What changed in this filing

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Item 5. Market for Registrant’s Common Equity

2021-03-15 compared with 2020-03-27 · 533 added, 688 removed, 307 unchanged (80% of the section changed)

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY

Market for Common Stock

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reverse stock split effected on June 4, 2019.

The quotations reflect inter-dealer prices, without retail markup, markdown or commission,

and may not represent actual transactions.

Consequently, the information provided below may not be indicative of our common stock

price under different conditions.

The quotations reflect inter-dealer prices, without retail markup, markdown

or commission, and may not represent actual transactions.

Consequently, the information provided below may not be indicative of

our common stock price under different conditions.

Year ended December 31, 2019

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Fourth Quarter

According to the

records of our transfer agent, American Stock Transfer & Trust Company, as of March 26, 2020, we had 109 holders of

record of common stock, not including holders who held in “street name.”

According to the records

of our transfer agent, American Stock Transfer & Trust Company, as of March 12, 2021, we had 138 holders of record

of common stock, not including holders who held in “street name.”

We have never declared

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Recent Sales of Unregistered Securities

As consideration for

the services provided to us by H.C.

Wainwright & Co., LLC, or Wainwright as placement agent for our December 2019 public

offering of our common stock and warrants, or the December 2019 Offering, on December 19, 2019, we issued to designees of Wainwright,

warrants, or the Placement Agent Warrants, to purchase an aggregate of 203,915 shares of our common stock.

The Placement Agent

Warrants have an exercise price of $1.5325 per share, are immediately exercisable and expire in December 2024.

Our agreement to

issue the Placement Agent Warrants was made, and the Placement Agent Warrants were issued, in reliance on the exemption provided

by Section 4(a)(2) of the Securities Act of 1933, as amended, relative to transactions by an issuer not involving any public offering,

to the extent an exemption from such registration was required.

No underwriters were involved in such transaction.

Not applicable.

Issuer Purchases of Equity Securities

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We are a smaller reporting

company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information

required under this item.

company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the

information required under this item.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

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and the audited consolidated notes to those statements included elsewhere in this Annual Report on Form 10-K.

This discussion includes

forward-looking statements that involve risks and uncertainties.

As a result of many factors, our actual results may differ materially

from those anticipated in these forward-looking statements.

Our mission is to develop

first-in-class biological therapies for the treatment of diseases, with a focus on Duchenne muscular dystrophy, or DMD, and other

rare disorders.

We are currently conducting HOPE-2, a Phase II clinical trial with our product candidate, CAP-1002, and are also

actively developing the exosomes platform technology as a next-generation vaccine and therapeutic.

This discussion

includes forward-looking statements that involve risks and uncertainties.

As a result of many factors, our actual results may differ

materially from those anticipated in these forward-looking statements.

Company Overview

Therapeutics, Inc.

is a biotechnology company focused on the development of transformative cell- and exosome-based therapeutics

for the treatment and prevention of a broad spectrum of diseases.

Cell Therapy (CAP-1002) Program

CAP-1002 - Duchenne Muscular Dystrophy

have completed HOPE-2, a Phase II clinical trial in the United States with our product candidate, CAP-1002, a cardiac cell derived

therapy which was used to treat patients with late-stage Duchenne muscular dystrophy, or DMD.

The 12-month final top-line

data showed improvements in multiple measures of upper limb, cardiac and respiratory functions.

Following receipt of the 12-month

data, we discussed this program with the FDA in a Type B meeting focusing on the data, next steps and a pathway to approval of

a Biologics License Application, or BLA, for CAP-1002 in DMD.

The FDA has continued to encourage us to conduct a Phase III study;

at this time, however, we are still discussing the pathway forward for this program with the FDA and have not initiated a Phase

Additionally, we are actively seeking partners for this program.

CAP-1002 - COVID-19 Program

In 2020, under an Expanded

Access (or Compassionate Use) program, seven patients hospitalized with severe COVID-19 (also referred to sometimes as SARS-CoV-2)

symptoms, six of whom were ventilated, were treated with CAP-1002.

Four of the seven patients were fully discharged and three died

between one- and two-months post-treatment.

Previously published data has shown that COVID-19 patients on ventilators experience

higher mortality rates.

While we are unable to definitively ascertain whether CAP-1002 improved patient outcomes, by analyzing

blood samples and other tests, it was determined that CAP-1002 was associated with identifiable improvements in certain patients

such as a decrease in white blood cell count, a decrease in IL-6, a decrease in C-reactive protein, and/or reduced reliance on

supplemental oxygen.

However, the efficacy of CAP-1002 in treating COVID-19 was not demonstrated due to the small sample size,

the fact that seven patients were contemporaneously on other experimental medications, and the lack of an established control group,

among other factors.

In August 2020,

we received FDA acceptance of our IND application for a clinical study of CAP-1002 in patients with severe or critical COVID-19.

The INSPIRE trial is a Phase II, randomized, double-blind, placebo-controlled study that is enrolling up to 60 patients from several

trial sites in the United States.

The study is enrolling patients who have a diagnosis of SARS-CoV-2 and require supplemental

Various outcome measures will be analyzed including, but not limited to, safety, cytokine biomarkers, all-cause mortality,

cardiac biomarkers and hospitalization length.

We expect to have top-line data available in the third quarter of 2021.

receipt of this data, we will discuss next steps for the program with FDA.

Additionally, we are actively seeking partners for this

Exosomes Program

Exosome-Based Vaccines

are currently engaged in the development of two vaccine candidates for the potential prevention of COVID-19.

The first vaccine

candidate is a tripartite exosome-mRNA vaccine which is designed to elicit a protective, long-lasting immune response to SARS-CoV-2

by targeting multiple structural proteins of the virus.

In December 2020, we announced positive preclinical data from

a study using our exosome-mRNA vaccine approach We recently met with the FDA in a pre-IND meeting and are planning on filing an

IND by the third quarter of 2021, subject to regulatory approval, for this vaccine for SARS-CoV-2.

We have also been investigating

an exosomal antigen vaccine which is a vesicle-based, nucleic acid-free formulation carrying multiple structural proteins of SARS-CoV-2.

Exosome-Based Therapeutics

We are also developing

our exosomes platform technology as a next-generation therapeutic platform.

Our current focus is on the development of exosomes

loaded with nucleic acids, including mRNA, to treat a variety of diseases.

mRNA medicines are not small molecules, like traditional

pharmaceutical drugs and they are not traditional biologics (such as recombinant proteins and monoclonal antibodies) –

were the origins of the biotech industry.

Instead, mRNA medicines are sets of instructions.

And these instructions direct cells

in the body to make all the proteins required for life as well as to prevent or fight disease.

Our platform builds

on advances in fundamental RNA science, targeting technology and manufacturing, providing us the opportunity to build a broad pipeline

of potential new therapeutic candidates.

At this time, we are developing therapeutics and vaccines for infectious diseases,

monogenic diseases and other indications.

CDC-Derived Exosomes (CAP-2003)

In April 2020,

we filed an IND with the FDA to investigate the use of CAP-2003 in patients with DMD.

At this time, the FDA has requested more

information related to manufacturing and we are evaluating the next steps for this program.

We need to submit further information

to FDA to support the potential acceptance of this IND.

Additionally, in July 2018,

we entered into a Cooperative Research and Development Agreement with the U.S.

Army Institute of Surgical Research, or USAISR,

pursuant to which we agreed to cooperate in research and development on the evaluation of our CAP-2003 for the treatment of trauma

related injuries and conditions.

Aspects of our exosomes

pipeline have been supported through collaborations and alliances.

We have entered into a Sponsored Research Agreement with Johns

Hopkins University, or JHU, pursuant to which researchers in the lab of Dr.

Stephen Gould will perform certain research activities

in connection with our exosomes program and the further development of the platform.

Additional collaborations include the Department

of Defense, the National Institutes of Health and Cedars-Sinai Medical Center, or CSMC.

executive offices are located at 8840 Wilshire Blvd., 2 nd Floor, Beverly Hills, California 90211.

Our telephone number

is (310) 358-3200 and our Internet address is www.capricor.com .

Our Technologies

Cardiosphere-Derived Cells (CAP-1002)

Our core therapeutic

Our core cell therapy

technology is based on cardiosphere-derived cells, or CDCs, a cardiac-derived cell therapy that was first identified in the academic

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Eduardo Marbán.

Since the initial publication in 2007, CDCs have

been the subject of over 100 peer-reviewed scientific publications and have been administered to approximately 150 human subjects

across several clinical trials.

Since the initial publication in 2007, CDCs

have been the subject of over 100 peer-reviewed scientific publications and have been administered to over 200 human subjects across

several clinical trials.

CDCs have been shown to exert potent immunomodulatory activity and to alter the immune system’s

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We have been developing allogeneic CDCs (CAP-1002) as a product candidate for the

treatment of Duchenne muscular dystrophy, or DMD, and investigating their effects on skeletal and cardiac function.

and clinical data support the therapeutic concept of administering CDCs as a means to address conditions in which the heart or

skeletal muscle has been damaged.

treatment of DMD and investigating their effects on skeletal and cardiac function.

Preclinical and clinical data support the therapeutic

concept of administering CDCs as a means to address conditions in which the heart or skeletal muscle has been damaged.

In a variety of preclinical

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programmed cell death and scar formation.

Published data by Cedars-Sinai Medical Center, or CSMC, which tested the effectiveness

of CDCs in a mouse model of DMD, showed for the first time that the skeletal and cardiac improvements could be directly attributed

to treatment with CDCs.

