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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 10-Q

 

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File Number 001-40789

 

 

 

Calidi Biotherapeutics, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   86-2967193

(State or other jurisdiction of

incorporation or organization)

 

(IRS Employer

Identification No.)

     

4475 Executive Drive, Suite 200,

San Diego, California

  92121
(Address of principal executive offices)   (Zip Code)

 

(858) 794-9600

(Registrant’s telephone number, including area code)

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class  

Trading

Symbol(s)

  Name of each exchange on which registered
Common Stock, $0.0001 par value   CLDI   NYSE American LLC
Warrants, each whole warrant exercisable for one share of common stock   CLDI WS   NYSE American LLC

 

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. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   Accelerated filer
Non-accelerated filer   Smaller reporting company
      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

As of May 10, 2024, the registrant had 50,924,284 shares of common stock, $0.0001 par value, outstanding, excluding 18,000,000 non-voting common stock held in escrow.

 

 

 

 
 

 

Calidi Biotherapeutics, Inc.

 

FORM 10-Q

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION  
     
Item 1. Condensed Consolidated Financial Statements (unaudited) 3
  Condensed Consolidated Balance Sheets 3
  Condensed Consolidated Statements of Operations 4
  Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit 6
  Condensed Consolidated Statements of Cash Flows 7
  Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 40
Item 3. Quantitative and Qualitative Disclosures About Market Risk 53
Item 4. Controls and Procedures 54
     
PART II - OTHER INFORMATION  
     
Item 1. Legal Proceedings 54
Item 1A. Risk Factors 54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 56
Item 3. Defaults Upon Senior Securities 56
Item 4. Mine Safety Disclosures 56
Item 5. Other Information 56
Item 6. Exhibits 57
  Signatures 58

 

2
 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

CALIDI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands except for par value data)

 

  

March 31,

2024

  

December 31,

2023

 
   (Unaudited)     
ASSETS          
CURRENT ASSETS          
Cash  $1,143   $1,949 
Prepaid expenses and other current assets   793    2,354 
Total current assets   1,936    4,303 
NONCURRENT ASSETS          
Machinery and equipment, net   1,165    1,270 
Operating lease right-of-use assets, net   3,798    4,073 
Other noncurrent assets   506    373 
TOTAL ASSETS  $7,405   $10,019 
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES          
Accounts payable  $3,805   $2,796 
Related party accounts payable   94    81 
Accrued expenses and other current liabilities   4,566    4,896 
Related party accrued expenses and other current liabilities   536    536 
Term notes payable, net of discount, including accrued interest   555    529 
Related party term notes payable, net of discount, including accrued interest   2,455    278 
Convertible notes payable, including accrued interest   1,021     
Related party bridge loan payable, including accrued interest   205     
Related party other current liability   567     
Finance lease liability, current   74    81 
Operating lease right-of-use liability, current   1,075    1,035 
Total current liabilities   14,953    10,232 
NONCURRENT LIABILITIES          
Operating lease right-of-use liability, noncurrent   2,756    3,037 
Finance lease liability, noncurrent   197    216 
Convertible notes payable, including accrued interest   3,375     
Warrant liability   647    623 
Related party warrant liability   50    48 
Related party term notes payable, net of discount, including accrued interest       2,060 
Other noncurrent liabilities       1,500 
Related party other noncurrent liabilities       538 
TOTAL LIABILITIES   21,978    18,254 
Commitments and contingencies (Note 11)   -    - 
STOCKHOLDERS’ DEFICIT          
Common stock, $0.0001 par value, 330,000 shares authorized; 35,727 and 35,522 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively   4    4 
Additional paid-in capital   92,209    91,380 
Accumulated other comprehensive income (loss), net of tax   11    (47)
Accumulated deficit   (106,797)   (99,572)
Total stockholders’ deficit   (14,573)   (8,235)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT  $7,405   $10,019 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

3
 

 

CALIDI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share data)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
   (Unaudited) 
OPERATING EXPENSES          
Research and development  $(2,743)  $(2,622)
General and administrative   (4,009)   (2,792)
Total operating expense   (6,752)   (5,414)
Loss from operations   (6,752)   (5,414)
OTHER INCOME (EXPENSES), NET          
Interest expense   (98)   (67)
Interest expense – related party   (155)   (150)
Change in fair value of debt, other liabilities, and derivatives   (198)   (1,026)
Change in fair value of debt, other liabilities, and derivatives – related party   (1)   (487)
Grant income       691 
Other expense, net   (17)   (5)
Total other expenses, net   (469)   (1,044)
LOSS BEFORE INCOME TAXES   (7,221)   (6,458)
Income tax provision   (4)   (4)
NET LOSS  $(7,225)  $(6,462)
Net loss per share; basic and diluted  $(0.20)  $(0.75)
Weighted average common shares outstanding; basic and diluted   35,552    8,655 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

4
 

 

CALIDI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
   (Unaudited) 
NET LOSS  $(7,225)  $(6,462)
Other comprehensive income, net of tax:          
Foreign currency translation adjustment   58    2 
COMPREHENSIVE LOSS  $(7,167)  $(6,460)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

5
 

 

CALIDI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT

(Unaudited)

(In thousands, except share amounts)

 

    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital    

Income (Loss)

   

Deficit

   

Deficit

 
   

Founders

Convertible

Preferred Stock

   

Series A-1

Convertible

Preferred Stock

   

Series A-2

Convertible

Preferred Stock

    Common Stock    

Additional

Paid-In

   

Accumulated

Other

Comprehensive

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount     Capital    

Income (Loss)

   

Deficit

   

Deficit

 
Balance at December 31, 2023               $                 $                              $              35,522,230     $         4     $ 91,380     $              (47 )   $ (99,572 )   $             (8,235 )
Issuance of common stock in lieu of cash for services                                         50,000             29                   29  
Issuance of common stock in lieu of cash for SEPA commitment fee                                         138,750             81                   81  
Issuance of common stock to Calidi stockholders as result of Merger                                         15,804                                
Issuance of warrants for legal settlement                                                     158                   158  
Financing fees                                                     (327 )                 (327 )
Stock-based compensation                                                     888                   888  
Foreign currency translation adjustments                                                           58             58  
Net loss                                                                 (7,225 )     (7,225 )
Balance at March 31, 2024         $           $           $       35,726,784     $ 4     $ 92,209     $ 11     $ (106,797 )   $ (14,573 )

 

   

Founders

Convertible

Preferred Stock

   

Series A-1

Convertible

Preferred Stock

   

Series A-2

Convertible

Preferred Stock

    Common Stock    

Additional

Paid-In

   

Accumulated

Other

Comprehensive

    Accumulated    

Total

Stockholders’

 
    Shares     Amount     Shares     Amount     Shares     Amount     Shares     Amount    

Capital

   

Income (Loss)

   

Deficit

   

Deficit

 
Balance at December 31, 2022(1)     4,329,816     $ 1,354       1,796,645     $ 3,871       1,059,274     $ 4,376       8,583,724     $            2     $ 19,928     $                (14 )   $ (70,356 )   $           (50,440 )
Issuance of common stock with term notes as interest paid in kind and other                                         29,752             187                   187  
Exercise of stock options                                         156,089             181                   181  
Stock-based compensation                                                     1,434                   1,434  
Foreign currency translation adjustments                                                           2             2  
Net loss                                                                 (6,462 )     (6,462 )
Balance at March 31, 2023     4,329,816     $ 1,354       1,796,645     $ 3,871       1,059,274     $ 4,376       8,769,565     $ 2     $ 21,730     $ (12 )   $ (76,818 )   $ (55,098 )

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

(1) Retroactively restated for reverse recapitalization.

