Ernexa Therapeutics Inc. 10-K

ITEM 8. Financial Statements and Supplementary Data See “Index to Consolidated Financial Statements” on page F-1 for a listing of the Consolidated Financial Statements filed with this Annual Report on Form 10-K. ITEM 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure None. ITEM 9A. Controls and Procedures Disclosure Controls and Procedures We maintain “disclosure controls and procedures,” as such term is defined under Rule 13a-15(e) promulgated under the Exchange Act, designed to ensure that information required to be disclosed in our reports filed pursuant to the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. 49 Table of Contents In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and we were required to apply our judgment in evaluating the cost-benefit relationship of possible controls and procedures. We have carried out an evaluation as of the end of the period covered by this Annual Report on Form 10-K under the supervision, and with the participation, of our management, including our Chief Executive Officer and President (who serves as our principal executive officer) and our Chief Financial Officer (who serves as our principal financial officer), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this Annual Report on Form 10-K in providing reasonable assurance of achieving the desired control objectives due primarily to the material weakness discussed below. Management’s Report on Internal Control over Financial Reporting Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Management, under the supervision of and with the participation of our Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework and criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on such evaluation, management concluded that the Company’s internal control over financial reporting was not effective as of December 31, 2022 due to the material weakness described below. We were unable to timely file our Q1 2022 10Q with the SEC due to identifying errors in our financial statements reported in the Annual Report on Form 10-K for the years ended December 31, 2021 and 2020 during our preparation of the financial statements for the quarter ended March 31, 2022. Management concluded that the errors were the result of accounting personnel’s lack of technical proficiency in complex matters. We filed an amendment to our Annual Report on Form 10-K/A for the years ended December 31, 2021 and 2020 on June 30, 2022 to correct the errors in our financial statements for the years ended December 31, 2021 and 2020 and for the quarters ended June 30, 2020, September 30, 2020, March 31, 2021, June 30, 2021 and September 30, 2021. 50 Table of Contents Management’s Plan for Remediation of the Material Weakness in Internal Control over Financial Reporting Management is implementing measures designed to ensure that the deficiencies contributing to the ineffectiveness of our internal control over financial reporting are promptly remediated, such that the internal controls are designed, implemented and operating effectively. The remediation actions include: • enhancing the business process controls related to reviews over technical, complex, and non-recurring transactions; and • providing additional training to accounting personnel; and • consulting with an accounting advisor for technical, complex and non-recurring matters, with whom we have engaged and begun consulting. The material weakness cannot be considered remediated until the applicable remedial controls operate for a sufficient period of time and management has concluded, through testing, that these controls are operating effectively. We are committed to developing a strong internal control environment, and we believe the remediation efforts that we have implemented and will implement will result in significant improvements in our control environment. Our management will continue to monitor and evaluate the relevance of our risk-based approach and the effectiveness of our internal controls and procedures over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary. Remediation of Previously Identified Material Weakness We have previously identified and disclosed the following material weakness in our internal control over financial reporting for the year ended December 31, 2021: • Upon completion of the Merger in March 2021 and the resulting change in our business model and strategy, we experienced a complete turnover of our employees, including all of the members of our executive management team, which resulted in, among other things, our having insufficient accounting staff available to enable and ensure adequate segregation of duties and our lacking appropriate and complete documentation of policies and procedures critical to the accomplishment of financial reporting objectives. The accounting personnel and documentation deficiencies each increase the risk that a material misstatement of our financial statements will not be prevented or detected on a timely basis. As of December 31, 2022, management sufficiently completed its remediation of this material weakness by taking the following measures: • Increased