ||||||||
| Goodwill | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Operating lease liabilities, current | ||||||||
| Contingent consideration liability, current | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Operating lease liabilities, non-current | ||||||||
| Contingent consideration liability, non-current | ||||||||
| Other liabilities | ||||||||
| Total liabilities | ||||||||
| Stockholders’ equity: | ||||||||
| Preferred stock, $ par value, shares authorized, designated and
outstanding of Series A convertible preferred stock at September 30, 2025 and December 31, 2024, $ | ||||||||
| Common stock, $ par value, and shares authorized at September 30, 2025 and December 31, 2024, respectively, and issued and outstanding at September 30, 2025 and December 31, 2024, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ equity | ||||||||
| Total liabilities and stockholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 1 |
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(unaudited)
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Gain on lease termination | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net: | ||||||||||||||||
| Forward sales contract expense | ( | ) | ||||||||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Fair value adjustments to bridge notes derivative liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Series A preferred stock dividend | ( | ) | ( | ) | ||||||||||||
| Net loss attributable to common stockholders | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per common share - basic and diluted | $ | ) | $ | ) | $ | ) | $ | ) | ||||||||
| Weighted average shares outstanding - basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 2 |
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
For the three and nine months ended September 30, 2025 and 2024 (unaudited)
(in thousands)
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at July 1, 2025 | $ | | $ | | $ | $ | ( | ) | $ | |||||||||||||||||||
| Issuance of common stock in connection with exercise of prefunded warrants | - | |||||||||||||||||||||||||||
| Issuance of common stock to consultant for services | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at January 1, 2025 | $ | | $ | | $ | $ | ( | ) | $ | |||||||||||||||||||
| Issuance of common stock to Series A preferred stockholders in lieu of cash dividends | - | ( | ) | |||||||||||||||||||||||||
| Issuance of common stock in connection with exercise of prefunded warrants | - | |||||||||||||||||||||||||||
| Issuance of common stock to consultant for services | - | |||||||||||||||||||||||||||
| Issuance of common stock in connection with settlement | - | |||||||||||||||||||||||||||
| Issuance of common stock and prefunded warrants in connection with private placement | - | |||||||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at July 1, 2024 | $ | | $ | | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
| Fair value of forward sales contract | - | - | ||||||||||||||||||||||||||
| Reclassification of warrants to liability | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock based compensation | - | - | ||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Series A Preferred Stock | Common Stock | Additional Paid-in | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at January 1, 2024 | $ | | $ | | $ | $ | ( | ) | $ | |||||||||||||||||||
| Issuance of note warrants | - | - | ||||||||||||||||||||||||||
| Issuance of common stock from vested restricted stock units | - | - | ||||||||||||||||||||||||||
| Fair value of forward sales contract | - | - | ||||||||||||||||||||||||||
| Reclassification of warrants to liability | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Stock-based compensation | - | - | ||||||||||||||||||||||||||
| Cash dividends to Series A preferred stockholders | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balances at September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 3 |
ERNEXA THERAPEUTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(unaudited)
| For the nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Stock-based compensation | ||||||||
| Amortization of right-of-use asset | ||||||||
| Gain on lease termination | ( | ) | ||||||
| Loss on disposal of fixed assets | ||||||||
| Accrued interest expense | ||||||||
| Paid-in-kind interest expense | ||||||||
| Amortization of debt discount and debt issuance costs | ||||||||
| Forward sales contract expense | ||||||||
| (Gain) loss on extinguishment of debt | ( | ) | ||||||
| Fair value adjustments to bridge notes derivative liability | ||||||||
| Issuance of common stock in connection with settlement | ||||||||
| Issuance of common stock to consultant for services | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Change in fair value of contingent consideration liability | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivables | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other non-current assets | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Operating lease liability | ( | ) | ( | ) | ||||
| Due to related party | ( | ) | ||||||
| Deferred revenue | ( | ) | ||||||
| Other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities: | ||||||||
| Purchase of property and equipment | ( | ) | ( | ) | ||||
| Proceeds received from the sale of fixed assets | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds received from notes payable | ||||||||
| Proceeds received from issuance of common stock and prefunded warrants | ||||||||
| Proceeds received from exercise of prefunded warrants | ||||||||
| Proceeds received from the convertible notes financing | ||||||||
| Fees paid related to the convertible notes financing | ( | ) | ||||||
| Proceeds received from bridge notes financing | ||||||||
| Dividends paid to Series A preferred stockholders | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net increase (decrease) in cash and cash equivalents | ( | ) | ||||||
| Cash at beginning of period | ||||||||
| Cash at end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | $ | ||||||
| Income taxes | $ | $ | ||||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Offset of related party notes payable principal with related party receivable related to issuance of common stock and prefunded warrants | $ | $ | ||||||
| Reclassification of forward sales contract to equity upon issuance of common stock | $ | $ | ||||||
| Issuance of common stock to Series A preferred stockholders in lieu of cash dividends | $ | $ | ||||||
| Adjustment to lease liability and ROU asset due to remeasurement | $ | - | $ | |||||
| Leasehold improvements funded by tenant improvement allowance | $ | $ | ||||||
| Note warrants issued | $ | $ | ||||||
| Unpaid fees incurred in connection with the convertible note financing | $ | $ | ||||||
| Paid in-kind interest added to convertible notes principal | $ | $ | ||||||
| Reclassification of warrants to liability | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
| 4 |
ERNEXA THERAPEUTICS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1) DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of Business
Ernexa Therapeutics Inc. (the “Company”) is a preclinical-stage synthetic allogeneic iMSC therapy company. iMSCs are induced pluripotent stem cell (“iPSC”)-derived mesenchymal stem cells. The Company envisions a future where cell therapies powered by synthetic iMSCs can offer new options for patients with limited treatment paths and its mission is to transform the treatment of cancer and autoimmune disease by developing scalable, affordable, off-the-shelf cell therapies that restore hope.
As used herein, the “Company” or “Ernexa” refers collectively to Ernexa and its consolidated subsidiaries (Ernexa TX2, Inc., Novellus, Inc. and Novellus Therapeutics Limited) unless otherwise stated or the context otherwise requires. In April 2025, the Company formed Ernexa TX2 Inc., a wholly owned Texas subsidiary, and the Company dissolved Eterna Therapeutics LLC, which was a single member limited liability company and had no operations.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the unaudited financial statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.
These condensed consolidated financial statements should be read together with the audited consolidated financial statements and notes thereto contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2025. The accompanying condensed consolidated balance sheet as of December 31, 2024 has been derived from the audited financial statements contained in the 2024 10-K but does not include all of the information and footnotes required by GAAP for complete financial statements. The results of operations for the three and nine months ended September 30, 2025 are not necessarily indicative of the results to be anticipated for the entire year ending December 31, 2025, or any other period.
