What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-11 compared with 2023-03-17 · 238 added, 246 removed, 589 unchanged (45% of the section changed)

16 unchanged sentences

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.

As discussed in Note 1 to the consolidated financial statements, the Company has continued to incur significant operating losses and negative cash flows from operations, during the year ended December 31, 2023.

These conditions raise substantial doubt about the Company’s ability to continue as a going concern.

Management’s plans in regard to these matters are also described in Note 1.

The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Revenue Recognition – Revenue Recognized Over Tim e

Revenue Recognition – Revenue Recognized Over Time

Description of the Matter

63 unchanged sentences

Investment income

Forgiveness of debt

Loss on disposal of fixed assets

4 unchanged sentences

Net unrealized gain on marketable securities

COMPREHENSIVE INCOME (LOSS)

COMPREHENSIVE LOSS

( 22,156,973 )

12 unchanged sentences

Issuance of common stock, net of fees

Exercise of common warrants

Stock-based compensation

Stock options exercised

Unrealized gain on marketable securities

( 29,019,532 )

22 unchanged sentences

Stock-based compensation

Forgiveness of debt

Changes in lease liabilities

Changes in operating assets and liabilities:

( 9,824,413 )

Prepaid expenses and other current assets

2 unchanged sentences

Deferred revenue

( 3,178,066 )

Net cash provided by (used in) operating activities

3 unchanged sentences

( 97,441,506 )

( 114,218,737 )

Proceeds from sales and maturities of marketable securities

4 unchanged sentences

( 1,359,488 )

Net cash used in investing activities

( 35,072,507 )

Net cash provided by (used in) investing activities

( 35,072,507 )

16 unchanged sentences

Description of Business

Capricor Therapeutics, Inc., a Delaware corporation (referred to herein as “Capricor Therapeutics” or the “Company” or “we”), is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for treating Duchenne muscular dystrophy (“DMD”), a rare form of muscular dystrophy which results in muscle degeneration and premature death, and other diseases with high unmet medical needs.

Capricor Therapeutics, Inc., a Delaware corporation (referred to herein as “Capricor Therapeutics” or the “Company,” “we,” “us” or “our”), is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for treating Duchenne muscular dystrophy (“DMD”), a rare form of muscular dystrophy which results in muscle degeneration and premature death, and other diseases with high unmet medical needs.

Capricor, Inc.

1 unchanged sentence

After completion of a merger between Capricor and a subsidiary of Nile Therapeutics, Inc., a Delaware corporation (“Nile”), on November 20, 2013, Capricor became a wholly-owned subsidiary of Nile and Nile formally changed its name to Capricor Therapeutics, Inc.

Capricor Therapeutics, together with its subsidiary, Capricor, has multiple drug and vaccine candidates in various stages of development.

Capricor Therapeutics, together with its subsidiary, Capricor, has multiple therapeutic drug candidates in various stages of development.

Basis of Consolidation

3 unchanged sentences

Certain reclassification of prior period amounts has been made to conform to the current year presentation.

Liquidity and Going Concern

The Company has historically financed its research and development activities as well as operational expenses primarily from equity financings, government grants, and payments from distribution agreements and collaboration partners.

Cash, cash equivalents, and marketable securities as of December 31, 2023 were approximately $ 39.5 million, compared to approximately $ 41.4 million as of December 31, 2022.

In the first quarter of 2023, the Company expects to receive an upfront payment of $ 12.0 million from Nippon Shinyaku Co., Ltd., a Japanese corporation, (“Nippon Shinyaku”), in accordance with its Japan Exclusive Commercialization and Distribution Agreement (see Note 10 – “Subsequent Events”).

In the first quarter of 2023, the Company received an upfront payment of $ 12.0 million from Nippon Shinyaku Co., Ltd., a Japanese corporation, (“Nippon Shinyaku”), in accordance with its Japan Exclusive Commercialization and Distribution Agreement (see Note 7 – “License and Distribution Agreements”).

In October 2023, the Company completed a registered direct offering for gross proceeds of approximately $ 23.0 million (see Note 2 – “Stockholder’s Equity”).

We received our first milestone payment of $ 10.0 million in the first quarter of 2024, which was triggered upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome was determined to be not futile.

Additionally, the Company has a Common Stock Sales Agreement in place with H.C.

Wainwright & Co.

LLC ("Wainwright") to create at-the-market equity programs under which the Company, from time to time, sells shares of its common stock (see Note 3 - "Stockholders' Equity").

LLC ("Wainwright") to create at-the-market equity programs under which the Company, from time to time, sells shares of its common stock (see Note 2 - "Stockholders' Equity").

The Company’s principal uses of cash are for research and development expenses, general and administrative expenses, capital expenditures and other working capital requirements.

The Company’s future expenditures and capital requirements may be substantial and will depend on many factors, including, but not limited to, the following:

● the timing and costs associated with its research and development activities, clinical trials and preclinical studies, including the enrollment and progress of our ongoing HOPE-3 Phase III clinical study of CAP-1002 in DMD;

● the timing and costs associated with our research and development activities, clinical trials and preclinical studies, including the enrollment and progress of our ongoing HOPE-3 Phase 3 clinical trial of CAP-1002 in DMD;

● the timing and costs associated with the manufacturing of our product candidates, including the expansion of our manufacturing capacity to support the potential commercialization of CAP-1002 for DMD;

● the timing and costs associated with potential commercialization of its product candidates;

● the number and scope of its research programs, including the expansion of our exosomes program;

● the timing and costs associated with potential commercialization of our product candidates;

● the number and scope of our research programs, including the expansion of our exosomes program;

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

The Company’s options for raising additional capital include potentially seeking additional financing primarily from, but not limited to, the sale and issuance of equity or debt securities, the licensing or sale of its technology and other assets, potential distribution and other partnering opportunities, and from government grants.

CAPRICOR THERAPEUTICS, INC.

1 unchanged sentence

DECEMBER 31, 2023 AND 2022

The Company has incurred significant operating losses and negative cash flows from operations.

Based on the Company’s available cash resources and based upon the Company’s projections for its operations, the Company does not have sufficient cash on hand to support current operations for at least the next twelve months from the date of filing this Annual Report on Form 10-K.

Therefore, there is a substantial doubt about the Company’s ability to continue as a going concern.

The Company’s plan to address its financial position may include potentially seeking additional financing primarily from, but not limited to, the sale and issuance of equity or debt securities, the licensing or sale of its technology and from government grants.

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

The Company will require substantial additional capital to fund its operations.

1 unchanged sentence

If the Company is unable to obtain additional financing when and if required, it would have a material adverse effect on the Company’s business and results of operations.

The Company would likely need to delay, curtail or terminate portions of its clinical trial programs.

The Company would likely need to delay, curtail or terminate portions of its clinical trial and research and development programs.

To the extent the Company issues additional equity securities, its existing stockholders would experience substantial dilution.

Business Uncertainty Related to the Coronavirus

The COVID-19 pandemic has presented a substantial public health and economic challenge around the world.

Our business operations and financial condition and results have been impacted to varying degrees, and the impact may continue in future periods as we conduct our HOPE-3 trial and expand our exosomes-based research and development programs.