The data also provide further evidence of the potential of CDCs to stimulate tissue repair and regeneration

by first reducing inflammation, which then enables new healthy muscle to form, as was shown in the mouse model of DMD.

Published data by CSMC, which tested the effectiveness of CDCs in a mouse model of DMD,

showed for the first time that the skeletal and cardiac improvements could be directly attributed to treatment with CDCs.

also provide further evidence of the potential of CDCs to stimulate tissue repair and regeneration by first reducing inflammation,

which then enables new healthy muscle to form, as was shown in the mouse model of DMD.

CDCs are derived from

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Capricor has performed

clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration or peripheral

clinical studies to establish the range of CDC dose levels that appear to be safe via intracoronary administration and peripheral

venous access.

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as a product candidate.

Our preclinical data

has shown that cardiosphere-derived cells mediate most of their therapeutic activities through the secretion of extracellular vesicles.

Extracellular vesicles, including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by

most cells and contain characteristic lipids, proteins and nucleic acids such as mRNA and microRNAs.

They can signal through the

binding and activation of membrane receptors or through the delivery of their cargo into the cytosol of target cells.

Extracellular vesicles,

including exosomes and microvesicles, are nano-scale, membrane-enclosed vesicles which are secreted by most cells and contain characteristic

lipids, proteins and nucleic acids such as mRNA and microRNAs.

They can signal through the binding and activation of membrane receptors

or through the delivery of their cargo into the cytosol of target cells.

Our preclinical data has shown that CDCs mediate most

of their therapeutic activities through the secretion of extracellular vesicles.

Exosomes act as messengers

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inflammation and tissue regeneration.

Furthermore, pre-clinical research has shown that exogenously-administered exosomes can modify

Furthermore, preclinical research has shown that exogenously-administered exosomes can modify

cellular activities, thereby supporting their therapeutic potential.

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and administered in similar fashion to common biopharmaceutical products such as antibodies.

Our Product Candidates

Our drug candidates

which are in various stages of active development, consist of CAP-1002, our CDC-derived cells, and our exosome technologies.

2018 we commenced enrollment of patients with DMD in a Phase II clinical trial of CAP-1002 called HOPE-2.

CAP-1002 was also the

subject of three previous clinical trials conducted by us.

CAP-1002 is also currently being investigated in two additional trials

sponsored by CSMC, which are the REGRESS trial investigating heart failure with preserved ejection fraction and the ALPHA trial

investigating pulmonary arterial hypertension.

Although we are not the sponsor of these two trials, we are providing the investigational

product for use in the trials.

We are also evaluating our exosomes in pre-clinical studies for the treatment of various indications,

with a view to making an IND filing for Duchenne muscular dystrophy in exosomes during the second quarter of 2020.

CAP-1002 for the Treatment of Duchenne

Muscular Dystrophy:

Based on our understanding

of the mechanism of action of CAP-1002 which has been seen in pre-clinical models of DMD, we believe that CAP-1002 has the potential

to decrease inflammation and muscle degeneration while exerting positive effects on muscle regeneration, all of which may translate

into patients retaining muscle function for a longer period of time.

Data supporting peripheral intravenous route of administration

of CAP-1002 in the DMD setting has been provided by pre-clinical mouse studies where CDCs, the active ingredient in CAP-1002, have

been shown to increase exercise capacity and diaphragmatic function.

We are currently developing

CAP-1002 for the treatment of DMD.

We completed the positive HOPE-Duchenne Phase I/II trial in 2017 and then subsequently began

the HOPE-2 Phase II trial in 2018.

We reported positive interim 6-month results from HOPE-2 in the third quarter of 2019 and we

plan to report final 12-month results in the second quarter of 2020.

Our further plans with respect to the clinical development

of CAP-1002 in DMD, including our decision to conduct a Phase III trial, will be based on the final guidance received from the

FDA, our ability to secure funding necessary to conduct the trial should we decide to pursue that path and/or our ability to partner

with another company to advance the development of CAP-1002 for DMD, as well as other factors, some of which are not known at this

After the receipt of our final 12-month data from HOPE-2, we plan to request another meeting with the FDA to discuss the

next stages of development which may include seeking approval from the FDA.

Phase II HOPE-2 Clinical Trial

HOPE-2 is a randomized,

double-blind, placebo-controlled clinical trial which is being conducted at multiple sites located in the United States.

we have randomized 20 patients in our HOPE-2 clinical trial.

The clinical trial was designed to evaluate the safety and efficacy

of repeat, intravenous, or IV, doses of CAP-1002, in boys and young men with evidence of skeletal muscle impairment regardless

of ambulatory status and who are on a stable regimen of systemic glucocorticoids.

While there are many clinical initiatives in

DMD, HOPE-2 is one of the very few to focus on non-ambulant patients.

These boys and young men are looking to maintain what function

they have in their arms and hands, and Capricor’s previous study of a single intracoronary dose of CAP-1002 provided preliminary

evidence of efficacy that CAP-1002 may be able to help DMD patients retain or slow the loss of upper limb function.

The primary efficacy

endpoint of the HOPE-2 trial is the relative change in patients’

abilities to perform manual tasks that relate to activities

of daily living and are important to their quality of life.

These abilities will be measured through the Performance of the Upper

Limb, or PUL, test.

In the HOPE-2 study we are evaluating these through both the PUL 1.2 and 2.0 versions.

HOPE-2 is focusing on

the mid-level dimension of the PUL which assesses the ability to use muscles from the elbow to the hand, which are essential for

operating wheelchairs and performing other daily functions.

In HOPE-2, additional secondary and exploratory endpoints such as cardiac

function, pulmonary function, quality of life and additional measures are included.

In July 2019, we reported

interim top-line results from the HOPE-2 trial which showed that a pre-specified interim analysis performed on 6-month data showed

meaningful results across several independent clinical measures.

In October 2019, we

reported additional data from the interim analysis at the 24 th Annual International Congress of the World Muscle Society.

Data from a total of 20 patients was analyzed (12 placebo and 8 treated) at the 3- and 6-month time-point in the intent to treat

(ITT) population.

The late breaking podium presentation presented the top-line, 6-month results from the HOPE-2 clinical trial

which showed meaningful results across several independent clinical measures which is summarized below.

Skeletal Assessments

To assess skeletal

muscle function, investigators used the PUL, versions 1.2 and 2.0.

The FDA has suggested the use of the updated PUL 2.0 version

as the primary efficacy endpoint in support of a Biologics License Application, or BLA.

Additional independent tests assessing

grip strength showed improvements at 6 months and tests assessing tip to tip pinch strength showed positive results.

We also expanded

the skeletal assessment beyond the mid-level and evaluated patients’

PUL “scores”

to include the upper and distal

Skeletal Assessments at 3 and 6-month time-points (PUL 2.0)

presented at World Muscle Society

Shoulder + Mid + Distal Level

Mid + Distal Level

Mean Change from baseline (standard deviation) shown.

ITT (intent to treat) population shown

Comparisons treated vs.

placebo using mixed model repeated ANOVA with covariates

Pulmonary Assessments

To assess pulmonary

function, investigators measured several clinically relevant parameters.

At 3 months, inspiratory flow reserve (absolute), a reflection

of diaphragmatic strength, showed an improvement.

Additionally, an improvement was observed at 3 months in peak expiratory flow

(% predicted), another measure of diaphragmatic strength.

Cardiac Assessments

As reported from our

July interim analysis, magnetic resonance imaging, or MRI, was used to assess cardiac structure and function at 6 months.

trends were found in cardiac muscle function including systolic wall thickening and cardiac mass among those treated with CAP-1002

compared to placebo.

The hearts of DMD patients atrophy progressively and have impaired systolic function.

Improved mass and wall

thickening suggest possible cardiac regeneration and functional improvement.

These trends were consistent with the cardiac findings

seen in the previously published HOPE-Duchenne study.

In late December 2018,

Capricor put a voluntary hold on dosing after two patients in the HOPE trials had a serious adverse event in the form of an

immediate immune reaction.

The investigation suggested the patients may have developed hypersensitivity to something contained

in the investigational product, including possibly an excipient or inactive ingredient in the formulation.

To reduce the risk of

future adverse events, Capricor initiated a commonly used pre-medication strategy including oral steroids and antihistamines to

prevent or mitigate potential immune reactions during the administration.

Since the initiation of the pre-treatment regimen, approximately

40 infusions of investigational drug (CAP-1002 or placebo) have been administered to HOPE-2 patients with only one serious adverse

event reported that required an overnight observation of the patient.

Regulatory Developments

In June 2017, we had

a meeting with the FDA to discuss potential clinical endpoints that could be used for registration strategies for CAP-1002 in the

DMD indication.

The minutes of the meeting indicated the FDA's willingness to accept Capricor's proposal to use the PUL test as

the basis for the primary efficacy endpoint for clinical studies in support of a BLA.

The PUL test is an outcome instrument that

was specifically designed to assess upper limb function in ambulant and non-ambulant patients with DMD.

In December 2018, we

met with the FDA as part of the expedited review afforded under the RMAT designation.

The agency stated that the trial would need

to provide evidence of clinically meaningful changes in the PUL, as well as other evidence supportive of CAP-1002 efficacy for

patients with advanced Duchenne muscular dystrophy, in order to potentially serve as a registration trial.