 

6
 

 

CALIDI BIOTHERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   2024   2023 
   Three Months Ended March 31, 
   2024   2023 
   (Unaudited) 
CASH FLOWS FROM OPERATING ACTIVITIES:          
Net loss  $(7,225)  $(6,462)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation expense   102    93 
Amortization of right of use assets   272    90 
Amortization of debt discount and financing costs   16    201 
Stock-based compensation   888    1,434 
Change in fair value of debt, other liabilities and derivatives   199    1,513 
Other       14 
Changes in operating assets and liabilities:          
Prepaid expenses and other current assets   1,575    (283)
Accounts payable   968    21 
Accrued expenses and other current liabilities   (388)   236 
Operating lease right of use liability   (238)   36 
Net cash used in operating activities   (3,831)   (3,107)
CASH FLOWS FROM INVESTING ACTIVITIES:          
Purchases of machinery and equipment   (5)   (137)
Net cash used in investing activities   (5)   (137)
CASH FLOWS FROM FINANCING ACTIVITIES:          
Proceeds from exercise of stock options       181 
Related party proceeds from issuance of loan payable   200     
Proceeds from simple agreements for future equity (SAFE)       1,350 
Proceeds from issuance of convertible notes payable   3,000     
Proceeds from issuance of term notes payable       750 
Related party proceeds from issuance of term notes payable       1,600 
Repayment of financing lease obligations   (23)   (19)
Payment of interest on loan payable   (2)    
Payment of financing costs   (162)   (71)
Net cash provided by financing activities   3,013    3,791 
Effect of exchange rate changes on cash   17     
NET INCREASE (DECREASE) IN CASH AND RESTRICTED CASH   (806)   547 
CASH AND RESTRICTED CASH BALANCE:          
At beginning of the period   2,167    590 
At end of the period  $1,361   $1,137 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash paid for interest  $24   $12 
Cash paid for income taxes  $2   $5 
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING AND INVESTING ACTIVITIES          
Issuance of common stock in lieu of cash for services  $29   $ 
Issuance of common stock in lieu of cash for SEPA commitment fee  $81   $ 
Issuance of Warrants for legal settlement  $158   $ 
Issuance of Convertible Note for legal settlement  $1,500   $ 
Financing fees  $248   $234 
Discount on convertible note payable  $149   $ 
Issuance of common stock with term notes as interest paid in kind and other  $   $191 
Purchase of equipment included in accounts payable and accrued liabilities  $   $249 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

7
 

 

CALIDI BIOTHERAPEUTICS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Organization and Nature of Operations

 

On September 12, 2023, First Light Acquisition Group, Inc., a Delaware corporation (“FLAG”) consummated a series of transactions that resulted in the merger of FLAG Merger Sub Inc., a Nevada corporation and a wholly-owned subsidiary of FLAG and Calidi Biotherapeutics. Inc., a Nevada corporation (“Calidi”). Following the consummation of the Business Combination, FLAG was renamed “Calidi Biotherapeutics, Inc.” and Calidi was renamed “Calidi Biotherapeutics (Nevada), Inc. and became a wholly owned subsidiary of the Company (“Calidi”). Unless the context otherwise requires, the “Company” refers to Calidi Biotherapeutics, Inc., a Delaware corporation (f/k/a First Light Acquisition Group, Inc., a Delaware corporation) and its consolidated subsidiaries.

 

The Company was founded in 2014 and is a clinical stage immuno-oncology company that is developing proprietary allogeneic stem cell-based platforms to potentiate and deliver oncolytic viruses (vaccinia virus and adenovirus) and potentially other molecules to cancer patients. The Company is developing a pipeline of off-the-shelf allogeneic cell product candidates that are designed to: (i) protect oncolytic viruses from complement inactivation and innate immune cell inactivation by the body’s immune system; (ii) support oncolytic viral amplification in the allogeneic cells, and (iii) modify the tumor microenvironment to facilitate tumor cell targeting and viral amplification at the tumor sites for an extended period of time, potentially leading to an improved cancer therapy. The Company’s most advanced product candidates are discussed below.

 

CLD-101 (NeuroNova Platform) for newly diagnosed High Grade Glioma (“HGG”) (also referred to as “NNV1” as to the indication) is composed of an immortalized neural stem cell line loaded with an engineered oncolytic adeno virus for the treatment of HGG. NNV1 is a licensed program from Northwestern University (“Northwestern”) which the Company obtained the rights for commercialization in June 2021 (see Note 11). A phase I clinical trial for NNV1 in patients with newly diagnosed high-grade gliomas was completed by Northwestern in June 2021.

 

CLD-101 for recurrent HGG (also referred to as “NNV2” as to the recurrent HGG indication) is a licensed program under development for patents covering cancer therapies using the same CLD-101 (NeuroNova Platform) for recurrent HGG. The Company licensed this product candidate in July 2021 pursuant to an agreement with City of Hope for the commercial development of NNV2 (see Note 11).

 

CLD-201 (SuperNova) for advanced solid tumors (also referred to as “SNV1”), composed of allogeneic adipose-derived mesenchymal stem cells (AD-MSC) loaded with the tumor selective oncolytic vaccinia virus the Company refers to as “CAL1”. SNV1 is an internally developed product candidate for which the Company’s primary indications are for the treatment of advanced solid tumors, including head and neck cancer, triple-negative breast cancer and advanced soft tissue sarcoma.

 

The Company is also developing engineered oncolytic vaccinia virus constructs as well as allogeneic cell-based platforms with improved systemic anti-tumor immunity in the exploratory stages of development.

 

The Company’s operations to date have focused on organization and staffing, business planning, raising capital, licensing, acquiring and developing technology, establishing intellectual property portfolio, identifying potential product candidates and undertaking preclinical studies, process development and procuring manufacturing for preclinical and clinical trials. The Company’s product candidates are subject to long development cycles and the Company may be unsuccessful in its efforts to develop, obtain regulatory approval for or market its product candidates.

 

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, possible failure of preclinical studies or clinical trials, the need to obtain marketing approval for its product candidates, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with government regulations, the need to successfully commercialize and gain market acceptance of any of the Company’s products that are approved and the ability to secure additional capital to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive preclinical and clinical testing, and regulatory approval prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure, and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

 

8
 

 

Liquidity and Going Concern

 

The unaudited condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and settlement of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

The Company has experienced recurring losses from operations and negative cash flows from operating activities, has a significant accumulated deficit and expects to continue to incur net losses into the foreseeable future. The Company had an accumulated deficit of $106.8 million at March 31, 2024. During the three months ended March 31, 2024, the Company used $3.8 million for operating activities. As of March 31, 2024, the Company had cash of $1.2 million and restricted cash of $0.2 million. Management expects operating losses and negative cash flows to continue for the foreseeable future.

 

On December 10, 2023, the Company entered into a Standby Equity Purchase Agreement (the “SEPA”) with YA II PN, Ltd., a Cayman Island exempt limited partnership (“Yorkville”). Pursuant to the SEPA, the Company will have the right, but not the obligation, to sell to Yorkville up to $25.0 million of its shares of Common Stock, par value $0.0001 per share, at the Company’s request any time during the 36 months following the execution of the SEPA. Subject to certain conditions set forth in the SEPA, including payment of an additional commitment fee, the Company will have the right to increase the commitment amount under the SEPA by an additional $25.0 million. See Note 11 for more details.