Reverse Stock Split
As
approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders held on June 2, 2025 (the
“2025 Annual Meeting”), the Company effected a reverse stock split of its common stock at a ratio of
Upon the effectiveness of the Reverse Stock Split, every fifteen shares of the issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock. The Reverse Stock Split did not alter the par value of the common stock, and the number of authorized shares of common stock remains unchanged, after giving effect to the increase in the authorized shares of the Company’s common stock from to shares, which occurred on June 2, 2025 following stockholder approval at the 2025 Annual Meeting. No fractional shares were issued in connection with the Reverse Stock Split, and no cash or other consideration was paid in connection with any fractional shares. Stockholders who otherwise would have held a fractional share after giving effect to the Reverse Stock Split instead owned one whole share of the post-reverse stock split common stock. The Company issued an aggregate of shares for rounding up fractional shares to whole shares.
All share and per share data in this Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse Stock Split.
| 5 |
2) LIQUIDITY AND CAPITAL RESOURCES
The
Company has incurred significant operating losses and has an accumulated deficit as a result of its efforts to develop product candidates
and provide general and administrative support for operations. As of September 30, 2025, the Company had a cash balance of approximately
$
In
September 2024, the Company entered into certain financing agreements for the September 2024 Transactions (as defined and discussed more
fully in Note 12), which included (in) the private placement of $
On
March 11, 2025 and March 20, 2025, the Company received $
During
the nine months ended September 30, 2025, the Company raised $
In connection with preparing the accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 2025, the Company’s management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern because it does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these condensed consolidated financial statements. The Company will need to raise additional capital, which could be through public or private equity offerings, grants, debt financings, out-licensing the Company’s intellectual property, strategic partnerships or other means. The Company currently has no arrangements for capital, and no assurances can be given that it will be able to raise capital when needed, on acceptable terms, or at all. The accompanying condensed consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.
3) CONTRACT WITH CUSTOMER
The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”) when a customer obtains control of promised services or goods in an amount that reflects the consideration to which the Company expects to receive in exchange for those goods or services.
The
Company had one contract with a customer that was accounted for under ASC 606 related to an exclusive option and license agreement it
entered into in February 2023, and amended in August 2023, with a customer, which provided the customer with the option (the “Option
Right”) to obtain an exclusive sublicense of intellectual property from the Company and to request to have the Company develop
a customized cell line. The customer paid the Company a $
On
September 24, 2024, the Company assigned this customer contract to Factor Bioscience (as defined in Note 11) whereby all the Company’s
rights and obligations under the customer contract are now Factor Bioscience’s. Factor Bioscience will pay the Company thirty percent
(
| 6 |
Prior
to assigning the contract to Factor Bioscience, the Company was recognizing the $
The
Company recognized direct labor and supplies used in the customization activities as incurred, which were recorded as a cost of revenue.
The Company was also obligated to pay Factor Bioscience
4) FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows:
● Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
● Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.
● Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions.
The carrying amounts reported on the balance sheet for cash, other receivables, prepaid expenses and other current assets, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities.
The Company issued approximately warrants in connection with a private placement during the first quarter of 2022 (the “Q1-22 warrants”), which were determined to be classified as a liability. The Company has also recorded a three-year contingent consideration liability related to an asset acquisition in April 2023, which is now recorded in current liabilities due to the Company’s obligation for this liability terminating in April 2026.
The Company uses a Black-Scholes option pricing model to estimate the fair value of the Q1-22 warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the contingent consideration liability, both of which are considered a Level 3 fair value measurement. The Company remeasures these liabilities at each reporting period and recognizes changes in their respective fair value in the accompanying condensed consolidated statement of operations.
In
connection with the 2025 SPA (as defined in Note 12) that the Company entered into on March 31, 2025, the Company recorded a forward
sales contract liability at fair value and recognized $
| 7 |
The Company determined the expense related to the forward sales contract as of March 31, 2025 by taking the difference between (I) the fair value of the expected shares to be purchased by the investors as of the March 31, 2025 date the Company entered into the 2025 SPA and (ii) the discounted purchase price of the shares. The Company remeasured the fair value of the forward sales contract liability at each reporting period or immediately prior to the settlement of the shares purchased under the 2025 SPA and recognized changes in the fair value in the accompanying condensed consolidated statement of operations. Upon settlement of the shares, the corresponding forward sales contract liability was then reclassified to additional paid-in capital.
During the nine months ended September 30, 2025, the Company completed the sale of the shares under the 2025 SPA, and as a result, the forward sales contract liability was reclassified to additional paid-in capital. There was no remaining forward sales contract liability balance as of September 30, 2025.
The following table summarizes the liabilities that are measured at fair value as of September 30, 2025 and December 31, 2024 (in thousands):
| Description | Level | September 30, 2025 | December 31, 2024 | |||||||||
| Liabilities: | ||||||||||||
| Warrant liabilities - Q1-22 warrants | 3 | $ | $ | |||||||||
| Contingent consideration | 3 | $ | $ | |||||||||
Certain inputs used in Black-Scholes and Monte Carlo models may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s condensed consolidated statement of operations.
The following table presents the changes in the liabilities measured at fair value from January 1, 2025 through September 30, 2025 (in thousands):
| Warrant Liabilities | Contingent Consideration | Forward Sales Contract | ||||||||||
| Fair value at January 1, 2025 | $ | | $ | | $ | |||||||
| Initial measurement | ||||||||||||
| Change in fair value | ( | ) | ||||||||||
| Reclassification of forward sales contract | ||||||||||||
| liability to equity | ( | ) | ||||||||||
| Fair value at September 30, 2025 | $ | $ | $ | |||||||||
The Company remeasured the fair value of the Q1-22 warrants at September 30, 2025, and the result of the remeasurement was de minimis. The Company assessed the fair value of the contingent consideration liability at each reporting period through September 30, 2025 and determined that there were no material changes to the inputs used in the December 31, 2024 remeasurement that would have resulted in a material change to the liability at September 30, 2025. Therefore, the Company did not recognize a change in fair value of the contingent consideration liability for the three and nine months ended September 30, 2025.
5) GOODWILL
The
Company recorded goodwill in the amount of $
| 8 |
6) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
During
the three months ended September 30, 2025, the Company requested its legal counsel to provide guidance with respect to vendor collectability
of various accounts payable and accrued expenses carried on its balance sheet from 2020 and prior. Based on the review of the statute
of limitations for the various jurisdictions by which the liabilities were governed, legal counsel provided a conclusion as to whether
such statute of limitation had expired in the respective jurisdiction. The statute of limitations is an affirmative defense in which
the defendant introduces evidence, which, if found to be credible, will negate criminal or civil liability, even if it is proven the
defendant committed the alleged acts. The party raising the affirmative defense has the burden of proof on establishing that it applies.
In a civil action in which a creditor demands payment on a written instrument evidencing a debt, the successful assertion of the statute
of limitations defense will bar collection of the debt. In order to assert the statute of limitations as a defense, a defendant must
specifically assert the defense is the answer. If a defendant fails to specifically plead the defense, it will be deemed to be waived.
Since no action to enforce such liabilities was brought before September 30, 2025, it is our legal counsel’s opinion that the liabilities
are time-barred from collection under the respective state laws and should be removed from the Company’s balance sheet. Therefore,
the Company wrote off approximately $
Accrued expenses at September 30, 2025 and December 21, 2024 consisted of the following (in thousands):
September 30, 2025 | December 31, 2024 | |||||||
| Professional fees | $ | | $ | |||||
| Legal matters | ||||||||
| Accrued compensation | ||||||||
| Other | ||||||||
| Total accrued expenses | $ | $ | ||||||
7) LEASES
The Company currently has operating leases for offices in the Borough of Manhattan in New York, New York, and Cambridge, Massachusetts, which expire in 2027 and 2028, respectively.