In October 2019, we

had a meeting with the FDA to discuss, among other things, the results of the 6-month interim analysis of the HOPE-2 trial and

our path forward with our DMD program.

During the meeting, we proposed the possibility of accelerated approval.

not supportive of an accelerated approval pathway at that time and noted that the HOPE-2 trial was designed as an exploratory trial

and that data from the HOPE-2 trial did not provide substantial evidence of effectiveness to support a future biologics license

application, or BLA.

The FDA did, however, indicate its support for conducting a Phase III trial of CAP-1002 for the treatment

In addition, the FDA reiterated that as part of our RMAT designation, they are willing to work with us to further

the clinical development of the therapy.

In a follow-up to the

October 2019 meeting, Capricor requested an additional meeting to clarify endpoints for future clinical trials.

In a written response,

FDA supported the use of the full PUL 2.0 from baseline to twelve months as a primary efficacy endpoint as long as clinical meaningfulness

can be demonstrated.

They suggested that a 1.0 point difference appears suitable to demonstrate product efficacy to support a BLA.

Phase I/II HOPE-Duchenne Clinical Trial

We have completed the

randomized, controlled, multi-center Phase I/II HOPE-Duchenne clinical trial which was designed to evaluate the safety and exploratory

efficacy of CAP-1002 in patients with cardiomyopathy associated with Duchenne muscular dystrophy, or DMD.

Twenty-five patients

were randomized in a 1:1 ratio to receive either CAP-1002 on top of usual care or usual care only.

In patients receiving CAP-1002,

25 million cells were infused into each of their three main coronary arteries for a total dose of 75 million cells.

It was a one-time

treatment, and the last patient was infused in September 2016.

Patients were observed over the course of 12 months.

evaluated according to several exploratory outcome measures.

This study was funded in part through a grant award from the California

Institute for Regenerative Medicine, or CIRM.

In January 2019, this study was published in the online issue of Neurology ,

the medical journal of the American Academy of Neurology.

We reported our 12-month

data from the HOPE-Duchenne trial at a Late-Breaking Science session of the American Heart Association Scientific Sessions 2017.

As shoulder function had already been lost in most of the HOPE participants, investigators used the combined mid-distal PUL subscales

to assess changes in skeletal muscle function and found significant improvement in those treated with CAP-1002 in a defined post-hoc

Among the lower-functioning patients, defined as patients with a baseline mid-distal PUL score < 55 out of 58, investigators

reported sustained or improved motor function at 12 months in 8 of 9 (89%) patients treated with CAP-1002 as compared to none (0%)

of the usual care participants (p=0.007).

Additionally, we reported significant improvements in systolic thickening of the left

ventricular wall as well as reduction in scarring of the heart muscle among those treated with CAP-1002 decreased relative to the

control group.

CAP-1002 was generally

safe and well-tolerated in the HOPE-Duchenne trial.

There was no significant difference in the incidence of treatment-emergent

adverse events in either group.

There were no early study discontinuations due to adverse events.

Regulatory Designations for CAP-1002

for the treatment of DMD

In April 2015, the

FDA granted Orphan Drug Designation to CAP-1002 for the treatment of DMD.

Orphan Drug Designation is granted by the FDA’s

Office of Orphan Drug Products to drugs intended to treat a rare disease or condition affecting fewer than 200,000 people in the

United States or a disease or condition that affects more than 200,000 people in the United States and for which there is no reasonable

expectation that the cost of developing and making available in the United States a drug for this type of disease or condition

will be recovered from sales in the United States for that drug.

This designation confers special incentives to the drug developer,

including tax credits on the clinical development costs and prescription drug user fee waivers and may allow for a seven-year period

of market exclusivity in the United States upon FDA approval.

In July 2017, the FDA

granted Rare Pediatric Disease Designation to CAP-1002 for the treatment of DMD.

The FDA defines a “rare pediatric disease”

as a serious or life-threatening disease affecting individuals primarily aged from birth to 18 years and that affects fewer than

200,000 individuals in the United States.

Under the FDA's Rare Pediatric Disease Priority Review Voucher program, upon the approval

of a qualifying New Drug Application, or NDA, or BLA for the treatment of a rare pediatric disease, the sponsor of such application

would be eligible for a Rare Pediatric Disease Priority Review Voucher that can be used to obtain priority review for a subsequent

The Priority Review Voucher may be sold or transferred an unlimited number of times.

In February 2018, we

were notified by the FDA Office of Tissues and Advanced Therapies, that we were granted the Regenerative Medicine Advanced Therapy,

or RMAT, designation for CAP-1002 for the treatment of DMD.

The FDA grants the RMAT designation to regenerative medicine therapies

intended to treat a serious condition and for which preliminary clinical evidence indicates a potential to address unmet medical

needs for that condition.

The RMAT designation makes therapies eligible for the same actions to expedite the development and review

of a marketing application that are available to drugs that receive breakthrough therapy designation –

including increased

meeting opportunities, early interactions to discuss any potential surrogate or intermediate endpoints and the potential to support

accelerated approval.

CAP-1002 is one of the few therapies currently in development to help non-ambulant patients with DMD.

receive the RMAT designation, we submitted data from the HOPE-Duchenne Trial.

CAP-1002 for the Treatment of Cardiac

In previous years,

we completed several trials investigating the use of CAP-1002 for the treatment of various cardiac conditions, including heart

failure (the DYNAMIC Trial) and post myocardial infarction (MI) with cardiac dysfunction (ALLSTAR).

Because of our decision to

focus our efforts on DMD, we have decided not to pursue those indications at this time, nor do we have any plans to continue with

the development of these programs although we are continuing to evaluate certain cardiac measures in our HOPE-2 trial.

no further material expenses in connection with these programs.

CAP-1002 - Investigator Sponsored

Clinical Trials:

Capricor has agreed

to provide cells for investigational purposes in two clinical trials sponsored by CSMC.

These cells were developed as part of the

Company’s past research and development efforts.

The first trial is known as “Regression of Fibrosis and Reversal of

Diastolic Dysfunction in HFpEF Patients Treated with Allogeneic CDCs.”

Eduardo Marbán is the named principal investigator

under the study.

We were recently informed that the REGRESS study was put on clinical hold by the FDA.

This is an investigator

sponsored trial for which Capricor is providing CAP-1002, the investigational product.

The preliminary information we have received

suggests that the issue may be related to inadequate patient monitoring at the study site to assess safety for certain patients

who were experiencing adverse events after receiving an intracoronary infusion of CAP-1002.

It is currently not known whether the

clinical hold is related to the investigational product or the procedure.

Capricor did not use intracoronary infusions in its HOPE-2

The second trial is

known as “Pulmonary Arterial Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells.”

In this trial,

the investigational product is infused into the venous system via catheter into the right atrium.

This trial is currently ongoing.

In both studies, Capricor is providing the necessary number of doses of cells and will receive a negotiated amount of monetary

compensation which is estimated to be approximately $2.1 million over several years.

Exosomes Program

Our exosomes program

consists of exosomes derived from CDCs (CAP-2003) and engineered exosomes, both of which are in various stages of preclinical development.

We have explored the use of our CDC-exosomes in pre-clinical studies of inflammation and intense immune activation such as DMD,

sepsis, Graft versus-host disease (GVHD) and trauma.

While CDC-exosomes are the initial technology used in preclinical development,

we have expanded Capricor’s pipeline to include additional exosome technologies.

We are now focused on developing a precision-engineered

exosome platform technology that can carry defined sets of effector molecules which exert their effects through defined mechanisms

We have announced our planned expansion of our exosome platform technology that potentially may be used for vaccine

development, vesicle mediated protein therapies and treatment of inherited diseases.

Engineered Exosomes Platform

To build upon the natural

ability of exosomes for intercellular communication, we have initiated a program to engineer exosomes and load them with different

macromolecules.

Our preliminary results demonstrated that it is possible to load exosomes with specific miRNAs which pave the way

to use our exosomes to potentially deliver miRNAs to specific target tissue.

We are now working on developing exosome-based vaccines

for COVID-19.

While these efforts are still in their early-stages, our exosome-based vaccine platform technology will aim to combine

the improved protection that comes from immunizing individuals with multiple antigens in a manner that mimics the advantages of

conventional virus vaccines, with the superior safety profile of virus-free, vaccines.

We plan to design exosome-based vaccines

to elicit strong humoral and cellular immune responses due to the simultaneous expression of antigens.

Investigation of Potential Indications

for our Exosomes Technologies

Capricor has exclusively

licensed intellectual property relating to CDC-exosomes from Cedars-Sinai Medical Center and is also pursuing its own intellectual

property rights relating to exosome technologies.

We have promising pre-clinical

data in several indications from studies done in our labs as well as in collaboration with other companies and academic institutions.

Additionally, in July 2018, we entered into a Cooperative Research and Development Agreement with the U.S.

Army Institute of Surgical

Research (USAISR) pursuant to which we agreed to cooperate in research and development on the evaluation of our CDC-exosomes for

the treatment of trauma related injuries and conditions which are now the third leading cause of death in the U.S.

We plan to file an

IND for DMD with the FDA in advance of the filing deadline under our license agreement with CSMC, which is April 19, 2020, unless

we negotiate for an extension of this date with CSMC.

We have also begun work on developing an exosome-based vaccine platform for

These programs

represent our core technology and products.