We are continuing to assess and plan our development for the ongoing and potential impact of COVID-19 on our business, operations and financial condition and results.

Despite careful tracking and planning, however, we are unable to accurately predict the extent of the impact of the pandemic on our business, results of operations and financial condition due to the uncertainty of future developments involving the pandemic and its impact on our employees and operations.

The full extent to which the COVID-19 pandemic will directly or indirectly impact our business, results of operations and financial condition will depend on future developments that are highly uncertain and cannot be accurately predicted, including new information that may emerge concerning COVID-19, the actions taken to contain it or treat its impact and the economic impact on local, regional, national and international markets.

In light of uncertainties due to COVID-19 and its economic and other impacts and to uncertainties around the timing and availability of grant disbursements, the loss of revenue from the REGRESS and ALPHA trials as well as any potential equity and debt financings, the Company submitted for the Employee Retention Credit (“ERC”), a credit against certain payroll taxes allowed to an eligible employer for qualifying wages, which was established by the CARES Act.

The Company has submitted $ 738,778 in ERC for applicable 2020 and 2021 periods, receiving $ 191,199 in 2021.

As of December 31, 2022, the Company has recorded a receivable for $ 547,580 for the remainder of funds due.

The COVID-19 pandemic presented substantial public health and economic challenges around the world.

Our business operations and financial condition and results have been impacted to varying degrees.

In light of past uncertainties due to COVID-19 and its economic and other impacts and to uncertainties around the timing and availability of grant disbursements, the loss of revenue from the REGRESS and ALPHA trials as well as any potential equity and debt financings, the Company submitted for the Employee Retention Credit (“ERC”), a credit against certain payroll taxes allowed to an eligible employer for qualifying wages, which was established by the CARES Act.

The Company has submitted $ 738,778 in ERC for applicable 2020 and 2021 periods, receiving $ 191,199 in 2021 and $ 191,463 in 2023.

As of December 31, 2023, the Company has recorded a receivable for $ 366,551 for the remainder of funds expected to be received.

Use of Estimates

10 unchanged sentences

Realized gains and losses on the sale of debt and equity securities are determined using the specific identification method.

Unrealized gains and losses on available-for-sale securities are excluded from net income (loss) and reported in accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.

As of December 31, 2022, marketable securities consist primarily of short-term United States treasuries.

Unrealized gains and losses on available-for-sale securities are

CAPRICOR THERAPEUTICS, INC.

1 unchanged sentence

DECEMBER 31, 2023 AND 2022

presented as accumulated other comprehensive income (loss) as a separate component of stockholders’ equity.

As of December 31, 2023, marketable securities consist primarily of short-term United States treasuries.

Property and Equipment

10 unchanged sentences

( 2,206,055 )

( 1,181,625 )

Property and equipment, net

Intangible Assets

Amounts attributable to intellectual property consist primarily of the costs associated with the acquisition of certain technologies, patents, pending patents and related intangible assets with respect to research and development activities.

Certain intellectual property assets are stated at cost and amortized on a straight-line basis over the respective estimated useful lives of the assets ranging from five to fifteen years .

Other intellectual property is expensed as incurred.

Total amortization expense was zero and $ 2,165 for the years ended December 31, 2022 and 2021, respectively.

All capitalized intellectual property has been fully amortized as of September 30, 2021.

The Company reviews goodwill and intangible assets at least annually for possible impairment.

Goodwill and intangible assets are reviewed for possible impairment between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit below its carrying value.

No impairment was recorded for the years ended December 31, 2022 and 2021.

Long-Lived Assets

The Company accounts for the impairment and disposition of long-lived assets in accordance with guidance issued by the FASB.

The Company accounts for the impairment and disposition of long-live assets in accordance with guidance issued by the Financial Accounting Standards Board (“FASB”).

Long-lived assets to be held and used are reviewed for events or changes in circumstances that indicate that their carrying value may not be recoverable, or annually.

8 unchanged sentences

Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion.

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

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

that the Company will renew.

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

In addition, the Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.

3 unchanged sentences

This practical expedient is not elected for manufacturing facilities and equipment embedded in product supply arrangements.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Revenue Recognition

The Company adopted ASU 606, Revenue for Contracts from Customers , which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries.

The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to its distribution agreements (see Note 8 – “License and Distribution Agreements”).

The Company adopted ASU 606, Revenue for Contracts from Customers (“ASU 606”), which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries (see Note 7 – “License and Distribution Agreements”).

The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

8 unchanged sentences

The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when, or as, each performance obligation is satisfied.

The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or royalties on sales.

The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or shares of product revenue on sales.

The milestones are generally categorized into three types:

development milestones, regulatory milestones and sales-based milestones.

The Company evaluates whether it is probable that the consideration associated with each milestone or royalty will not be subject to a significant reversal in the cumulative amount of revenue recognized.

The Company evaluates whether it is probable that the consideration associated with each milestone or shared revenue payments will not be subject to a significant reversal in the cumulative amount of revenue recognized.

Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from the transaction price until they meet this threshold.

1 unchanged sentence

Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and net income (loss) in the Company’s consolidated statements of operation and comprehensive loss.

Typically, milestone payments and royalties are achieved after the Company’s performance obligations associated with the distribution agreements have been completed and after the customer has assumed responsibility for the respective clinical program.

Milestones or royalties achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or royalty was achieved.

Typically, milestone payments and shared revenue payments are achieved after the Company’s performance obligations associated with the distribution agreements have been completed and after the customer has assumed responsibility for the commercialization program.

Milestones or shared revenue payments achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or shared revenue payments were achieved.

If a milestone payment is achieved during the performance period, the milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance would be recorded as deferred revenue.

2 unchanged sentences

Typically, a significant financing component does not exist because the customer is paying for services in advance with an upfront payment.

Additionally, future royalty payments are not substantially within the control of the Company or the customer.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

Additionally, future shared revenue payments are not substantially within the control of the Company or the customer.

Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized.

2 unchanged sentences

The Company feels this method of measurement to be the best depiction of the transfer of services and recognition of revenue.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations.

Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

complete its performance obligations.

If the Company determines that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on its consolidated balance sheets.

2 unchanged sentences

This estimate is based on the Company’s current operating plan and the Company may recognize a different amount of deferred revenue over the next 12-month period if its plan changes in the future.

The transaction price consists of variable sales-based royalties and fixed components in the form of an upfront payment and milestones.

The timing of the fixed component of the transaction price is upfront, however, the performance obligation is satisfied over a period of time, the HOPE-3 clinical trial.

Therefore, upon receipt of the upfront payment, a contract liability is recorded which represents deferred revenue.

Under the U.S.

Commercialization and Distribution Agreement (the “US Distribution Agreement”) with Nippon Shinyaku, the transaction price consists of variable shared revenue payments and fixed components in the form of an upfront payment and milestones.

The timing of the fixed component of the transaction price is upfront, however, the performance obligation is satisfied over a period of time, which is the estimated duration of the HOPE-3 clinical trial, Cohort A arm.

Therefore, upon receipt of the upfront payment and achievement of milestones, a contract liability is recorded which represents deferred revenue.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the related revenue recognition.