the number of accounting personnel and reallocated and/or reassigned roles and responsibilities of users to accommodate increased personnel; • Completed a comprehensive risk assessment to identify, design, and implement our internal controls; • Implemented improvement and refinement of our internal controls related to our review of users with access to its key financial systems, specifically to validate and evidence that all users were subject to review and access was appropriate; • Refined our review of user access controls which restrict system users from having access to create and post journal entries; and • Completed the documentation, review, and enhancement of business policies, procedures, and related internal controls to standardize business processes. We have completed the documentation and review of the corrective actions described above, and our management has concluded that the design and operation of our financial reporting processes as it relates to segregation of duties and documentation of policies and procedures is effective and therefore that the related previously identified material weakness has been fully remediated as of December 31, 2022. Changes in Internal Control over Financial Reporting As described above, there was a change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. Other Information Not Applicable. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections Not Applicable. 51 Table of Contents PART III ITEM 10. Directors, Executive Officers and Corporate Governance DIRECTORS & EXECUTIVE OFFICERS The names of our directors and executive officers and their respective ages, positions, biographies and, in the case of directors, their qualifications to serve as directors, are set forth below as of March 20, 2023. Name ​ ​ Age ​ ​ Position (1) Matthew Angel ​ ​ 42 ​ ​ President and Chief Executive Officer and Director Andrew Jackson ​ ​ 54 ​ ​ Chief Financial Officer Sandra Gurrola ​ ​ 56 ​ ​ Vice President, Finance Charles Cherington ​ ​ 60 ​ ​ Chairman of the Board Gregory Fiore ​ ​ 53 ​ ​ Director William Wexler ​ ​ 63 ​ ​ Director Nicholas J. Singer ​ ​ 43 ​ ​ Director Matthew Angel, Ph.D., has served as Chief Executive Officer since January 1, 2023 and as Interim President, Chief Executive Officer and one of our directors since May 2022. Prior to that, Dr. Angel co-founded Factor Bioscience, and has served as its President, Chief Executive Officer and Chairman of its Board of Directors from since 2011. In 2020, Dr. Angel co-founded Exacis, for which he serves as the Scientific Advisory Board Chair. Dr. Angel previously served as the Chief Science Officer, Secretary, Treasurer and as a director of Exacis and as the Chief Science Officer, Secretary and as a director of Novellus from 2014 until the sale of Novellus to us in July 2021. Dr. Angel received a Ph.D. from the Massachusetts Institute of Technology in 2012 and a B.S. in Engineering from Princeton University in 2003. Dr. Angel’s qualifications to serve on our Board include his expertise in the healthcare industry, his business training and education, and his extensive experience managing biotechnology companies. Andrew Jackson has served as our Chief Financial Officer since May 2022. Prior to that, Mr. Jackson served as the Chief Financial Officer of Ra Medical Systems, Inc. from April 2018 until May 2022, and as its Secretary from August 2021 to May 2022. From October 2016 to April 2018, he was Chief Financial Officer for AltheaDx, Inc, a molecular diagnostics company specializing in precision medicine. From March 2014 to March 2016, Mr. Jackson held senior financial positions, including Chief Financial Officer, at Celladon Corporation, a publicly traded, clinical stage biotechnology company. From April 2013 to March 2014, he held senior financial positions at Sapphire Energy, an industrial biotechnology company. Mr. Jackson received a MSBA in Finance in December 2006 from San Diego State University and a BSB in Accounting in June 1992 from the University of Minnesota. Mr. Jackson is also a certified public accountant (inactive). Sandra Gurrola has served as our Vice President of Finance since June 2021. Prior to that, she served as the Senior Vice President of eGames.com Holdings, LLC from March 2021 to June 2021 and as a consultant to us. Ms. Gurrola served as Senior Vice President of Finance to NTN Buzztime, Inc. from September 2019 to March 2021 and its Vice President of Finance from 2014 until 2019. From 2009 to 2014, Ms. Gurrola served NTN Buzztime, Inc. in various leadership accounting roles, including Controller, Director of Accounting, and Director of Financial Reporting and Compliance. Previously, she was a senior manager of financial reporting for Metabasis Therapeutics, Inc., a biotechnology company. Ms. Gurrola received a B.A. in English from San Diego State University. 