The following table summarizes our active

product development programs:

Indication/Population

Development Stage

Duchenne Muscular Dystrophy*

Phase III –

in planning stages

Phase II completed***

HOPE-Duchenne

Phase I/II completed**

Phase II enrolling

Exosome-mRNA vaccine

Engineered Exosomes (RNA delivery)

Monogenic Diseases

CDC-Exosomes (CAP-2003)

Duchenne Muscular Dystrophy

IND submitted

Exosome-VLP vaccine

Engineered Exosomes (biologics delivery)

Food and Drug Administration, or FDA, has granted Orphan Drug, Regenerative Medicine Advanced Therapies, or RMAT, and

Rare Pediatric Disease designations to CAP-1002 for the treatment of DMD.

**We completed an Open Label Extension, or OLE, for the usual

care only comparator arm of the HOPE-Duchenne trial.

***We are currently conducting an OLE of the HOPE-2 trial.

These programs represent

our core technology and products.

Financial Operations Overview

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To date, most of our development expenses have related to our product candidates, consisting of CAP-1002

exosomes and our former product candidate, Cenderitide.

As we proceed with the clinical development of CAP-1002, and as we further

develop exosomes, our expenses will further increase.

Accordingly, our success depends not only on the safety and efficacy of our

product candidates, but also on our ability to finance the development of our products and our clinical programs.

Our major sources

of working capital to date have been proceeds from private and public equity sales, grants received from the NIH and the Department

of Defense, or DoD, a payment from Janssen under our now terminated collaboration agreement, and a loan and grant award from CIRM.

While we pursue our pre-clinical and clinical programs, we continue to explore financing and other strategic alternatives with

respect to the Company as well as one or more of our product candidates.

and our exosome technologies.

As we proceed with the clinical development of CAP-1002, and as we further develop our exosome technologies,

our expenses will further increase.

Accordingly, our success depends not only on the safety and efficacy of our product candidates,

but also on our ability to finance the development of our products and our clinical programs.

Our recent major sources of working

capital have been primarily proceeds from private and public equity sales of securities.

While we pursue our preclinical and clinical

programs, we continue to explore potential partnerships for the development of one or more of our product candidates.

Research and development,

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costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing,

costs of service providers for pre-clinical, clinical and manufacturing, and certain legal expenses resulting from intellectual

costs of service providers for preclinical, clinical and manufacturing, and certain legal expenses resulting from intellectual

property prosecution, stock compensation expense and other expenses relating to the design, development, testing and enhancement

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2020 and 2019

Grant Income.

Grant income for the years ended December 31, 2019 and 2018 was approximately $0.5 million and $1.0 million, respectively.

decrease in grant income of approximately $0.5 million in 2019 as compared to 2018 is primarily due to the timing of grant activities.

The pre-clinical phase of the NIH grant award came to completion during the third quarter of 2018.

Miscellaneous Income .

Miscellaneous income for the years ended December 31, 2019 and 2018 was approximately $0.5 million and $0.7 million, respectively.

The miscellaneous income was related to providing cells for investigational purposes for clinical trials sponsored by CSMC.

decrease in miscellaneous income of approximately $0.2 million in 2019 as compared to 2018 is primarily due to the associated enrollment

of the CSMC clinical trials.

Operating Expenses

General and Administrative

G&A expenses for the years ended December 31, 2019 and 2018 were approximately $3.6 million and $4.9 million,

respectively.

The decrease of approximately $1.3 million in G&A expenses in the year ended December 31, 2019 compared to the

year ended December 31, 2018 is attributable to approximately $0.6 million decrease in stock-based compensation expense, approximately

$0.3 million decrease in salaries due to a decrease in headcount, approximately $0.2 million decrease in investor relations expenses,

and a decrease of approximately $0.2 million in general corporate expenses.

Research and Development

R&D expenses for the years ended December 31, 2019 and 2018 were approximately $5.1 million and $12.1 million,

Grant income for the years ended December 31, 2020 and 2019 was approximately $0.2 million and $0.5 million,

respectively.

The decrease of approximately $7.0 million for the year ended December 31, 2019 as compared to the year ended December

31, 2018 is primarily due to the timing of clinical development activities of CAP-1002 (HOPE-Duchenne, HOPE-2 and HOPE-OLE clinical

These activities resulted in a decrease of approximately $4.1 million.

This reduction included the winding down of clinical

activities and operational expenses related to the HOPE-2 trial for the year ended December 31, 2019.

Furthermore, for the year

ended December 31, 2019, there was a decrease of approximately $0.4 million related to reduced clinical development expenses in

connection with the clinical headcount and general clinical expenses.

Additionally, there was a decrease of approximately $2.1

million in research and development expenses related to CAP-1002 and exosomes for the year ended December 31, 2019 as compared

to the same period in 2018.

Lastly, there was a decrease of approximately $0.3 million in stock-based compensation expenses allocable

to R&D for the year ended December 31, 2019 as compared to December 31, 2018.

Investment Income .

The decrease in grant income of approximately $0.3 million in 2020 as compared to 2019 is primarily due to the timing

of grant activities.

The DoD grant award came to completion during the third quarter of 2020.

Miscellaneous

Miscellaneous income for the years ended December 31, 2020 and 2019 was approximately $0.1 million and

$0.5 million, respectively.

The miscellaneous income was related to providing CAP-1002 for investigational purposes for clinical

trials sponsored by CSMC.

The decrease in miscellaneous income is due to delays in the clinical trials sponsored by CSMC caused

by the COVID-19 pandemic.

Operating Expenses

and Administrative Expenses .

G&A expenses for the years ended December 31, 2020 and 2019 were approximately

$5.5 million and $3.6 million, respectively.

The increase of approximately $1.9 million in G&A expenses in the year ended December 31,

2020 compared to the year ended December 31, 2019 is attributable to an approximately $1.2 million increase in stock-based

compensation expense, an approximately $0.5 million increase in salaries and recruiting related expenses, an approximately $0.3

million increase in investor relations expenses, and an approximately $0.1 million increase in insurance costs, partially offset

by a decrease of approximately $0.2 million in rent and other general corporate expenses.

and Development Expenses .

R&D expenses for the years ended December 31, 2020 and 2019 were approximately $8.5

million and $5.1 million, respectively.

The increase of approximately $3.4 million for the year ended December 31, 2020 as

compared to the year ended December 31, 2019 is primarily due to the timing of clinical development activities of CAP-1002

(DMD and COVID-19 clinical trials).

These activities resulted in a net increase of approximately $0.4 million.

Furthermore, for

the year ended December 31, 2020, there was an increase of approximately $1.7 million in research and development expenses

primarily related to our exosomes program and an increase of approximately $1.1 million in technology transfer and manufacturing

related activities of CAP-1002.

Lastly, there was an increase of approximately $0.1 million in stock-based compensation expenses

allocable to R&D for the year ended December 31, 2020 as compared to December 31, 2019.

Investment income for the years ended December 31, 2020 and 2019 was $32,943 and $94,791, respectively.

The decrease in investment

income in 2019 as compared to 2018 is due to the reduction in capital from 2018 to 2019.

The decrease in investment income in 2020 as compared to 2019 is due to reduced interest rates offered on our savings and money

market fund accounts.

Products Under Active Development

CAP-1002 –

CAP-1002 is in its developmental stages.

We expect to spend approximately $2.0 million to $4.0 million during 2020 on the clinical

development of CAP-1002 for DMD, which expenses are primarily related to our HOPE-2 clinical trial as well as additional regulatory

and manufacturing-related expenses.

These figures are largely dependent on the final results of our HOPE-2 trial, our discussions

with the FDA, our ability to secure additional funding and various other factors and our ability to secure a partner for the potential

future further clinical development of CAP-1002 for DMD, if necessary.

Exosome Technologies

We expect to spend approximately $2.0 million to $3.0 million during 2020 on pre-clinical and other research expenses related

to our exosomes program, a portion of which will be offset by our grant award from the DoD.

Capricor is currently engaged in pre-clinical

testing of exosomes to explore its therapeutic potential, including studies that could enable an IND and which we plan to file

by the CSMC deadline.

We have received a grant from the DoD for up to approximately $2.4 million to be used towards the development

of a scalable, commercially-ready process to manufacture CAP-2003.

As of December 31, 2019, the Company has approximately $0.2

million available under this grant award, pursuant to the terms of the award.

We expect to spend approximately $4.0 million to $6.0 million during

2021 on the development of CAP-1002 for DMD and COVID-19, which expenses are primarily related to clinical, regulatory, and manufacturing-related

expenses, including our technology transfer with Lonza Houston, Inc.

These figures are largely dependent on the next steps

in our DMD and COVID-19 programs, the regulatory status of our programs with the FDA, and our ability to secure a partner for the

potential future further clinical development of CAP-1002 for DMD, if necessary, and various other factors.

Technologies –

We expect to spend approximately $10.0 million to $12.0 million during 2021 on development expenses

related to our exosomes program, which includes preclinical and manufacturing related expenses for these technologies.

for this program are primarily related to our exosome-mRNA vaccine, which may include expenses related conducting a clinical trial,

subject to regulatory approval, as well as expenses focused on the expansion of our engineered exosomes platform.

we have expenses in connection with our Sponsored Research Agreement with Johns Hopkins University for further research related

to our exosome platform technology.

Our expenditures on

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the costs of manufacturing our product candidates;

the costs, requirements and timing of, and the ability to secure,

regulatory approvals.

the costs, requirements and timing of, and the ability to secure, regulatory approvals;

additional delays caused by the COVID-19 pandemic.

