UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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)
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(Address of principal executive offices) |
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(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicated 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 the 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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant 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 8, 2024, the Registrant had
International Stem Cell Corporation and Subsidiaries
Form 10-Q
Table of Contents
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Page Numbers |
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Item 1. |
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3 |
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Condensed Consolidated Balance Sheets as of September 30, 2024 (Unaudited) and December 31, 2023 |
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4 |
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5 |
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6 |
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Notes to Condensed Consolidated Financial Statements (Unaudited) |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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Item 4. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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30 |
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2
PART I – FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
(In thousands, except share and par value data)
(Unaudited)
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September 30, |
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December 31, |
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2024 |
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2023 |
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Assets |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable, net |
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Inventories |
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Prepaid expenses and other current assets |
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Total current assets |
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Non-current inventories |
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Property and equipment, net |
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Intangible assets, net |
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Right-of-use assets |
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Deposits and other assets |
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Total assets |
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$ |
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$ |
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Liabilities, Redeemable Convertible Preferred Stock and Stockholders' Deficit |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued liabilities |
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Operating lease liabilities, current |
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Advances |
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Total current liabilities |
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Operating lease liabilities, net of current portion |
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Total liabilities |
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Series D redeemable convertible preferred stock, $ |
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Stockholders' Deficit: |
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Non-redeemable convertible preferred stock, $ |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total stockholders' deficit |
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Total liabilities, redeemable convertible preferred stock and stockholders' deficit |
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$ |
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$ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
3
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
(In thousands, except share and per share data)
(Unaudited)
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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$ |
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$ |
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$ |
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$ |
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Operating expenses: |
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Cost of sales |
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General and administrative |
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Selling and marketing |
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Research and development |
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Total operating expenses |
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Loss from operations |
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Other income (expense): |
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Interest expense |
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( |
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Other income |
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— |
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— |
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Employee retention credit |
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— |
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— |
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— |
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Total other income (expense), net |
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( |
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( |
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Net income (loss) |
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( |
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( |
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( |
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Undistributed earnings allocated to participating securities |
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— |
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— |
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— |
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Net income (loss) allocable to common stockholders |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Net income (loss) per common share, basic and diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted-average common shares used to compute |
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See accompanying notes to the unaudited condensed consolidated financial statements.
4
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Statements of Changes in Redeemable Convertible
Preferred Stock and Stockholders’ Deficit
(In thousands)
(Unaudited)
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Three and Nine Months Ended September 30, 2024 |
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Series D Redeemable |
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Non-redeemable |
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Convertible |
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Convertible |
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Common |
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Additional |
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Total |
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Preferred Stock |
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Preferred Stock |
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Stock |
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Paid-in |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance at December 31, 2023 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at March 31, 2024 |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at June 30, 2024 |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at September 30, 2024 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Three and Nine Months Ended September 30, 2023 |
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Series D Redeemable |
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Non-redeemable |
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Convertible |
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Convertible |
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Common |
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Additional |
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Total |
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Preferred Stock |
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Preferred Stock |
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Stock |
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Paid-in |
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Accumulated |
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Stockholders' |
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Shares |
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Amount |
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Shares |
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Amount |
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Shares |
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Amount |
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Capital |
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Deficit |
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Deficit |
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Balance at December 31, 2022 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at March 31, 2023 |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at June 30, 2023 |
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— |
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( |
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( |
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Stock-based compensation |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance at September 30, 2023 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
5
International Stem Cell Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
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Nine Months Ended September 30, |
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2024 |
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2023 |
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Cash flows from operating activities |
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Net income (loss) |
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$ |
( |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating |
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Stock-based compensation |
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Depreciation and amortization |
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Non-cash operating lease expense |
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Non-cash interest expense on related party note payable |
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Change in inventory reserve |
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Impairment of intangible assets |
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— |
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Changes in operating assets and liabilities: |
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Accounts receivable |
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Inventories |
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Prepaid expenses and other current assets |
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( |
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Accounts payable |
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( |
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Accrued liabilities |
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( |
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( |
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Operating lease liabilities |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities |
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Purchases of property and equipment |
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Payments for patent licenses |
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Net cash used in investing activities |
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Cash flows from financing activities |
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Principal repayment on note payable from related party |
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( |
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— |
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Net cash used in financing activities |
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( |
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— |
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Net (decrease) increase in cash |
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( |
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Cash, beginning of period |
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Cash, end of period |
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$ |
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$ |
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Supplemental disclosure of non-cash investing activities: |
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Purchases of property and equipment included in accounts payable |
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$ |
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$ |
— |
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Supplemental disclosure of cash flow information: |
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Cash paid for interest |
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$ |
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$ |
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See accompanying notes to the unaudited condensed consolidated financial statements.