52 Table of Contents Charles Cherington, Chairman, has served on our Board of Directors since March 2021. Prior to that, Mr. Cherington served on our board of managers from 2018 through 2021. Mr. Cherington is a Co-Founder and Managing Partner of Ara Partners, a global private equity firm focused on industrial decarbonization investments founded in 2017. Previously, Mr. Cherington co-founded and served as Managing Partner of Intervale Capital, a middle-market private equity firm focused on investments in energy and infrastructure sectors, from 2006 to 2017. Mr. Cherington was Founder and Sole Partner of Cherington Capital, a private equity firm, from 2002 to 2006. In 1999, Mr. Cherington co-founded Paratus Capital Management, LLC, a venture capital firm, where he served as Partner until 2004. Prior to 1999, Mr. Cherington served in various positions with Lochridge & Company, Inc., a business management consulting firm, and as an investment banker for Credit Suisse First Boston. Mr. Cherington received a B.A. in History from Wesleyan University and an M.B.A. from the University of Chicago. Mr. Cherington’s qualifications to serve on our Board of Directors include his extensive experience and senior management roles in companies in the life sciences and private equity industries, and his business training and education. Gregory Fiore, M.D., has served on our Board of Directors since June 2022. Dr. Fiore has served as a director and as the President and Chief Executive Officer of Exacis since June 2020. Dr. Fiore co-founded Sollis Therapeutics (“ Sollis ”), a clinical-stage pharmaceutical company, where he served as President, Chief Executive Officer and Director from 2017 to 2019 and as Vice President and Chief Medical Officer from 2019 to 2020. Prior to Sollis, Dr. Fiore provided senior medical support as a consultant and acting Chief Medical Officer for various early-stage biotechnology companies through the following private healthcare consulting firms he founded, Fiore Healthcare Advisors, SSI Strategy and GJFMD Consulting. Dr. Fiore was also the Chief Medical Officer of The Medicines Company (NASDAQ: MDCO), held leadership roles at Merck & Co., Inc. (NYSE: MRK) and Abbott Laboratories (NYSE: ABT) and was a management consultant at McKinsey and Company. Dr. Fiore has served as a member of the Business Advisory Board for The Advanced Group of Companies since 2017. Dr. Fiore completed his Internal Medicine internship and residency at Harvard Medical School and received his MD degree from New York Medical College. Dr. Fiore’s qualifications to serve on our Board include his extensive background in the healthcare and pharmaceutical industries, and his medical education and training. William Wexler has served on our Board of Directors since June 2022. Prior to joining our Board of Directors, Mr. Wexler worked on over 150 individual projects, serving in various capacities including as Chairman, Chief Executive Officer, Chief Restructuring Officer and other designated roles of senior responsibility. Mr. Wexler has served as the Managing Member of WEXLER Consulting LLC, a management consulting firm, since 2012. From 2012 to 2019, he served in various roles, including as Chairman of the Board, interim Chief Executive Officer, Chief Executive Officer and sole director and stockholder representative of Upstate New York Power Products, Inc., a holding company that owned and operated power plants throughout upstate New York. From 2012 to 2013, Mr. Wexler served as Chief Restructuring Officer of VMR Electronics, LLC, a manufacturer of cable assembly products for the electronics interconnect industry. Prior to that, he served as a Managing Director and national finance practice lead at BBK, Ltd., a turn-around advisory firm, from 2006 to 2011. Mr. Wexler served as group Managing Director of corporate restructuring at Huron Consulting Group, LLC from 2002 to 2005. Previously, he was a Managing Director at Berenson Minella & Co., a boutique investment-banking firm, from 2000 to 2002. Between 1986 and 2000 he served as a Senior Director at BNP Paribas, where he established and led Paribas Properties, Inc., a real estate investment arm of the bank, and also where he was a lead officer of the then newly created U.S. asset workout group. Mr. Wexler started his professional career in 1981 in commercial lease brokerage, asset management and investment sales at Jones Lang Wootton (now Jones Lang LaSalle) where he worked until 1986. He earned a B.A. in Political Science from Johns Hopkins University. Mr. Wexler’s qualifications to serve on our Board include his experience in investment and senior management roles, as well as his business training and education. Nicholas J. Singer has served on our Board of Directors since June 2022. Mr. Singer has over 20 years of experience in finance and investments and is the Founder and Managing Partner of Purchase Capital. He is also the Founder & Executive Chairman of United Parks, Chairman of IntegriCo Composites, the Chairman of OWYN (Only What You Need), a Board Member of Eterna Therapeutics Inc., a Board Member of the National Medal of Honor Museum Foundation, a Trustee of the Perez Art Museum Miami, and a member of the James Madison Council at the Library of Congress. 