For the three and nine months ended September 30, 2025 and 2024, the net operating lease expenses were as follows (in thousands):
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Operating lease expense | $ | $ | $ | $ | ||||||||||||
| Sublease income | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Variable lease expense | ||||||||||||||||
| Total lease expense | $ | $ | $ | $ | ||||||||||||
Amounts for the three and nine months ended September 30, 2024 in the table above include expense related to a sublease that was terminated effective August 31, 2024.
| 9 |
The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2025 and the ending balances as of September 30, 2025, including the changes during the period (in thousands).
| Operating Lease ROU Assets | ||||
| Operating lease ROU assets at January 1, 2025 | $ | |||
| Amortization of operating lease ROU assets | ( | ) | ||
| Remeasurment of ROU asset | ||||
| Operating lease ROU assets at September 30, 2025 | $ | |||
| Operating Lease Liabilities | ||||
| Operating lease liabilities at January 1, 2025 | $ | |||
| Principal payments on operating lease liabilities | ( | ) | ||
| Remeasurment of lease liability | ||||
| Operating lease liabilities at September 30, 2025 | ||||
| Less non-current portion | ( | ) | ||
| Current portion at September 30, 2025 | $ | |||
The
lease in Cambridge, Massachusetts, which commenced in June 2021, included a tenant improvement allowance of up to $
During
the three months ended September 30, 2025, the Company made some leasehold improvements to the Cambridge office space of approximately
$
As
of September 30, 2025, the Company’s operating leases had a weighted-average remaining life of
| As of September 30, 2025 | ||||
| 2025 | $ | | ||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Total payments | ||||
| Less imputed interest | ( | ) | ||
| Total operating lease liabilities | $ | |||
| 10 |
8) BRIDGE NOTES AND PROMISSORY NOTES
Bridge Notes Financing
On
September 24, 2024, the Company entered into a purchase agreement with certain purchasers for the private placement of $
The
only conversion event for the Bridge Notes was upon stockholder approval at the Company’s annual meeting of stockholders on October
29, 2024 (the “2024 Annual Meeting”), in which case,
The
Company was required to bifurcate the conversion feature from the Bridge Notes and record it as a derivative liability at its fair value.
The Company determined the fair value of the derivative liability by taking the difference between the fair value of the Bridge Notes
with the conversion feature and without the conversion feature, which resulted in the Company recording a $
At
September 30, 2024, the Company remeasured the fair value of the Bridge Notes derivative liability and recorded a reduction in the liability
of $
On October 29, 2024, all of the Bridge Notes were converted to common stock as part of the September 2024 Transactions (as defined in Note 12) that the Company’s stockholders approved at the 2024 Annual Meeting, and as of September 30, 2025, there is no liability remaining on the Bridge Notes.
Promissory Notes
On
March 11, 2025, the Company received $
As
a result of completing the private placement during the second quarter of 2025 discussed in Note 12, the Company offset the outstanding
principal plus accrued interest on the notes in full in the aggregate amount of $
Stock Options
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Stock options granted | ||||||||||||||||
The Company recognizes stock-based compensation expense for stock options granted to employees, directors and certain consultants. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period on a straight-lined basis.
| 11 |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Weighted average risk-free rate | % | % | % | |||||||||||||
| Weighted average volatility | % | % | % | |||||||||||||
| Dividend yield | % | % | % | |||||||||||||
| Expected term | years | - | years | years | ||||||||||||
| Three months ended September 30, | Nine months ended September 30, | ||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||
| Weighted average grant date fair value | $ | $ | $ | $ | |||||||||||||
Vesting of all stock options is subject to continuous service with the Company through the applicable vesting date. As of September 30, 2025, there were approximately shares of the Company’s common stock subject to outstanding stock options.
Restricted Stock Units
The Company recognizes the fair value of RSUs as expense on a straight-line basis over the requisite service period. For performance-based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable.
Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires continued employment or service by the award recipient through the applicable vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date.
In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. Approximately RSUs vested during the nine months ended September 30, 2025, and approximately RSUs vested during the nine months ended September 30, 2024. No RSUs vested during the three months ended September 30, 2025 or 2024. The Company did t grant RSUs during the three and nine months ended September 30, 2025 or 2024, and as of September 30, 2025, there were no RSUs outstanding.
Stock-Based Compensation Expense
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Research and development | $ | $ | $ | $ | ||||||||||||
| General and administrative | $ | |||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
| 12 |
The Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities. The Company’s previously issued convertible notes contractually entitled the holders of such notes to participate in dividends but did not contractually require the holders to participate in the Company’s losses. As such, the two-class method is not applicable during periods with a net loss.
Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, including the weighted average effect of prefunded warrants, and without consideration for potentially dilutive securities.
Diluted net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding, including the weighted average effect of the prefunded warrants, plus dilutive securities. Shares of common stock issuable upon exercise, conversion or vesting of stock options, restricted stock units, warrants and the outstanding Series A convertible preferred stock are considered potential shares of common stock and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive. The Company’s convertible notes that were outstanding as of September 30, 2024 were also considered potential shares of common stock for the three and nine months ended September 30, 2024 and were included in the calculation of diluted net loss per share using the “if-converted” method as of such period, and the more dilutive of either the two-class method or the if-converted method was reported. There were no convertible notes outstanding as of September 30, 2025. Diluted net loss per share is the same as basic net loss per share for periods in which the effect of potentially dilutive shares of common stock is antidilutive.
| Three and nine months ended September 30, | ||||||||
| 2025 | 2024 | |||||||
| Stock options | ||||||||
| Warrants | ||||||||
| Preferred stock converted into common stock | ||||||||
| Convertible Notes converted into common stock | ||||||||
| Total potential common shares excluded from computation | ||||||||
11) COMMITMENTS AND CONTINGENCIES
Litigation Matters
The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated.
Donoghue v. Cherington and Ernexa
Dennis J. Donoghue, a security owner of the Company, initiated a lawsuit against the Company as a nominal defendant, and Charles Cherington (“Cherington”) as defendant, on October 20, 2025 in the Southern District of New York (Case No. 25-cv-8653) alleging a violation of Section 16(b) of the Securities Exchange Act of 1934, 15 U.S.C. Section 78p(b) and seeking recovery of alleged short swing profits by Cherington.
Licensing Agreements
On September 24, 2024, the Company entered into the Exclusive License and Collaboration Agreement (“the Factor L&C Agreement”) with Factor Bioscience Limited (“Factor Limited”). The Factor L&C Agreement terminated a previous license agreement, as well as a license that the Company acquired from a third party pursuant to an asset purchase agreement in April 2023.
| 13 |
Under the Factor L&C Agreement, the Company has obtained exclusive licenses in the fields of cancer, autoimmune disorders, and rare diseases with respect to certain licensed technology and has the right to develop the licensed technology directly or enter into co-development agreements with partners who can help bring such technology to market. The Factor L&C Agreement also provides for certain services and materials to be provided by Factor Bioscience to facilitate the development of the licensed technology and to enable the Company to scale up production at third party facilities.