6
International Stem Cell Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description of Business, Basis of Presentation, and Summary of Significant Accounting Policies
Description of Business
International Stem Cell Corporation (the “Company”) was organized in Delaware in June 2005 and is headquartered in San Diego, California. The Company is primarily a research and development company for the therapeutic market, which has focused on advancing potential clinical applications of human parthenogenetic stem cells (“hpSCs”) for the treatment of various diseases of the central nervous system and liver. The Company has the following wholly owned subsidiaries:
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”) applicable to interim financial statements. Certain information and notes normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations. The unaudited interim condensed consolidated financial statements reflect all adjustments consisting of normal recurring adjustments which, in the opinion of management, are necessary for a fair statement of the Company’s condensed consolidated financial statements. The operating results for the three and nine months ended September 30, 2024 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2024. The condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the notes thereto for the year ended December 31, 2023 included in the Company’s annual report on Form 10-K filed with the SEC on March 28, 2024.
Going Concern
The Company had an accumulated deficit of approximately $
There can be no assurance that the Company will be successful in maintaining normal operating cash flow or obtaining additional funding. These circumstances raise substantial doubt about the Company’s ability to continue as a going concern. For the foreseeable future, the Company’s ability to continue its operations is dependent upon its ability to obtain additional financing or to extend the maturity on its existing financing. 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 the outcome of the uncertainty concerning the Company’s ability to continue as a going concern.
The Company continues to evaluate various financing sources and options to raise working capital to help fund current research and development programs and operations. The Company plans to obtain significant additional funding from sources, including through debt and equity financing, license arrangements, grants and/or collaborative research arrangements to sustain its operations and develop products.
The timing and degree of any future capital requirements will depend on several factors, including:
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Additional debt financing may be expensive and require the Company to pledge all or a substantial portion of its assets. If additional funds are obtained through arrangements with collaborative partners, these arrangements may require the Company to relinquish the rights to some of its technologies, product candidates, or products that the Company would otherwise seek to develop and commercialize on its own. Furthermore, if sufficient capital is not available, the Company may be required to delay, reduce the scope of, or eliminate one or more of its product initiatives. The Company’s failure to raise capital or enter into related arrangements when needed would have a negative impact on its financial condition.
Principles of Consolidation and Foreign Currency Transactions
The condensed consolidated financial statements include the accounts of International Stem Cell Corporation and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The functional currency of the Company and its wholly owned subsidiaries is the U.S. dollar. Monetary assets and liabilities that are not denominated in the functional currency are remeasured each reporting period into U.S. dollars at foreign currency exchange rates in effect at the respective balance sheet date. Non-monetary assets and liabilities and equity are remeasured at the historical exchange rates. Revenue and expenses are remeasured at the average rate in effect on the date of the transaction. Net realized and unrealized gains and losses from foreign currency transactions and remeasurement are reported in general and administrative expense in the accompanying condensed consolidated statements of operations and were not material for the periods presented.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Significant estimates include patent life (remaining legal life versus remaining useful life), inventories carrying values, and the fair value of stock option grants using the Black-Scholes option valuation model. By their nature, estimates are subject to an inherent degree of uncertainty and actual results could differ from these estimates.
Segments
The Company’s chief operating decision-maker reviews financial information presented on a consolidated basis, accompanied by disaggregated information for each reportable company’s statement of operations. The Company operates the business on the basis of
Inventories
Inventories are accounted for using the average cost and first-in, first-out (“FIFO”) methods for LCT cell culture media and reagents, specific identification method for other LCT products and average cost and specific identification methods for LSC products. Inventories are stated at the lower of cost or net realizable value. Laboratory supplies used in the research and development process are expensed as consumed. LCT’s inventories have a long product life cycle, do not have a shelf life when frozen, and future demand is uncertain. At each reporting period, the Company estimates its reserve allowance for excess and obsolete inventories using historical sales data and inventory turnover rates. The establishment of a reserve for excess and obsolete inventories establishes a new net cost basis for inventories, and charges are not reversed subsequently to income, even if circumstances later suggest that increased carrying amounts are recoverable. If the Company is able to sell previously reserved inventories, the related reserves and inventories balance would be reduced in the period of sale. The value of the inventories that are not expected to be sold within twelve months of the current reporting period is classified as non-current inventories on the accompanying condensed consolidated balance sheets.