53 Table of Contents From 2007 to 2013, Mr. Singer was the Co-Founder & Co-Managing Member of Standard General, an SEC registered investment advisor which managed over $1 billion of assets during his tenure. Prior to that, he was a Founding Partner of Cyrus Capital Partners, a Principal at Och-Ziff Capital Management, and an Analyst in High Yield Trading and in the Principal Investment Area at Goldman Sachs & Co. He graduated summa cum laude with a B.S. in Economics from the Wharton School and a B.A.S. in Electrical Engineering from the School of Engineering and Applied Science at the University of Pennsylvania. Mr. Singer’s qualifications to serve on our Board include his extensive management, investment and financial experience, his business training and education, and his background serving on boards. Family Relationships There are no family relationships between any of our officers or directors. Involvement in Certain Legal Proceedings Our directors and executive officers are not parties to any material legal proceedings other than as set forth in Part II, Item 3 above. CORPORATE GOVERNANCE Overall Role of the Board Our common stock is listed on the Nasdaq Capital Market under the symbol “ERNA.” Pursuant to our Bylaws and the Delaware General Corporation Law, our business and affairs are managed under the direction of our Board. Directors are kept informed of the Company’s business through discussions with management, by reviewing materials provided to them and by participating in meetings of the Board and its committees. The Board has adopted Corporate Governance Guidelines that contain general principles regarding the responsibilities and function of our Board and Board Committees, a copy of which is available at: www.eternatx.com under Investor Relations—Governance. Information contained on, or accessible through, our website does not form a part of this Annual Report on Form 10-K and is not incorporated by reference. Board Leadership Structure The Board believes it is appropriate to separate the roles of the Chairman of the Board and the Chief Executive Officer. The Chairman of the Board is charged with acting as a liaison between the Board and our management team, including oversight of management’s implementation of the Board’s strategies and directives. The Chief Executive Officer is responsible for providing general supervision of the affairs of the Company and general control of all of our business subject to the ultimate authority of the Board. Mr. Cherington has served as the Chairman of the Board of Directors since March 2021, and Dr. Angel has served as the Chief Executive Officer since January 2023 and as Interim Chief Executive Officer since May 2022. The Board believes it is appropriate at this time in our growth for Mr. Cherington to serve as Chairman because his strong management experience, knowledge of our industry, and innovative leadership skills support management’s execution of our strategy and focus our directors’ attention on the most critical matters affecting our business. Risk Oversight. One of the key functions of our Board is informed oversight of our risk management process. Our Board administers this oversight function directly through our Board as a whole, as well as through various standing committees of our Board that address risks inherent in their respective areas of oversight. In particular, our Board is responsible for monitoring and assessing strategic risk exposure, and our Audit Committee has the responsibility to consider and discuss our major financial risk exposures and the steps our management has taken to monitor and control these exposures. The Audit Committee also has the responsibility to review with management the process by which risk assessment and management is undertaken, monitor compliance with legal and regulatory requirements, and review the adequacy and effectiveness of our internal controls over financial reporting. Our Nominating and Corporate Governance Committee is responsible for periodically evaluating our company’s corporate governance policies and systems. 54 Table of Contents Diversity and Inclusion. Although we do not have a formal diversity policy, the Nominating and Corporate Governance Committee, in accordance with its policies and procedures for director candidates, seeks to identify candidates who will enhance the Board’s overall diversity. Board Diversity Matrix as of March 20, 2023 Total number of directors 5 Female Male Non- Binary Did Not Disclose Gender Part I: Gender Identity Directors 5 — — Part II: Demographic Background African-American or Black — — — — Alaskan Native or Native American — — — — Asian — — — — Hispanic — — — Native Hawaiian or Pacific Islander — — — — White 4 — — Two or more races or ethnicities — — — — LGBTQ+ — — — — Did not disclose demographic background — 1 — — Corporate Governance Guidelines. Our Board strongly supports effective corporate governance and has developed and followed a program of strong corporate governance. Our Nominating and Corporate Governance Committee is responsible for overseeing our governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters. Our guidelines are published on our website at www.eternatx.com and are available in print to any stockholder who requests them from our Secretary. Code of Ethics. Our