 

Management estimates that based on the Company’s liquidity resources, there is substantial doubt about the Company’s ability to continue as a going concern within 12 months from the date of issuance of the financial statements. The accompanying financial statements have been prepared on the basis of the Company continuing to operate in the normal course of business and does not reflect any adjustments to the assets and liabilities related to the substantial doubt of its ability to continue as a going concern.

 

Management’s ability to continue as a going concern is dependent upon its ability to raise additional funding. Management’s plans to raise additional capital through public or private equity or debt financings to fulfill its operating and capital requirements for at least 12 months from the date of the issuance of the financial statements. However, the Company may not be able to secure such financing in a timely manner or on favorable terms, if at all. Furthermore, if the Company issues equity securities to raise additional funds, its existing stockholders may experience dilution, and the new equity securities may have rights, preferences and privileges senior to those of the Company’s existing stockholders.

 

9
 

 

Risks and Uncertainties

 

Changes in economic conditions, including rising interest rates, public health issues, lower consumer confidence, volatile equity capital markets, ongoing supply chain disruptions and the impacts of geopolitical conflicts, may affect the Company’s operations.

 

2. Summary of Significant Accounting Policies

 

Unaudited Interim Financial Information

 

The accompanying unaudited condensed consolidated financial statements as of March 31, 2024, and for the three months ended March 31, 2024 and 2023, have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial reporting. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, these unaudited condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to state fairly the Company’s financial position, results of operations and cash flows. Interim results are not necessarily indicative of results for a full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with Calidi’s audited consolidated financial statements for the year ended December 31, 2023 in the Company’s Form 10-K, which was filed with the Commission on March 15, 2024.

 

Any reference in these notes to applicable guidance is meant to refer to the authoritative U.S. GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the FASB.

 

Principles of Consolidation

 

The accompanying unaudited condensed consolidated financial statements of the Company include the accounts of its wholly owned subsidiary, Calidi Biotherapeutics (Nevada), Inc., a company incorporated in the state of Nevada and Calidi Biotherapeutics, Inc., StemVac GmbH (“StemVac”), a company organized under the laws of Germany, and Calidi Biotherapeutics Australia Pty Ltd (“Calidi Australia”), a wholly owned Australian subsidiary. StemVac’s primary operating activities include process development and other research and development activities for the SNV1 program performed for the Company under a cost-plus intercompany development agreement funded by the Company. Calidi Australia’s principal purpose is for conducting a part of the SNV1 clinical trials in Australia.

 

Variable interest entities (“VIEs”) are legal entities that either have an insufficient amount of equity at risk for the entity to finance its activities without additional subordinated financial support or, as a group, the holders of equity investment at risk lack the ability to direct the entity’s activities that most significantly impact economic performance through voting or similar rights, or do not have the obligation to absorb the expected losses or the right to receive expected residual returns of the entity.

 

For all VIEs in which the Company is involved, it assesses whether it is the primary beneficiary on an ongoing basis. In circumstances where the Company has both the power to direct the activities that most significantly impact the VIEs performance and the obligation to absorb losses or the right to receive the benefits of the VIE that could be significant, the Company would conclude that it is the primary beneficiary of the VIE, and the Company consolidates the VIE. In situations where the Company is not deemed to be the primary beneficiary of the VIE, it does not consolidate the VIE and only recognizes the Company’s interests in the VIE.

 

Calidi Cure LLC (“Calidi Cure”), a Delaware limited liability company formed in June 2023, is a special purpose vehicle entity that is solely managed and operated by Allan J. Camaisa, Chief Executive Officer and Chairman of the Board of Directors of the Company. Calidi Cure was created for the sole purpose of supporting the Series B Convertible Preferred Stock financing arrangement for Calidi, has no other operations, and will be dissolved as soon as practicable following the closing of the business combination between the Company and FLAG . As such, the level of equity in Calidi Cure is not sufficient to permit the entity to finance its activities without additional subordinated financial support provided by other parties. Accordingly, it was determined that Calidi Cure is a VIE and the Company is the primary beneficiary. As such, the Company has consolidated Calidi Cure into its unaudited condensed consolidated financial statements presented herein.

 

10
 

 

The accompanying unaudited condensed consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the Company’s financial condition and results of operations. All material intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and contingent assets and liabilities, at the date of the unaudited condensed consolidated financial statements, and the reported amounts during the reporting period. On an ongoing basis, management evaluates estimates which are subject to significant judgment, including, but not limited to, valuation methods used, assumptions requiring the use of judgment to prepare financial projections, timing of potential commercialization of acquired in-process intangible assets, applicable discount rates, comparable companies or transactions, liquidity events, assumptions related to the going concern assessments, allocation of direct and indirect expenses, useful lives associated with long- lived assets, key assumptions in operating and financing leases including incremental borrowing rates, loss contingencies, valuation allowances related to deferred income taxes, assumptions used to value common stock, debt and debt-like instruments, warrants, and stock-based awards and other equity instruments. Actual results may differ materially from those estimates.

 

Reclassification

 

Certain prior year financial statement amounts have been reclassified for consistency with the current year presentation. These reclassifications had no effect on our previously reported results of operations or accumulated deficit.

 

Cash and Restricted Cash

 

The Company considers all highly liquid investments purchased with an original maturity date of ninety days or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking, money market accounts and brokerage accounts.

 

The Company classifies cash that has contractual or legal restrictions imposed by third parties as restricted cash, which is restricted as to withdrawal or use except for the specified purpose under a contract. The Company classifies restricted cash as either part of prepaids and other current assets, or as part of other noncurrent assets, depending on the term and nature of the underlying contract with a financial institution, which requires the Company to hold a fixed amount of funds in a restricted money market account as collateral to the financial institution for the Company’s corporate credit card program with that financial institution.

 

The following table provides a reconciliation of cash and restricted cash reported within the balance sheet dates that comprise the total of the same such amounts shown in the unaudited condensed consolidated statements of cash flows (in thousands):

 

  

March 31,

2024

  

December 31,

2023

 
Cash  $1,143   $1,949 
Restricted cash included within prepaid expenses and other current assets   100    100 
Restricted cash included within other noncurrent assets   118    118 
Total cash and restricted cash as shown in the unaudited condensed consolidated statements of cash flows  $1,361   $2,167 

 

11
 

 

Machinery and Equipment

 

Machinery and equipment are stated at cost, less accumulated depreciation, and includes assets purchased under financing leases. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, generally over a period of 3 to 5 years. For equipment purchased under financing leases, The Company depreciates the equipment based on the shorter of the useful life of the equipment or the term of the lease, ranging from 3 to 5 years, depending on the nature and classification of the financing lease. Maintenance and repairs are expensed as incurred whereas significant renewals and betterments are capitalized. When assets are retired or otherwise disposed of, the cost and the related accumulated depreciation are removed from the respective accounts and any resulting gain or loss is reflected in the Company’s consolidated statements of operations.

 

Leases

 

The Company accounts for leases in accordance with ASC 842, Leases. The Company determines if an arrangement is a lease at inception. Leases are classified as either finance or operating, with classification affecting the pattern of expense recognition in the unaudited condensed consolidated statements of operations. When determining whether a lease is a finance lease or an operating lease, ASC 842 does not specifically define criteria to determine “major part of remaining economic life of the underlying asset” and “substantially all of the fair value of the underlying asset.” For lease classification determination, the Company continues to use: (i) greater than or equal to 75% to determine whether the lease term is a major part of the remaining economic life of the underlying asset; and (ii) greater than or equal to 90% to determine whether the present value of the sum of lease payments is substantially all of the fair value of the underlying asset. The Company accounts for the lease and non-lease components as a single lease component.