Accounts Receivable, net
Trade accounts receivable are recorded at the invoice value, net of discounts, and are not interest bearing. Accounts receivable primarily consist of trade accounts receivable from the sales of LCT’s products as well as LSC trade receivable amounts related to spa and distributor sales. The Company considers receivables past due based on the contractual payment terms. The Company measures expected credit losses for financial instruments at each reporting date based on historical experience, current conditions and reasonable forecasts. The allowance for credit losses represents the Company’s estimate of expected credit losses relating to these factors. Amounts are written off against the allowance for credit losses when the Company determines that a customer account is uncollectible. As of September 30, 2024 and December 31, 2023, the Company’s allowance for credit losses was immaterial.
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Property and Equipment
Property and equipment are stated at cost. The provision for depreciation and amortization is computed using the straight-line method over the estimated useful lives of the assets, which are generally to
Intangible Assets
Intangible assets consist of acquired patent licenses and capitalized legal fees related to the acquisition, filing, maintenance, and defense of patents and trademarks. Amortization begins once the patent is issued by the appropriate authoritative bodies. In the period in which a patent application is rejected or efforts to pursue the patent are abandoned, all the related accumulated capitalized costs are expensed. Patents and other intangible assets are amortized on a straight-line basis over the useful life of the underlying patent, which is generally
Leases
The Company determines if an arrangement is a lease at inception. Operating leases are included in right-of-use assets, operating lease obligations, current, and operating lease obligations, net of current portion, on the Company’s consolidated balance sheets.
Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the present value of future minimum lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses a discount rate based on its estimated incremental borrowing rate to determine the right-of-use asset and operating lease liabilities to be recognized. The Company determines its incremental borrowing rate based on the terms and lease payments of its operating leases and what it would normally pay to borrow, on a collateralized basis, over similar terms for an amount equal to the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. In addition, the Company does not separate lease components from non-lease components.
Long-Lived Asset Impairment
The Company reviews long-lived assets for impairment when events or changes in circumstances (“triggering event”) indicate that the carrying value of an asset or group of assets may not be recovered. If a triggering event is determined to have occurred, the carrying value of an asset or group of assets is compared to the future undiscounted cash flows expected to be generated by the asset or group of assets. If the carrying value exceeds the undiscounted cash flows of the asset or group of assets, then an impairment exists, which is measured as the excess of fair value over the asset or asset group’s carrying value. Fair value is generally determined using the asset’s expected future discounted cash flows or market value, if readily determinable.
Revenue Recognition
The following table presents the Company's revenue disaggregated by segment, product group, and geography (in thousands, except percentages):
Biomedical market:
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Three Months Ended September 30, 2024 |
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Nine Months Ended September 30, 2024 |
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Domestic |
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International |
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Total |
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% of Total |
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Domestic |
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International |
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Total |
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% of Total |
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Biomedical products |
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Media |
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$ |
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$ |
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$ |
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% |
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$ |
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$ |
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$ |
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% |
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Cells |
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% |
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$ |
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% |
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Total |
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$ |
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$ |
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$ |
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% |
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$ |
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$ |
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$ |
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% |
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Three Months Ended September 30, 2023 |
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Nine Months Ended September 30, 2023 |
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Domestic |
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International |
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Total |
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% of Total |
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Domestic |
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International |
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Total |
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% of Total |
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Biomedical products |
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Media |
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$ |
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$ |
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$ |
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% |
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$ |
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$ |
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$ |
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% |
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Cells |
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% |
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Total |
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$ |
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$ |
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$ |
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% |
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$ |
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$ |
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$ |
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% |
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Anti-aging market:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Skin care products |
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$ |
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$ |
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$ |
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$ |
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Contract terms for the unit price, quantity, shipping and payment are governed by sales agreements, invoices or online order forms, which the Company considers to be a customer's contract. The unit price is considered the observable stand-alone selling price for the performance obligation(s) within the arrangements. Any promotional or volume sales discounts are applied evenly to the units sold for purposes of calculating standalone selling price.
The Company recognizes revenue when its customer obtains control of the promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. Product sales generally consist of a single performance obligation that the Company satisfies at a point in time (i.e., upon shipment of the product).
For LSC products, ecommerce sales are primarily paid through credit card charges. The anti-aging and biomedical products’ standard payment terms for its customers are generally 30 days after the Company satisfies the performance obligation(s).