Liquidity and Capital Resources for

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Financing activities

Net decrease in cash, cash equivalents, and restricted cash

Net increase (decrease) in cash and cash equivalents

Our total cash, cash

equivalents and marketable securities as of December 31, 2019 was approximately $9.9 million compared to approximately $7.3 million

as of December 31, 2018.

The increase in cash, cash equivalents and marketable securities from December 31, 2019 as compared to

December 31, 2018 was primarily due to net financing activities of approximately $9.2 million and a net loss of approximately $7.6

million in 2019.

equivalents and marketable securities as of December 31, 2020 was approximately $32.7 million compared to approximately $9.9

million as of December 31, 2019.

The increase in cash, cash equivalents and marketable securities from December 31, 2020

as compared to December 31, 2019 was primarily due to net financing activities of approximately $33.0 million and a net loss

of approximately $13.7 million in 2020.

As of December 31, 2020, we had approximately $6.4 million in total liabilities.

As of December 31, 2019, we had

approximately $9.6 million in net working capital.

We had a net loss of approximately $7.6 million for the year ended December

of December 31, 2020, we had approximately $30.7 million in net working capital.

We had a net loss of approximately $13.7

million for the year ended December 31, 2020.

Cash used in operating

activities was approximately $10.1 million and $6.8 million for the years ended December 31, 2020 and 2019, respectively.

The difference

of approximately $7.1 million in cash from operating activities is primarily due to a decrease of approximately $7.5 million in

net loss for the year ended December 31, 2019 as compared to the same period in 2018.

Furthermore, there was a change of approximately

$1.0 million in stock-based compensation expense and a change of approximately $0.4 million in prepaid expenses and other current

assets for the year ended December 31, 2019 as compared to the same period in 2018.

To the extent we obtain sufficient capital

and/or long-term debt funding and are able to continue developing our product candidates, including as we expand our technology

portfolio, engage in further research and development activities, and, in particular, conduct pre-clinical studies and clinical

trials, we expect to continue incurring substantial losses, which will generate negative net cash flows from operating activities.

The difference of approximately $3.3 million in cash from operating activities is primarily due to an increase of approximately

$6.0 million in net loss for the year ended December 31, 2020 as compared to the same period in 2019.

Furthermore, there was

a change of approximately $1.3 million in stock-based compensation expense and a change of approximately $0.6 million in prepaid

expenses and other current assets for the year ended December 31, 2020 as compared to the same period in 2019.

To the extent

we obtain sufficient capital and/or long-term debt funding and are able to continue developing our product candidates, including

if we expand our technology portfolio, engage in further research and development activities, and, in particular, conduct preclinical

studies and clinical trials, we expect to continue incurring substantial losses, which will generate negative net cash flows from

operating activities.

We had cash flow provided

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2019, respectively.

The decrease in cash provided by investing activities for the year ended December 31, 2019 as compared to the same

period of 2018 is primarily due to the net effect from purchases, sales, and maturities of marketable securities.

The increase in cash provided by investing activities for the year ended December 31, 2020 as compared

to the same period of 2019 is primarily due to the net effect from purchases, sales, and maturities of marketable securities as

well as purchases of property and equipment.

We had cash flow provided

by financing activities of approximately $33.4 million and $9.2 million for the years ended December 31, 2020 and 2019, respectively.

The increase in cash provided by financing activities for the year ended December 31, 2019 as compared to the same period of 2018

is primarily due to the net proceeds from the sale of common stock.

During 2019 we received net proceeds of approximately $9.2

million compared to approximately $6.7 million over the same period of 2018.

Furthermore, we received $0.1 million from stock option

exercises in 2018 compared to nominal proceeds received in 2019.

The increase in cash provided by financing activities for the year ended December 31, 2020 as compared to the same period

of 2019 is primarily due to the net proceeds from the sale of common stock.

During 2020 we received net proceeds from the sale

of equities of approximately $33.0 million compared to approximately $9.2 million over the same period of 2019.

Furthermore, we

received $0.3 million under the SBA Paycheck Protection Program of the CARES Act in 2020.

From inception through

December 31, 2019, we financed our operations primarily through private and public sales of our equity securities, NIH and DoD

grants, a payment from Janssen, a CIRM loan and a CIRM grant award.

As we have not generated any revenue from the commercial sale

of our products to date, and we do not expect to generate revenue for several years, if ever, we will need to raise substantial

additional capital in order to fund our immediate general corporate activities and, thereafter, to fund our research and development,

including our long-term plans for clinical trials and new product development.

We may seek to raise additional funds through various

potential sources, such as equity and debt financings, or through strategic collaborations and license agreements.

give no assurances that we will be able to secure such additional sources of funds to support our operations, complete our clinical

trials or if such funds become available to us, that such additional financing will be sufficient to meet our needs.

to the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution,

and debt financing, if available, may involve restrictive covenants.

To the extent that we raise additional funds through collaboration

and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or grant

licenses on terms that may not be favorable to us.

December 31, 2020, we financed our operations primarily through private and public sales of our equity securities, NIH and

DoD grants, a payment from a former collaboration partner, a CIRM loan and a CIRM grant award.

As we have not generated any revenue

from the commercial sale of our products to date, and we do not expect to generate revenue for several years, if ever, we will

need to raise substantial additional capital to fund our research and development, including our long-term plans for clinical trials

and new product development.

We may seek to raise additional funds through various potential sources, such as equity and debt financings,

government grants, or through strategic collaborations and license agreements.

We can give no assurances that we will be able

to secure such additional sources of funds to support our operations, complete our clinical trials or if such funds become available

to us, that such additional financing will be sufficient to meet our needs.

Moreover, to the extent that we raise additional funds

by issuing equity securities, our stockholders may experience significant dilution, and debt financing, if available, may involve

restrictive covenants.

To the extent that we raise additional funds through collaboration and licensing arrangements, it may be

necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that may not be favorable

Our estimates regarding

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funds sooner than planned or in greater amounts than we currently anticipate.

The actual amount of funds we will need to operate

is subject to many factors, some of which are beyond our control.

At this time, we believe our cash resources are sufficient

to fund our operations for at least the next twelve months.

The actual amount of funds we will need to operate is subject to many

factors, some of which are beyond our control.

These factors include the following:

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the number and scope of our research programs;

the progress and success of our pre-clinical and clinical development

the progress of the development efforts of parties with whom we have

entered into research and development agreements;

the costs of manufacturing our product candidates;

our ability to maintain current research and development programs

and to establish new research and development and licensing arrangements;

the progress and success of our preclinical and clinical development activities;

the progress of the development efforts of parties with whom we have entered into research and

development agreements;

the costs of manufacturing our product candidates, and the progress of efforts with parties with

whom we may enter into commercial manufacturing agreements;

our ability to maintain current research and development programs and to establish new research

and development and licensing arrangements;

additional costs associated with maintaining licenses and insurance;

the costs involved in prosecuting and enforcing patent claims and

other intellectual property rights;

the costs involved in prosecuting and enforcing patent claims and other intellectual property rights;

the costs and timing of regulatory approvals.

As a result of the

spread of the COVID-19 coronavirus, uncertainties have arisen that could potentially impact enrollment of clinical trials, deliverables

related to contract performance, payments from trial sponsors, workforce stability, supply chain disruptions or delays, timing

of grant disbursements as well as other potential business operations.

While the disruption is currently expected to be temporary,

there is considerable uncertainty around its expected duration.

In addition to potential impact on grant disbursements, there may

be risks to the Company’s ability to obtain financing from other sources, due to the impact of the coronavirus.

be other financial impacts on our business of the coronavirus, the specifics of which are unknown at this time.

Financing Activities by the Company

On May 4, 2020, the Company initiated an at-the-market offering under a prospectus supplement

for aggregate sales proceeds of up to $40.0 million, or the May 2020 ATM Program, with the common stock to be distributed

at the market prices prevailing at the time of sale.

The May 2020 ATM Program was established under a Common Stock Sales Agreement,

or the July 2019 Sales Agreement, with H.C.

Wainwright & Co.

LLC, or Wainwright, under which we may, from time to

time, issue and sell shares of our common stock through Wainwright as sales agent.

The July 2019 Sales Agreement provides

that Wainwright will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share

of common stock sold.

All shares issued pursuant to the July 2019 ATM Program were issued pursuant to our shelf registration

statement on Form S-3 (File No.

333-227955), which was initially filed with the SEC on October 24, 2018, amended

on July 17, 2019 and declared effective by the SEC on July 18, 2019.

Since May 4, 2020 and through March 12,

2021, the Company has sold an aggregate of 5,947,852 shares of common stock under the May 2020 ATM Program at an average price

of approximately $6.16 per share for gross proceeds of approximately $36.6 million.

Approximately $3.4 million of common stock

may still be sold pursuant to the May 2020 ATM Program.

The Company paid cash commissions on the gross proceeds, plus reimbursement

of expenses of Wainwright and legal fees in the aggregate amount of approximately $1.2 million.

Warrant Inducement.

On March 25, 2020, the Company entered into a letter agreement (the “Exercise

Agreement”) with a holder of the Existing Warrants (the “Exercising Holder”).

Pursuant to the Exercise

Agreement, in connection with exercise by the Exercising Holder of the remaining 4,000,000 Existing Warrants held by the

Exercising Holder which had not been previously exercised, the Company agreed to issue 4,000,000 additional warrants (the

“New Warrants”) to purchase Common Stock.

