ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition and results of operations should be read together with (i) our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report, (ii) Silexion’s audited financial statements and related notes thereto as of, and for the year ended, December 31, 2023, which were included in the proxy statement/prospectus, and (iii) the unaudited pro forma condensed combined financial information of New Silexion as of June 30, 2024, and for the year ended December 31, 2023 and six months ended June 30, 2024, which was attached as Exhibit 99.2 to the Super Form 8-K.
Overview
We are a Cayman Islands exempted company that was originally formed for the purpose of effectuating the Business Combination and that now serves as a publicly-traded holding company for each of Silexion (through which our operations are carried out) and Moringa (which has no operations). Our ordinary shares and warrants are listed on the Nasdaq Global Market under the trading symbols “SLXN” and “SLXNW”, respectively.
We conduct operations primarily through our principal subsidiary— Silexion— which is a clinical-stage, oncology-focused biotechnology company engaged in the discovery and development of proprietary treatments for KRAS-driven cancers. The KRAS gene is an oncogene that is involved in the regulation of cell division as a result of its ability to relay external signals to the cell nucleus. Based on its research of refractory solid tumor cancers, Silexion is actively developing a platform focused on the silencing of the KRAS oncogene using RNA-interference therapeutics. Silexion’s lead product candidate, SIL-204B, consists of locally administered small interfering RNAs, or siRNA, in an extended-release formulation, as a first-line treatment of locally advanced pancreatic cancer patients, in combination with standard-of-care chemotherapy.
To date, Silexion has financed its operations primarily with the net proceeds from private offerings of its ordinary shares and convertible preferred shares, grants from the Israeli Innovation Authority (the “IIA”), convertible financing agreements and Simple Agreement for Future Equity (SAFE) financings, and royalty-bearing grants from the IIA (which totaled $5.8 million through September 30, 2024). Since its inception, Silexion has incurred significant operating losses. Silexion’s net losses were $5.1 million and $3.5 million for the years ended December 31, 2023 and December 31, 2022, respectively. The combined company’s net losses (consisting of Silexion’s net losses for all periods through the Business Combination, and the combined company's net losses for all periods after) were $14.8 million and $3.4 million for the nine-month periods ended September 30, 2024, and 2023, respectively. As of September 30, 2024, we had an accumulated deficit of $41.6 million (reflecting Silexion's accumulated deficit for all periods through August 15, 2024 and the combined company's accumulated deficit from August 16, 2024 through September 30, 2024). Silexion has not recognized any revenue to date.
In the near future, our operations— conducted almost exclusively through Silexion— will be funded from one or more of a number of alternative sources:
| ● | the remaining balance of $333,936 of cash from the trust account transferred to us at the Closing of the Business Combination (from the proceeds of Moringa’s initial public offering and the private placements of the Moringa private units, after reduction for payment of funds for (x) redemptions of Moringa public shares in connection with Moringa’s shareholder votes on (A) the Business Combination and (B) the extension of the term of Moringa’s existence at prior general meetings of Moringa, and (y) payment to EarlyBirdCapital of $350,000 of cash pursuant to the Marketing Agreement in connection with the Business Combination); |
| ● | $2,000,000 of cash from the PIPE Financing (described below) involving the sale of 200,000 Moringa Class A ordinary shares to the PIPE Investor (as defined below) immediately prior to the Closing of the Business Combination (which shares converted into 200,000 ordinary shares upon the Closing); |
| ● | up to $15,000,000 from the ELOC (described below), from which we have raised $2.5 million as of the date of this Quarterly Report; |
| ● | additional grants from the IIA; |
| | |
| ● | potential equity financings, including an offering of ordinary shares (or pre-funded warrants in lieu of ordinary shares), together with ordinary warrants, for which we have filed a registration statement on Form S-1 with the SEC on October 31, 2024; and |
| ● | existing working capital of Silexion. |
We expect to continue to incur significant expenses and operating losses for the foreseeable future. The net losses that we incur may fluctuate significantly from quarter to quarter. Our expenses will depend on many factors, including the timing and extent of spending to further develop SIL-204 and initiate pre-clinical and clinical trials, support research and development efforts, investments in potential additional pipe-line products, and increased overall compensation as we continue to hire additional personnel. We anticipate that our expenses will increase if and as we:
| ● | apply for Orphan Drug Designation in both the U.S. and EU for our SIL-204B product; |
| ● | initiate a clinical trial powered for statistical significance with respect to SIL-204B; |
| ● | initiate toxicological studies with respect to SIL-204B; |
| ● | seek marketing approvals for SIL-204B in various territories; |
| ● | maintain, expand and protect our intellectual property portfolio; |
| ● | hire additional operational, clinical, quality control and scientific personnel; |
| ● | add operational, financial and management information systems and personnel, including personnel to support our product development, any future commercialization efforts and our prospective transition to a public company; and |
| ● | invest in research and development and regulatory approval efforts in order to utilize our technology as a platform focused on the silencing of the KRAS oncogene using RNA-interference therapeutics. |
Recent Developments Impacting Our Financial Condition and Outlook
ELOC Financing
In connection with the Closing of the Business Combination, we entered into an ordinary share purchase agreement, dated August 13, 2024, but effective as of the Closing (the “ELOC Agreement”), for an equity line of credit (the “ELOC”) with White Lion Capital, LLC (the “ELOC Investor”). Under the ELOC, we have the right to request to sell to the ELOC Investor, and the ELOC Investor is required to purchase, via private placement transactions, up to $15.0 million of our ordinary shares from time to time after the Closing, up until December 31, 2025 (unless the agreement is terminated sooner), subject to certain limitations and conditions as described therein. The number of ordinary shares that we may require the ELOC Investor to purchase in any single sales notice depends on a number of factors, including the type of purchase notice that we deliver. Similarly, the purchase price to be paid by the ELOC Investor for any shares that we require it to purchase depends on the type of sales notice that we deliver, and is derived from the market price of the our ordinary shares for a certain period of time prior to our purchase request or as of the date of our purchase request. We also granted registration rights to the ELOC Investor pursuant to an accompanying registration rights agreement, also dated August 15, 2024, by and between New Silexion and the ELOC Investor (the “ELOC Registration Rights Agreement”), for which we filed a registration statement on Form S-1 (SEC file number 333-282017), which was declared effective by the SEC on September 17, 2024.