4 unchanged sentences

No grant income was recognized during the years ended December 31, 2023 and 2022.

Miscellaneous Income

Revenue is recognized in connection with the delivery of doses which were developed as part of our past research and development (“R&D”) efforts.

Income is recorded when the Company has satisfied the obligations as identified in the contracts with the customer (see Note 9 – “Related Party Transactions”).

Miscellaneous income is due upon billing.

Miscellaneous income is based on contracts with fixed transaction prices.

Miscellaneous income for the years ended December 31, 2022 and 2021 was zero and approximately $ 0.2 million, respectively.

Income taxes are recognized for the amount of taxes payable or refundable for the current year and deferred tax liabilities and assets are recognized for the future tax consequences of transactions that have been recognized in the Company’s financial statements or tax returns.

2 unchanged sentences

In making this assessment, a company must determine whether it is more likely than not that a tax position will be sustained upon examination, based solely on the technical merits of the position, and must assume that the tax position will be examined by taxing authorities.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

As of December 31, 2022, the Company had federal net operating loss carryforwards of approximately $ 129.6 million, available to reduce future taxable income, of which $ 73.7 million will begin to expire in 2027 .

The post December 31, 2017 net operating losses generated of $ 55.9 million will carryforward indefinitely, but may be subject to an 80% limitation upon utilization.

As of December 31, 2023, the Company had federal net operating loss carryforwards of approximately $ 106.9 million, available to reduce future taxable income, of which approximately $ 50.7 million will begin to expire in 2027 .

The post December 31, 2017 net operating losses generated of approximately $ 56.2 million will carryforward indefinitely, but may be subject to an 80% limitation upon utilization.

As of December 31, 2023, the Company had state net operating loss carryforwards of approximately $ 147.3 million, available to reduce future taxable income, which will begin to expire in 2028 .

4 unchanged sentences

Utilization of these credits could be limited under Section 383 of the Code and similar state laws based on ownership changes and the value of the Company’s stock.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Under Section 382 of the Code, the Company’s ability to utilize NOL carryforwards or other tax attributes, such as federal tax credits, in any taxable year may be limited if the Company has experienced an “ownership change.” Generally, a Section 382 ownership change occurs if one or more stockholders or groups of stockholders who owns at least 5% of a corporation’s stock increases its ownership by more than 50 percentage points over its lowest ownership percentage within a specified testing period.

8 unchanged sentences

Research and Development

Costs relating to the design and development of new products are expensed as research and development as incurred in accordance with Financial Accounting Standards Board (“FASB”) ASC 730-10, Research and Development .

Costs relating to the design and development of new products are expensed as research and development as incurred in accordance with FASB ASC 730-10, Research and Development .

Research and development costs amounted to approximately $ 36.4 million and $ 21.8 million for the years ended December 31, 2023 and 2022, respectively.

3 unchanged sentences

The Company’s other comprehensive income (loss) is related to a net unrealized gain (loss) on marketable securities.

For the years ended December 31, 2022 and 2021, the Company’s other comprehensive income was $ 105,244 and zero , respectively.

For the years ended December 31, 2023 and 2022, the Company’s other comprehensive income was $ 130,569 and $ 105,244 , respectively.

Clinical Trial Expense

3 unchanged sentences

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.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

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.

4 unchanged sentences

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.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Stock-Based Compensation

16 unchanged sentences

For the years ended December 31, 2023 and 2022, warrants and options to purchase 13,268,807 and 5,882,621 shares of common stock, respectively, have been excluded from the computation of potentially dilutive securities.

Potentially dilutive common shares, which primarily consist of stock options issued to employees, consultants, and directors as well as warrants issued, have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.

Potentially dilutive shares of common stock, which primarily consist of stock options issued to employees, consultants, and directors as well as warrants issued, have been excluded from the diluted loss per share calculation because their effect is anti-dilutive.

Because the impact of these items is anti-dilutive during periods of net loss, there was no difference between basic and diluted loss per share for the years ended December 31, 2023 and 2022.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

Fair Value Measurements

5 unchanged sentences

Unobservable inputs that reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date.

The following table summarizes the fair value measurements by level at December 31, 2022 for assets and liabilities measured at fair value on a recurring basis:

The following table summarizes the fair value measurements by level at December 31, 2023 and 2022 for assets and liabilities measured at fair value on a recurring basis:

December 31, 2023

Marketable Securities

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

December 31, 2022

Marketable Securities

Carrying amounts reported in the balance sheet of cash and cash equivalents, receivables, accounts payable and accrued expenses approximate fair value due to their relatively short maturity.

3 unchanged sentences

Recent Accounting Pronouncements

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832) , which requires business entities to disclose information about transactions with a government entity that are accounted for by applying a grant or contribution model by analogy.

For transactions within scope, the new standard requires the disclosure of information about the nature of the transaction, including significant terms and conditions, as well as the amounts and specific financial statement line items affected by the transaction.

The new guidance is effective for annual reporting periods beginning after December 15, 2021.

The Company adopted ASU 2021-10 in the first quarter of 2022.

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

In October 2023, the FASB issued ASU 2023-06, Disclosure Improvements:

Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative .

This standard was issued in response to the SEC’s disclosure update and simplification initiative, which affects a variety of topics within the Accounting Standards Codification.

The amendments apply to all reporting entities within the scope of the affected topics unless otherwise indicated.

The effective date for each amendment will be the date on which the SEC’s removal of that related disclosure from Regulation S-X or Regulation S-K becomes effective, with early adoption prohibited.

The Company is currently evaluating the impact this guidance will have on its financial statement disclosures.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

Paycheck Protection Program Loan

In 2020, Capricor applied to City National Bank ("CNB") under the SBA Paycheck Protection Program of the CARES Act for the Loan in the amount of $ 318,160 .

The Loan was approved and Capricor received the Loan proceeds, which were used for covered payroll costs in accordance with the relevant terms and conditions of the CARES Act.

In the second quarter of 2021, the Loan was forgiven, and the Company recognized a gain of $ 318,160 on the forgiveness.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

STOCKHOLDERS’ EQUITY

ATM Programs and Other Offerings

The Company has established multiple “at-the-market” (“ATM”), programs pursuant to a Common Stock Sales Agreement with Wainwright by which Wainwright sold and may continue to sell our common stock at the market prices prevailing at the time of sale.

The Company established an “at-the-market” program (the “ATM Program”) on June 21, 2021, with an aggregate offering price of up to $ 75.0 million, pursuant to a Common Stock Sales Agreement with Wainwright by which Wainwright has sold and may continue to sell our common stock at the market prices prevailing at the time of sale.

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 plus reimbursement of certain expenses.

These programs are referred to below as the “May 2020 ATM Program” and the “June 2021 ATM Program” based on when each program was initiated.

May 2020 ATM Program

On May 4, 2020, the Company initiated the May 2020 ATM Program.

The Company established the May 2020 ATM Program with an aggregate offering price of up to $ 40.0 million.

From May 4, 2020 through June 21, 2021, the Company sold an aggregate of 6,027,852 shares of common stock under the May 2020 ATM Program at an average price of approximately $ 6.15 per share for gross proceeds of approximately $ 37.1 million.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of approximately $ 1.2 million.