The Existing Warrants had a per share exercise price of $1.10, and

pursuant to the Exercise Agreement, the Exercising Holder agreed to pay $1.225 per share to cover both the exercise price of

the Existing Warrants and a $0.125 per share purchase price for the New Warrants.

The New Warrants have an exercise price of

$1.27 per share.

The New Warrants and the shares of Common Stock issuable upon the exercise of the New Warrants are not being

registered under the Securities Act of 1933, as amended (the “Securities Act”), and are being offered pursuant to

the exemption provided in Section 4(a)(2) under the Securities Act or Rule 506(b) promulgated thereunder.

Pursuant to the

Exercise Agreements, the New Warrants shall be substantially in the form of the Existing Warrants (except for customary

legends and other language typical for an unregistered warrant, including the ability for the holder of the New Warrant to

make a cashless exercise if no resale registration statement covering the Common Stock underlying the New Warrants is

effective after six months), will be exercisable immediately, and will have a term of exercise of 5 1/2 years), and the

Company will be required to register for resale the shares of Common Stock underlying the New Warrants.

The Company expects

to receive aggregate gross proceeds of approximately $4.9 million from the exercise of the Existing Warrants by the

Exercising Holder.

These gross proceeds will be reduced by fees due and payable to the placement agent for the transactions

pursuant to the Exercise Agreement and New Warrants in the amount of $343,000, and further reduced by reimbursements to the

placement agent for legal fees and other expenses.

In addition, the placement agent will receive a new warrant for shares of

Common Stock equal to 5.0% of the New Warrants issued, or 200,000 shares.

On March 25, 2020, the Company entered into a letter agreement, or the Exercise Agreement,

with a holder of December 2019 Common Warrants (as defined below), or the Exercising Holder.

Pursuant to the Exercise Agreement,

in connection with the exercise by the Exercising Holder of the remaining 4,000,000 December 2019 Common Warrants held by

the Exercising Holder which had not been previously exercised, the Company agreed to issue 4,000,000 additional warrants, or the

New Warrants, to purchase Common Stock.

The December 2019 Common Warrants had a per share exercise price of $1.10, and pursuant

to the Exercise Agreement, the Exercising Holder agreed to pay $1.225 per share to cover both the exercise price of the December 2019

Common Warrants and a $0.125 per share purchase price for the New Warrants.

The New Warrants have an exercise price of $1.27 per

The New Warrants and

the shares of Common Stock issuable upon the exercise of the New Warrants were not registered under the Securities Act of 1933,

as amended, or the Securities Act, and were offered pursuant to the exemption provided in Section 4(a)(2) under the Securities

Act or Rule 506(b) promulgated thereunder.

The New Warrants are exercisable immediately upon issuance, and have a term

of exercise of 5 1/2 years.

Company received aggregate gross proceeds of approximately $4.9 million from the exercise of the December 2019 Common Warrants

by the Exercising Holder.

These gross proceeds were reduced by fees due and payable to the placement agent for the transactions

pursuant to the Exercise Agreement and New Warrants in the amount of $343,000, and further reduced by reimbursements to the placement

agent for legal fees and other expenses.

In addition, certain employees of the placement agent received new warrants, or the March 2020

Placement Agent Warrants, for shares of Common Stock equal to 5.0% of the New Warrants issued, or 200,000 shares.

These March 2020

Placement Agent Warrants are exercisable immediately and have a term of exercise of 5 years.

The holders of each of the

New Warrants and of the March 2020 Placement Agent Warrants have the option to make a cashless exercise of such warrant if

no resale registration statement covering the shares of the Company’s Common Stock underlying such warrant is effective after

On May 7, 2020, the Company filed a resale registration statement on Form S-3 for the shares underlying the

New Warrants and March 2020 Placement Agent Warrants, and that resale registration statement was declared effective by the

SEC on May 19, 2020.

As of December 31, 2020, 65,000 March 2020 Placement Agent Warrants remained outstanding under

the March 2020 Warrant Inducement.

December 2019

Public Offering.

In December 2019, the Company completed a public offering (the December Offering), pursuant to which the

Company issued (i) 531,173 shares of its common stock, (ii) warrants to purchase up to 4,139,477 shares of common stock, and (iii)

pre-funded warrants to purchase up to 3,608,304 shares of common stock, at a combined purchase price of $1.226 per share and associated

common warrant and $1.225 per pre-funded warrant and associated common warrant for an aggregate purchase price of approximately

$5.1 million.

The Company issued (a) to each purchaser of shares in the December Offering a common warrant to purchase a number

of shares of common stock equal to the number of shares purchased by such purchaser in the December Offering, and (b) to each purchaser

of pre-funded warrants in the December Offering a common warrant to purchase a number of shares of common stock equal to the number

of pre-funded warrant shares underlying the pre-funded warrants purchased by such purchaser in the December Offering.

and warrants issued pursuant to the December Offering, other than the Placement Agent Warrants, were issued pursuant to our registration

In December 2019, the Company completed a public offering, or the December Offering,

pursuant to which the Company issued (i) 531,173 shares of its common stock, (ii) warrants, or the December 2019

Common Warrants, to purchase up to 4,139,477 shares of common stock, and (iii) pre-funded warrants to purchase up to 3,608,304

shares of common stock, at a combined purchase price of $1.226 per share and associated common warrant and $1.225 per pre-funded

warrant and associated common warrant for an aggregate purchase price of approximately $5.1 million.

The Company issued (a) to

each purchaser of shares in the December Offering a common warrant to purchase a number of shares of common stock equal to

the number of shares purchased by such purchaser in the December Offering, and (b) to each purchaser of pre-funded warrants

in the December Offering a common warrant to purchase a number of shares of common stock equal to the number of pre-funded

warrant shares underlying the pre-funded warrants purchased by such purchaser in the December Offering.

All shares and warrants

issued pursuant to the December Offering, other than the Placement Agent Warrants, were issued pursuant to our registration

statement on Form S-1 (File No.

333-235358), which was initially filed with the Securities and Exchange Commission, or the SEC,

on December 5, 2019, amended on December 13, 2019 and declared effective by the SEC on December 17, 2019.

Fees paid in conjunction

with the deal, which included placement agent commissions, management fees, legal costs, and other offering expenses, amount to

approximately $0.7 million in the aggregate and were recorded as a reduction to additional paid-in capital, resulting in net proceeds

of approximately $4.4 million.

Since December 19, 2019 and through March 26, 2020, all 3,608,304 pre-funded warrants and

78,304 common warrants have been exercised.

August 2019 ATM

On August 29, 2019, the Company initiated an at-the-market offering under a prospectus supplement for aggregate

sales proceeds of up to $1.95 million, or the August 2019 ATM Program, with the common stock to be distributed at the market prices

prevailing at the time of sale.

The August 2019 ATM Program was established under a Common Stock Sales Agreement, or the July 2019

Sales Agreement, with Wainwright under which we may, from time to time, issue and sell shares of our common stock through Wainwright

as sales agent.

The July 2019 Sales Agreement provides that Wainwright is entitled to compensation for its services at a commission

rate of 3.0% of the gross sales price per share of common stock sold.

All shares issued pursuant to the August 2019 ATM Program

have been and will be issued pursuant to our shelf registration statement on Form S-3 (File No.

333-227955), which was initially

filed with the SEC, on October 24, 2018, amended on July 17, 2019 and declared effective by the SEC on July 18, 2019.

29, 2019 and through the date of filing, the Company has sold an aggregate of 360,316 shares of common stock under the August 2019

ATM Program at an average price of approximately $3.07 per share for gross proceeds of approximately $1.1 million.

paid cash commissions on the gross proceeds, plus reimbursement of expenses of the placement agent and legal fees in the aggregate

amount of approximately $0.1 million.

July 2019 ATM

On July 22, 2019, the Company initiated an at-the-market offering under a prospectus supplement for aggregate

sales proceeds of up to $1.8 million, or the July 2019 ATM Program, with the common stock to be distributed at the market prices

prevailing at the time of sale.

The July 2019 ATM Program was established under the July 2019 Sales Agreement, which provides that

Wainwright will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of

common stock sold.

All shares issued pursuant to the July 2019 ATM Program were issued pursuant to our shelf registration statement

on Form S-3 (File No.

333-227955), which was initially filed with the SEC on October 24, 2018, amended on July 17, 2019 and declared

effective by the SEC on July 18, 2019.

As of the expiration of the July 2019 ATM Program, the Company sold an aggregate of 418,450

shares of common stock under the July 2019 ATM Program at an average price of approximately $4.30 per share for gross proceeds

of approximately $1.8 million.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses of the placement

agent and legal fees in the aggregate amount of approximately $0.1 million.

Common Stock Sales Agreement.

On October 19, 2017, the Company entered into a Common Stock Sales Agreement, or the

October 2017 Sales Agreement, with Wainwright, under which it could, from time to time, issue and sell shares of our common stock

through Wainwright as sales agent in an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up

to $14.0 million, or the October 2017 ATM Program.

The common stock was distributed at the market prices prevailing at the time

The October 2017 Sales Agreement provided that Wainwright would be entitled to compensation for its services at a commission

rate of 3.0% of the gross sales price per share of common stock sold.

All shares issued pursuant to the October 2017 ATM Program

were issued pursuant to our shelf registration statement on Form S-3 (File No.

333-207149), which was initially filed with the

SEC on September 28, 2015 and declared effective by the SEC on October 26, 2015.