Pursuant to the ELOC Agreement, New Silexion agreed, among other things, that if our sales to the ELOC Investor under the ELOC exceed 19.99% of our total number of ordinary shares outstanding, we will seek the approval of our shareholders for the issuance of any ordinary shares under the ELOC in excess of that amount, in accordance with the Nasdaq Listing Rules, subject to certain exceptions based on the price of our ordinary shares to be sold in excess of that limit.
In consideration for the commitments of the ELOC Investor, we agreed to issue to the ELOC Investor an aggregate of $337,500 of our ordinary shares (the “ELOC Commitment Shares”) based on the closing price of the ordinary shares on the day that is the earlier of (i) the business day prior to effectiveness of the registration statement registering the resale of the shares issuable under the ELOC ordinary share purchase agreement and (ii) the business day prior to the 180th day following the date of Closing of the Business Combination.
Through the date of this Quarterly Report, we have sold an aggregate of 4,294,000 ordinary shares to the ELOC Investor for net proceeds (after payment of commissions and expenses to the ELOC Investor) of $2.5 million, in the aggregate.
The foregoing summary is qualified in its entirety by the full text of the ELOC Agreement, a copy of which was attached as Exhibit 10.3.1 to the Super Form 8-K.
Settlement of Amounts Due Under Marketing Agreement with EarlyBirdCapital
Prior to the Closing of the Business Combination, Moringa reached agreement with EarlyBirdCapital on the reduction, to $1.6 million, in the aggregate, of the fee payable to EarlyBirdCapital under the Marketing Agreement. Pursuant to the final invoice provided by EarlyBirdCapital under the Marketing Agreement at the Closing, Moringa paid $350,000 of cash to EarlyBirdCapital from the trust account at the Closing, and we issued to EarlyBirdCapital a convertible promissory note, due December 31, 2025, in an amount of $1.25 million to be paid by us to EarlyBirdCapital in cash and/or via conversion of outstanding amounts into ordinary shares (the “EarlyBird Convertible Note”).
The EarlyBird Convertible Note bears interest at a rate of 6% per annum and matures on December 31, 2025. If not repaid on or prior to that maturity date or such earlier date as to which the repayment obligation may be accelerated under the note, or not converted in accordance with the terms thereof, the rate of interest applicable to the unpaid principal amount would be adjusted to (15%) per annum. We are required to make mandatory prepayments on the note (which shall first be applied to accrued interest and then to principal) from time to time in amounts equal to ten percent (10%) of the gross proceeds received by us from any equity financings consummated by us prior to the maturity date. We are entitled to voluntarily prepay any additional part of, or all of, the principal and accrued interest, in one or more installments without penalty, prior to the maturity date.
EarlyBirdCapital, in turn, may elect, at its sole discretion, at any time on or prior to the maturity date, to elect to convert all or part of the then outstanding principal and/or accrued interest under the EarlyBird Convertible Note into ordinary shares, at a per share conversion price equal to 95% of the volume weighted average price of an ordinary share for the five trading days immediately prior to the date of our receipt of a conversion notice, provided, however, we are not required to issue, and EarlyBirdCapital may not elect to convert the principal and/or accrued interest into an aggregate number of ordinary shares that would exceed the maximum number of ordinary shares permitted by Section 5635 of the Nasdaq Listing Rules to be issued without the approval of our shareholders, unless such approval is obtained.
Through the date of this Quarterly Report, we have made one payment of $100,000 to EarlyBirdCapital due to amounts raised by us under the ELOC.
The foregoing summary is qualified in its entirety by the full text of the final invoice provided by EarlyBirdCapital under the Marketing Agreement at the Closing, and the EarlyBird Convertible Note, which serve as Exhibits 10.1.1 and 10.1.2 to the Super Form 8-K.
PIPE Financing
In connection with, and immediately prior to the Closing of, the Business Combination, Moringa raised $2.0 million via a private investment in public entity financing (the “PIPE Financing”), whereby Moringa sold to Greenstar, LP, an affiliate of the Moringa sponsor (the “PIPE Investor”), 200,000 newly issued Moringa ordinary shares at a price of $10.00 per share, pursuant to a subscription agreement, dated as of August 15, 2024, by and among Moringa, New Silexion and the PIPE Investor (the “PIPE Agreement”). Those 200,000 shares automatically converted upon the Closing of the Business Combination into an equivalent number of New Silexion ordinary shares (the “PIPE Shares”).
The funds raised from the PIPE Financing, together with remaining funds in the trust account after payments to redeeming public shareholders, were used for financing support for Moringa and New Silexion, as well as for payment to service providers to whom outstanding amounts were owed by Moringa, including parties that had provided financial advisory services and capital markets advisory services to Moringa during the period leading up to the Closing.
The foregoing summary is qualified in its entirety by the full text of the PIPE Agreement, a copy of which was attached as Exhibit 10.2 to the Super Form 8-K.