As of June 21, 2021, the May 2020 ATM Program expired and was replaced with the June 2021 ATM Program described below.

June 2021 ATM Program

On June 21, 2021, the Company initiated the June 2021 ATM Program.

The Company established the June 2021 ATM Program with an aggregate offering price of up to $ 75.0 million.

From June 21, 2021 through December 31, 2022, the Company sold an aggregate of 2,098,333 shares of common stock under the June 2021 ATM Program at an average price of approximately $ 5.93 per share for gross proceeds of approximately $ 12.4 million.

From June 21, 2021 through December 31, 2023, the Company sold an aggregate of 2,976,154 shares of common stock under the ATM Program at an average price of approximately $ 5.59 per share for gross proceeds of approximately $ 16.6 million.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of approximately $ 0.6 million.

Subsequent to December 31, 2022 and through the date of this filing, no additional shares have been sold under the June 2021 ATM Program.

As of the date of this filing, approximately $ 57.2 million of common stock may still be sold pursuant to the ATM Program.

Additionally, subsequent to December 31, 2023, the Company sold shares under the ATM Program (see Note 9 – “Subsequent Events”).

October 2023 Financing

On October 3, 2023, the Company entered into Securities Purchase Agreements with its commercial partner, Nippon Shinyaku and funds associated with Highbridge Capital Management, LLC (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 4,935,621 shares of its common stock, par value $ 0.001 per share, at a price per share of $ 4.66 for an aggregate purchase price of approximately $ 23.0 million.

Each share of common stock offered was sold with a warrant to purchase one share of common stock at an exercise price of $ 5.70 per share.

Each warrant will be exercisable beginning six months after issuance and will expire seven years from the date of issuance.

As part of the Registered Direct Offering, the Company agreed not to issue or sell shares (subject to customary exceptions for employee stock option issuances and other customary exceptions) for a period of 30 days following the date of the prospectus supplement that was used in the Registered Direct Offering.

That prospectus was dated September 29, 2023, and the Company “lock-up” expired on October 29, 2023.

The Company’s directors and executive officers also entered into “lock-up” agreements with the

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

placement agent in the Registered Direct Offering, which agreements expired on the 60 th day following the date of the Securities Purchase Agreements, or December 2, 2023.

Outstanding Shares

7 unchanged sentences

Outstanding at December 31, 2023

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

The following table summarizes all outstanding warrants to purchase shares of the Company’s common stock:

3 unchanged sentences

Common Warrants

Stock Options

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(i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan) (the “2012 Plan”), (iii) the 2012 Non-Employee Director Stock Option Plan (the “2012 Non-Employee Director Plan”), (iv) the 2020 Equity Incentive Plan (the “2020 Plan”), and (v) the 2021 Equity Incentive Plan (the “2021 Plan”).

At this time, the Company only issues options under the 2020 Plan and the 2021 Plan.

In September 2012, the Board approved the 2012 Non-Employee Director Plan, which authorized 269,731 shares of common stock, reserved for issuance of non-qualified options to members of the Board who are not employees of the Company.

The 2012 Non-Employee Director Plan expired in September 2022, therefore, no additional stock option awards may be granted from the 2012 Non-Employee Director Plan.

In November 2012, the Board approved the 2012 Plan, which superseded the 2006 Stock Option Plan.

Under the 2012 Plan, the Company may grant stock options, stock appreciation rights, restricted stock awards, and performance/unit share awards to employees, consultants and other service providers.

Pursuant to the 2012 Plan, inclusive of annual evergreen provisions and amendments, the Company is authorized to issue 710,142 shares of common stock.

The 2012 Plan expired in November 2022.

At this time, the Company only issues options under the 2020 Plan and the 2021 Plan and no longer issues options under the 2006 Stock Option Plan, the 2012 Plan, or the 2012 Non-Employee Director Plan.

In June 2020, the Company’s stockholders approved the 2020 Equity Incentive Plan (the “2020 Plan”), which authorized 2,500,000 shares of common stock to be issued and allows for the grant of stock options as well as other forms of equity-based compensation.

Pursuant to the “evergreen” provision, on January 1, 2021, 823,084 shares were added under the 2020 Plan.

Once the 2021 Plan was approved on June 11, 2021, no new shares have been or will be added to the share reserve under the 2020 Plan pursuant to its “evergreen” provisions.

Once the 2021 Plan was approved on June 11, 2021, no new shares were added to the share reserve under the 2020 Plan pursuant to its “evergreen” provisions.

In June 2021, the Company’s stockholders approved the 2021 Plan, which authorized 3,500,000 shares of common stock reserved under the 2021 Plan for the issuance of stock awards.

The number of shares available for issuance under the 2021 Plan shall be automatically increased on January 1 of each year, commencing with January 1, 2022, by an amount equal to 5 % of the outstanding shares of Common Stock as of the last day of the immediately preceding fiscal year.

The number of shares available for issuance under the 2021 Plan shall be automatically increased on January 1 of each year, commencing with January 1, 2022, by an amount equal to the lesser of 5% of the outstanding shares of Common Stock as of the last day of the immediately preceding

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

fiscal year or such number of shares determined by the compensation committee of the Board.

On January 1, 2024 and 2023, 1,557,416 and 1,262,070 shares were added under the 2021 Plan, respectively.

As of December 31, 2023, 1,232,318 options remain available for issuance under the respective stock option plans.

Each of the Company’s stock option plans are administered by the Board, or the compensation committee of the Board, which determines the recipients and types of awards to be granted, as well as the number of shares subject to the awards, the exercise price and the vesting schedule.

The Company’s stock option plans are administered by the Board, in conjunction with the compensation committee of the Board, which determines the recipients and types of awards to be granted, as well as the number of shares subject to the awards, the exercise price and the vesting schedule.

Each stock option granted will be designated in the award agreement as either an incentive stock option or a nonstatutory stock option.

Notwithstanding such designation, however, to the extent that the aggregate fair market value of the shares with respect to which incentive stock options are exercisable for the first time by the participant during any calendar year (under all plans of the Company and any parent or subsidiary) exceeds $ 100,000 , such options will be treated as nonstatutory stock options.

Stock options are granted with an exercise price equal to the closing price of the Company’s common stock on the date of grant, and generally vest over a period of one to four years .

Stock options are granted with an exercise price not less than equal to the closing price of the Company’s common stock on the date of grant, and generally vest over a period of one to four years .

The term of stock options granted under each of the plans cannot exceed ten years .

The estimated weighted average fair value of the options granted during 2023 and 2022 were approximately $ 3.85 and $ 3.04 per share, respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

The Company estimates the fair value of each option award using the Black-Scholes option-pricing model, with the following assumptions:

The Company estimates the fair value of each option award using the Black-Scholes option-pricing model.

The company used the following assumptions to estimate the fair value of stock options issued during the year ended December 31, 2023 and 2022:

Year ended December 31,

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The Company calculates the fair value for non-qualified options as of the date of grant and expenses over the applicable vesting periods.

We account for forfeitures upon occurrence.