The
initial term of the Factor L&C Agreement is one year after the effective date, and it automatically renews yearly thereafter. The
Company may terminate the Factor L&C Agreement for any reason upon
Pursuant
to the Factor L&C Agreement, the Company will pay Factor Bioscience approximately $
Contingent Consideration
The
Company has recorded a three-year contingent consideration liability related to an asset acquisition in April 2023.
Retirement Savings Plan
The
Company offers to its eligible employees a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, through
its co-employment arrangement with its professional employer organization (“PEO”). Under this arrangement, the PEO serves
as the plan sponsor and administrator. Eligible employees may defer up to
12) EQUITY TRANSACTIONS
2024 Exchange Transaction
On
September 24, 2024, the Company entered into exchange agreements (the “Exchange Agreements”) with (I) the holders of all
convertible notes issued in the 2023 convertible note financings (the “2023 Convertible Notes), (ii) all holders of warrants issued
in connection with the 2023 Convertible Notes and (iii) substantially all of the holders of warrants issued in December 2022. One holder
for a December 2022 warrant to purchase approximately
Subject
to approval by the Company’s stockholders at the 2024 Annual Meeting, under the Exchange Agreements (i) the holders of the warrants
agreed to exchange all their warrants for shares of the Company’s common stock at an exchange ratio of shares of a share of
common stock for every one share of common stock issuable upon exercise of the applicable warrant (rounded up to the nearest whole number),
and (ii) the holders of the convertible notes agreed to exchange all their convertible notes for shares of the Company’s common
stock at an exchange ratio equal to (A) the sum expressed in U.S. dollars of (1) the principal amount of the applicable convertible note,
plus (2) all accrued and unpaid interest thereon through the date the applicable convertible note is exchanged plus (3) all interest
that would have accrued through, but not including, the maturity date of applicable convertible note if it was outstanding from the date
such convertible note is exchanged through its maturity date (the sum of (A) totaling approximately $
| 14 |
The
Company determined that the modifications to the convertible notes should be accounted for as an extinguishment of debt because there
was at least a
As
of September 24, 2024, prior to entering into the Exchange Agreements, there was approximately $
Because
shareholder approval was required for the Exchange Transactions to occur, the Company determined that the modifications to the warrants
resulted in a change in classification of such warrants from equity to liability. A provision that requires shareholder approval precludes
equity classification because such approval is not an input into a fixed-for-fixed valuation model. As a result, the Company recorded
the warrants at fair value as of September 24, 2024 by taking the number of shares of common stock issuable from the exchanged warrants
multiplied by the closing stock price of $ and reclassified approximately $
Common Stock Private Placement
On September 24, 2024, the Company entered into a securities purchase agreement (the “2024 SPA”) with certain accredited investors to sell in a private placement an aggregate of approximately shares of the Company’s common stock (or, in lieu thereof, pre-funded warrants to purchase one share of our common stock) for a purchase price of $ per share of common stock and $ per pre-funded warrant (the “Common Stock Private Placement” and together with the Bridge Notes and the Exchange Transactions, the “September 2024 Transactions”). The closing of the Common Stock Private Placement was conditioned upon receiving stockholder approval at the 2024 Annual Meeting.
The
2024 SPA represented a forward sale contract obligating the Company to sell a fixed number of shares of its common stock at a fixed price
per share upon obtaining shareholder approval at the 2024 Annual Meeting. The Company measured the fair value of the forward sale contract
as the difference between (A) the fair value of the expected shares to be purchased by the investors as of the date the Company entered
into the 2024 SPA and (B) the purchase price of the shares and recorded approximately $
2025 Private Placement
On
March 31, 2025, the Company entered into a securities purchase agreement (the “2025 SPA”) with certain accredited investors
to sell in a private placement an aggregate of approximately shares of common stock at a purchase price of $ per share
(or pre-funded warrants in lieu of common stock at a purchase price of $ per pre-funded warrant). The pre-funded warrants will be
exercisable until exercised in full at a nominal exercise of $
| 15 |
The
2025 SPA represented a forward sale contract obligating the Company to sell a fixed number of shares of its common stock at a fixed price
per share and contained an adjustment to the settlement amount based on shareholder approval, which is not an input into the pricing
of a fixed-for-fixed forward on equity shares. The Company measured the fair value of the forward sale contract as the difference between
(i) the fair value of the expected shares to be purchased by the investors as of the date the Company entered into the 2025 SPA and (ii)
the discounted purchase price of the shares, and recorded a liability of approximately $ million at the contract inception date. The
Company also recognized a corresponding $
During the nine months ended September 30, 2025, the Company sold the following shares of common stock and pre-funded warrants under the 2025 SPA (in thousands):
| Date | Common Stock | Pre-funded Warrants | Gross Proceeds | |||||||||
| April 2, 2025 | $ | |||||||||||
| June 9, 2025 | ||||||||||||
| June 27, 2025 | ||||||||||||
| $ | ||||||||||||
The
shares sold on April 2, 2025 (the “First Closing”) represented
Immediately
before each settlement date, the Company remeasured the fair value of the respective forward sales contract liability and recognized
the change in fair value in the accompanying condensed consolidated statement of operations. Upon settlement, the Company then reclassified
the respective forward sales contract liability to additional paid-in capital. For the nine months ended September 30, 2025, the Company
recognized $
Warrants
As of September 30, 2025, the Company had the following warrants outstanding:
| Warrants Outstanding (in thousands) | Exercise Price | Issuance Date | Expiration Date | Classification | ||||||||||
| Q1-22 Warrants | $ | |||||||||||||
| December 2022 Warrants | $ | |||||||||||||
| Prefunded warrants | $ | None | ||||||||||||
| Prefunded warrants | $ | None | ||||||||||||
| Prefunded warrants | $ | None | ||||||||||||
As
of September 30, 2025, the weighted average remaining contractual life of expiring warrants outstanding was
| 16 |
The following table shows the warrant activity from January 1, 2025 through September 30, 2025 (in thousands):
Outstanding January 1, 2025 | Granted | Exercised | Outstanding September 30, 2025 | |||||||||||||
| Q1-22 Warrants | ||||||||||||||||
| December 2022 Warrants | ||||||||||||||||
| Prefunded warrants | ||||||||||||||||
| Total | ||||||||||||||||
Stock Repurchase Program
In
November 2024, the Company’s Board of Directors authorized a stock repurchase program (the “Repurchase Program”) of
up to $
13) RELATED PARTY TRANSACTIONS
September 2024 and March 2025 Financings
Investors
who participated in the September 2024 Transactions and in the 2025 SPA in March 2025 that are discussed in Note 12 included Charles
Cherington. Mr. Cherington participated in the applicable financing under the same terms and subject to the same conditions as all the
other investors. Mr. Cherington served on the Company’s
board of directors from March 2021 to July 6, 2023 and currently owns approximately
March 2025 Promissory Notes
On
March 11, 2025, the Company received $
As
a result of completing the private placement discussed in Note 12, the Company repaid the outstanding principal plus accrued interest
on the notes in full in the aggregate amount of $
14) SEGMENT REPORTING
The Company operates within a single reportable operating segment, the research and development of cellular therapies. The Company has identified its president and chief executive officer as its chief operating decision maker (“CODM”), who regularly reviews the Company’s performance and allocates resources based on information reported at the consolidated entity level.