Issuance of Amended and Restated Sponsor Promissory Note
Effective as of the Closing, we issued to the sponsor, and the sponsor accepted, in amendment and restatement, and replacement, in their entirety, of all existing promissory notes issued by Moringa to the sponsor from the IPO until the Closing (and as to which the obligations of Moringa were assigned to New Silexion upon the Closing), an amended and restated promissory note (the “A&R Sponsor Promissory Note”) in an amount of $3,433,000, which reflected the total amount owed by Moringa to the sponsor through the Closing Date. The maturity date of the A&R Sponsor Promissory Note is the 30-month anniversary of the Closing Date (i.e., February 15, 2027). Amounts outstanding under the A&R Sponsor Promissory Note may be repaid (unless otherwise decided by us) only by way of conversion into ordinary shares (“Note Shares”) in accordance with the terms set forth in the form of A&R Sponsor Promissory Note. New Silexion and the Sponsor may also convert amounts outstanding under the A&R Sponsor Promissory Note at the price per share at which we conduct an equity financing following the Closing, subject to a minimum conversion amount of $100,000, in an amount of Note Shares constituting up to thirty percent (30%) of the number of ordinary shares issued and sold by us in such equity financing. The sponsor may also elect to convert amounts of principal outstanding under the note into ordinary shares at any time following the 24-month anniversary of the date of the Closing, subject to a minimum conversion of $10,000, at a price per share equal to the volume weighted average price of the ordinary shares on the principal market on which they are traded during the 20 consecutive trading days prior to the conversion date.
The foregoing summary provides only a brief description of the A&R Sponsor Promissory Note and is qualified in its entirety by the full text of the A&R Sponsor Promissory Note, a copy of which was attached as Exhibit 10.5 to the Super Form 8-K.
Components of Silexion’s Results of Operations
In this section, the components of, and the actual, results of operations that are presented are:
• | for the periods from January 1, 2024 (for the nine-month results) or July 1, 2024 (for the three-month results) through August 15, 2024 (the date of the Business Combination), those of Silexion (which was the accounting acquirer in the Business Combination and our predecessor entity); |
• | for the remaining period from August 16, 2024 through September 30, 2024, those of the combined company; and |
• | for the corresponding three- and nine-month periods ended September 30, 2023, those of Silexion alone. |
Unless the context requires otherwise, references to “we”, “us” or “our” (or similar terms) should be understood in accordance with the above three bullet points.
Operating Expenses
Research and Development Expenses
Research and development expenses include costs directly attributable to the conduct of research and development programs, including the cost of payroll and related expenses, payroll taxes and other employee benefits including share-based compensation related to employees, subcontractors, lab expenses, preclinical and clinical trials cost, material costs and consulting fees.
We expect to continue to invest in research and development to develop SIL-204, including hiring additional employees and continuing the research and development of that product candidate. As a result, we expect that our research and development expenses will continue to increase in the future.
General and Administrative Expenses
General and administrative expenses consist primarily of personnel costs, including share-based compensation related to directors and employees, patent application fees, office space rental costs, and maintenance expenses, external professional service costs, including legal, accounting, audit, finance, human resource services, travel expenses and other consulting fees.
We expect that our general and administrative expenses will increase in the future to fund our continued research and development activities, primarily due to increased headcount to support anticipated growth in the business and due to incremental costs associated with operating as a public company, including costs to comply with the rules and regulations applicable to public companies such as costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC and stock exchange listing standards, public relations, insurance and professional services.
Financial expenses (income), net
The finance expenses consisted primarily of change in fair value of warrants and financial liabilities measured at fair value (including promissory notes), issuance costs, interest income and exchange rate differences expenses.
Results of Operations
Comparison of nine-month periods ended September 30, 2024 and 2023
The following table summarizes our results of operations for the nine-month periods ended September 30, 2024 and 2023:
| | Nine-month period ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Operating expenses: | | | | | | |
Research and development, net | | $ | 4,944 | | | $ | 2,451 | |
General and administrative | | | 5,727 | | | | 502 | |
Total operating expenses | | | 10,671 | | | | 2,953 | |
Operating loss | | | 10,671 | | | | 2,953 | |
Financial expenses, net | | | 4,092 | | | | 449 | |
Loss before income tax | | | 14,763 | | | | 3,402 | |
Income tax | | | 9 | | | | 26 | |
Net loss for the nine-month period | | $ | 14,772 | | | $ | 3,428 | |
Research and Development Expenses
The following table summarizes our research and development expenses for the nine-month periods ended September 30, 2024 and 2023:
| | Nine-month period ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Payroll and related expenses | | $ | 928 | | | $ | 729 | |
Share-based compensation expenses | | | 2,424 | | | | 57 | |
Subcontractors and consultants | | | 1,425 | | | | 1,444 | |
Materials | | | 3 | | | | 16 | |
Rent and maintenance | | | 106 | | | | 124 | |
Travel expenses | | | 13 | | | | 27 | |
Other | | | 45 | | | | 54 | |
Total research and development expenses | | $ | 4,944 | | | $ | 2,451 | |
Research and development expenses increased by approximately $2.4 million, or 96%, to $4.9 million for the nine-month period ended September 30, 2024, compared to $2.5 million for the nine-month period ended September 30, 2023. The increase resulted mainly from an increase in non-cash share-based compensation expenses in an amount of $2.4 million and from an increase in payroll and related expenses in an amount of $0.2 million.