The Company accounts for forfeitures upon occurrence.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

The following table summarizes information about stock options outstanding and exercisable at December 31, 2023:

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$ 3.61 - $ 3.85

$ 4.11 - $ 7.14

Options Exercisable

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$ 3.61 - $ 3.85

$ 4.11 - $ 7.14

As of December 31, 2023, the total unrecognized fair value compensation cost related to non-vested stock options was approximately $ 13.5 million, which is expected to be recognized over a weighted average period of approximately 1.5 years.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

The following is a schedule summarizing employee and non-employee stock option activity for the years ended December 31, 2023 and 2022:

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Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash, cash equivalents, and marketable securities.

The Company has historically maintained accounts at two financial institutions.

These accounts are each insured by the Federal Deposit Insurance Corporation (the “FDIC”) for up to $ 250,000 .

The Company maintains accounts at three financial institutions.

These accounts are insured by the Federal Deposit Insurance Corporation (the “FDIC”) for up to $ 250,000 and/or the Securities Investor Protection Corporation, as applicable.

The Company’s cash, cash equivalents, and marketable securities in excess of the FDIC insured limits as of December 31, 2023, were approximately $ 39.2 million.

Historically, the Company has not experienced any significant losses in such accounts and does not believe it is exposed to any significant credit risk due to the quality nature of the financial instruments in which the money is held.

The Company monitors the financial stability of the financial institutions with which it maintains accounts and believes it is not exposed to any significant credit risk in cash and cash equivalents.

Historically, the Company has not experienced any significant losses

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

in such accounts and does not believe it is exposed to any significant credit risk due to the quality nature of the financial instruments in which the money is held.

GOVERNMENT GRANT AWARDS

CIRM Grant Award (HOPE)

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.

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 1/2 HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of DMD-associated cardiomyopathy.

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

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On June 20, 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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

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

Beginning on the date of the loan, the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in CIRM’s Loan Policy (the “New Loan Balance”), at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S.

provided that the maturity date of the loan will not surpass the ten-year anniversary of the grant date of the CIRM Award.

Beginning on the date of the loan, the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in the CIRM Loan Policy and CIRM Grants Administration Policy for Clinical Stage Projects (the “New Loan Balance”), at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S.

dollars, as published by the Wall Street Journal on the loan date, plus one percent.

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Capricor has not yet made its decision as to whether it will elect to convert the CIRM Award into a loan.

If we elect to do so, Capricor would be required to repay some or all of the amounts awarded by CIRM;

Depending on the timing of our election, additional funds may be owed.

If we elect to do so, Capricor would be required to repay the amounts awarded by CIRM;

therefore, the Company accounts for this award as a liability rather than income.

In 2019, Capricor completed all milestones and close-out activities associated with the CIRM Award and expended all funds received.

As of December 31, 2022 and 2021, Capricor’s liability balance for the CIRM Award was approximately $ 3.4 million.

As of December 31, 2023, Capricor’s liability balance for the CIRM Award was approximately $ 3.4 million.

COMMITMENTS AND CONTINGENCIES

Short-Term Operating Leases

Capricor leases office space in Beverly Hills, California from The Bubble Real Estate Company, LLC ("Bubble Real Estate") pursuant to a lease beginning in 2013.

Capricor subsequently entered into several amendments modifying certain terms of the lease.

Effective January 1, 2021, we entered into a month-to-month lease amendment with the Bubble Real Estate.

The monthly lease payment was $ 13,073 .

In November 2021, Capricor entered into an amendment to the lease pursuant to which the square footage of the premises was reduced with a monthly lease payment of $ 5,548 per month commencing November 1, 2021.

In July 2022, Capricor added additional office space increasing the monthly lease payment to $ 7,869 per month.

The lease is terminable by either party upon 90 days ’ written notice to the other party.

Effective January 1, 2021, we entered into a month-to-month lease amendment with Bubble Real Estate, which is terminable by either party upon 90 days ’ written notice to the other party.

Commencing in July 2022, the monthly lease payment was $ 7,869 per month.

Effective July 1, 2023, the monthly lease payment was reduced to $ 7,619 per month.

Expenses incurred under short-term operating leases for the years ended December 31, 2023 and 2022 were $ 92,928 and $ 81,735 , respectively.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Long-Term Operating Leases

Capricor leases facilities in Los Angeles, California from Cedars-Sinai Medical Center (“CSMC”), a related party (see Note 9 – “Related Party Transactions”), pursuant to a lease (the “Facilities Lease”) beginning in 2014.

Capricor leases facilities in Los Angeles, California from Cedars-Sinai Medical Center (“CSMC”), a related party (see Note 8 – “Related Party Transactions”), pursuant to a lease (the “Facilities Lease”) entered into in 2014.

Capricor has subsequently entered into several amendments modifying certain terms of the lease.

In July 2020, Capricor exercised its option to extend the term of the Facilities Lease for an additional 12-month period through July 31, 2021 with a monthly lease payment of $ 15,805 .

In July 2021, Capricor exercised its option to extend the term of the Facilities Lease for an additional 12-month period through July 31, 2022 with a monthly lease payment of $ 10,707 .

In July 2022, we entered into an amendment for an additional 24-month period extending the term through July 31, 2024 with a monthly lease payment of $ 10,707 .

The Company entered into a lease agreement commencing October 1, 2021 with Altman Investment Co, LLC (“Altman”) for 9,396 square feet of office and laboratory space located at 10865 Road to the Cure, Suite 150, in San Diego, California.

Under the terms of the lease, the base rent will be $ 48,859 per month, for which the Company received certain rent abatements during the initial year.

Additionally, the rent is subject to a 3.0 % annual rent increase during the initial lease term of five years , plus certain operating expenses and taxes.

The lease contains an option for Capricor to renew for an additional term of five years .

Effective July 1, 2022 the Company entered into an amendment to the lease increasing the square footage to 9,485 square feet with a monthly lease payment of $ 49,322 per month.

In November 2022, we entered into an amendment increasing the square footage to 9,605 square feet with a new monthly lease payment of $ 51,444 per month effective December 1, 2022.

Additionally, in September 2023, we entered into an amendment pursuant to which Capricor was granted an option to extend the lease for an additional 24-month period extending the term through July 31, 2026 with a monthly lease payment of $ 11,028 commencing on August 1, 2024.

The rent is subject to a 3.0 % annual rent increase during the initial lease term of five years , plus certain operating expenses and taxes.

The San Diego Lease contains an option for Capricor to renew it for an additional term of five years .

The Company has subsequently entered into several amendments to the San Diego Lease increasing the square footage of the premises and effective July 1, 2022, the monthly lease payment was increased to $ 49,322 per month.

Effective December 1, 2022, the monthly lease payment was increased to $ 51,444 per month.

Effective October 1, 2023, the monthly lease payment was increased to $ 58,409 per month.

Effective November 1, 2021, the Company entered into a vivarium agreement with Explora BioLabs, Inc.

(“Explora”), a Charles River Company, for vivarium space and services.

Under the terms of the agreement, the base rent will be $ 4,021 per month for an exclusive large vivarium room located in San Diego, California.

The lease term is for one-year and will automatically renew for additional successive one-year renewal terms unless either party provides the other

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

party with 60-day written notice prior to the end of the then-current term.

In December 2022, we were notified by Explora of a monthly rent escalation of 4.5 % for a base rent of approximately $ 4,202 per month effective January 1, 2023.

Under the terms of the agreement, the Company is obligated to pay a base rent of $ 4,021 per month for an exclusive large vivarium room located in San Diego, California.

The lease term is for one-year and will automatically renew for additional successive one-year renewal terms unless either party provides the other party with 60-day written notice of its election not to renew prior to the end of the then-current term.

In December 2022, we were notified by Explora of a monthly rent escalation of 4.5 % bringing the base rent to approximately $ 4,202 per month effective January 1, 2023.

For ASC 842 purposes, we applied a lease term of five years .

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Weighted average discount rate

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DECEMBER 31, 2023 AND 2022

As of December 31, 2023, ROU assets for operating leases were approximately $ 2.1 million and operating lease liabilities were approximately $ 2.2 million.

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From time to time, the Company may become involved in various legal proceedings that arise in the ordinary course of its business or otherwise.

The Company records a loss contingency reserve for a legal proceeding when it considers the potential loss probable and it can reasonably estimate the amount of the loss or determine a probable range of loss.

The Company has not recorded any material accruals for loss contingencies as of December 31, 2023.

The Company has received a letter from CSMC alleging certain overdue payment obligations and alleged breaches (see Note 7 – “License and Distribution Agreements”).

Accounts Payable

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Other Funding Commitments

The Company is a party to various agreements, principally relating to licensed technology, that require future payments relating to milestones that may be met in subsequent periods or royalties on future sales of specific products (see Note 8 - "License and Distribution Agreements").

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

Additionally, the Company is a party to various agreements with contract research and/or manufacturing organizations that generally provide for termination upon notice, with the exact amounts owed in the event of termination to be based on the timing of termination and the terms of the agreement.

Additionally, the Company is a party to various agreements with contract research, manufacturing and other organizations that generally provide for termination upon notice, with the exact amounts owed in the event of termination to be based on the timing of termination and the terms of the agreement.

Employee Severances

The Board of Directors approved severance packages for specific full-time employees based on their length of service and position ranging up to six months of their base salaries, in the event of termination of their employment, subject to certain conditions.

The Board of Directors approves severance packages for specific full-time employees based on their length of service and position ranging up to six months of their base salaries, in the event of termination of their employment, subject to certain conditions.

No liability under these severance packages has been recorded as of December 31, 2023.

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University of Rome License Agreement

Capricor and the University of Rome entered into a License Agreement, dated June 21, 2006 (the “Rome License Agreement”), which provides for the grant of an exclusive, world-wide, royalty-bearing license by the University of Rome to Capricor (with the right to sublicense) to develop and commercialize licensed products under the licensed patent rights in all fields.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

to Capricor (with the right to sublicense) to develop and commercialize licensed products under the licensed patent rights in all fields.

Pursuant to the Rome License Agreement, Capricor paid the University of Rome a license issue fee, is currently paying minimum annual royalties in the amount of 20,000 Euros per year, and is obligated to pay a lower-end of a mid-range double-digit percentage on all royalties received as a result of sublicenses granted, which are net of any royalties paid to third parties under a license agreement from such third-party to Capricor.

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Pursuant to the JHU License Agreement, JHU was paid an initial license fee and, thereafter, Capricor is required to pay minimum annual royalties on the anniversary dates of the JHU License Agreement.

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DECEMBER 31, 2022 AND 2021

the event that Capricor is required to pay royalties on any patent rights to third parties in order to make or sell a licensed product.

The minimum annual royalties are creditable against a low single-digit running royalty on net sales of products and net service revenues, which Capricor is also required to pay under the JHU License Agreement, which running royalty may be subject to further reduction in the event that Capricor is required to pay royalties on any patent rights to third parties in order to make or sell a licensed product.

In addition, Capricor is required to pay a low double-digit percentage of the consideration received by it from sublicenses granted and is required to pay JHU certain defined development milestone payments upon the successful completion of certain phases of its clinical studies and upon receiving approval from the FDA.

The maximum aggregate amount of milestone payments payable under the JHU License Agreement, as amended, is $ 1,850,000 .

In March 2022, Capricor paid the $ 250,000 development milestone related to the Phase II study pursuant to the terms of the JHU License Agreement.

The next milestone is triggered upon successful completion of a full Phase III study for which a payment of $ 500,000 will be due.

In March 2022, Capricor paid the $ 250,000 development milestone related to the Phase 2 study pursuant to the terms of the JHU License Agreement.

The next milestone is triggered upon successful completion of a full Phase 3 study for which a payment of $ 500,000 will be due.

The JHU License Agreement will, unless sooner terminated, continue in effect in each applicable country until the date of expiration of the last to expire patent within the patent rights, or, if no patents are issued, then for twenty years from the effective date.

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Capricor and JHU entered into an Exclusive License Agreement (the “JHU Exosome License Agreement”), effective April 28, 2021 for its co-owned interest in certain intellectual property rights related to exosome-mRNA vaccines and therapeutics.

The JHU Exosome License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license of JHU’s co-owned rights by JHU to Capricor, with the right to sublicense, in order to conduct research using the patent rights and know-how and to develop and commercialize products in the field using the patent rights and know-how.

Pursuant to the JHU Exosome License Agreement, JHU was paid an upfront license fee of $ 10,000 and Capricor has agreed to reimburse JHU for certain fees and costs incurred in connection with the prosecution of certain patent rights.

Additionally, Capricor is required to meet certain development milestones for which a milestone payment fee shall be due and is obligated to pay low single-digit royalties on sales of royalty-bearing products as well as a double-digit percentage of any non-royalty consideration received from any sublicenses, subject to certain exclusions.

The above-mentioned royalties are subject to reduction in the event Capricor becomes obligated to pay royalties on one or more third party patents as a requirement to make or sell a licensed product.

In addition, Capricor will, beginning with the third year of the JHU Exosome License Agreement, be obligated to pay JHU a minimum annual royalty which is non-refundable but will be credited against royalties incurred by Capricor for the year in which the minimum annual royalty becomes due.

The JHU Exosome License Agreement will, unless sooner terminated, continue in each country until the date of expiration of the last to expire patent included within the patent rights in that country, or if no patents issue, then for 20 years .

The JHU Exosome License Agreement may be terminated by Capricor upon 90 days ’ written notice in its discretion and with 60 days ’ notice with respect to any particular patent or application or as to any particular licensed product.

The JHU Exosome License Agreement may also be terminated by either party if the other party fails to perform or otherwise breaches any of its obligations and fails to cure such breach within a 60-day cure period commencing upon notice.

A material breach by Capricor may include (a) a delinquency with respect to payment or reporting;

(b) the failure by Capricor to timely achieve a specified milestone or otherwise failing to diligently develop, commercialize, and sell licensed products throughout the term of the JHU Exosome License Agreement;

(d) voluntary bankruptcy or insolvency of Capricor;

and (e) non-compliance with Capricor’s insurance obligations.

The JHU Exosome License Agreement provided for the grant of an exclusive, world-wide, royalty-bearing license of JHU’s co-owned rights by JHU to Capricor, with the right to sublicense, in order to conduct research using the patent rights and know-how and to develop and commercialize products in the field using the patent rights and know-how.

The JHU Exosome License Agreement was terminated by Capricor on December 15, 2023.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

Cedars-Sinai Medical Center License Agreements

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In 2013, the Original CSMC License Agreement was amended twice resulting in, among other things, a reduction in the percentage of sublicense fees which would have been payable to CSMC.

Effective December 30, 2013, Capricor entered into an Amended and Restated Exclusive License Agreement with CSMC (the “Amended CSMC License Agreement”), which amended, restated, and

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DECEMBER 31, 2022 AND 2021

superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

Effective December 30, 2013, Capricor entered into an Amended and Restated Exclusive License Agreement with CSMC (the “Amended CSMC License Agreement”), which amended, restated, and superseded the Original CSMC License Agreement, pursuant to which, among other things, certain definitions were added or amended, the timing of certain obligations was revised and other obligations of the parties were clarified.

The Amended CSMC License Agreement provides for the grant of an exclusive, world-wide, royalty-bearing license by CSMC to Capricor (with the right to sublicense) to conduct research using the patent rights and know-how and develop and commercialize products in the field using the patent rights and know-how.

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Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.

On March 20, 2015, August 5, 2016, December 26, 2017, June 20, 2018, and July 27, 2021, Capricor and CSMC entered into a number of amendments to the Amended CSMC License Agreement, pursuant to which the parties agreed to add and delete certain patent applications from the list of scheduled patents, among other things.

Capricor and CSMC have entered into several amendments to the Amended CSMC License Agreement, pursuant to which the parties agreed to add and delete certain patent applications from the list of scheduled patents and extend the timing of certain development milestones, among other things.

Capricor reimbursed CSMC for certain attorneys’ fees and filing fees incurred in connection with the additional patent applications.

We recently received a letter from CSMC alleging that pursuant to the Amended CSMC License Agreement between CSMC and Capricor, Capricor has certain overdue payment obligations to CSMC arising out of a milestone payment received by Capricor pursuant to the U.S.

Distribution Agreement entered into between Capricor and Nippon Shinyaku.

Capricor has received a milestone payment of $ 10.0 million under its U.S.

Distribution Agreement with Nippon Shinyaku, which CSMC is claiming 10 % of this milestone payment is owed to them.

The notice letter requests that Capricor cure the alleged breaches of the Amended CSMC License Agreement, and reserves CMSC’s purported right to terminate the Amended CSMC License Agreement if such alleged breaches are not cured.

We dispute the allegations in

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DECEMBER 31, 2023 AND 2022

the letter from CSMC and intend to vigorously defend our position and pursue all available remedies, but there is no guarantee that any disputes that we have with CSMC will be resolved or if resolved, will not result in our incurring certain payment and other obligations.

License Agreement for Exosomes

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The above-mentioned royalties are subject to reduction in the event Capricor becomes obligated to obtain a license from a third-party for patent rights in connection with the royalty bearing product.

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DECEMBER 31, 2022 AND 2021

The Exosomes License Agreement will, unless sooner terminated, continue in effect on a country by country basis until the last to expire of the patents covering the patent rights or future patent rights.

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Capricor may terminate the agreement if CSMC fails to cure any material breach within 90 days after notice.

On February 27, 2015, June 10, 2015, August 5, 2016, December 26, 2017, June 20, 2018, September 25, 2018, August 19, 2020, August 28, 2020, and March 19, 2021, Capricor and CSMC entered into a number of amendments to the Exosomes License Agreement.

Collectively, these amendments added additional patent applications and patent families to the Exosomes License Agreement, added certain defined product development milestone payments, modified certain milestone deadlines, and added certain performance milestones with respect to product candidates covered by certain future patent rights in order to maintain an exclusive license to those future patent rights;

failure to meet those milestones would cause CSMC to have the right to convert the license from exclusive to non-exclusive or co-exclusive, or to terminate the license, subject to Capricor’s right to license such patent rights for internal research purposes on a non-exclusive basis.

Capricor and CSMC have entered into several amendments to the Exosomes License Agreement.

Collectively, these amendments added additional patent applications and patent families to the Exosomes License Agreement, added certain defined product development milestone payments, modified certain milestone deadlines, added certain performance milestones with respect to product candidates covered by certain future patent rights in order to maintain an exclusive license to those future patent rights, and converted certain exclusive rights to co-exclusive rights.

These amendments also obligated Capricor to reimburse CSMC for certain attorneys’ fees and filing fees in connection with the additional patent applications and patent families.

Sponsored Research Agreement with Johns Hopkins University

On April 1, 2020 we entered into a Sponsored Research Agreement (the “SRA”) with JHU pursuant to which researchers in the lab of Dr.

Stephen Gould performed certain research activities in connection with our engineered exosomes program.

Pursuant to the SRA, we funded certain research activities.

This SRA expired in accordance with its terms on March 31, 2022.

Cell Line License Agreement with Life Technologies

On March 7, 2022, Capricor entered into a non-exclusive cell line license agreement with Life Technologies Corporation, a subsidiary of Thermo Fisher Scientific, Inc., for the supply of certain cells which we will use in connection with the development of our exosomes platform.

An initial license fee payment was made in the first quarter of 2022 and additional milestone fees may become due on the progress of our development program.

An initial license fee payment was made in 2022 and additional milestone fees may become due based on the progress of our development program.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

United States)

On January 24, 2022, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “U.S.

On January 24, 2022, Capricor entered into a Commercialization and Distribution Agreement (the “U.S.

Distribution Agreement”) with Nippon Shinyaku, a Japanese corporation.

Under the terms of the U.S.

Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in the United States of CAP-1002 for the treatment of DMD.

Under the terms of the U.S.

Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as the manufacturing of CAP-1002.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States.

Pursuant to the U.S.

Distribution Agreement, Capricor has the obligation to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and in addition Capricor will have the right to receive a meaningful, double-digit share of product revenue and additional development and sales-based milestone payments, if achieved.

In the first quarter of 2022, Capricor received an upfront payment of $ 30.0 million.

Pursuant to the terms of the U.S.

Distribution Agreement, there are potential additional sales and development milestone payments of up to $ 705.0 million.

CAPRICOR THERAPEUTICS, INC.

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Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in the United States of CAP-1002 for the treatment of DMD.

Under the terms of the U.S.

Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as the manufacturing of CAP-1002.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States.

Pursuant to the U.S Distribution Agreement, Capricor received an upfront payment of $ 30.0 million in the first quarter of 2022.

The first milestone payment of $ 10.0 million was paid upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome was determined to be not futile.

Additionally, there are potential milestones totaling up to $ 90.0 million leading up to and including the BLA approval.

Further, there are various potential sales-based milestones, if commercialized, tied to the achievement of certain sales thresholds for annual net sales of CAP-1002 of up to $ 605.0 million.

Further, pursuant to the U.S.

Distribution Agreement, Capricor has the obligation to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and Capricor will have the right to receive a meaningful mid-range double-digit share of product revenue.

The Company has evaluated the U.S.

1 unchanged sentence

At the inception, the Company identified one distinct performance obligation.

The Company determined that the performance obligation is the conduct of the HOPE-3, Phase III clinical study.

The Company determined the initial transaction price totaled $ 30.0 million, which was the upfront payment fee.

The Company has excluded any future milestones or royalties from this transaction price to date based on probability.

The Company has allocated the total $ 30.0 million initial transaction price to its one distinct performance obligation.

Revenue will be recognized using a proportional performance method in relation to the completion of the HOPE-3 clinical study to determine the extent of progress towards completion.

Under this method, the transaction price is recognized over the contract’s entire performance period using a cost percentage per patient visit relative to the total estimated costs of patient visits.

For the year ended December 31, 2022, the Company recognized approximately $ 2.6 million as revenue.

At the time of receipt of the upfront fee in March 2022, the Company recorded as a contract liability, which represent deferred revenue.

As of December 31, 2022, there were approximately $ 27.4 million of contract liabilities recorded as deferred revenue.

The Company determined that the performance obligation is the conduct of the HOPE-3, Phase 3 clinical study.

The Company determined the transaction price totaled $ 40.0 million, which was the upfront payment of $ 30.0 million and $ 10.0 million milestone payment.

The Company has excluded any future milestone or shared revenue payments from this transaction price to date based on probability.

The Company has allocated the $ 40.0 million transaction price to its one distinct performance obligation.

Revenue will be recognized using a proportional performance method in relation to the completion of the HOPE-3 clinical study, Cohort A arm, to determine the extent of progress towards completion.

For the year ended December 31, 2023, the Company recognized approximately $ 25.2 million as revenue compared to approximately $ 2.6 million for the year ended December 31, 2022.

In relation to the U.S.

Distribution Agreement, as of December 31, 2023, the Company recorded approximately $ 12.3 million as current deferred revenue on the Company’s consolidated balance sheets.

As of December 31, 2023, the Company recorded a receivable of $ 10.0 million in connection with the interim futility milestone, which payment was received in January 2024.

The Company had no opening or closing contract asset balances recognized.

The difference between the opening and closing balances of the Company’s contract liability results from the Company performance of services in connection to its performance obligation.

Transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized.

As of December 31, 2022, remaining performance obligations were approximately $ 27.4 million.

66% of the remaining performance obligations are expected to be recognized over the next 12 months, with the remainder recognized thereafter.

The transaction price allocated to remaining performance obligations represents contracted revenue that has not yet been recognized.

As of December 31, 2023, remaining performance obligations related to the U.S.

Distribution Agreement were approximately $ 12.3 million.

At this time, we estimate 100 % of the remaining performance obligations are expected to be recognized over the next 12 months .

Remaining performance obligations estimates are subject to change.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

On February 10, 2023, Capricor entered into a Commercialization and Distribution Agreement (the “Japan Distribution Agreement”) with Nippon Shinyaku.

Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in Japan of CAP-1002 for the treatment of DMD.

Under the terms of the Japan Distribution Agreement, Capricor received an upfront payment of $ 12.0 million in the first quarter of 2023 and in addition, Capricor may potentially receive additional development and sales-based milestone payments of up to approximately $ 89.0 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in Japan.

Capricor will be responsible for the conduct of clinical development in Japan, as may be required, as well as the manufacturing of CAP-1002.

Subject to regulatory approval, Capricor will sell commercial product to Nippon Shinyaku in Japan.

In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved in that territory.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

The Company has evaluated the Japan Distribution Agreement in accordance with ASU 606, Revenue for Contracts from Customers .

The Company determined the initial transaction price totaled $ 12.0 million, which was the upfront payment fee.

The Company has excluded any future milestone or shared revenue payments from this transaction price to date based on probability.

At this time, the Company is evaluating the regulatory pathway to achieve potential product approval in this territory.

Until such time, the Company cannot identify any distinct performance obligation.

As such, the Company has recorded the entire upfront payment fee of $ 12.0 million as current deferred revenue on the Company’s consolidated balance sheets as of December 31, 2023.

RELATED PARTY TRANSACTIONS

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Eduardo Marbán was granted an additional option grant to purchase 50,000 shares of the Company’s common stock.

In January 2024, Capricor entered into a Consulting Agreement with Michael Kelliher, a member of its Board of Directors, related to business development services whereby he was granted an option to purchase 30,000 shares of the Company's common stock.

Payables to Related Party

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CSMC accounts for $ 17,479 and $ 79,234 of the total accounts payable and accrued expenses to related parties as of December 31, 2023 and December 31, 2022, respectively.

CSMC expenses relate to clinical trial costs, research and development costs, license and patent fees, and facilities rent.

CSMC expenses relate to research and development costs, clinical trial costs, license and patent fees, and facilities rent.

During the years ended December 31, 2023 and 2022, the Company paid CSMC approximately $ 226,400 and approximately $ 794,000 , respectively, for such costs.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2022 AND 2021

Related Party Clinical Trials

Capricor provided CAP-1002 for investigational purposes in two clinical trials sponsored by CSMC.

This product was 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”, or REGRESS.

Eduardo Marbán is the named principal investigator under the study.

The second trial is known as “Pulmonary Arterial Hypertension treated with Cardiosphere-derived Allogeneic Stem Cells” or ALPHA.

In both studies, Capricor provided the necessary number of doses of cells and received a total of approximately $ 1.7 million of monetary compensation.

For the year ended December 31, 2021, the Company recognized approximately $ 245,000 as revenue.

No revenue was recognized in 2022 as the Company received the requisite funds in connection with these trials in 2021.

SUBSEQUENT EVENTS

Additional Sales under ATM Program

Subsequent to December 31, 2023 and through March 7, 2024, the Company sold an aggregate of 251,347 shares of common stock under the ATM Program at an average price of approximate $ 4.50 per share for gross proceeds of approximately $ 1.1 million.

The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to the placement agent in the aggregate amount of approximately $ 35,900 .

Stock Option Grants

In January 2024, the Company granted a total of 2,203,726 stock options to its employees, certain non-employee consultants, and directors.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory:

On February 10, 2023, Capricor entered into an Exclusive Commercialization and Distribution Agreement (the “Japan Distribution Agreement”) with Nippon Shinyaku.

Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in Japan of CAP-1002 for the treatment of DMD.

Under the terms of the Japan Distribution Agreement, Capricor expects to receive an upfront payment of $ 12.0 million and in addition, Capricor will potentially receive additional development and sales-based milestone payments of up to approximately $ 89 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue.

Nippon Shinyaku will be responsible for the distribution of CAP-1002 in Japan.

Capricor will be responsible for the conduct of clinical development in Japan, as may be required, as well as the manufacturing of CAP-1002.

Capricor will sell commercial product to Nippon Shinyaku.

In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved in that territory.

CAPRICOR THERAPEUTICS, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2023 AND 2022

License and Service Agreement

In February 2024, we entered into a License and Services Agreement with Azzur Cleanrooms-on-Demand – San Diego, LLC (the “Azzur License Agreement”) pursuant to which we have been granted an exclusive license to use certain space and the non-exclusive right to use certain equipment and property for our early phase clinical and/or pre-clinical manufacturing purposes.

Our estimated license fee is approximately $ 120,500 per month for a term of approximately 6 months .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data