 

For operating leases, the Company recognizes right-of-use (“ROU”) assets and lease liabilities for leases with terms greater than 12 months in the unaudited condensed consolidated balance sheet, while leases with terms of 12 months or less are not capitalized. ROU assets represent the right to use an underlying asset during the lease term and lease liabilities represent the obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As most leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company uses the implicit rate when it is readily determinable. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The Company discloses the amortization of ROU assets and operating lease payments as a net amount, “Amortization of right-of-use assets and liabilities”, on the unaudited condensed consolidated statements of cash flows.

 

Finance leases are included in machinery and equipment, and in finance lease liabilities, current and noncurrent, in the unaudited condensed consolidated balance sheets.

 

See Note 11 for the San Diego Office lease which commenced on March 1, 2023, and was accounted for as an operating lease in accordance with ASC 842.

 

Impairment of Long-lived Assets

 

The Company assesses the impairment of long-lived assets, which consist primarily of right-of-use assets for operating leases and machinery and equipment, whenever events or changes in circumstances indicate that such assets might be impaired and the carrying value may not be recoverable. If events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable and the expected undiscounted future cash flows attributable to the asset are less than the carrying amount of the asset, an impairment loss equal to the excess of the assets carrying value over its fair value is recorded in the Company’s consolidated statements of operations.

 

12
 

 

Warrants

 

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. Warrants that meet the definition of a derivative financial instrument and the equity scope exception in ASC 815-10-15-74(a) are classified as equity and are not subject to remeasurement provided that the Company continues to meet the criteria for equity classification. Warrants that are classified as liabilities are accounted for at fair value and remeasured at each reporting date until exercise, expiration, or modification that results in equity classification. Any change in the fair value of the warrants is recognized as change in fair value of warrant liabilities in the unaudited condensed consolidated statements of operations. The classification of warrants, including whether warrants should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. The fair value of liability-classified warrants is determined using the Black-Scholes options pricing model (“Black-Scholes model”) which includes Level 3 inputs.

 

Fair Value Measurements

 

The Company follows ASC 820, Fair Value Measurement, which among other things, defines fair value, establishes a consistent framework for measuring fair value and expands disclosure for each major asset and liability category measured at fair value on either a recurring or nonrecurring basis. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Accordingly, fair value is a market-based measurement determined based on assumptions that market participants would use in pricing an asset or liability. The fair value hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

 

ASC 820 establishes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value, which are as follows:

 

  Level 1: Quoted prices in active markets for identical assets and liabilities;
     
  Level 2: Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted market prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
     
  Level 3: Unobservable inputs in which there is little or no market data and that are significant to the fair value of the assets or liabilities, which require the reporting entity to develop its own assumptions.

 

When quoted market prices are available in active markets, the fair value of assets and liabilities is estimated within Level 1 of the valuation hierarchy. If quoted prices are not available, then fair values are estimated by using pricing models, quoted prices of assets and liabilities with similar characteristics, or discounted cash flows, within Level 2 of the valuation hierarchy. In cases where Level 1 or Level 2 inputs are not available, the fair values are estimated by using inputs within Level 3 of the hierarchy. See Note 3 for fair value measurements.

 

Forward Purchase Agreement

 

On August 28, 2023, and August 29, 2023, FLAG and the Company entered into forward purchase agreements (each a “Forward Purchase Agreement”, and together, the “Forward Purchase Agreement”) with each of Meteora Strategic Capital, LLC (“MSC”), Meteora Capital Partners, LP (“MCP”), Meteora Select Trading Opportunities Master, LP (“MSTO”), Great Point Capital LLC (“Great Point”), Funicular Funds, LP (“Funicular Funds”) and Marybeth Wootton (“Wootton”) (with each of MSC, MCP, MSTO, Great Point, Funicular, and Wootton, individually a “Seller”, and together, the “Sellers”) for an OTC Equity Prepaid Forward Transaction. For purposes of the Forward Purchase Agreement, FLAG is referred to as the “Counterparty” prior to the consummation of the business combination), while the Company is referred to as the “Counterparty” after the consummation of the business combination. Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to such terms in the Forward Purchase Agreement.

 

13
 

 

Pursuant to the terms of the Forward Purchase Agreements, each Sellers intends to purchase up to a number of shares of Class A Common Stock, par value $0.0001 per share, of FLAG (“FLAG Class A Common Stock”) in the aggregate amount equal to up to 1,000,000, concurrently with the Closing pursuant to each Seller’s respective FPA Funding Amount PIPE Subscription Agreement, less, the number of FLAG Class A Common Stock purchased by each Seller separately from third parties through a broker in the open market (“Recycled Shares”).

 

The Forward Purchase Agreements provide that Sellers will be paid directly an aggregate cash amount (the “Prepayment Amount”) equal to the product of (i) the Number of Shares as set forth in each Pricing Date Notice and (ii) the redemption price per share as defined in Section 9.2(a) of FLAG’s Amended and Restated Certificate of Incorporation, as amended (the “Initial Price”) less (iii) an amount in USD equal to 0.50% of the product of (i) the Recycled Shares multiplied by (ii) the Initial Price paid by Seller to Counterparty on the Prepayment Date (which amount shall be netted from the Prepayment Amount) (the “Prepayment Shortfall”).

 

The Counterparty will pay to Seller the Prepayment Amount required under the respective Forward Purchase Agreement directly from the Counterparty’s Trust Account maintained by Continental Stock Transfer and Trust Company holding the net proceeds of the sale of the units in the Counterparty’s initial public offering and the sale of private warrants (the “Trust Account”) no later than the earlier of (a) one business day after the Closing Date and (b) the date any assets from the Trust Account are disbursed in connection with the Business Combination, except that to the extent the Prepayment Amount payable to a Seller is to be paid from the purchase of Additional Shares by such Seller pursuant to the terms of its FPA Funding Amount PIPE Subscription Agreement, such amount will be netted against such proceeds, with such Seller being able to reduce the purchase price for the Additional Shares by the Prepayment Amount.

 

Following the Closing, the reset price (the “Reset Price”) will initially be $10.00; provided, however, that the Reset Price may be reduced immediately to any lower price at which the Counterparty sells, issues or grants any FLAG Class A Common Stock or securities convertible or exchangeable into FLAG Class A Common Stock (excluding any secondary transfers) (a “Dilutive Offering”), then the Reset Price shall be modified to equal such reduced price as of such date.

 

From time to time and on any date following the Trade Date (any such date, an “OET Date”), Seller may, in its discretion, terminate its Forward Purchase Agreement in whole or in part by providing written notice to the Counterparty (the “OET Notice”), by the later of (a) the fifth Local Business Day following the OET Date and (b) no later than the next Payment Date following the OET Date (which shall specify the quantity by which the Number of Shares shall be reduced (such quantity, the “Terminated Shares”)); provided that “Terminated Shares” includes only such quantity of Shares by which the Number of Shares is to be reduced and included in an OET Notice and does not include any other Share sales, Shortfall Sale Shares or sales of Shares that are designated as Shortfall Sales (which designation can be made only up to the amount of Shortfall Sale Proceeds), any Share Consideration sales or any other Shares, whether or not sold, which shares will not be included in any OET Notice when calculating the number of Terminated Shares. The effect of an OET Notice shall be to reduce the Number of Shares by the number of Terminated Shares specified in such OET Notice with effect as of the related OET Date. As of each OET Date, the Counterparty shall be entitled to an amount from the Seller, and the Seller shall pay to the Counterparty an amount, equal to the product of (x) the number of Terminated Shares and (y) the Reset Price in respect of such OET Date, except that no such amount will be due to Counterparty upon any Shortfall Sale. The payment date may be changed within a quarter at the mutual agreement of the parties.