Research and development expenses for the nine-month periods ended September 30, 2024 and September 30, 2023 included approximately $0.2 million and $0.9 million, respectively, related to the development of Loder, and $4.7 million and $1.6 million, respectively, related to the development of SIL-204B. Aggregate research and development expenses since inception for our Loder program, as of September 30, 2024 and as of September 30, 2023, were approximately $18.4 million and $18.3 million, respectively. Aggregate research and development expenses since inception for the SIL-204B program, as of September 30, 2024 and as of September 30, 2023, were approximately $8.3 million and $2.2 million, respectively.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the nine-month periods ended September 30, 2024 and 2023:
| | Nine-month periods ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Payroll and related expenses | | $ | 856 | | | $ | 190 | |
Share-based compensation expenses | | | 3,438 | | | | 39 | |
Professional services | | | 1,053 | | | | 79 | |
Depreciation | | | 37 | | | | 39 | |
Rent and maintenance | | | 90 | | | | 67 | |
Patent registration | | | 25 | | | | 18 | |
Travel expenses | | | 72 | | | | 31 | |
Other | | | 156 | | | | 39 | |
Total general and administrative expenses | | $ | 5,727 | | | $ | 502 | |
General and administrative expenses increased by approximately $5.2 million, or 1,040%, to $5.7 million for the nine-month period ended September 30, 2024, compared to $0.5 million for the nine-month period ended September 30, 2023. The increase resulted mainly from an increase in non-cash share-based compensation expenses in an amount of $3.4 million, an increase in professional services costs primarily related to one-time legal, accounting, and other expenses associated with the costs of becoming a public company and the SPAC merger in an amount of $1.0 million, and an increase in payroll and related expenses in an amount of $0.7 million.
Financial expenses, net
Financial expenses, net increased by approximately $3.7 million, or 925%, to an expense of $4.1 million for the nine-months ended September 30, 2024 compared to an expense of $0.4 million for the nine months ended September 30, 2023. This increase was mainly due to an increase in an amount of $4.8 million in one-time loss upon entering Transactions expenses, offset in part by (i) an increase in revaluation income of financial instruments (warrants and promissory notes) in an amount of $0.9 million, and (ii) a decrease in foreign exchange loss in an amount of $0.3 million for the nine-month period ended September 30, 2024.
Net loss
Net loss increased by approximately $11.4 million, or 335.3%, to $14.8 million for the nine-month period ended September 30, 2024, compared to $3.4 million for the nine-month period ended September 30, 2023. The increase was mainly due to an increase in our research and development expenses, general and administrative expenses, and financial expenses including significant non-cash items related to share-based compensation, transaction costs and costs related to becoming a public company.
Comparison of three-month periods ended September 30, 2024 and 2023
The following table summarizes our results of operations for the three-month periods ended September 30, 2024 and 2023:
| | Three-month period ended September 30, | |
| | 2024 | | | 2023 | |
Operating expenses: | | (U.S. dollars, in thousands) | |
Research and development, net | | $ | 3,217 | | | $ | 535 | |
General and administrative | | | 4,819 | | | | 196 | |
Total operating expenses | | | 8,036 | | | | 731 | |
Operating loss | | | 8,036 | | | | 731 | |
Financial expenses, net | | | 3,822 | | | | 72 | |
Loss before income tax | | | 11,858 | | | | 803 | |
Income tax | | | 2 | | | | 6 | |
Net loss for the three-month period | | $ | 11,860 | | | $ | 809 | |
Research and Development Expenses
The following table summarizes our research and development expenses for the three-month periods ended September 30, 2024 and 2023:
| | Three-month period ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Payroll and related expenses | | $ | 453 | | | $ | 198 | |
Share-based compensation expenses | | | 2,385 | | | | 19 | |
Subcontractors and consultants | | | 297 | | | | 236 | |
Materials | | | - | | | | - | |
Rent and maintenance | | | 57 | | | | 46 | |
Travel expenses | | | - | | | | - | |
Other | | | 25 | | | | 36 | |
Total research and development expenses | | $ | 3,217 | | | $ | 535 | |
Research and development expenses increased by approximately $2.7 million, or 540%, to $3.2 million for the three-month period ended September 30, 2024, compared to $0.5 million for the three-month period ended September 30, 2023. The increase resulted mainly from an increase in non-cash share-based compensation expenses in an amount of $2.4 million and from an increase in payroll and related expenses in an amount of $0.3 million.
Research and development expenses for the three-month periods ended September 30, 2024 and September 30, 2023 included approximately $0.01 million and $0.4 million, respectively, related to the development of Loder, and $3.2 million and $0.2 million, respectively, related to the development of SIL-204B.
General and Administrative Expenses
The following table summarizes our general and administrative expenses for the three-month periods ended September 30, 2024 and 2023:
| | Three-month period ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Payroll and related expenses | | $ | 575 | | | $ | 71 | |
Share-based compensation expenses | | | 3,413 | | | | 13 | |
| | | 605 | | | | 51 | |
Depreciation | | | 22 | | | | 10 | |
Rent and maintenance | | | 18 | | | | 25 | |
Patent registration | | | - | | | | 2 | |
Travel expenses | | | 56 | | | | 15 | |
Other | | | 130 | | | | 9 | |
Total general and administrative expenses | | $ | 4,819 | | | $ | 196 | |
General and administrative expenses increased by approximately $4.6 million, or 2,300%, to $4.8 million for the three-month period ended September 30, 2024, compared to $0.2 million for the three-month period ended September 30, 2023. The increase resulted mainly from an increase in non-cash share-based compensation expenses in an amount of $3.4 million, an increase in professional services costs primarily related to one-time legal, accounting, and other expenses associated with the costs of becoming a public company and the SPAC merger in an amount of $0.6 million, and an increase in payroll and related expenses in an amount of $0.5 million.