The Company elects to account for shipping and handling costs, recognized as cost of sales, as activities to fulfill the promise to transfer the goods to a customer. As a result, no consideration is allocated to shipping and handling costs. Rather, the Company accrues the cost of shipping and handling upon shipment of the product, and all contract revenue (i.e., the transaction price) is recognized at the same time.
Variable Consideration
The Company records revenue from customers in an amount that reflects the consideration it expects to be entitled to after transferring control of those goods or services to a customer. From time to time, the Company offers sales promotions on its products such as discounts and free product offers. Variable consideration is estimated at contract inception only to the extent that it is probable that a significant reversal of revenue will not occur and is updated at the end of each reporting period as additional information becomes available.
Practical Expedients
The Company has elected the practical expedient to not determine whether contracts with customers contain significant financing components. The Company pays commissions on certain sales for its biomedical and anti-aging product markets once the customer payment has been received, which are accrued at the time of sale. The Company generally expenses sales commissions when incurred because the amortization period would be
Allowance for Sales Returns
The Company’s anti-aging products have a
Cost of Sales
Cost of sales consists primarily of salaries and benefits associated with employee efforts expended directly on the production of the Company’s products as well as related direct materials, shipping costs, general laboratory supplies and an allocation of overhead.
Research and Development Costs
Research and development costs, which are expensed as incurred, primarily consist of salaries and benefits associated with research and development personnel, overhead and occupancy costs, contract services costs, and amortization of license costs for technology used in research and development with alternative future uses, offset by the research and development tax credit provided by the Australian Taxation Office for qualified expenditures.
Australian Research and Development Tax Credit
The Company’s wholly owned subsidiary, Cyto Therapeutics, conducts various research and development activities on the Company’s product candidates in Australia. Under Australian tax law, the Australian Taxation Office provides for a refundable tax credit in the form of a cash refund equal to
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The refundable tax credit does not depend on the Company’s generation of future taxable income or ongoing tax status or position. Accordingly, the credit is not considered an element of income tax accounting under ASC 740 “Income Taxes”. The Company uses the grant accounting model by analogy to International Accounting Standards (“IAS”) 20 to account for the refundable tax credit from the Australian government. The Company recognizes the research and development tax credit as a reduction to research and development expense when there is reasonable assurance that the tax credit will be received, the relevant expenses have been incurred, and the amount can be reliably measured. During the nine months ended September 30, 2024 and 2023, the Company recognized a reduction in research and development expenses of $
Stock-Based Compensation
The cost of a stock-based award is measured at the grant date based on the estimated fair value of the award. Stock-based compensation is recognized as expense on a straight-line basis, net of forfeitures, which are recognized as incurred, over the requisite service period of the award. The fair value of stock options is estimated using the Black-Scholes option valuation model, which requires the input of subjective assumptions, including price volatility of the underlying stock, risk-free interest rate, dividend yield, and expected life of the option.
Fair Value Measurements
The carrying amounts of the Company’s accounts receivable, accounts payable, and accrued liabilities are considered to be representative of their respective fair values because of the short-term nature of those instruments. The carrying value of the Company's related party note payable does not approximate fair value. Refer to Note 7 – Related Party Transactions within the condensed consolidated financial statements for further discussion.
Net Income (Loss) Per Share
Basic net income (loss) per share attributable to common stockholders is calculated by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of common stock equivalents outstanding for the period determined using the treasury and two-class or “if-converted” method. The two-class method is not applicable during periods with a net loss, as the holders of the convertible preferred stock have no obligation to fund losses. Potentially dilutive common stock equivalents are comprised of stock options and convertible preferred stock.
The following table details the computation of basic and diluted net income (loss) per common share (in thousands, except share and per share data):
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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EPS Numerator |
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Net income (loss) |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Less: undistributed earnings allocated to participating securities |
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— |
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— |
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— |
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( |
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Net income (loss) attributable to common stockholders, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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EPS Denominator |
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Weighted-average number of common shares outstanding, basic and diluted |
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Net income (loss) per share attributable to common stockholders, basic and diluted |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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For the three and nine months ended September 30, 2024 and 2023, the following common stock options and convertible preferred stock were not included in the diluted net income (loss) per share calculation because the effect would have been anti-dilutive:
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Three Months Ended September 30, |
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Nine Months Ended September 30, |
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2024 |
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2023 |
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2024 |
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2023 |
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Employee stock options(1) |
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Redeemable convertible preferred stock |
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Non-redeemable convertible preferred stock |
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