The CODM uses consolidated net loss as a measure of profit and loss and assesses Company performance through the achievement of its business strategy goals. The CODM is regularly provided with forecasted expense information that is used to determine the Company’s liquidity needs and cash allocation to execute its business strategy, and he uses cash as a measure of segment assets in managing the Company. The Company operates in the United States, and all of its assets are located in the United States.
The table below provides a breakdown of the Company’s significant operating expenses for the three and nine months ended September 30, 2025 and 2024 with a reconciliation to net loss for each of those periods.
The Company’s revenue and its cost of revenues for the three and nine months ended September 30, 2024 relate to a contract with a customer, as discussed in Note 3. There was no revenue or cost of revenue for the three and nine months ended September 30, 2025.
Depreciation
and amortization expense less than $
During
the three months ended September 30, 2025, the Company recognized $
During
the three and nine months ended September 30, 2024, the Company recognized $
| 17 |
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||
| 2025 | 2024 | 2025 | 2024 | |||||||||||||
| Revenue | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Research and development by significant expense: | ||||||||||||||||
| MSA/license fees | ||||||||||||||||
| Study fees | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Payroll and related | ||||||||||||||||
| Other1 | ||||||||||||||||
| Research and development | ||||||||||||||||
| General and administrative by significant expense: | ||||||||||||||||
| Stock-based compensation | ||||||||||||||||
| Payroll and related | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Occupancy expense | ||||||||||||||||
| Other2 | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Gain on lease termination | ( | ) | ( | ) | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense), net | ||||||||||||||||
| Forward sales contract expense | ( | ) | ||||||||||||||
| Gain (loss) on extinguishment of debt | ( | ) | ( | ) | ||||||||||||
| Fair value adjustments to bridge notes derivative liability | ( | ) | ( | ) | ||||||||||||
| Change in fair value of warrant liabilities | ||||||||||||||||
| Change in fair value of contingent consideration | ||||||||||||||||
| Interest income (expense), net | ( | ) | ( | ) | ||||||||||||
| Other expense, net | ( | ) | ( | ) | ||||||||||||
| Total other income (expense), net | ( | ) | ( | ) | ( | ) | ||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
September 30, 2025 | December 31, 2024 | |||||||
| Cash | $ | $ | ||||||
| 1 |
| 2 |
15) RECENT ACCOUNTING PRONOUNCEMENTS
| 18 |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information included elsewhere in this Quarterly Report on Form 10-Q (“Quarterly Report”) together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024 filed with the Securities and Exchange Commission (the “SEC”) on March 12, 2025 (the “2024 10-K”). The following discussion contains or is based on assumptions, estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in this report and in Part I, Item 1A of the 2024 10-K and as described from time to time in our other filings with the SEC. These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.
Overview
We are a preclinical-stage synthetic allogeneic iMSC therapy company. iMSCs are induced pluripotent stem cell (“iPSC”)-derived mesenchymal stem cells. We envision a future where cell therapies powered by synthetic iMSCs can offer new options for patients with limited treatment paths and our mission is to transform the treatment of cancer and autoimmune disease by developing scalable, affordable, off-the-shelf cell therapies that restore hope.
Our lead product candidate ERNA-101 is allogenic IL-7 and IL-15-secreting iMSCs. ERNA-101 capitalizes on the intrinsic tumor-homing ability of MSCs to slip through the tumor’s defenses and to deliver potent pro-inflammatory factors directly to the tumor microenvironment (“TME”), limiting systemic exposure and potential toxicity while unleashing potent anti-cancer immune responses including enhancement of T-cell anti-tumor activity. Our initial focus is to develop ERNA-101 in platinum-resistant, ovarian cancer. We collaborated with the University of Texas MD Anderson Cancer Center to investigate the ability of ERNA-101 to induce and modulate antitumor immunity in an ovarian cancer model. In preclinical study, ERNA-101 exhibited reduction of tumor growth and statistically significant survival advantage in the ovarian cancer model as compared to the control group. We expect to complete the Investigational New Drug (“IND”) enabling studies and IND submission by 2026 and to subsequently enter a Phase I investigator sponsored clinical trial in the same year.
We are also investigating anti-inflammatory cytokine (e.g. IL-10)-secreting iMSCs in inflammatory/auto-immune disorders like rheumatoid arthritis, which we refer to as ERNA-201. MSCs have an intrinsic ability to home to inflamed tissue and have been shown to dampen inflammation and drive/healing/regeneration through multiple secreted mediators and cell-cell interactions. We are investigating the ability of ERNA-201 to turbocharge these anti-inflammatory and regenerative effects.
Additionally, to expand our developmental opportunities and raise non-dilutive capital, we are actively seeking strategic partnerships to co-develop or out-license therapeutic assets and engage with potential collaborators, and we are currently applying for research grants, some of which will be used for research conducted at our Texas subsidiary, Ernexa TX2, Inc.
Basis of Presentation
Revenue
Revenue is related to an exclusive option and license agreement we had with a customer, under which we granted the customer an option (the “Option Right”) to obtain an exclusive sublicense to certain of our technology for preclinical, clinical and commercial purposes in exchange for a non-refundable up-front payment to us of $0.3 million. We also began developing certain induced pluripotent stem cell lines in exchange for a cell line customization fee. The customer paid us $0.4 million towards the customization fee, which we were recognizing ratably over the customization period.
On September 24, 2024, we entered into an agreement with Factor Bioscience Limited (“Factor Limited” and together with Factor Bioscience Inc. and its other affiliates, “Factor Bioscience”) whereby we assigned the customer contract to Factor Bioscience (the “Assignment Agreement”). The Assignment Agreement with Factor Bioscience assigned all our rights and obligations under the customer contract to Factor Bioscience. Payments to us related to the customer contract will now be subject to the Assignment Agreement, which provides for Factor Bioscience paying us thirty percent (30%) of all amounts it receives from the customer in the event that the customer obtains a sublicense from Factor Bioscience. Upon receipt of future payments for the customization activities set forth in the customer contract, Factor Bioscience will pay us twenty percent (20%) of all amounts Factor Bioscience receives from the customer.
| 19 |
Prior to the Assignment Agreement, we were recognizing the non-refundable $0.4 million customization fee equally over the development period. However, as a result of the Assignment Agreement, we accelerated the recognition of the remaining $0.2 million non-refundable customization fee and the $0.3 million non-refundable payment related to the Option Right, both of which were in deferred revenue, during the three months ended September 30, 2024. During the nine months ended September 30, 2024, we recognized approximately $0.6 million in revenue related to this customer contract for the customization activities and Option Right, including the accelerations of revenue recognition discussed above. There was no such revenue recognized for the three and nine months ended September 30, 2025. For additional information, see Note 3 to the accompanying condensed consolidated financial statements. We have no other revenue generating contracts at this time.