Financial expenses, net
Financial expenses, net increased by approximately $3.7 million, or 3,700% to expense of $3.8 million for the three-month period ended September 30, 2024 compared to financial expenses, net of $0.1 million for the three-month period ended September 30, 2023. This increase was mainly due to an increase in an amount of $4.8 million in one-time loss upon entering Transactions, offset, in part, by an increase in revaluation income of financial instruments (warrants and promissory notes) in the amount of $1.1 million.
Net loss
Net loss increased by approximately $11.1 million, or 1,387.5%, to $11.9 million for the three-month period ended September 30, 2024, compared to $0.8 million for the three-month period ended September 30, 2023. The increase was mainly due to an increase in our research and development expenses, general and administrative expenses, and financial expenses including significant non-cash items related to share-based compensation, transaction costs and costs related to becoming a public company.
Liquidity and Capital Resources
Overview
Our capital requirements will depend on many factors, including the timing and extent of spending to further develop our SIL-204 and initiate pre-clinical and clinical trials, support research and development efforts, investments in potential additional pipe-line products, and increased overall compensation as we continue to hire additional personnel. For the nine-month periods ended September 30, 2024 and 2023, we (or Silexion, as applicable) had a net loss of $14.8 million and $3.4 million, respectively. As of September 30, 2024, our cash and cash equivalents totaled $2.0 million.
To date, our principal sources of liquidity have been proceeds from private offerings of our (or Silexion’s, for periods prior to the Business Combination) ordinary shares and convertible preferred shares, grants from the Israeli Innovation Authority, and issuance of convertible financing agreements (CFA) and Simple Agreement for Future Equity (SAFE).
Based on our current business plan, we believe that current cash and cash equivalents will not be sufficient to meet our anticipated cash requirements for the next 12 months. We will need to raise additional capital to finance our operations, expand our business and pipeline, or for other reasons.
Silexion’s audited consolidated financial statements for the year ended December 31, 2023 included in the proxy statement/prospectus, and our unaudited condensed financial statements for the nine-month period ended September 30, 2024 included in this Quarterly Report, note that there is substantial doubt about Silexion’s or our (as applicable) ability to continue as a going concern as of such date; and in its report accompanying Silexion’s audited consolidated financial statements included in the proxy statement/prospectus, Silexion’s independent registered public accounting firm included an explanatory paragraph stating that Silexion’s recurring losses from operations and its cash outflows from operating activities raise substantial doubt as to its ability to continue as a going concern. This means that Silexion’s management and its independent registered public accounting firm have expressed substantial doubt about Silexion’s ability to continue its operations without an additional infusion of capital from external sources. Silexion’s unaudited condensed consolidated financial statements have been prepared on a going concern basis and do not include any adjustments that may be necessary should Silexion be unable to continue as a going concern. If we are unable to finance our operations (conducted via Silexion), our business would be in jeopardy and we might not be able to continue operations and might have to liquidate our assets. In that case, investors might receive less than the value at which those assets were carried on our unaudited condensed financial statements for the nine-month period ended September 30, 2024, and it is likely that investors would lose all or a part of their investment.
We have lease obligations and other contractual obligations and commitments as part of its ordinary course of business. See “Note 4: Operating Leases” and “Note 6: Commitments and Contingent Liabilities” to Silexion’s consolidated financial statements for the year ended December 31, 2023 (as contained in the proxy statement/prospectus) for information about our (then Silexion’s) lease obligations.
We did not have during the periods presented, and do not currently have, any off-balance sheet arrangements involving commitments or obligations, including contingent obligations, arising from arrangements with unconsolidated entities or persons that have or are reasonably likely to have a material current or future effect on its financial condition, results of operations, liquidity, cash requirements or capital resources.
ELOC
The ELOC has served as the primary source of financing for us in the period following the Closing of the Business Combination and effectiveness of the registration statement that was filed pursuant to the ELOC Registration Rights Agreement. Please see “Overview-Recent Developments Impacting Our Financial Condition and Outlook- ELOC Financing” in this Item 2 for more information.
PIPE Financing
We raised $2.0 million from the PIPE Financing as an additional source of financing for Silexion in the period following the Business Combination, which was completed immediately prior to the Closing. Please see “Overview-Recent Developments Impacting Our Financial Condition and Outlook- PIPE Financing” in this Item 2 for more information
Government Grants
Our research and development efforts have been financed, in part, through royalty-bearing grants from the Israeli Innovation Authority, or the IIA. As of September 30, 2024, we have received IIA royalty-bearing grants totaling approximately $5.8 million.
We are committed to pay royalties to the IIA at a rate of approximately 3.0% to 5.0% of the sales of all of its product candidates and other related revenues generated from such projects, that were developed, in whole or in part, using the IIA royalty-bearing grants we received under IIA programs up to the total amount of royalty-bearing grants received, linked to the U.S. dollar and bearing annual interest at rates prescribed by the IIA’s rules and guidelines.
We may in the future apply to receive additional grants from the IIA. However, we cannot predict whether we will be entitled to any future grants, or the amounts of any such grants.
Under the Israeli Innovation Law, research and development programs that meet specified criteria and are approved by a committee of the IIA are eligible for grants. A company that receives a royalty-bearing grant from the IIA is typically required to pay royalties to the IIA on income generated from products incorporating IIA-funded know-how (including income derived from services associated with such products and from IIA-funded know-how), up to 100% of the U.S. dollar-linked royalty-bearing grant amount plus interest.
The obligation to pay royalties is contingent on actual income generated from such products and services. In the absence of such income, no payment of royalties is required.
As of September 30, 2024, the total royalty amount that may be payable by us was approximately $5.8 million ($6.5 million including interest).