As of the expiration of the October 2017 ATM Program

on April 23, 2019, the Company sold an aggregate of 899,233 shares of common stock at an average price of approximately $13.04

per share for gross proceeds of approximately $11.7 million.

The Company paid cash commissions on the gross proceeds, plus reimbursement

of expenses of the placement agent and legal fees in the aggregate amount of approximately $0.4 million.

Financing Activities by Capricor,

333-235358), which was initially filed with the Securities and Exchange Commission, or

the SEC, on December 5, 2019, amended on December 13, 2019 and declared effective by the SEC on December 17, 2019.

Fees paid in conjunction with the deal, which included placement agent commissions, management fees, legal costs, and other offering

expenses, amount to approximately $0.7 million in the aggregate and were recorded as a reduction to additional paid-in capital,

resulting in net proceeds of approximately $4.4 million.

As of December 31, 2020, 61,173 December 2019 Common Warrants

remained outstanding under the December 2019 Financing.

On August 29, 2019, the Company initiated an at-the-market offering under a prospectus supplement

for aggregate sales proceeds of up to $1.95 million, or the August 2019 ATM Program, with the common stock to be distributed

at the market prices prevailing at the time of sale.

The August 2019 ATM Program was established under the July 2019

Sales Agreement, which provided that Wainwright was entitled to compensation for its services at a commission rate of 3.0% of the

gross sales price per share of common stock sold.

All shares issued pursuant to the August 2019 ATM Program were issued pursuant

to our shelf registration statement on Form S-3 (File No.

333-227955), which was initially filed with the SEC, on October 24,

2018, amended on July 17, 2019 and declared effective by the SEC on July 18, 2019.

At the expiration of the August 2019

ATM Program, the Company had sold an aggregate of 360,316 shares of common stock under the August 2019 ATM Program at an average

price of approximately $3.07 per share for gross proceeds of approximately $1.1 million.

The Company paid cash commissions on the

gross proceeds, plus reimbursement of expenses of the placement agent and legal fees in the aggregate amount of approximately $0.1

As of May 4, 2020, the August 2019 ATM Program has expired and been replaced with the May 2020 ATM Program.

On July 22, 2019, the Company initiated an at-the-market offering under a prospectus supplement

for aggregate sales proceeds of up to $1.8 million, or the July 2019 ATM Program, with the common stock to be distributed

at the market prices prevailing at the time of sale.

The July 2019 ATM Program was established under the July 2019 Sales

Agreement, which provides that Wainwright was entitled to compensation for its services at a commission rate of 3.0% of the gross

sales price per share of common stock sold.

All shares issued pursuant to the July 2019 ATM Program were issued pursuant to

our shelf registration statement on Form S-3 (File No.

333-227955), which was initially filed with the SEC on October 24,

2018, amended on July 17, 2019 and declared effective by the SEC on July 18, 2019.

As of the expiration of the July 2019

ATM Program, the Company sold an aggregate of 418,450 shares of common stock under the July 2019 ATM Program at an average

price of approximately $4.30 per share for gross proceeds of approximately $1.8 million.

The Company paid cash commissions on the

gross proceeds, plus reimbursement of expenses of the placement agent and legal fees in the aggregate amount of approximately $0.1

Financing Activities by Capricor, Inc.

CIRM Grant Award

On June 16, 2016, Capricor entered

into the CIRM Award with CIRM in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase I/II HOPE-Duchenne

clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy.

Pursuant to terms

of the CIRM Award, the disbursements were tied to the achievement of specified operational milestones.

In addition, the terms of

the CIRM Award included a co-funding requirement pursuant to which Capricor was required to spend approximately $2.3 million of

its own capital to fund the CIRM funded research project.

On June 16, 2016,

Capricor entered into the CIRM Award with CIRM in the amount of approximately $3.4 million to fund, in part, Capricor’s

Phase I/II HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy.

Pursuant to terms of the CIRM Award, the disbursements were tied to the achievement of specified operational milestones.

the terms of the CIRM Award included a co-funding requirement pursuant to which Capricor was required to spend approximately $2.3

million of its own capital to fund the CIRM funded research project.

The CIRM Award is further subject to the conditions and requirements

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research as set forth in Title 17, CCR Section 100608.

The maximum royalty on net commercial revenue that Capricor may be required

to pay to CIRM is equal to nine times the total amount awarded and paid to Capricor.

The maximum royalty on net commercial revenue that Capricor may be

required to pay to CIRM is equal to nine times the total amount awarded and paid to Capricor.

After completing the

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2020, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.

In June 2019, Capricor completed all

milestones associated with the CIRM Award and expended all funds received.

In the third quarter of 2019, Capricor completed all

final close-out documentation associated with this award.

In June 2019, Capricor completed

all milestones associated with the CIRM Award and expended all funds received.

In the third quarter of 2019, Capricor completed

all final close-out documentation associated with this award.

NIH Grant Award (HLHS)

In September 2016,

Capricor was approved for a grant from the NIH to study CAP-2003 (cardiosphere-derived cell exosomes) for hypoplastic left heart

syndrome (HLHS).

Under the terms of the NIH grant, disbursements will be made to Capricor in an amount up to approximately $4.2

million, subject to annual and quarterly reporting requirements as well as completion of the study objectives.

As of June 30, 2019,

approximately $0.7 million has been incurred under the terms of the NIH grant award.

In the second quarter of 2019, the award was

closed and all filings were completed with no additional expenses expected to be incurred.

September 2016, Capricor was approved for a grant from the NIH to study CAP-2003 (cardiosphere-derived cell exosomes) for

hypoplastic left heart syndrome (HLHS).

Under the terms of the NIH grant, disbursements will be made to Capricor in an amount up

to approximately $4.2 million, subject to annual and quarterly reporting requirements as well as completion of the study objectives.

As of June 30, 2019, approximately $0.7 million was incurred under the terms of the NIH grant award.

In the second quarter

of 2019, the award was closed and all filings were completed with no additional expenses expected to be incurred.

Department of Defense Grant Award

In September 2016,

Capricor was approved for a grant award from the DoD in the amount of approximately $2.4 million to be used toward developing a

scalable, commercially-ready process to manufacture CAP-2003.

Under the terms of the award, disbursements will be made to Capricor

over a period of approximately three years, subject to annual and quarterly reporting requirements.

The Company was granted a no-cost

extension until September 29, 2020 to be able to continue to utilize these funds.

As of December 31, 2019, approximately $2.2 million

has been incurred under the terms of the award.

Capricor was approved for a grant award from the Department of Defense in the amount of approximately $2.4 million to be used toward

developing a scalable, commercially-ready process to manufacture CAP-2003.

Under the terms of the award, disbursements were made

to Capricor over a period of approximately four years, subject to annual and quarterly reporting requirements.

The Company was

granted a no-cost extension until September 29, 2020 to be able to utilize these funds.

The Company utilized approximately

$2.3 million of the $2.4 million under the terms of the award.

We are currently completing all close-out documentation associated

with this award.

Contractual Obligations and Commitments

We are a smaller reporting

company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are not required to provide the information

required under this item.

are a smaller reporting company, as defined by Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and are

not required to provide the information required under this item.

Off-Balance Sheet Arrangements

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and accompanying notes.

Effective January 1,

2019, the Company adopted ASC 842, using the optional transition method utilizing the effective date as its date of initial application,

for which prior periods are presented in accordance with the previous guidance in ASC 840.

At the inception of

an arrangement, the Company determines whether the arrangement is or contains a lease based on the unique facts and circumstances

present in the arrangement.

Leases with a term greater than 12 months are recognized on the balance sheet as right of use assets

and short-term and long-term lease liabilities, as applicable.

The Company has elected not to recognize on the balance sheet leases

with terms of 12 months or less.

The Company typically only includes an initial lease term in its assessment of a lease arrangement.

Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company

The Company monitors its plans to renew its leases no less than on a quarterly basis.

In addition, the Company’s

lease agreements generally do not contain any residual value guarantees or restrictive covenants.

Operating lease liabilities

and their corresponding right of use assets are recorded based on the present value of future lease payments over the expected

remaining lease term at lease commencement.

Lease cost for operating leases is recognized on a straight-line basis over the lease

term as an operating expense.

Certain adjustments to the right of use asset may be required for items such as lease prepayments

or incentives received.

The interest rate implicit in lease contracts is typically not readily determinable.

As a result, the Company

utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis

the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

In transition to

ASC 842, the Company utilized the remaining lease term of its leases in determining the appropriate incremental borrowing rate.

In accordance with

ASC 842, components of a lease should be bifurcated between lease components and non-lease components.

The fixed and in-substance

fixed contract consideration identified must then be allocated based on the respective relative fair values to the lease components

and non-lease components.

However, ASC 842 provides a practical expedient that allows an accounting policy election to not separate

lease and non-lease components by class of underlying asset.

In using this expedient, the lease component and non-lease

components are accounted for together as a single component.

For real estate leases, the Company has elected to account

for the lease and non-lease components together for existing classes of underlying assets and allocates the contract consideration

to the lease component only.

This practical expedient is not elected for manufacturing facilities and equipment embedded in

product supply arrangements.

Revenue Recognition

For contracts completed

as of December 31, 2017, revenue was recognized in accordance with ASC 605 and other standards which have been superseded for subsequent

fiscal years.

The Company applied ASU 606 using the modified retrospective approach for all contracts in process as of January

The determination as

to when income is earned is dependent on the language in each specific grant.