Board has adopted a Code of Conduct and Ethics that applies to all of our employees, officers and directors, including our Chief Executive Officer, Chief Financial Officer and other executive and senior financial officers. The full text of our Code of Conduct and Ethics is available on our website at www.eternatx.com under Investor Relations—Governance and is available in print to any stockholder who requests a copy from our Secretary. We intend to disclose future amendments to certain provisions of our Code of Business Conduct and Ethics, or waivers of certain provisions as they relate to our directors and executive officers, at the same location on our website or in our public filings. The information on our website is not intended to form a part of or be incorporated by reference into this Annual Report on Form 10-K. 55 Table of Contents Board and Committee Meetings; Meeting Attendance. The Board and its Committees meet regularly during the year, and they hold special meetings and act by unanimous written consent as circumstances require. Independent directors meet at regularly scheduled executive sessions without management present. Our Board held 28 meetings in calendar year 2022. Each director attended at least 75 percent of the aggregate of the total number of Board meetings and the total number of meetings held by all committees of the Board on which he or she served. Although we do not have a formal policy with respect to the attendance of directors at our annual stockholder meetings, we encourage all of our directors to attend our annual stockholder meetings. Board Committees. Our Board has three standing committees: an Audit Committee; a Compensation Committee; and a Nominating and Corporate Governance Committee. Each of the committees reports to the Board as it deems appropriate and as the Board may request. The composition, duties and responsibilities of these committees are set forth below. In the future, our Board may establish other committees, as it deems appropriate, to assist it with its responsibilities. The table below provides current committee membership information: Name ​ ​ Audit Committee ​ ​ Compensation Committee ​ ​ Nominating and Corporate Governance Committee William Wexler ​ ​ Chair ​ ​ X ​ ​ X Nicholas J. Singer ​ ​ X ​ ​ Chair ​ ​ X Charles Cherington ​ ​ X ​ ​ X ​ ​ Chair Committee Meetings. During 2022, our Audit Committee held 11 meetings and took action by written consent two times; our Compensation Committee held six meetings and took action by written consent eight times; and our Nominating and Corporate Governance Committee held one. Audit Committee. We have a standing audit committee established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Audit Committee is responsible for, among other things: • appointing, compensating, retaining, evaluating, terminating and overseeing our independent registered public accounting firm; • discussing with our independent registered public accounting firm their independence from management; • reviewing, with our independent registered public accounting firm, the scope and results of their audit; • approving all audit and permissible non-audit services to be performed by our independent registered public accounting firm; • overseeing the financial reporting process and discussing with management and our independent registered public accounting firm the quarterly and annual financial statements that we file with the SEC; • overseeing our financial and accounting controls and compliance with legal and regulatory requirements; • reviewing our policies on risk assessment and risk management; • reviewing related person transactions; and • establishing procedures for the confidential anonymous submission of concerns regarding questionable accounting, internal controls or auditing matters. 56 Table of Contents Our Audit Committee consists of William Wexler (Chair), Charles Cherington and Nicholas J. Singer, all of whom meet the requirements for independence of Audit Committee members under applicable Nasdaq and SEC rules, including Rule 10A-3 promulgated under the Exchange Act. All of the members of our Audit Committee meet the requirements for financial literacy under the applicable rules and regulations of the SEC and Nasdaq. In addition, Mr. Singer qualifies as our “Audit Committee financial expert,” as such term is defined in Item 407 of Regulation S-K. Our Board has adopted a written charter for the Audit Committee, which is available on our website at: www.eternatx.com under Investor Relations—Governance. The information on our website is not intended to form a part of or be incorporated by reference into this Annual Report on Form 10-K. Compensation Committee. Our Compensation Committee is responsible for, among other things: • reviewing and approving the corporate goals and objectives, evaluating the performance and reviewing and approving the compensation of our executive officers; • reviewing and approving or making recommendations to our Board of Directors regarding our incentive compensation and equity-based plans, policies and programs; • reviewing and approving all employment