Cash Flows
Cash flows for the nine-month period ended September 30, 2024 and 2023
The following table summarizes our cash flows for the periods indicated:
| | Nine-month period ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Cash and cash equivalents and restricted cash at beginning of the period | | $ | 4,645 | | | $ | 8,309 | |
Net cash used in operating activities | | | (5,470 | ) | | | (3,272 | ) |
Net cash provided by (used in) investing activities | | | (22 | ) | | | 577 | |
Net cash provided by financing activities | | | 2,920 | | | | 522 | |
Net decrease in cash and cash equivalents and restricted cash | | $ | (2,572 | ) | | $ | (2,173 | ) |
Translation adjustments on cash and cash equivalents and restricted cash | | | (50 | ) | | | (324 | ) |
Cash and cash equivalents and restricted cash at end of the period | | $ | 2,023 | | | $ | 5,812 | |
Cash Flows from Operating Activities
Net cash used in operating activities increased by approximately $2 million, or 285.7%, to $2.7 million for the three-month period ended September 30, 2024, compared to $0.7 million for the three-month period ended September 30, 2023. This increase was mainly from an increase of $11.1 million in the net loss for the three-month period ended September 30, 2024, and from an increase of $0.4 million in change of net working capital, offset by (i) an increase of $5.8 million in non-cash share-based compensation and (ii) an increase of $3.6 million in non-cash financial expenses included in the net loss.
Cash Flows from Investing Activities
Net cash provided by (used in) investing activities decreased by $0.6 million, or 100%, to $0 million for the nine-month period ended September 30, 2024, compared to $0.6 million of cash provided by investing activities in the nine-month period ended September 30, 2023. This decrease was mainly due to a reduction in short-term deposits in an amount of $0.5 million, which cash was used for operating activities.
Cash Flows from Financing Activities
Net cash provided by financing activities increased by $2.4 million, or 480%, to approximately $2.9 million for the nine-month period ended September 30, 2024, compared to $0.5 million the nine-month period ended September 30, 2023. This increase was mainly due to an increase in cash received from transactions upon the closing of the Business Combination in an amount of $2.3 million and from an increase in proceeds from issuance of ordinary shares under the ELOC in an amount of $0.6 million, offset by a decrease of $0.5 million in proceeds from issuance of preferred shares, occurred in the nine-month period ended September 30, 2023.
Cash flows for the three-month periods ended September 30, 2024 and 2023
The following table summarizes our cash flows for the periods indicated:
| | Three-month period ended September 30, | |
| | 2024 | | | 2023 | |
| | (U.S. dollars, in thousands) | |
Cash and cash equivalents and restricted cash at the beginning of the period | | $ | 1,747 | | | $ | 6,491 | |
Net cash used in operating activities | | | (2,653 | ) | | | (685 | ) |
Net cash provided by (used in) investing activities | | | (16 | ) | | | 72 | |
Net cash provided by financing activities | | | 2,920 | | | | - | |
Net decrease in cash and cash equivalents and restricted cash | | $ | 251 | | | $ | (613 | ) |
Translation adjustments on cash and cash equivalents and restricted cash | | | 25 | | | | (66 | ) |
Cash and cash equivalents and restricted cash at the end of the period | | $ | 2,023 | | | $ | 5,812 | |
Cash Flows from Operating Activities
Net cash used in operating activities increased by approximately $2 million, or 285.7%, to $2.7 million for the three-month period ended September 30, 2024, compared to $0.7 million for the three-month period ended September 30, 2023. This increase was mainly from an increase of $11.1 million in the net loss for the three-month period ended September 30, 2024, and from an increase of $0.4 million in change of net working capital, offset by (i) an increase of $5.8 million in share-based compensation and (ii) an increase of $3.6 million in non-cash financial expenses included in the net loss.
Cash Flows from Investing Activities
Net cash provided by (used in) investing activities decreased by $0.1 million, or 100%, to $0.0 million for the three-month period ended September 30, 2024, compared to cash provided by investing activities of $0.1 million for the three-month period ended September 30, 2023. This decrease was mainly due to sales of property and equipment in the amount of $0.1 million in the three-month period ended September 30, 2023 (which sales were not repeated in the three-month period ended September 30, 2024).
Cash Flows from Financing Activities
Net cash provided by financing activities increased by $2.9 million, to approximately $2.9 million for the three-month period ended September 30, 2024, compared to $0 for the three-month period ended September 30, 2023. This increase was mainly due to an increase in cash received from transactions in connection with the closing of the Business Combination in an amount of $2.3 million and from an increase in proceeds from issuance of ordinary shares under the ELOC in an amount of $0.6 million.
Funding Requirements
We expect to devote substantial financial resources to our ongoing and planned activities, particularly further development of SIL-204 and as we conduct our planned pre-clinical and clinical trials.
Identifying potential product candidates and conducting pre-clinical testing and clinical trials is a time-consuming, expensive, and uncertain process that takes years to complete, and we may never generate the necessary data or results required to obtain marketing approval and achieve product sales. In addition, our product candidates, if approved, may not achieve commercial success. For additional information please refer to the “Risk Factors” section of the proxy statement/prospectus, including “Risks Related to Silexion’s and New Silexion’s Financial Condition and Capital Requirement - Silexion has never generated any revenue from product sales and may never be profitable” and “Risks Related to the Research and Development of Silexion’s Product Candidates - Silexion is heavily dependent on the success of its product candidates...”.
We expect our expenses to increase substantially in connection with our ongoing activities, particularly as we advance our pre-clinical studies and clinical trials. In addition, if we obtain marketing approval for SIL-204 in any indication or for any other product candidate we are developing or may develop in the future, we expect to incur significant commercialization expenses related to product manufacturing, sales, marketing, and distribution. Furthermore, as a result of the Closing of the Business Combination, we expect to incur additional costs associated with operating as a public company. Accordingly, we will need to obtain substantial additional funding.