 

From time to time and on any date following the Trade Date (any such date, a “Shortfall Sale Date”) Seller may, in its absolute discretion, at any sales price, sell Shortfall Sale Shares, and in connection with such sales, Seller shall provide written notice to Counterparty (the “Shortfall Sale Notice”) no later than the later of (a) the fifth Local Business Day following the Shortfall Sales Date and (b) the first Payment Date after the Shortfall Sales Date, specifying the quantity of the Shortfall Sale Shares and the allocation of the Shortfall Sale Proceeds. Seller shall not have any Early Termination Obligation in connection with any Shortfall Sales. The Counterparty covenants and agrees for a period of at least sixty (60) Local Business Days (commencing on the Prepayment Date or if an earlier Registration Request is submitted by Seller on the Registration Statement Effective Date) not to issue, sell or offer or agree to sell any Shares, or securities or debt that is convertible, exercisable or exchangeable into Shares, including under any existing or future equity line of credit, until the Shortfall Sales equal the Prepayment Shortfall.

 

14
 

 

Unless and until the proceeds from Shortfall Sales equal 100% of the Prepayment Shortfall, in the event that the product of (x) the difference between (i) the number of Shares as specified in the Pricing Date Notice(s), less (ii) any Shortfall Sale Shares as of such measurement time, multiplied by (y) the VWAP Price, is less than (z) the difference between (i) the Prepayment Shortfall, less (ii) the proceeds from Shortfall Sales as of such measurement time (the “Shortfall Variance”), then the Counterparty, as liquidated damages in respect of such Shortfall Variance, at its option shall within five (5) Local Business Days either:

 

(A) Pay in cash an amount equal to the Shortfall Variance; or

 

(B) Issue and deliver to Seller such number of additional Shares that are equal to (1) the Shortfall Variance, divided by (2) 90% of the VWAP Price (the “Shortfall Variance Shares”).

 

The valuation date will be the earliest to occur of (a) 36 months after of the Closing Date, (b) the date specified by a Seller in a written notice to be delivered to the Counterparty at a Seller’s discretion (which Valuation Date shall not be earlier than the day such notice is effective) after the occurrence of any of (v) a Shortfall Variance Registration Failure, (w) a VWAP Trigger Event (x) a Delisting Event, (y) a Registration Failure or (z) unless otherwise specified therein, upon any Additional Termination Event and (c) the date specified by Seller in a written notice to be delivered to Counterparty at Seller’s sole discretion (which Valuation Date shall not be earlier than the day such notice is effective) (the “Valuation Date”).

 

On the Cash Settlement Payment Date, which is the tenth business day following the last day of the valuation period commencing on the Valuation Date, a Seller shall pay the Counterparty a cash amount equal to either: (1) in the event that the Valuation Date is determined by clause (c) of the Valuation Date definition, a cash amount equal to (A) the Number of Shares as of the Valuation Date, multiplied by (2) the closing price of the Shares on the Exchange Business Day immediately preceding the Valuation Date, or (2) (A) the Number of Shares as of the Valuation Date less the number of Unregistered Shares, multiplied by (B) the volume-weighted daily VWAP Price over the Valuation Period less (3) if the Settlement Amount Adjustment is less than the cash amount to be paid, the Settlement Amount Adjustment. The Settlement Amount Adjustment is equal to (1) the Maximum Number of Shares as of the Valuation Date multiplied by (2) $2.00 per share, and the Settlement Amount Adjustment will be automatically netted from the Settlement Amount. If the Settlement Amount Adjustment exceeds the Settlement Amount, the Counterparty will pay the Seller in FLAG Class A Common Stock or, at the Counterparty’s election, in cash.

 

Seller has agreed to waive any redemption rights under FLAG’s Amended and Restated Certificate of Incorporation, as amended, with respect to any FLAG Class A Common Stock purchased through the FPA Funding Amount PIPE Subscription Agreement and any Recycled Shares in connection with the Business Combination, that would require redemption by FLAG of the Class A Common Stock. The Forward Purchase Agreement has been structured, and all activity in connection with such agreement has been undertaken, to comply with the requirements of all tender offer regulations applicable to the Business Combination under the Securities Exchange Act of 1934, as amended.

 

During the 36-month term of the Forward Purchase Agreement, if the Sellers liquidate the 1,000,000 shares in the market above $10.00 per share, then the Company will be entitled to receive up to $10.0 million in cash from the Sellers pursuant to the Forward Purchase Agreement. If the Sellers liquidate the shares below $10.00 per share, then the Company will be entitled to the price sold less $2.00 per share, from the Sellers. No proceeds will be available to the Company if the Forward Purchase Agreement shares are sold below $2.00 per share. The Forward Purchase Agreement may be terminated earlier by the Sellers if certain default events occur, including the stock price trading below defined thresholds for a defined period. In no event will the Company be obligated to pay cash to the Sellers during the term of the Forward Purchase Agreement or at its expiration.

 

On March 8, 2024, the Company and one of the sellers mutually terminated and cancelled 340,000 shares per the Forward Purchase Agreement described above.

 

15
 

 

Convertible Instruments

 

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 – Derivatives and Hedging. Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as freestanding derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

 

The Company reviews the terms of convertible instruments issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.

 

Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as nonoperating income or expense. When the convertible instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815 Derivatives and Hedging. The Company values its derivatives using the Black-Scholes option-pricing model or other acceptable valuation models, as applicable, with the assistance of valuation specialists. Derivative instruments accounted for as liabilities are valued at inception and subsequent valuation dates for each reporting period the derivative instrument remains outstanding. The classification of derivative instruments, including whether such instruments should be recorded as liabilities, is reassessed at each reporting period.

 

The Company evaluates equity or liability classification for common stock warrants in accordance with ASC 480, Distinguishing Liabilities from Equity, and ASC 815 and accounts for common stock warrants as liabilities if the warrant requires net cash settlement or gives the holder the option of net cash settlement or it otherwise does not meet other equity classification criteria. The Company accounts for common stock warrants as equity if the contract requires physical settlement or net physical settlement or if the Company has the option of physical settlement or net physical settlement and the warrants meet the requirements to be classified as equity. Common stock warrants classified as liabilities are initially recorded at fair value and remeasured at fair value at each subsequent reporting period with the offset adjustments recorded in change in fair value of warrant liability within the unaudited condensed consolidated statements of operations. Common stock warrants classified as equity are initially measured at fair value on the grant date and are not subsequently remeasured.

 

As of March 31, 2024 and December 31, 2023, the Forward Purchase Agreement discussed above was accounted for as a derivative asset under ASC 815 – Derivatives and Hedging. The fair value of the Forward Purchase Agreement at the closing of the Business Combination was estimated to be a $4.5 million asset with a corresponding amount recorded in equity at the closing of the FLAG Merger. As of March 31, 2024, and December 31, 2023, the asset was revalued and estimated to have a fair value of $0.1 million and $0.2 million, respectively, and was recorded as part of other noncurrent assets on the accompanying unaudited condensed consolidated balance sheets. There can be no assurance that any proceeds from the Sellers will be made to the Company under the Forward Purchase Agreement.

 

Debt Issuance Costs

 

Debt issuance costs incurred to obtain debt financings are deferred and are amortized over the term of the debt using the effective interest method for all debt financings in which the fair value option has not been elected. Debt issuance costs on debt financings in which the fair value option is not elected are recorded as a reduction to the carrying value of the debt and are amortized to interest expense or interest expense — related party, as applicable, in the unaudited condensed consolidated statements of operations.

 

For any debt financing in which the Company has elected the fair value option, any debt issuance costs associated with the debt financing are immediately recognized in interest expense in the consolidated statements of operations and are not deferred (see Note 7).

 

16
 

 

Government Grants

 

On October 27, 2022, the California Institute for Regenerative Medicine (“CIRM”) approved the Company’s application for a CIRM grant for the Company’s continued development of the SNV1 program. CIRM awarded the Company approximately $3.1 million of CIRM funding conditioned that the Company co-fund approximately $0.8 million under the requirements of the CIRM application. On December 28, 2022, the Company received the Notice of Award from CIRM for this grant and the Company expects to be able to draw the funds over the next 18 months based on the operational milestones defined in the grant.

 

Proceeds from the CIRM grant are recognized over the period necessary to match the related research and development expenses when it is probable that the Company has complied with the CIRM conditions and will receive the proceeds pursuant to the milestones defined in the grant as reimbursement of those expenditures. The CIRM grant proceeds, if any, received in advance of having incurred the related research and development expenses are recorded in accrued expenses and other current liabilities and recognized as grant income included in other income and expenses, net, on the Company’s consolidated statements of operations when the related research and developments expenses are incurred.

 

During the three months ended March 31, 2024 and 2023, the Company recognized approximately $0 and $0.7 million in grant income in the accompanying unaudited condensed consolidated statement of operations, respectively. As of March 31, 2024, grant cash payments and receivables from CIRM of approximately $1.4 million and $0, respectively, were included in cash and prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets. As of December 31, 2023, grant cash payments and receivables from CIRM of approximately $1.5 million and $1.4 million, respectively, were included in cash and prepaid expenses and other current assets in the unaudited condensed consolidated balance sheets.

 

Research and Development Expenses

 

Research and development expenses are expensed as incurred. Research and development expenses consist of costs incurred to discover, research and develop drug candidates, including compensation-related expenses for research and development personnel, including stock-based compensation expense, preclinical and clinical activities, costs of manufacturing, overhead expenses including facilities and laboratory expenses, materials and supplies, amounts paid to consultants and outside service providers, and depreciation and amortization.

 

Upfront and annual license payments related to acquired technologies or technology licenses which have not yet reached technological feasibility and have no alternative future use are also included in research and development expense in the period in which they are incurred.

 

General and Administrative Expenses

 

General and administrative expenses consist primarily of salaries and related costs, including stock-based compensation expense, for personnel in executive, finance and accounting, business development, operations and administrative functions. General and administrative expenses also include fees for legal, patent prosecution, legal settlements, consulting, charge off of deferred financing costs for aborted or terminated financing offerings, accounting and audit services as well as insurance, outside service providers, direct and allocated facility-related costs and depreciation and amortization.

 

Foreign Currency Translation Adjustments and Other Comprehensive Income or Loss

 

StemVac, the Company’s wholly owned subsidiary, is located and operates in Germany and its functional currency is the Euro. Calidi Australia, the Company’s wholly owned subsidiary, is located and operates in Australia and its functional currency is the Australian Dollar (“AUD”). Accordingly, StemVac’s and Calidi Australia’s assets and liabilities are translated using respective published exchange rates in effect at the unaudited condensed consolidated balance sheet date. Expenses and cash flows are translated using respective approximate weighted average exchange rates for the reporting period. Resulting foreign currency translation adjustments are recorded as other comprehensive income or loss, net of tax, in the unaudited condensed consolidated statements of comprehensive income or loss and included as a component of accumulated other comprehensive income or loss on the unaudited condensed consolidated balance sheets. For the three months ended March 31, 2024 and 2023, comprehensive loss includes such foreign currency translation adjustments and was insignificant for all periods presented.

 

17
 

 

Foreign Currency Transaction Gains and Losses

 

For transactions denominated in currencies other than the U.S. dollar, the Company recognizes foreign currency transaction gains and losses in the unaudited condensed consolidated statements of operations and classifies the gain or loss based on the nature of the item that generated it. The Company’s foreign currency transaction gains and losses are principally generated by intercompany transfers to StemVac denominated in Euros to pay for the research and development activities performed by StemVac under an intercompany development agreement with the Company. Furthermore, the Company’s foreign currency transaction gains and losses include intercompany transfers to Calidi Australia denominated in AUD to pay for the research and development activities performed by Calidi Australia. These foreign currency remeasurement gains and losses are included in other income and expenses, net, and were insignificant for all periods presented.

 

Stock-Based Compensation

 

The Company recognizes compensation expense related to employee option grants and restricted stock grants, if any, in accordance with ASC 718, Compensation — Stock Compensation (“ASC 718”).

 

The Company measures all stock options and other stock-based awards granted based on the fair value of the award on the date of the grant and recognizes compensation expense for those awards over the requisite service period, which is generally the vesting period of the respective award. The Company has elected to recognize forfeitures as they occur. The reversal of compensation cost previously recognized for an award that is forfeited because of a failure to satisfy a service condition is recognized in the period of the forfeiture. Generally and unless otherwise specified, the Company’s grants stock options with service-based only vesting conditions and records the expense for these awards using the straight-line method over the requisite service period.

 

The Company classifies stock-based compensation expense in its consolidated statements of operations in the same manner in which the award recipient’s payroll costs are classified or in which the award recipients’ service payments are classified.

 

The Company estimated the fair value of common stock through the date of the FLAG Merger using an appropriate valuation methodology, in accordance with the framework of the American Institute of Certified Public Accountants’ Technical Practice Aid, Valuation of Privately-Held Company Equity Securities Issued as Compensation. Each valuation methodology includes estimates and assumptions that require the Company’s judgment. These estimates and assumptions include a number of objective and subjective factors, including external market conditions, guideline public company information, the prices at which the Company sold convertible preferred stock and common stock to third parties in arms’ length transactions, the rights and preferences of securities senior to the Company’s common stock at the time, and the likelihood of achieving a liquidity event such as an initial public offering or sale. Significant changes to the assumptions used in the valuations could result in materially different fair values of stock options at each valuation date, as applicable. Following the FLAG Merger, the Company used the public price of its common stock.

 

The fair value of each stock option grant is estimated using the Black-Scholes option-pricing model. The Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of peer companies within the biotechnology industry with characteristics similar to the Company. The expected term of the Company’s stock options has been determined utilizing the “simplified” method for awards that qualify as “plain-vanilla” options provided under Staff Accounting Bulletin, Topic 14, or SAB Topic 14, as necessary. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve in effect at the time of grant of the award for time periods approximately equal to the expected term of the award. Expected dividend yield is zero, based on the fact that the Company has never paid cash dividends and does not expect to pay any cash dividends in the foreseeable future.

 

18
 

 

Net Loss per Common Share

 

Earnings per share attributable to common stockholders is calculated using the two-class method, which is an earnings allocation formula that determines earnings per share for the holders of the Company’s common shares and participating securities. Although the Company’s historical Convertible Preferred Stock contained participating rights in any dividend declared and paid by the Company and were therefore participating securities, the Convertible Preferred Stock had no stated dividends and the Company has never paid any cash dividends and does not plan to pay any dividends in the foreseeable future. Net loss attributable to common stockholders and participating securities is allocated to each share on an if-converted basis as if all of the earnings for the period had been distributed. However, the participating securities do not include a contractual obligation to share in the losses of the Company and are not included in the calculation of net loss per share in the periods that have a net loss. In addition, common stock equivalent shares (whether or not participating) are excluded from the computation of diluted earnings per share in periods in which they have an anti-dilutive effect on net loss per common share.

 

Diluted net loss per share is computed using the more dilutive of (a) the two-class method or (b) the if-converted method and treasury stock method, as applicable. Contingently convertible instruments were not included for purposes of calculating the number of diluted shares outstanding as the number of dilutive shares is based on a conversion contingency associated with the completion of a future financing event that had not occurred, and the contingency was not resolved, in the reporting periods presented herein. In periods in which the Company reports a net loss attributable to common stockholders, diluted net loss per share attributable to common stockholders is the same as basic net loss per share attributable to common stockholders since dilutive common shares are not assumed to have been issued if their effect is anti-dilutive. Diluted net loss per share is equivalent to basic net loss per share for the periods presented herein because common stock equivalent shares from the Convertible Preferred Stock, convertible notes, stock option awards and outstanding warrants to purchase common stock (see Note 8) were antidilutive.

 

As a result of the Company reported net loss attributable to common stockholders for all periods presented herein, the following common stock equivalents were excluded from the computation of diluted net loss per common share for the three months ended March 31, 2024 and 2023 because including them would have been antidilutive (in thousands):

 

   2024   2023 (4) 
   Three Months Ended March 31, 
   2024   2023 (4) 
Earnout Shares   

18,000

     
Warrants for common stock   

13,412

    

1,686

 
Employee stock options   7,905    9,956 
Convertible notes payable   

1,924

    

196

 
Restricted stock units   40     
Founders convertible preferred stock       4,330 
Series A1 convertible preferred stock       1,797 
Series A2 convertible preferred stock       1,059 
Contingently issuable warrant(1)        
Contingently convertible SAFE agreements(2)        
Contingently convertible notes payable(3)        
Total common stock equivalents   41,281    19,024 

 

(1) The contingently issuable warrant was not included for purposes of calculating the number of diluted shares outstanding as of March 31, 2024, as the number of dilutive shares is based on a contingency not yet resolved as of period end and the contingently resulting number of dilutive shares is not determinable until the contingency is resolved.

 

19
 

 

(2) The contingently convertible notes payable were not included for purposes of calculating the number of diluted shares outstanding as of March 31, 2023, as the number of dilutive shares is based on a conversion ratio associated with the pricing of a future financing event. Therefore, the contingently convertible notes payable’s conversion ratio, and the resulting number of dilutive shares, was not determinable until the contingency was resolved in September 2023. If the contingency were to have been resolved as of March 31, 2023, the number of antidilutive shares that would have been excluded from dilutive loss per share, when applying the conversion ratio, is estimated as 0.2 million as of March 31, 2023. The contingently convertible notes payable were converted in September 2023, per resolved contingency, and were therefore no longer outstanding at March 31, 2024.
   
(3) The contingently convertible SAFEs were not included for purposes of calculating the number of diluted shares outstanding as of March 31, 2023, as the number of dilutive shares is based on a conversion ratio associated with the pricing of a future financing event. Therefore, the contingently convertible SAFE’s conversion ratio, and the resulting number of dilutive shares, was not determinable until the contingency was resolved in September 2023. If the contingency were to have been resolved on those SAFEs as of March 31, 2023, the number of antidilutive shares that would have been excluded from dilutive loss per share, when applying the respective conversion ratio, is estimated as 3.3 million as of March 31, 2023. The contingently convertible SAFEs were converted in September 2023, per resolved contingency, and were therefore no longer outstanding at March 31, 2024.
   
(4) Retroactively restated for reverse recapitalization.

 

Segments

 

The Company’s executive management team, as a group, represents the entity’s chief operating decision makers. To date, the Company’s executive management team has viewed the Company’s operations as one segment that includes the research, development and commercialization efforts of cell-based platforms to potentiate oncolytic virus therapies. As a result, the financial information disclosed materially represents all of the financial information related to the Company’s sole operating segment. Substantially all of the Company’s consolidated operating activities, including its long-lived assets, are located within the U.S. and considering the Company’s limited revenue operating stage, the Company currently has no concentration exposure to products or customers.

 

Recently Adopted Accounting Pronouncements

 

In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”) which clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. ASU 2022-03 is effective for public business entities for fiscal years, including interim periods within those fiscal years, beginning after December 15, 2023. On January 1, 2024, the Company adopted ASU 2022-03 and the standard did not have any impact on its unaudited condensed consolidated financial statements and related disclosures as the Company carries no such financial instruments.

 

Recently Issued Accounting Pronouncements Not Yet Adopted

 

In November 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires public entities to disclose information about their reportable segments’ significant expenses and other segment items on an interim and annual basis. Public entities with a single reportable segment are required to apply the disclosure requirements in ASU 2023-07, as well as all existing segment disclosures and reconciliation requirements in ASC 280 on an interim and annual basis. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and for interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact of adopting ASU 2023-07.

 

20
 

 

In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. The Company is currently evaluating the impact of adopting ASU 2023-09.

 

3. Fair Value Measurements

 

The following table presents the Company’s assets and liabilities that are measured at fair value on a recurring basis, inclusive of related party components, as of March 31, 2024 and December 31, 2023 (in thousands):

 

   Level 1   Level 2   Level 3   Total 
   March 31, 2024
(unaudited)
 
   Level 1   Level 2   Level 3   Total 
Assets:                
Restricted cash held in a money market account  $218   $   $   $218 
Forward Purchase Agreement Derivative Asset included in other noncurrent assets           57    57 
Total assets, at fair value  $218   $   $57   $275 
Liabilities:                    
Public Warrants  $598   $   $   $598 
Private warrants       99        99 
Total warrant liabilities, at fair value  $598   $99   $   $697 

 

   Level 1   Level 2   Level 3   Total 
   December 31, 2023 
   Level 1   Level 2   Level 3   Total 
Assets:                
Restricted cash held in a money market account  $218   $   $   $218 
Forward Purchase Agreement Derivative Asset included in other noncurrent assets           230    230 
Total assets, at fair value  $218   $   $230   $448 
Liabilities:                    
Public Warrants  $575   $   $   $575 
Private warrants       96        96 
Total warrant liabilities, at fair value  $575   $96   $   $671 

 

The Company’s financial instruments consist of cash, prepaid expenses and other current assets, accounts payable, accrued expenses, and other current liabilities. The carrying value of these financial instruments is generally considered to approximate their fair values because of the short-term nature of those instruments.

 

The following table presents the changes in fair value of valued instruments for the three months ended March 31, 2024 (in thousands):

 

   Forward Purchase Agreement Derivative Asset, at fair value   Public Warrants, at fair value   Private warrants, at fair value 
Balance at January 1, 2024  $   (230)  $   575   $     96 
Change in fair value   173    23    3 
Balance at March 31, 2024  $(57)  $598   $99 

 

21
 

 

The following table presents the changes in fair value of valued instruments for the three months ended March 31, 2023 (in thousands):

 

   Contingently issuable warrants, at fair
value
  

Contingently

convertible

notes payable,

including

accrued

interest, at

fair value

   SAFEs, at fair
value
 
Balance at January 1, 2023  $          $     1,152   $29,190 
Proceeds from issuance           1,350 
Change in fair value   69    287    1,157 
Balance at March 31, 2023  $69   $1,439   $31,697 

 

4. Selected Balance Sheet Components

 

Deferred Financing Costs

 

As of March 31, 2024 and December 31, 2023, there were approximately $0.3 million and $0, respectively, of deferred financing costs. These deferring financing costs consists of fees related to the SEPA financing (see Note 1 and Note 11), as well as estimated fees related to the April Public Offering (see Note 12), and are included in other noncurrent assets on the accompanying unaudited condensed consolidated balance sheet.

 

Accrued Expenses and Other Current Liabilities

 

As of March 31, 2024 and December 31, 2023, accrued expenses and other current liabilities were comprised of the following (in thousands):

 

 

  

March 31,

2024

  

December 31,

2023

 
Accrued compensation(1)   $1,812   $1,720 
Accrued vendor and other expenses   3,290    3,712 
Accrued expenses and other current liabilities  $5,102   $5,432 

 

(1) Includes deferred compensation for certain executives and deferred board and advisory fees for one director (see Note 11).

 

See Note 11 for additional commitments.

 

22
 

 

Prepaid Expenses and Other Current Assets

 

As of March 31, 2024 and December 31, 2023, prepaid expenses and other current assets were comprised of the following (in thousands):

 

  

March 31,

2024

  

December 31,

2023

 
Prepaid expenses  $270   $485 
Prepaid insurance   279    284 
CIRM receivable       1,360 
Other   244    225 
Prepaid expenses and other current assets  $793   $2,354 

 

5. Machinery and Equipment, net

 

As of March 31, 2024 and December 31, 2023, machinery and equipment, net, was comprised of the following (in thousands):

   March 31,
2024
   December 31,
2023
 
Machinery and equipment  $2,251   $2,263 
Accumulated depreciation   (1,086)   (993)
Machinery and equipment, net  $1,165   $1,270 

 

Depreciation expense amounted to approximately $0.1 million for both the three months ended March 31, 2024 and 2023.

 

6. Related Party Transactions

 

The Company has funded its operations to date primarily through private sales of convertible preferred stock, contingently convertible and convertible promissory notes, SAFEs and common stock. These investments have included various related parties, including from AJC Capital and certain directors as further discussed below.

 

The following table presents the various significant related party transactions and investments in the Company for the periods presented (in thousands):

 

Related Party  Description of investment or transaction 

March 31,

2024

   December 31, 2023 
AJC Capital, Director A, Director E, and executive officer’s family office  Current term notes payable, net of discount, including accrued interest(1)    2,455    278 
AJC Capital, Director D, and relative of Officer A  Accounts payable and accrued expenses(2)    117    104 
Relative of Officer A  Loan Payable(6)    205     
Director D  Former President and Chief Operating Officer(3)    495    495 
Director A  Advisory services included in accrued expenses(4)    18    18 
AJC Capital  Lease guaranty(5)    171    167 
Director A  Noncurrent term notes payable including accrued interest(1)       2,060 
Director A  Other liabilities(8)   567    538 
AJC Capital and Director A  Warrant Liability(7)   50    48 

 

(1) As of March 31, 2024, related party term note payable amounts due to AJC Capital, Directors A, E, and an executive’s officer’s family office totaling $2.5 million, inclusive of principal amounts totaling $2.0 million and accrued interest amounts totaling $0.5 million, have been classified as a short term liability on the accompanying unaudited condensed consolidated balance sheets. See Notes 8 and 10 for further details.

 

23
 

 

(2) Amounts owed to AJC Capital as of March 31, 2024, for primarily rent expense for temporary use of personal house for company office space in 2020; in addition, amounts owed to AJC Capital and Director D for certain consulting expenses and amounts due to a relative of Officer A for certain legal fees, included in accounts payable and accrued expenses as of March 31, 2024.

 

(3) On February 1, 2022, the Company appointed a current board member (Director D referenced above), George K. Ng, as President and Chief Operating Officer of the Company under an Employment Agreement (the “Ng Agreement”). Under the Ng Agreement, Mr. Ng is entitled to a base annual salary of $0.5 million, a signing bonus of $0.3 million, payable in three equal monthly installments. Mr. Ng was eligible for standard change in control and severance benefits. On June 23, 2023, the Company entered into a Separation and Release Agreement with Mr. Ng which includes a severance accrual as of March 31, 2024 (see Note 11).

 

(4) On April 1, 2022, the Company entered into an Advisory Agreement with Scott Leftwich (Director A referenced above), for providing certain strategic and advisory services. Director A will receive an advisory fee of $9,166 per month not to exceed $0.1 million per annum, accrued and payable upon the Company raising $10 million or more in equity proceeds, as defined in the Advisory Agreement. The Advisory Agreement terminated on August 31, 2023.

 

(5) In October 2022, in order for the Company to secure and execute the San Diego Lease discussed in Note 11, Mr. Allan Camaisa provided a personal Guaranty of Lease of (the “Guaranty”) up to $0.9 million to the lessor for the Company’s future performance under the San Diego Lease agreement. As consideration for the Guaranty, the Company agreed to pay Mr. Camaisa 10% of the Guaranty amount for the first year of the San Diego Lease, and 5% per annum of the Guaranty amount thereafter through the life of the lease, with all amounts accrued and payable at the termination of the San Diego Lease or release of Mr. Camaisa from the Guaranty by the lessor, whichever occurs first. The amount shown in the table above, represents the present value, including accrued interest as of the period shown, of the aggregate $0.2 million payment due to Mr. Camaisa upon the release or termination of the Guaranty, which is included in noncurrent operating lease right-of-use liability.

 

(6) In January 2024, the Company entered into a loan agreement with a relative of Officer A for a loan payable for $0.2 million, payable on January 19, 2025. The $0.2 million loan bears interest at 12%.

 

(7) See Note 8 for disclosures around Warrants.

 

(8) In August 2023, the Company entered into an agreement with Director A for deferred compensation including advisory fees for $0.5 million, payable on January 1, 2025. The $0.5 million note bears interest at 24%.

 

7. Debt

 

The Company’s outstanding debt obligations as of March 31, 2024 and December 31, 2023, including related party components, are as follows (in thousands):

 

   March 31, 2024 
  

Unpaid

Balance

  

Fair Value

Measurements

   Discount  

Accrued

Interest

  

Net

Carrying

Value

 
Convertible notes payable  $4,500   $   $(147)  $43   $4,396 
Term notes payable   2,500        (7)   517    3,010 
Bridge loan payable   200            5    205 
Total debt  $7,200   $   $(154)  $565   $7,611 
Less: current portion of long-term debt                                                          (4,236)
Long-term debt, net of current portion                      $3,375 

 

   December 31, 2023 
  

Unpaid

Balance

  

Fair Value

Measurements

   Discount  

Accrued

Interest

  

Net

Carrying

Value

 
Term notes payable  $2,500   $   $(21)  $388   $2,867 
Total debt  $2,500   $   $(21)  $388   $2,867 
Less: current portion of long-term debt                                                 (807)
Long-term debt, net of current portion                              $2,060 

 

24
 

 

Scheduled maturities of outstanding debt, net of discounts as of March 31, 2024 are as follows (in thousands):

  

Year Ending December 31:     
2024 (April — December)  $750 
2025   2,950 
2026    
2027    
2028 and thereafter   3,500 
Plus: accrued interest   565 
Less: Discount   (154)
Total debt  $7,611 

 

The following discussion includes a description of the Company’s outstanding debt as of March 31, 2024 and December 31, 2023. The weighted average interest rate related to the Company’s outstanding debt was approximately 13.5% and 15.1% as of March 31, 2024 and December 31, 2023, respectively. Interest expense related to the Company’s outstanding debt totaled approximately $0.3 million and $0.2 million for the three months ended March 31, 2024 and 2023, respectively, which is reported within other income and expense, net, in the unaudited condensed consolidated statements of operations. Interest expense includes interest on outstanding borrowings and the amortization of discounts associated with debt issuance costs or from the allocation of proceeds to freestanding common stock or warrants as part of the relevant financing transactions.

 

Term Notes Payable

 

2021 Term Notes Payable

 

In January 2021, Calidi entered into a note agreement with a related party investor and director to borrow up to $0