agreement and severance arrangements for our executive officers; • making recommendations to our Board of Directors regarding the compensation of our directors; and • retaining and overseeing any compensation consultants. Our Compensation Committee consists of Nicholas J. Singer, Charles Cherington and William Wexler, with Mr. Singer serving as the chair. Each member of our Compensation Committee is independent, as defined under the Nasdaq listing rules, including Nasdaq’s additional independence standards for Compensation Committee members. Each member of our Compensation Committee is a non-employee director (within the meaning of Rule 16b-3 under the Exchange Act). The Compensation Committee may establish and delegate authority to one or more subcommittees consisting of one or more of its members, when the Compensation Committee deems it appropriate to do so in order to carry out its responsibilities. In carrying out its responsibilities, the Compensation Committee shall be entitled to rely upon the advice and information that it receives in its discussions and communications with management and such experts, advisors and professionals with whom the Compensation Committee may consult. Our Board has adopted a written charter for the Compensation Committee, which is available on our website at: www.eternatx.com under Investor Relations—Governance. The information on our website is not intended to form a part of or be incorporated by reference into this Annual Report on Form 10-K. Nominating and Corporate Governance Committee. Our Nominating and Corporate Governance Committee is responsible for, among other things: • identifying individuals qualified to become members of our Board of Directors, consistent with criteria approved by our Board of Directors; • overseeing succession planning for our executive officers; • periodically reviewing our Board of Directors’ leadership structure and recommending any proposed changes to our Board of Directors; • overseeing periodic evaluations of the effectiveness of our Board of Directors and its committees; and • developing and recommending to our Board of Directors a set of corporate governance guidelines. 57 Table of Contents Our Nominating and Corporate Governance Committee consists of Charles Cherington, Nicholas J. Singer and William Wexler, with Mr. Cherington serving as the chair. Each member of our Nominating and Corporate Governance Committee is independent as defined under the Nasdaq listing rules. Our Board has adopted a written charter for the Nominating and Corporate Governance Committee, which is available on our website at: www.eternatx.com under Investor Relations—Governance. The information on our website is not intended to form a part of or be incorporated by reference into this Annual Report on Form 10-K. Section 16(a) Beneficial Ownership Reporting Compliance Section 16(a) of the Exchange Act requires our directors, executive officers and persons who beneficially own more than 10% of a registered class of our equity securities to file with the SEC reports of ownership of, and transactions in, our equity securities. To our knowledge, based solely on a review of copies of such reports that we received, our records and written representations received from our directors, executive officers and certain of those persons who own greater than 10% of any class of our equity securities, for the year ended December 31, 2022, all applicable Section 16(a) filing requirements were complied with on a timely basis. ITEM 11. Executive Compensation Introduction When determining executive officer compensation, and the various components that comprise it, our Compensation Committee evaluates and considers publicly available executive officer compensation survey data to present a competitive compensation package to attract and retain top talent, including an appropriate level of salary, performance-based bonus and equity incentives. Typically, the Compensation Committee evaluates between three and five different sources of compensation data to provide relevant market benchmark data for a given executive role. Additionally, the Compensation Committee is authorized to engage outside advisors and experts to assist and advise the Compensation Committee on matters relating to executive compensation. The Compensation Committee currently retains the services of Aon’s Human Capital Solutions practice, a division of Aon plc (“Aon”), an independent compensation consultant. Our Chief Executive Officer presents compensation recommendations to the Compensation Committee with respect to the executive officers other than himself. The Compensation Committee considers such recommendations, in conjunction with input from the Compensation Committee’s independent compensation consultant, in making compensation decisions or recommendations to the full Board. The full board of directors participates in evaluating the performance of our executive officers, except that neither our former CEO, Howard J. Federoff, or our current CEO, Dr. Matthew Angel, participated when the Board evaluated their respective performance, and neither was present during voting or deliberations regarding their respective performance or compensation matters. Named Executive Officers Under applicable SEC rules and regulations, all individuals who served as our principal executive officer during 2022, our two most highly compensated executive officers (other than our principal executive officer) who were serving as executive officers at December 31, 2022, and up to two additional individuals who would have been one of our top two most highly compensated executive officer had they been serving as an executive officer at the end of 2022 are referred to as our “named executive officers” and identified in the table below: Name ​ ​ Title Matthew Angel ​ ​ Chief Executive Officer Howard J. Federoff ​ ​ Former Chief Executive Officer Andrew Jackson ​ ​ Chief Financial Officer Roger Sidhu (1) ​ ​ Chief Medical Officer Kevin D’Amour ​ ​ Former Chief Scientific Officer (1) Dr. Sidhu resigned as our Chief Medical Officer effective January 31, 2023. 58 Table of Contents Summary Compensation Table The following table sets out the compensation for our Named Executive Officers for the years ended December 31, 2022 and December 31, 2021: Name and Principal Position ​ Fiscal Year ​ Salary (US$) ​ Bonus (US$) ​ ​ Stock-Based Awards (US$) (1) ​ Option-Based Awards (US$) (1) ​ Non-Equity Incentive Plan Compensation (US$) (2) ​ Nonqualified deferred compensation earnings (US$) ​ All Other Compensation (US$) ​ Total Compensation (US$) Matthew Angel, Chief Executive Officer and President (3) ​ 2022 ​ $ — ​ $ 210,959 (4) ​ $ — ​ $ 910,453 ​ $ — ​ $ — ​ $ 29,842 (5) ​ $ 1,151,254 Howard J. Federoff, Former Chief Executive Officer and President (6) ​ 2022 ​ $ 182,811 ​ $ — ​ ​ $ 798,557 ​ $ 599,422 ​ $ 225,000 ​ $ — ​ $ 424,231 (7) ​ $ 2,230,021 2021 ​ $ 318,750 ​ $ — ​ ​ $ — ​ $ 23,612,647 ​ $ 159,375 ​ $ — ​ $ — ​ $ 24,090,772 Andrew Jackson, Chief Financial Officer (8) ​ 2022 ​ $ 243,679 ​ $ — ​ ​ $ — ​ $ 305,466 ​ $ — ​ $ — ​ $ — ​ $ 549,145 Roger Sidhu, Former Chief Medical Officer (9) ​ 2022 ​ $ 447,200 ​ $ — ​ ​ $ 274,369 ​ $ 205,903 ​ $ — ​ $ — ​ $ — ​ $ 927,472 ​ 2021 ​ $ 127,045 ​ $ — ​ ​ $ 803,274 ​ $ 1,486,131 ​ $ 48,277 ​ $ — ​ $ — ​ $ 2,464,727 Kevin D’Amour, Former Chief Scientific Officer (10) ​ 2022 ​ $ 259,375 ​ $ — ​ ​ $ 267,112 ​ $ 200,542 ​ $ — ​ $ — ​ $ 175,289 (11) ​ $ 902,318 2021 ​ $ 212,216 ​ $ — ​ ​ $ 1,500,592 ​ $ 2,773,903 ​ $ 84,886 ​ $ — ​ $ — ​ $ 4,571,697 1. The amounts reported in this column represents the aggregate grant date fair value of stock options granted during the applicable year. These amounts were calculated in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, except that any estimate of forfeitures was disregarded. For a description of the assumptions used in computing the dollar amount recognized for financial statement reporting purposes, see Note 14, Stock-Based Compensation, in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K.2.Represents discretionary bonuses earned by the applicable named executive officer for 2021, as determined by the Compensation Committee. 3. Dr. Angel was appointed our Interim Chief Executive Officer and President on May 26, 2022 and a member of the Board effective June 6, 2022. Dr. Angel was appointed our Chief Executive Officer and President on January 1, 2023. 4. A cash signing bonus, which represents the salary Dr. Angel would have earned for the period during which he served as interim Chief Executive Officer and President, had Dr. Angel’s appointment as Chief Executive Officer and President been in effect beginning May 26, 2022. 5. Represents a reimbursement of legal fees Dr. Angel incurred in connection with entering into his employment offer letter. 6. Dr. Federoff resigned as the Company’s Chief Executive Officer and as a member of the Board effective on May 26, 2022. 7. Includes $384,237 of severance payments, payment of $36,780 for final accrued paid time off, $2,965 for reimbursed legal fees Dr. Federoff incurred in connection with entering into his separation agreement and $250 for cell phone reimbursement. 8. Mr. Jackson was appointed Chief Financial Officer effective May 31, 2022. 9. Dr. Sidhu resigned as Chief Medical Officer effective January 31, 2023. 10. Dr. D’Amour resigned as Chief Scientific Officer on August 26, 2022. 11. Includes $145,609 of severance payments, payment of $24,305 for final accrued paid time off, $5,000 for reimbursed legal fees Dr. D’Amour incurred in connection with entering into his separation agreement and $375 for cell phone reimbursement. 