Our future capital requirements will depend on many factors, including:
| ● | Humam clinical trial costs. |
As of September 30, 2024, we had cash and cash equivalents of $2.0 million. Based on our then-current cash balance, as well as our history of operating losses and negative cash flows from operations, combined with our anticipated use of cash to, among other things, (i) fund the preclinical and clinical development of our products, (ii) identify and develop new product candidates, and (iii) seek approval for SIL-204 and any other product candidates we may develop, our management has concluded that we do not have sufficient cash to fund our operations for 12 months from the date of this Quarterly Report without additional financing, and as a result, there is substantial doubt about our ability to continue as a going concern.
In making this determination, applicable accounting standards prohibited us from considering the potential mitigating effect of plans that have not been fully implemented as of the date of our unaudited condensed financial statements for the nine-month period ended September 30, 2024, including, without limitation, the plans to raise additional capital. Our financial information, including our unaudited condensed financial statements for the nine-month period ended September 30, 2024 included in this Quarterly Report, has been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and our unaudited condensed financial statements for the three- and nine-month periods ended September 30, 2024 do not include any adjustments that may result from an unfavorable outcome of this uncertainty.
We believe that as of the date of this Quarterly Report, we do not have cash sufficient to meet our anticipated cash requirements for the next 12 months.
We have based these estimates and expectations on assumptions that may prove to be wrong, and our operating plan may change as a result of many factors currently unknown to us. We could not, as of the September 30, 2024 balance sheet date of the unaudited condensed financial statements for the three and nine-month periods ended September 30, 2024, determine the exact level of funds that will be available to us upon potential equity financings. Our expected use of funds represents our intentions based upon our current plans and business condition, which could change in the future as our plans and business condition evolve and the level of funding available to us becomes clear. In addition, changing circumstances could cause us to consume capital significantly faster than we currently anticipate, and we may need to spend more than currently expected because of circumstances beyond our control. As a result, we could deplete our capital resources sooner than we currently expect. In addition, because the successful development of SIL-204 and any studies or other product candidates that we pursue is highly uncertain, at this time we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the development of any product candidate.
Until such time, if ever, as we can generate substantial revenues from our product sales, we expect to finance our cash needs through a combination of public and private equity offerings and debt financings, strategic alliances, collaborations, and marketing, distribution, or licensing arrangements. However, adequate additional financing may not be available to us on acceptable terms, or at all, and may be impacted by the economic climate and market conditions.
Reliance on the ELOC or other similar types of equity financings as a source of ongoing funding for our operations following the Business Combination could involve significant issuances of ordinary shares by us that could cause the following impacts (among others):
| ● | significant dilution to the equity interests of our current shareholders; |
| ● | a deemed change of control of our company due to the issuance of a substantial number of ordinary shares, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in a change in the officers and directors of our company relative to our current officers and directors, to the extent any shareholders build up significant beneficial ownership from ordinary shares issued pursuant to the ELOC; |
| ● | may have the effect of delaying or preventing a change of control of our company by diluting the share ownership or voting rights of a person seeking to obtain control; and |
| ● | may adversely affect prevailing market prices for our ordinary shares or warrants. |
Critical Accounting Policies and Estimates
For a description of our significant accounting policies, see Note 2 to Silexion’s consolidated financial statements for the year ended December 31, 2023 included in the proxy statement/prospectus and our unaudited condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2024 included in this Quarterly Report.
The preparation of Silexion’s consolidated financial statements for the year ended December 31, 2023 and our unaudited condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2024 in conformity with U.S. GAAP required our management to make estimates and assumptions in certain circumstances that affect the amounts reported in the consolidated financial statements for the year ended December 31, 2023 and unaudited condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2024 and related footnotes. Actual results may differ from these estimates. We have based our judgments on our experience and on various assumptions that we believe to be reasonable under the circumstances.
Of our policies, the following are considered critical to an understanding of Silexion’s consolidated financial statements for the year ended December 31, 2023 and our unaudited condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2024 as they require the application of subjective and complex judgment, involving critical accounting estimates and assumptions impacting those consolidated financial statements for the year ended December 31, 2023 and unaudited condensed consolidated financial statements for the three- and nine-month periods ended September 30, 2024.
The critical accounting estimates relate to the following:
Share-Based Compensation
Share-based compensation expense related to share awards is recognized based on the fair value of the awards granted. The fair value of each option award is estimated on the grant date using the Black-Scholes option pricing model. The Black-Scholes option pricing model requires the input of highly subjective assumptions, including, prior to the Business Combination, the fair value of the underlying ordinary shares (see below), the expected term of the option, and the expected volatility of the price of our ordinary shares. These estimates involve inherent uncertainties and the application of management’s judgment. The related share-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, including awards with graded vesting and no additional conditions for vesting other than service conditions. Forfeitures are accounted for as they occur instead of estimating the number of awards expected to be forfeited.
Our use of the Black-Scholes option-pricing model requires the input of highly subjective assumptions. If factors change and different assumptions are used, our share-based compensation expense could be materially different in the future.
We will continue to use judgment in evaluating the assumptions related to our share-based compensation on a prospective basis. As we continue to accumulate additional data related to our ordinary shares, we may refine our estimation process, which could materially impact our future share-based compensation expense.
Valuations of Instruments Convertible to Silexion Ordinary and Preferred Shares prior to the Business Combination
Silexion’s preferred shares were classified as temporary equity, as they included clauses that could constitute as in-substance redemption clauses that were outside Silexion’s control. Warrants and other instruments over Silexion’s preferred shares were classified as liabilities under ASC 480 and measured at fair value, with subsequent changes in fair value recognized in the statements of operations in each period.