Generally, we recognize grant income in the period

in which the expense is incurred for those expenses that are deemed reimbursable under the terms of the grant.

Grant income is

due upon submission of reimbursement request.

The transaction price varies for grant income based on the expenses incurred under

as of December 31, 2017, revenue was recognized in accordance with ASC 605 and other standards which have been superseded

for subsequent fiscal years.

The Company applied ASU 606 using the modified retrospective approach for all contracts in process

as of January 1, 2018.

determination as to when income is earned is dependent on the language in each specific grant.

Generally, we recognize grant income

in the period in which the expense is incurred for those expenses that are deemed reimbursable under the terms of the grant.

income is due upon submission of reimbursement request.

The transaction price varies for grant income based on the expenses incurred

under the awards.

Miscellaneous Income

Revenue is recognized

in connection with the delivery of doses which were developed as part of our past R&D efforts.

Income is recorded when the

Company has satisfied the obligations as identified in the contracts with the customer.

Miscellaneous income is due upon billing.

is recognized in connection with the delivery of doses which were developed as part of our past R&D efforts.

Income is recorded

when the Company has satisfied the obligations as identified in the contracts with the customer.

Miscellaneous income is

due upon billing.

Miscellaneous income is based on contracts with fixed transaction prices.

CIRM Grant Award

Capricor accounts for

the disbursements under its CIRM Award as long-term liabilities.

Capricor recognizes the CIRM grant disbursements as a liability

as the principal is disbursed rather than recognizing the full amount of the grant award.

After completing the CIRM funded research

project and after the award period end date, Capricor has the right to convert the CIRM Award into a loan, the terms of which will

be determined based on various factors, including the stage of the research and the stage of development at the time the election

Since Capricor may be required to repay some or all of the amounts awarded by CIRM, the Company accounts for this award

as a liability rather than income.

accounts for the disbursements under its CIRM Award as long-term liabilities.

Capricor recognizes the CIRM grant disbursements

as a liability as the principal is disbursed rather than recognizing the full amount of the grant award.

After completing the CIRM

funded research project and after the award period end date, Capricor has the right to convert the CIRM Award into a loan, the

terms of which will be determined based on various factors, including the stage of the research and the stage of development at

the time the election is made.

In June, 2016, Capricor entered into a Loan Election Agreement with CIRM whereby, among

other things, CIRM and Capricor agreed that if Capricor elects to convert the grant into a loan, the term of the loan could be

up to five years from the date of execution of the applicable loan agreement;

provided that the maturity date of the loan will

not surpass the ten-year anniversary of the grant date of the CIRM Award.

Since Capricor may be required to repay some or all of

the amounts awarded by CIRM, the Company accounts for this award as a liability rather than income.

Research and Development Expenses

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and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for

pre-clinical, clinical and manufacturing, and certain legal expenses resulting from intellectual property prosecution, stock compensation

preclinical, clinical and manufacturing, and certain legal expenses resulting from intellectual property prosecution, stock compensation

expense and other expenses relating to the design, development, testing and enhancement of our product candidates.

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We have issued stock

options to employees, directors and consultants under our three stock option plans:

options to employees, directors and consultants under our four stock option plans:

(i) the 2006 Stock Option Plan, (ii) the

Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan), and (iii) the 2012 Non-Employee Director Stock Option

In addition, the Board has approved the 2020 Equity Incentive Plan (the “2020 Plan”);

however, the 2020 Plan

will not become effective unless and until it is approved by the stockholders of the Company.

We intend to submit the 2020 Plan

for stockholder approval at the 2020 annual meeting.

2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan), (iii) the 2012 Non-Employee Director Stock

Option Plan, and (iv) the 2020 Equity Incentive Plan, or the 2020 Plan.

We expense the fair

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to record additional non-cash compensation expense in the future, which may be significant.

Restricted Cash

Prior to March 31,

2019, restricted cash represented funds received under the CIRM Award.

Restricted cash funds were allocated to the research costs

Generally, a reduction of restricted cash occurs when the Company deems certain costs are attributable to the respective

The Company fully utilized the CIRM Award in June 2019.

In April 2019, the

Company entered into a letter of credit as a security deposit for its lease agreement for corporate office space.

The Company delivered

to the landlord a letter of credit in the amount of $232,803 to cover payments of rent for the remainder of the 2019 lease term,

which was subsequently cancelled and funds returned to Capricor.

As such, no restricted cash is recorded as of December 31, 2019.

Clinical Trial Expense

As part of the process

of preparing our consolidated financial statements, we are required to estimate our accrued expenses.

part of the process of preparing our consolidated financial statements, we are required to estimate our accrued expenses.

trial accrual process is designed to account for expenses resulting from our obligations under contracts with vendors, consultants,

and CROs and clinical site agreements in connection with conducting clinical trials.

The financial terms of these contracts are

subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over

which materials or services are provided to us under such contracts.

Our objective is to reflect the appropriate clinical trial

expenses in our consolidated financial statements by matching the appropriate expenses with the period in which services are provided

and efforts are expended.

We account for these expenses according to the progress of the trial as measured by patient progression

and the timing of various aspects of the trial.

We determine accrual estimates through

financial models that take into account discussion with applicable personnel and outside service providers as to the progress or

state of completion of trials, or the services completed.

During the course of a clinical trial, we adjust our clinical expense

recognition if actual results differ from our estimates.

We make estimates of our accrued expenses as of each balance sheet date

in our consolidated financial statements based on the facts and circumstances known to us at that time.

Our clinical trial accrual

process is designed to account for expenses resulting from our obligations under contracts with vendors, consultants, and CROs

and clinical site agreements in connection with conducting clinical trials.

The financial terms of these contracts are subject

to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which

materials or services are provided to us under such contracts.

Our objective is to reflect the appropriate clinical trial expenses

in our consolidated financial statements by matching the appropriate expenses with the period in which services are provided and

efforts are expended.

We account for these expenses according to the progress of the trial as measured by patient progression and

the timing of various aspects of the trial.

We determine accrual estimates through financial

models that take into account discussion with applicable personnel and outside service providers as to the progress or state of

completion of trials, or the services completed.

During the course of a clinical trial, we adjust our clinical expense recognition

if actual results differ from our estimates.

We make estimates of our accrued expenses as of each balance sheet date in our consolidated

financial statements based on the facts and circumstances known to us at that time.

Our clinical trial accrual and prepaid assets

are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors.

do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing

of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts

that are too high or too low for any particular period.

and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors.

Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status

and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting

amounts that are too high or too low for any particular period.

Recently Issued or Newly Adopted

Accounting Pronouncements

In February 2016, the

Financial Accounting Standards Board, or FASB, issued ASU 2016-02, Leases (Topic 842) , or ASU 2016-02 , which

supersedes existing guidance on accounting for leases in Leases (Topic 840) and issued additional clarification

throughout 2018.

Under the new guidance, a lessee should recognize assets and liabilities that arise from its leases and disclose

qualitative and quantitative information about its leasing arrangements.

The Company elected the optional transition method to

apply the standard as of January 1, 2019 as the effective date and therefore, did not apply the standard to comparative periods.

The Company did not apply the recognition requirements to short-term leases and recognized those lease payments in the Consolidated

Statements of Operations and Comprehensive Loss on a straight-line basis over the lease term.

The Company also elected the available

package of practical expedients in transition which allowed us to not re-assess whether existing or expired arrangements contain

a lease, the lease classification of existing or expired leases, or whether previous initial direct costs would qualify for capitalization

under the new lease standard.

The adoption of this update did not have a material impact on the Company’s financial statements.

In June 2018, the FASB

issued ASU 2018-07, Compensation –

Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment

Accounting , which simplifies several aspects of the accounting for nonemployee share-based payment transactions resulting from

expanding the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

The Company early adopted ASU 2018-07 and all subsequent updates related to this topic on a prospective basis effective July 1,

The adoption of this update did not have a material impact on the Company’s financial statements.

In November 2018, the

FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

clarifying the interaction between Topic 808

and Topic 606.

The amendments in the update clarifies that certain transactions between collaborative arrangement participants

should be accounted for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context

of a unit of account;

adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 when an entity is assessing

whether the collaborative arrangement or a party of the arrangement is within the scope of Topic 606;

requires that in a transaction

with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction

together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.

amendments for this update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal

Early adoption is permitted.

The Company is currently evaluating the impact of the new guidance on our Consolidated financial

In November 2018,

the FASB issued ASU 2018-18, Collaborative Arrangements (Topic 808):

clarifying the interaction between Topic 808 and Topic

The amendments in the update clarify that certain transactions between collaborative arrangement participants should be accounted

for as revenue under Topic 606 when the collaborative arrangement participant is a customer in the context of a unit of account;

adds unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 when an entity is assessing whether the collaborative

arrangement or a party of the arrangement is within the scope of Topic 606;

requires that in a transaction with a collaborative

arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue

recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.

The amendments for this

update are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years.

Company adopted ASU 2018-18 and all subsequent updates related to this topic in the first quarter of 2020.

The adoption of this

update did not have a material impact on the Company’s financial statements.

In October 2019,

the FASB issued ASU 2019-12, which affects general principles within Topic 740, Income Taxes.

The amendments of ASU 2019-12 are

meant to simplify and reduce the cost of accounting for income taxes.

For public business entities, the amendments in this Update

are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

believes that the adoption of this new accounting guidance will not have a material impact on its financial statements and footnote

Other recent accounting

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 5. Market for Registrant’s Common Equity