Cost of Revenues
We recognize direct labor and supplies associated with generating our revenue as cost of revenues. We were also obligated to pay Factor Bioscience 20% of any amounts we received from the customer contract discussed above under a previous license agreement we had with Factor Bioscience, which has since been terminated, and such costs were also recognized as cost of revenues.
Research and Development Expenses
We expense our research and development costs as incurred. Research and development expenses consist of costs incurred for company-sponsored research and development activities. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended.
The major components of research and development costs include salaries and employee benefits, stock-based compensation expense, supplies and materials, preclinical study costs, expensed licensed technology, consulting, scientific advisors and other third-party costs, as well as allocations of various overhead costs related to our product development efforts.
We have contracted with third parties to perform various studies. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. We accrue for third party expenses based on estimates of the services received and efforts expended during the reporting period. If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the preclinical study or similar conditions.
General and Administrative Expenses
Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and other professional fees, travel, insurance, and other corporate costs.
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Results of Operations
Comparison of the Three and Nine Months Ended September 30, 2025 and 2024
| Three months ended September 30, | Nine months ended September 30, | |||||||||||||||||||||||
| (In thousands) | 2025 | 2024 | Change | 2025 | 2024 | Change | ||||||||||||||||||
| Revenue | $ | - | $ | 487 | $ | (487 | ) | $ | - | $ | 581 | $ | (581 | ) | ||||||||||
| Cost of revenues | - | (60 | ) | 60 | - | 96 | (96 | ) | ||||||||||||||||
| Gross profit | - | 547 | (547 | ) | - | 485 | (485 | ) | ||||||||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Research and development | 1,035 | 1,001 | 34 | 3,480 | 3,446 | 34 | ||||||||||||||||||
| General and administrative | 958 | 3,381 | (2,423 | ) | 3,745 | 11,592 | (7,847 | ) | ||||||||||||||||
| Gain on lease termination | - | (1,576 | ) | 1,576 | - | (1,576 | ) | 1,576 | ||||||||||||||||
| Total operating expenses | 1,993 | 2,806 | (813 | ) | 7,225 | 13,462 | (6,237 | ) | ||||||||||||||||
| Loss from operations | (1,993 | ) | (2,259 | ) | 266 | (7,225 | ) | (12,977 | ) | 5,752 | ||||||||||||||
| Other income (expense), net: | ||||||||||||||||||||||||
| Forward sales contract expense | - | - | - | (5,847 | ) | - | (5,847 | ) | ||||||||||||||||
| Gain (loss) on extinguishment of debt | 734 | (22,440 | ) | 23,174 | 734 | (22,440 | ) | 23,174 | ||||||||||||||||
| Fair value adjustments to bridge notes derivative liability | - | (1,038 | ) | 1,038 | - | (1,038 | ) | 1,038 | ||||||||||||||||
| Change in fair value of warrant liabilities | - | 831 | (831 | ) | 1 | 897 | (896 | ) | ||||||||||||||||
| Change in fair value of contingent consideration | - | - | - | - | 66 | (66 | ) | |||||||||||||||||
| Interest income (expense), net | 31 | (1,686 | ) | 1,717 | 36 | (3,269 | ) | 3,305 | ||||||||||||||||
| Other expense, net | (6 | ) | - | (6 | ) | (264 | ) | - | (264 | ) | ||||||||||||||
| Total other income (expense), net | 759 | (24,333 | ) | 25,092 | (5,340 | ) | (25,784 | ) | 20,444 | |||||||||||||||
| Loss before income taxes | (1,234 | ) | (26,592 | ) | 25,358 | (12,565 | ) | (38,761 | ) | 26,196 | ||||||||||||||
| Provision for income taxes | (6 | ) | (12 | ) | 6 | (17 | ) | (19 | ) | 2 | ||||||||||||||
| Net loss | $ | (1,240 | ) | $ | (26,604 | ) | $ | 25,364 | $ | (12,582 | ) | $ | (38,780 | ) | $ | 26,198 | ||||||||
Revenue
As a result of the Assignment Agreement, for the three and nine months ended September 30, 2024, we fully accelerated the revenue recognition of approximately $0.5 million related to non-refundable payments we received from the customer. For additional information on this customer contract, see Note 3 to the accompanying condensed consolidated financial statements. We did not have any revenue generating contracts during the three and nine months ended September 30, 2025.
Cost of Revenue
During the nine months ended September 30, 2024, our cost of revenues included direct labor and materials to perform the customization cell line activities. During the three months ended September 30, 2024, we recognized a credit for amounts previously accrued related to customization cell line activities that were no longer due as a result of entering into the Assignment Agreement. There was no such cost recognized for the three and nine months ended September 30, 2025.
Research and Development Expenses
| Three months ended September 30, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Professional fees | $ | 233 | $ | 64 | $ | 169 | ||||||
| Payroll-related | 123 | 71 | 52 | |||||||||
| MSA/license fees | 510 | 767 | (257 | ) | ||||||||
| Study fees | 60 | 48 | 12 | |||||||||
| Other expenses, net | 109 | 51 | 58 | |||||||||
| Total research and development expenses | $ | 1,035 | $ | 1,001 | $ | 34 | ||||||
| 21 |
| Nine months ended September 30, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Professional fees | $ | 591 | $ | 152 | $ | 439 | ||||||
| Study fees | 472 | 200 | 272 | |||||||||
| MSA/license fees | 1,810 | 2,392 | (582 | ) | ||||||||
| Payroll-related | 365 | 518 | (153 | ) | ||||||||
| Other expenses, net | 242 | 184 | 58 | |||||||||
| Total research and development expenses | $ | 3,480 | $ | 3,446 | $ | 34 | ||||||
Total research and development expenses increased slightly for the three months ended September 30, 2025 compared to the three months ended September 30, 2024, primarily due to increased use of consulting services and increase in headcount, offset by a reduction in the Factor Bioscience license fee arrangement for the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
Total research and development expenses increased slightly for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, primarily due to increased use of consulting services and costs associated with our ERNA-101 and ERNA-201 studies, offset by a reduction in the Factor Bioscience license fee arrangement and reductions in payroll-related costs due to a decrease in average headcount for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024.
General and Administrative Expenses
| Three months ended September 30, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Occupancy expense | $ | 6 | $ | 1,267 | $ | (1,261 | ) | |||||
| Professional fees | 215 | 1,125 | (910 | ) | ||||||||
| Stock-based compensation | 284 | 392 | (108 | ) | ||||||||
| Payroll-related | 313 | 367 | (54 | ) | ||||||||
| Insurance | 59 | 93 | (34 | ) | ||||||||
| Other expenses, net | 81 | 137 | (56 | ) | ||||||||
| Total general and administrative expenses | $ | 958 | $ | 3,381 | $ | (2,423 | ) | |||||
| Nine months ended September 30, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Occupancy expense | $ | 21 | $ | 5,068 | $ | (5,047 | ) | |||||
| Professional fees | 1,041 | 3,409 | (2,368 | ) | ||||||||
| Insurance | 205 | 405 | (200 | ) | ||||||||
| Payroll-related | 1,134 | 1,234 | (100 | ) | ||||||||
| Stock-based compensation | 1,123 | 1,036 | 87 | |||||||||
| Other expenses, net | 221 | 440 | (219 | ) | ||||||||
| Total general and administrative expenses | $ | 3,745 | $ | 11,592 | $ | (7,847 | ) | |||||
Our general and administrative expenses for the three months ended September 30, 2025 decreased by approximately $2.4 million primarily due to decreases in (i) rent expense due to a sublease we terminated in August 2024, (ii) professional fees primarily related to a reduction in legal fees for licensed intellectual property and prior litigation matters, and (iii) stock-based compensation due to equity awards becoming fully vested prior to the three months ended September 30, 2025 compared to the three months ended September 30, 2024.
For the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024, our general and administrative expenses decreased $7.8 million primarily due to the termination of the sublease, reduction in professional fees for licensed intellectual property and prior litigation legal fees as well as a reduction in certain consulting expenses, decreased insurance premiums and a reduction in payroll related expenses. We will continue to focus on finding operational efficiencies that result in cost savings.
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Gain on Lease Termination
In August 2024, we entered into a sublease termination agreement, effective August 31, 2024, for a facility we were subleasing. Pursuant to the sublease termination agreement, we agreed to surrender and vacate the premises, all of our right, title and interest in all furniture, fixtures and laboratory equipment at the premises became the property of the sublessor, and both parties were released of their obligations under the sublease. As a result of the sublease termination, we recognized a gain on lease termination of approximately $1.6 million for the three and nine months ended September 30, 2024 in the accompanying condensed consolidated statement of operations. There was no similar transaction during the three or nine months ended September 30, 2025.
Forward sales contract expense
For the nine months ended September 30, 2025, we recognized $5.8 million related to the forward sales contract, $5.3 million of which was initially recognized at the contract inception date because the fair value of the shares that were expected to be issued under a securities purchase agreement entered into in March 2025 (the “2025 SPA”) exceeded the proceeds, and the remaining $0.5 million loss was related to the change in fair value that was remeasured immediately prior to the respective settlement of the shares issued under the 2025 SPA. See Note 12, Equity Transactions – 2025 Private Placement, to the accompanying condensed consolidated statement of operations for more information on this 2025 SPA. There was no similar transaction for the three months ended September 30, 2025 or the three and nine months ended September 30, 2024.
Gain (Loss) on Extinguishment of Debt
During the three and nine months ended September 30, 2025, we recognized a gain on extinguishment of debt of approximately $0.7 million related to liabilities that have been deemed to be time-barred from collection under the respective state laws. See Note 6, Accounts Payable and Accrued Expenses, to the accompanying condensed consolidated financial statements for more information.
We recognized a $22.4 million loss on extinguishment of debt for the three and nine months ended September 30, 2024 related to (i) agreements to exchange certain convertible notes and warrants into shares of our common stock and (ii) a common stock private placement entered into on September 24, 2024. See Note 12, Equity Transactions – 2024 Exchange Transaction and Common Stock Private Placement to the accompanying condensed consolidated financial statements for more information on these transactions.
Fair Value Adjustments to Bridge Notes Derivative Liability
We recognized expense of $1.6 million related to the initial measurement at September 24, 2024 of the incremental fair value of the bridge notes derivative liability over the carrying value due to bifurcation of a conversion feature from convertible bridge notes issued in September 2024. This was offset by a $0.6 million credit for the change in fair value of the bridge notes derivative liability due to remeasuring the liability as of September 30, 2024. There was no similar transaction during the three or nine months ended September 30, 2025. See Note 8 to the accompanying condensed consolidated financial statements for more information on the bridge notes.
Change in Fair Value of Warrant Liabilities
The change in the fair value of the warrant liabilities for the three and nine months ended September 30, 2025 was de minimis.
We recognized credits of approximately $0.8 million and $0.9 million for the three and nine months ended September 30, 2024 for the change in the fair value of warrant liabilities, which includes certain warrants that were reclassified to a liability on September 24, 2024. The credits were due to a decrease in the market price of our common stock as of September 30, 2024. See Note 12 – 2024 Exchange Transaction to the accompanying condensed consolidated financial statements for more information on the reclassification of the warrants.
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Change in Fair Value of Contingent Consideration
As of September 30, 2024, we remeasured a contingent liability and recognized a credit of less than $0.1 million for the nine months ended September 30, 2024 due to a decrease in the fair value of the contingent consideration liability. There were no amounts recognized for the three months ended September 30, 2024 or the three and nine months ended September 30, 2025.
Interest Income (Expense), net
For the three months ended September 30, 2025, we recognized $1.7 million less in interest expense due to a reduction in interest-bearing debt compared to the three months ended September 30, 2024.
For the Nine months ended September 30, 2025, we recognized $3.3 million less in interest expense due to a reduction in interest-bearing debt, and we also recognized approximately $0.1 million less in interest income due to having reduced cash balances when compared to the nine months ended September 30, 2024.
Other Expense, net
During the nine months ended September 30, 2025, we recognized approximately $0.3 million of expenses related to the 2025 SPA transaction entered into on March 31, 2025. See Note 12, 2025 Private Placement, to the accompanying condensed consolidated statement of operations for more information on the 2025 SPA. Other expense, net, for the three months ended September 30, 2025 was de minimis. There was no comparable expense for the three and nine months ended September 30, 2024.
Provision for Income Taxes
During 2025, we expect to incur state income tax liabilities related to our operations. We have established a full valuation allowance for all deferred tax assets, including our net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets. The effective tax rate differs from the statutory tax rate due primarily to our full valuation allowance.
In July 2025, the One Big Beautiful Bill Act (the “Tax Act”) was enacted, introducing a series of corporate tax changes in the U.S., including 100% bonus depreciation on qualified property and full expensing for research and development expenditures. The impacts of the Tax Act are reflected in our results for the three and nine months ended September 30, 2025, and there was no material impact to our income tax expense or effective tax rate.
Liquidity and Capital Resources
As of September 30, 2025, we had cash of approximately $3.0 million, and we had an accumulated deficit of approximately $244.1 million. We have to date incurred operating losses, and we expect these losses to continue in the future. We incurred a net loss of $1.2 million for the three months ended September 30, 2025, and for the nine months ended September 30, 2025, we incurred a net loss of $12.6 million, which includes a $5.8 million non-cash expense related to the forward sales contract. For the nine months ended September 30, 2025, we used $5.9 million of cash in operating activities.
On March 11, 2025 and March 20, 2025, we received $1.5 million and $0.8 million, respectively, for the issuance of two promissory notes with an aggregate principal amount of $2.3 million to an investor. The promissory notes had a maturity date of the earlier of (i) June 15, 2025 or (ii) upon us receiving greater than $5 million in aggregate proceeds from a subsequent capital raise. Interest accrued at a rate of 5.0% per annum, payable at maturity. During the nine months ended September 30, 2025, the Company repaid the notes in full for $2.3 million, including accrued interest. See Note 8 to the accompanying condensed consolidated statement of operations for more information on the promissory notes.
During the nine months ended September 30, 2025, we raised $7.2 million in gross proceeds from the sale of shares of our common stock and prefunded warrants. We used a portion of the proceeds from this financing to repay the notes, as discussed above. See Note 12, Equity Transactions – 2025 Private Placement, to the accompanying condensed consolidated statement of operations for additional information regarding this financing.
| 24 |
Based on our current financial condition and forecasts of available cash, we will not have sufficient capital to fund our operations for the 12 months following the issuance date of the accompanying condensed consolidated financial statements. We can provide no assurance that we will be able to obtain additional capital when needed, on favorable terms, or at all. If we cannot raise capital when needed, on favorable terms or at all, we will need to reevaluate our planned operations and may need to reduce expenses, file for bankruptcy, reorganize, merge with another entity, or cease operations. If we become unable to continue as a going concern, we may have to liquidate our assets and might realize significantly less than the values at which they are carried on our financial statements, and stockholders may lose all or part of their investment in our common stock. See the risk factor in Item 1A of Part I of our 2024 10-K titled, “We will require substantial additional capital to fund our operations and execute our business strategy, and we may not be able to raise adequate capital on a timely basis, on favorable terms, or at all.”
Historically, the cash used to fund our operations has come from a variety of sources and predominantly from sales of shares of our common stock and convertible notes. We will continue to evaluate and plan to raise additional funds to support our working capital needs through public or private equity offerings, debt financings, strategic partnerships, out-licensing our intellectual property, grants or other means. There can be no assurance that capital will be available when needed or that, if available, it will be obtained on terms favorable to us and our stockholders. Our ability to raise capital through sales of our common stock will depend on a variety of factors including, among others, market conditions, the trading price and volume of our common stock, and investor sentiment. In addition, macroeconomic factors and volatility in the financial market, which may be exacerbated in the short term by concerns over inflation, interest rates, impacts of the wars in Ukraine and the Middle East, strained relations between the U.S. and several other countries, and social and political discord and unrest in the U.S., among other things, may make equity or debt financings more difficult, more costly or more dilutive to our stockholders.
In addition, equity or convertible debt financings may have a dilutive effect on the holdings of our existing stockholders, and debt financings may subject us to restrictive covenants, operational restrictions and security interests in our assets. If we raise capital through collaborative arrangements, we may be required to relinquish some rights to our technologies or grant sublicenses on terms that are not favorable to us.
We prepared the accompanying condensed consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. As discussed above, there is substantial doubt about our ability to continue as a going concern because we do not have sufficient cash to satisfy our working capital needs and other liquidity requirements over at least the next 12 months from the date of issuance of the accompanying condensed consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and reclassification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty of our ability to remain a going concern.
Cash Flows
Cash flows from operating, investing and financing activities, as reflected in the accompanying condensed consolidated statements of cash flows, are summarized as follows:
For the nine months ended September 30, | ||||||||||||
| 2025 | 2024 | Change | ||||||||||
| (in thousands) | ||||||||||||
| Cash (used in) provided by: | ||||||||||||
| Operating activities | $ | (5,869 | ) | $ | (12,291 | ) | $ | 6,422 | ||||
| Investing activities | (22 | ) | (365 | ) | 343 | |||||||
| Financing activities | 7,209 | 5,250 | 1,959 | |||||||||
| Net increase (decrease) in cash and cash equivalents | $ | 1,318 | $ | (7,406 | ) | $ | 8,724 | |||||
Net Cash Used in Operating Activities
There was a decrease of approximately $6.4 million in cash used in operating activities for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024. This change was due a $5.9 million decrease in net loss, after giving effect to adjustments made for non-cash transactions, primarily due to a decrease in occupancy expense and professional fees, and by a decrease of $0.5 million in cash used in operating assets and liabilities for the nine months ended September 30, 2025 compared to the nine months ended September 30, 2024 primarily related to terminating our facility sublease and accelerating the recognition of deferred revenue.
| 25 |
Net Cash Used in Investing Activities
We used less than $0.1 Million and approximately $0.3 million to pay for the purchases of property and equipment during the nine months ended September 30, 2025 and 2024, respectively.
Net Cash Provided by Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2025 includes $2.3 million of gross proceeds received from the issuance of two promissory notes and $4.9 million of proceeds received from the 2025 SPA, net of offsetting $2.3 million of a receivable related to 2025 SPA due from a related party with the outstanding notes payable, including accrued interest, due to the same related party. Net cash provided by financing activities for the nine months ended September 30, 2024 includes $5.3 million of gross proceeds received from (i) the issuance of convertible notes in January 2024 and the fees related to such issuance and (ii) proceeds received from the bridge note financing in September 2024.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements, as defined under applicable SEC rules.
Critical Accounting Estimates
There were no significant changes in our critical accounting estimates during the three and nine months ended September 30, 2025 from those described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2024 10-K.
Recent Accounting Pronouncements
See Note 15 to the accompanying condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Under the rules and regulations of the SEC, as a smaller reporting company we are not required to provide the information otherwise required by this item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures.
In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this Quarterly Report under the supervision, and with the participation, of our management, including our President and Chief Executive Officer (who serves as our principal executive officer) and our Senior Vice President of Finance (who serves as our principal financial officer) of the effectiveness of the design and operation of our disclosure controls and procedures.
Based on that evaluation, our Chief Executive Officer and Senior Vice President of Finance concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report in providing reasonable assurance of achieving the desired control objectives.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
| 26 |
PART II — OTHER INFORMATION
Item 1. Legal Proceedings.
The information set forth under “Note 11—Commitments and Contingencies—Litigation Matters” to the accompanying condensed consolidated financial statements included in this Quarterly Report is incorporated in this Item 1 by reference.
From time to time, we may become involved in legal proceedings arising in the ordinary course of business. Except as described above, we are not party to any material legal proceedings.
Item 1A. Risk Factors.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described under Part I, Item 1A, “Risk Factors,” in our 2024 10-K, in addition to other information in this report, when evaluating our business and before deciding whether to purchase, hold or sell shares of our common stock. Each of these risks and uncertainties, as well as additional risks and uncertainties not presently known to us or that we currently consider immaterial, could harm our business, financial condition, results of operations and/or growth prospects, as well as adversely affect the market price of our common stock, in which case you may lose all or part of your investment. There have been no material changes to the risk factors described in the 2024 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
(a) None.
(b) None.
(c)
During the quarter covered by this report, none of our directors or officers (as defined in Rule 16a-1(f) under the Exchange Act)
| 27 |
Item 6. Exhibits
| Exhibit | Description | Incorporated By Reference | ||
| 31.1 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
| 31.2 | Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | Filed herewith | ||
| 32.1 | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | ||
| 32.2 | Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | Furnished herewith | ||
| 101 | Inline XBRL Document Set for the financial statements and accompanying notes in Part I, Item 1, of this Quarterly Report on Form 10-Q. | Filed herewith | ||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| 28 |
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 hereunto duly authorized.
| ERNEXA THERAPEUTICS INC. | ||
| Date: November 7, 2025 | By: | /s/ Sanjeev Luther |
| Sanjeev Luther | ||
| President and Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: November 7, 2025 | By: | /s/ Sandra Gurrola |
| Sandra Gurrola | ||
| Senior Vice President of Finance | ||
| (Principal Financial Officer and Principal Accounting Officer) |
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FAQ
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