The fair value of Silexion’s preferred shares underlying Silexion’s convertible instruments was determined by Silexion’s board of directors, after considering contemporaneous third-party valuations and input from management. Prior to the Business Combination, in the absence of a public trading market, Silexion’s board of directors, with input from management, exercised significant judgment and considered various objective and subjective factors to determine the fair value of Silexion’s equity including the following factors:
| ● | History of transactions in Silexion’s preferred shares; |
| ● | Probability of an IPO scenario (including de SPAC transaction); |
| ● | Probability of other liquidation events; |
| ● | Expected time to liquidation; and |
| ● | Expected return on equity. |
The resulting equity value was then allocated to each share class based on differences in liquidation preferences of the various share classes using an Option Pricing Model (“OPM”) through the use of a series of call options and by implementing a Monte Carlo simulation. The OPM allocates the overall company value to the various share classes based on differences in liquidation preferences, using a series of call options. The OPM is appropriate to use when the range of possible future outcomes is difficult to predict. Starting from 2023, for the IPO scenario (including de SPAC transaction) Silexion utilized a probability-weighted expected return method (“PWERM”) to allocate value among the various share classes. The PWERM involves the estimation of the value of the company under multiple future potential outcomes and estimates the probability of each potential outcome. After the value of each applicable class of shares was determined, a discount for lack of marketability (“DLOM”) was applied to arrive at the fair value of the ordinary shares on a non-marketable basis. A DLOM is applied in order to reflect the lack of a recognized market for a closely held interest and the fact that a non-controlling equity interest may not be readily transferable. A market participant purchasing this share would recognize this illiquidity associated with the shares, which would reduce the overall fair market value.
In some cases, Silexion considered the amount of time between rounds of financing to determine whether to use a mid price calculation between two dates.
Upon completion of the Business Combination, our ordinary shares are publicly traded, and we rely on the closing price of our ordinary shares as reported on the date of the applicable valuations.
The fair value of the warrants for the purchase of preferred shares was calculated using the OPM as part of the allocation of the equity value to the various share classes (as described above).
Valuation of Private Warrants
As part of the Business Combination, we assumed a derivative warrant liability related to previously issued private warrants in connection with Moringa’s initial public offering. The private warrants were classified as a liability. We utilize a Black-Scholes model option pricing model to estimate the fair value of the private warrants. The volatility of the private warrants is based on implied volatility of the publicly traded warrants and the historical volatility of our share price and of a selected peer companies that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve as of the valuation date for a maturity similar to the expiration of the warrants. The dividend yield is based on the historical rate, which we anticipate remaining at zero.
Valuation of Promissory Notes
As part of the Business Combination, we issued to Moringa’s sponsor, as well as EarlyBird Capital, Inc. promissory notes, which we irrevocably designated to be measured at fair value. The fair value Promissory Notes is measured using a discount rate based on a B- rated US dollar zero-coupon discount curve, plus a credit spread of 6.67%. The discount rate was determined with reference to benchmark interest rates of secured loans reported by venture capitals, which were then used to extract our entity-specific credit spread. The expected timing of conversion or redemption of the notes was determined using the management’s forecasts.
Recent Accounting Pronouncements
See Note 2 on page F-29 to Silexion’s financial statements for the year ended December 31, 2023 included in the proxy statement/prospectus for a description of recent accounting pronouncements applicable to Silexion’s financial statements for the year ended December 31, 2023.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our funds are invested in demand-deposit interest-bearing bank accounts. The interest accruing in those accounts is subject to fluctuation based on market changes in interest rates. We do not believe that any fluctuation in market interest rates will materially impact the value of those funds in those accounts.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
Our management evaluated, with the participation of our chief executive officer and chief financial officer, whom we refer to as our Certifying Officers, the effectiveness of our disclosure controls and procedures as of September 30, 2024, pursuant to Rule 13a-15(b) or Rule 15d-15(b) under the Exchange Act.
Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Factors that could cause our actual results to differ materially from our expectations, as described in this Quarterly Report, include the risk factors described in the “Risk Factors” section of the proxy statement/prospectus and the “Risk Factors” section of the Super Form 8-K (appearing within “Item 2.01 Completion of Acquisition or Disposition of Assets-Form 10 Information” of the Super Form 8-K). As of the date of this Quarterly Report, there have been no material changes to those risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Reference is made to the disclosure set forth under “Managements’ Discussion and Analysis of Financial Condition and Results of Operations- Overview-Recent Developments Impacting Our Financial Condition and Outlook” in Part II, Item 2 of this Quarterly Report, including “Settlement of Amounts Due Under Marketing Agreement with EarlyBirdCapital”, “PIPE Financing” and “Issuance of Amended and Restated Sponsor Promissory Note” regarding the issuance and sale by the Company of certain unregistered securities, which is incorporated herein by reference. All such unregistered securities sales were made in reliance on Section 4(a)(2) of the Securities Act and/or Rule 506 of Regulation D under the Securities Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
No. | | Description of Exhibit |
| | |
| | |
| | |
| | |
101.INS* | | Inline XBRL Instance Document. |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document. |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
104* | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| SILEXION THERAPEUTICS CORP |
| |
Date: November 14, 2024 | /s/ Ilan Hadar |
| Name: | Ilan Hadar |
| Title: | Chairman and Chief Executive Officer |
| | (Principal Executive Officer) |
| |
Date: November 14, 2024 | /s/ Mirit Horenshtein-Hadar |
| Name: | Mirit Horenshtein-Hadar |
| Title: | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |