Serina Therapeutics Inc

Previous wording

An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the three months ended March 31, 2024 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, except as disclosed in Note 2,Basis of Presentation and Summary of Significant Accounting Policies, of our condensed consolidated interim financial statements included elsewhere in this Report.

Current wording

An accounting policy is deemed critical if it requires an accounting estimate to be made based on assumptions about matters that are highly uncertain at the time the estimate is made, if different estimates reasonably could have been used, or if changes in the estimate are reasonably likely to occur, that could materially impact the financial statements. Management believes that there have been no significant changes during the six months ended June 30, 2024 to the items that we disclosed as our critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2023, except as disclosed in Note 2,Basis of Presentation and Summary of Significant Accounting Policies, of our condensed consolidated interim financial statements included elsewhere in this Report.

Previous wording

Our research and development expenses are not currently tracked on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates and therefore have not implemented the systems and procedures to track research and development expenses on a program-by-program basis. We track research and development expenses based on the type of expense as further described below under “Results of Operations –Research and Development Expenses.” Substantially all our research and development costs in the years ended December 31, 2023 and 2022 were incurred on the development of our preclinical candidates and advancing research on our POZ lipid technology.

Current wording

Our research and development expenses are not currently tracked on a program-by-program basis. We use our personnel and infrastructure resources across multiple research and development programs directed toward identifying and developing product candidates and therefore have not implemented the systems and procedures to track research and development expenses on a program-by-program basis. We track research and development expenses based on the type of expense as further described below under “Results of Operations –Research and Development Expenses.” Substantially all our historical research and development costs were incurred on the development of our preclinical candidates and advancing research on our POZ lipid technology.

Previous wording

Our general and administrative expenses consist primarily of personnel costs, including equity-based compensation, and other expenses for outside professional services, including legal, recruiting, audit and accounting and facility related costs not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and equity-based compensation expense for our personnel in executive and other administrative functions. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of expanding our operations and operating as a public company. These increases will likely include increases related to the hiring of additional personnel and legal, regulatory, and other fees and services associated with maintaining compliance with the NYSE American, the NYSE American Company Guide and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs and investor relations costs associated with being a public company.

Current wording

Our general and administrative expenses consist primarily of personnel costs, including equity-based compensation, and other expenses for outside professional services, including legal, recruiting, audit and accounting, and facility related costs not otherwise included in research and development expenses. Personnel costs consist of salaries, benefits and equity-based compensation expense for our personnel in executive and other administrative functions. We expect our general and administrative expenses to increase over the next several years to support our continued research and development activities, manufacturing activities, increased costs of expanding our operations and operating as a public company. These increases will likely include increases related to the hiring of additional personnel and legal, regulatory, and other fees and services associated with maintaining compliance with the NYSE American Company Guide and Securities and Exchange Commission, or SEC, requirements, director and officer insurance costs, and investor relations costs associated with being a public company.

Previous wording

Our other income is comprised of interest from cash equivalents.

Current wording

Our other income is comprised of interest from cash equivalents and gain related to the change in fair value of embedded derivatives.

Previous wording

Our other expense is comprised of expenses related to the change in fair value of the embedded derivative and interest accrued from the convertible notes.

Current wording

Our other expense is comprised of expenses related to the change in fair value of the embedded derivatives and interest accrued from the convertible notes.

Previous wording

Comparison of Three Months Ended March 31, 2024 and 2023

Current wording

Comparison of Three and Six Months Ended June 30, 2024 and 2023

Previous wording

Revenues for the three months ended March 31, 2024 and 2023 were not material.

Current wording

Revenues for the three and six months ended June 30, 2024 and 2023 were not material.

Previous wording

Research and development expenses were $1.1 million for the three months ended March 31, 2024, compared to $0.4 million for the same period in 2023. The increase of $0.7 million is primarily due to increases of $0.5 million in outside research and services allocable to research and development expenses, $0.1 million in patent related professional fees, and $0.1 million in salaries and payroll related expenses and consulting services allocable to research and development expenses.

Current wording

Research and development expenses were $1.6 million for the three months ended June 30, 2024, compared to $0.5 million for the same period in 2023. The increase of $1.1 million is primarily due to a non-recurring $0.3 million severance expense, increases of $0.4 million in salaries and payroll related expenses and consulting services allocable to research and development expenses, $0.3 million in patent related professional fees primarily for the maintenance of certain patent and other intellectual property and biological material assets included in Legacy Assets, and $0.1 million in laboratory supplies and depreciation expenses allocable to research and development expenses.

Previous wording

General and administrative expenses were $1.2 million for the three months ended March 31, 2024, compared to $0.6 million for the same period in 2023. The increase of $0.6 million is due primarily to increases by $0.5 million in professional legal and accounting services incurred largely in connection with the Merger which consummated on March 26, 2024, $0.1 million in consulting services and stock based compensation expenses for options granted to consultants allocable to general and administrative expenses and $0.1 million in investment and public relations related expenses. These expenses were offset to some extent by a $0.1 million decrease for database subscription fee.

Current wording

General and administrative expenses were $2.3 million for the three months ended June 30, 2024, compared to $0.5 million for the same period in 2023. The increase of $1.8 million is due primarily to increases by $0.6 million in professional legal and accounting services incurred largely in connection with the Merger which consummated on March 26, 2024, $0.5 million in director compensation and consulting services and stock based compensation expenses for options granted to directors and consultants allocable to general and administrative expenses, $0.2 million in insurance expenses, $0.2 million in market research and Company website development related expenses, $0.1 million in salaries and payroll related expenses allocable to general and administrative expenses, $0.1 million in recruiting and hiring expenses, $0.1 million in rent and facilities maintenance related expenses, and $0.1 million in investor and public relations related expenses. These expenses were offset to some extent by a $0.1 million decrease in miscellaneous expenses.

Previous wording

The $9.7 million change in other income (expense), net to $7.1 million other expense, net as of March 31, 2024 as compared to $2.6 million other income, net for the same period in 2023 is primarily attributable to: (1) the aggregate change in the fair value of the Serina Convertible Notes and the AgeX-Serina Note which amounted to $7 million (loss) for the three months ended March 31, 2024 as compared to $2.5 million (gain) in the same period in 2023 and (2) the change in the fair value of Legacy Serina Series A-5 preferred stock warrants which was $0 during the three months ended March 31, 2024 as compared to $172,000 for the same period in 2023. See Notes 6,Fair Value Measurement and 7,*Stockholders’ Equity/(Deficit)*to our condensed consolidated interim financial statements included elsewhere in this Report for additional information on fair value adjustments of convertible promissory notes and conversion of the AgeX-Serina Note upon consummation of the Merger on March 26, 2024 and liability classified Legacy Serina warrants and assumption of those warrants by the Company upon consummation of the Merger on March 26, 2024.

Current wording

The $8 million change in other income (expense), net to $3.7 million other expense, net for the six months ended June 30, 2024 as compared to $4.4 million other income, net for the same period in 2023 is primarily attributable to: (1) the aggregate change in the fair value of the Legacy Serina Convertible Notes and the AgeX-Serina Note which amounted to $7 million loss for the six months ended June 30, 2024 as compared to $1.9 million gain in the same period in 2023 and $2.2 million fair value gain recognized on the date of note inception in March 2023, (2) the change in the fair value of Legacy Serina Series A-5 preferred stock warrants which was nil during the six months ended June 30, 2024 as compared to $0.5 million for the same period in 2023, and (3) increase in amortization of deferred debt issuance costs related to the 2022 Secured Note which amounted to $329,000 during the three months ended June 30, 2024 as compared to nil in the same period in 2023. These changes are offset to some extent by the change in fair value of liability classified Merger Warrants of $3.7 million gain during the six months ended June 30, 2024 as compared to nil in the same period in 2023 and decrease in interest on the AgeX-Serina Note which amounted to $164,000 during the six months ended June 30, 2024 as compared to $205,000 in the same period in 2023.

Previous wording

Due to losses incurred for all periods presented, we did not record a provision or benefit for income taxes. A valuation allowance will be provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all deferred tax assets for the periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.

Current wording

Due to losses incurred for thethree and six months ended June, 30, 2024 and 2023, we did not record a provision or benefit for income taxes. A valuation allowance will be provided when it is more likely than not that some portion of the deferred tax assets will not be realized. We established a full valuation allowance for all deferred tax assets for the periods presented due to the uncertainty of realizing future tax benefits from our net operating loss carryforwards and other deferred tax assets.

Previous wording

Our operations from inception through March 31, 2024 have been financed primarily by aggregate net proceeds of $46.9 million from the issuance of convertible preferred stock and convertible notes through Legacy Serina and $2.4 million drawn under the 2022 Secured Convertible Promissory Note (the “2022 Secured Note”) subsequent to consummation of the Merger. Since inception, we have had significant operating losses and negative cash flows as of March 31, 2024, we had an accumulated deficit of $5.4 million. See Notes 5,Related Party Transactions to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about the 2022 Secured Note.

Current wording

We had $6.1 million in cash and cash equivalents as of June 30, 2024. Our operations have been financed primarily by the issuance of common stock, convertible preferred stock, and convertible notes by AgeX and Serina prior to the Merger, and by $2.9 million drawn under the 2022 Secured Convertible Promissory Note (the “2022 Secured Note”) subsequent to consummation of the Merger. We have drawn down the entire amount of credit that was made available to us through the 2022 Secured Note. See Note 5,Related Party Transactionsto our condensed consolidated interim financial statements included elsewhere in this Report for additional information about the 2022 Secured Note. In addition, we received $4,987,818 from Juvenescence during June 2024 through the exercise of Post-Merger Warrants. Juvenescence has agreed to exercise the remaining Post-Merger Warrants it holds in accordance with the following schedule, which will provide us with $9,975,610 of additional funds.

Previous wording

We had $8.7 million in cash and cash equivalents as of March 31, 2024. Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Current wording

Our primary use of cash is to fund operating expenses, which consist primarily of research and development expenditures, and to a lesser extent, general and administrative expenditures. Cash used to fund operating expenses is impacted by the timing of when we pay these expenses, as reflected in the change in our outstanding accounts payable and accrued expenses.

Previous wording

Our losses from operations, negative operating cash flows and accumulated deficit, as well as the additional capital needed to fund operations within one year of the audited consolidated financial statement issuance date, raise substantial doubt about our ability to continue as a going concern. We expect to incur substantial expenditures in the foreseeable future for the development of our product candidates and will require additional financing to continue this development. Our audited consolidated financial statements attached as Exhibit 99.2 to the April 1 Form 8-K have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Current wording

Since inception, we have had significant operating losses and negative cash flows as of June 30, 2024 and had an accumulated deficit of $23.2 million. Our losses from operations, negative operating cash flows and accumulated deficit, as well as the additional capital needed to fund operations within one year of the audited consolidated financial statement issuance date, raise substantial doubt about our ability to continue as a going concern. We expect to incur substantial expenditures in the foreseeable future for the development of our product candidates and will require additional financing to continue this development. Our audited consolidated financial statements attached as Exhibit 99.2 to the April 1 Form 8-K have been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The unaudited condensed consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Previous wording

We believe that our cash on hand, along with the approximately $15 million of cash proceeds expected to be received from Juvenescence through the exercise of all the post-merger warrants it holds pursuant to the terms of the Side Letter, will not be sufficient to enable us to fund our operations through calendar year 2025 based on our current plan. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders, including investors in this offering, will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs.

Current wording

We believe that our cash on hand, along with the $9,975,610 of cash proceeds expected to be received from Juvenescence through the exercise of the remaining Post-Merger Warrants it holds, as provided in the Side Letter, will not be sufficient to enable us to fund our operations through calendar year 2025 based on our current plan. To finance our operations beyond that point, we will need to raise additional capital, which cannot be assured. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we currently expect. We will continue to require additional financing to advance our current product candidates through clinical development, to develop, acquire or in license other potential product candidates and to fund operations for the foreseeable future. We will continue to seek funds through equity offerings, debt financings or other capital sources, including potential collaborations, licenses, and other similar arrangements. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. If we do raise additional capital through public or private equity offerings, the ownership interest of our existing stockholders, including investors in this offering, will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect our stockholders’ rights. If we raise additional capital through debt financing, we may be subject to covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures, or declaring dividends. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. If we are unable to raise capital, we will need to delay, reduce, or terminate planned activities to reduce costs.

Previous wording

Net loss for the three months ended March 31, 2024 amounted to $9.4 million. Net cash used in operating activities during this period amounted to $1.6 million. The $7.8 million difference between the net loss and net cash used in operating activities during the three months ended March 31, 2024 was primarily attributable to certain non-cash items, including changes in the fair value of convertible notes among other non-cash items as well as the effect of changes in operating assets and liabilities. The change was primarily due to the non-cash change in the fair value of the AgeX-Serina Note outstanding of approximately $7 million as well as an increase in accounts payable, accrued liabilities of approximately $0.6 million and accrued interest on AgeX-Serina Note of approximately $163,000.

Current wording

Net loss attributable to Serina for the six months ended June 30, 2024 amounted to $9.8 million. Net cash used in operating activities during this period amounted to $9.6 million. The $0.2 million difference between the net loss attributable to Serina and net cash used in operating activities during the six months ended June 30, 2024 was primarily attributable to certain non-cash items, including changes in the fair value of convertible notes among other non-cash items totaling $4.3 million as well as a decrease in accrued interest on AgeX-Serina Note of approximately $0.2 million due to consummation of Merger on March 26, 2024. These changes were offset to some extent by changes of $2.7 million in prepaid expenses (comprised of $2 million in prepaid technology access fee and $0.7 million in other prepaid expenses), $1.4 million in accounts payable, and $0.2 million from the effect of net changes in operating lease liabilities and amount due to related party.

Previous wording

Net cash used in investing activities during the three months ended March 31, 2024 of $14,000 is entirely related to purchases of office and laboratory equipment.

Current wording

Net cash used in investing activities during the six months ended June 30, 2024 of $14,000 is entirely related to purchases of office and laboratory equipment.

Previous wording

Net cash provided by financing activities for the three months ended March 31, 2024 of $2.7 million is primarily attributable to $2.4 million drawn under the credit facilities from Juvenescence and approximately $337,000 cash and restricted cash acquired in connection with the Merger. See Notes 5,Related Party Transactions, to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreements with Juvenescence.

Current wording

Net cash provided by financing activities for the six months ended June 30, 2024 of $8.1 million is primarily attributable to $5 million proceeds received from the exercise of 377,865 Post-Merger Warrants by Juvenescence, $2.9 million drawn under the credit facilities from Juvenescence and approximately $337,000 cash and restricted cash acquired in connection with the Merger. These changes were offset to some extent by $133,000 repayment of principal on loan facilities to Juvenescence and $26,000 repayment of financed leases. See Note 5,Related Party Transactions, to our condensed consolidated interim financial statements included elsewhere in this Report for additional information about our loan agreements with Juvenescence.

Previous wording

Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations in conducting research and development activities one year from the date our audited consolidated financial statements are issued. We evaluate the probability associated with each source and use of cash resources in making our going concern determination. The research and development of pharmaceutical products is inherently subject to uncertainty.

Current wording

Our evaluation of our ability to continue as a going concern requires us to evaluate our future sources and uses of cash sufficient to fund our currently expected operations in conducting research and development activities during the twelve month period following the filing of this Report. In making our going concern determination, we evaluate the probability associated with each source and use of cash resources, taking into account the uncertainty of progress and costs associated with developing our planned pharmaceutical products.