59 Table of Contents Narrative to Summary Compensation Table The following is a discussion of each component of our executive compensation program for 2022. Base Salary Each of our named executive officers receives a base salary. The base salary is the fixed cash compensation component of our executive compensation program and it recognizes individual performance, time in role, scope of responsibility, leadership skills and experience. The base salary compensates an executive for performing his or her job responsibilities on a day-to-day basis. Generally, base salaries are reviewed annually company-wide and adjusted (upward or downward) when appropriate based upon individual performance, expanded duties, changes in the competitive marketplace and, with respect to upward adjustments, if we are, financially and otherwise, able to pay it. We try to offer competitive base salaries to help attract and retain executive talent. Annual Bonus and Incentive Compensation and Benefits In addition to base salaries, our Compensation Committee has the authority to award discretionary annual bonuses to our named executive officers based on corporate and individual performance. Incentives, as a percent of salary, increase with executive rank so that, as rank increases, a greater portion of total annual cash compensation is based on annual corporate and individual performance. Annual incentives are awarded based on quantitative performance standards and reward performance of each named executive officer individually. The determination of a named executive officer’s performance may vary from year to year depending on economic conditions and conditions in the industry in which we operate and may be based on measures such as revenue, achievement of certain research and development milestones, completion of a strategic transaction, and other metrics the directors and management believe to provide proper incentives for achieving long-term shareholder value for Eterna. The Board retains full discretion over performance evaluation and the amount of any bonuses to be paid to a named executive officer. Equity-Based Compensation Programs Restated Plan At our 2021 annual meeting of stockholders, our stockholders approved a restatement of the Eterna Therapeutics Inc. Restated 2020 Stock Incentive Plan (the “Restated Plan”). The general purpose of the Restated Plan is to provide a means whereby eligible employees, officers, employee and non-employee directors, consultants and prospective employees may develop a sense of proprietorship and personal involvement in our development and financial success, and to encourage them to devote their best efforts to us, thereby advancing our interests and the interests of stockholders. The Board believes that the granting of stock options, restricted stock, restricted stock units, performance awards, unrestricted stock awards and similar kinds of equity-based compensation promotes continuity of management and increases incentive and personal interest in our welfare by those who are primarily responsible for shaping and carrying out our long-range plans and securing growth and financial success. In general, the Restated Plan is administered by the Compensation Committee. The Compensation Committee determines the persons to whom awards issuable under the Restated Plan may be granted. The Compensation Committee may also establish rules and regulations for the administration of the Restated Plan and amendments or modifications of outstanding awards. The Compensation Committee also delegates authority to certain executive officers grant awards and execute award agreements, subject to applicable law and the Restated Plan. Each award is set forth in a separate agreement with the person receiving the award and will indicate the type, terms and conditions of the award. A brief description of the material terms of the Restated Plan and the equity awards thereunder follows. 60 Table of Contents Eligibility Persons eligible to receive awards under the Restated Plan consist of our employees, officers, directors, consultants, independent contractors who, in the opinion of the Compensation Committee, are in a position to contribute to our success, or any other person who is determined by the Compensation Committee to be a prospective employee, officer, director, consultant, advisor or other individual service provider, any entity whose financials statements are required to be consolidated with our company, and any other entity that the Compensation Committee determines to be an affiliate of our company. As of March 20, 2022, we had nine full-time employees, including three executive officers. Shares Subject to the Restated Plan The aggregate number of shares of common stock initially available for issuance in connection with awards granted under the Restated Plan is equal to the sum of (a) approximately 424,000 shares and (b) an annual increase on January 1 of each year from 2022 through 2031 equal to the lesser of (i) 5% of the number of shares of common stock outstanding on the immediately preceding December 31 and (ii) such smaller number of shares of common stock as may be determined by the Board. Incentive stock options, or ISOs, that are intended to meet the requirements of Section 422 of the Code may be granted under the Restated Plan with respect to all of the shares of common stock authorized for issuance under the Restated Plan. If any option or stock appreciation right, or SAR, granted under the Restated Plan is terminated without having been exercised in full or if any award is forfeited, the number of shares of common stock as to which such option, SAR or award was terminated or forfeited will be available for future grants under the Restated Plan. Awards settled in cash will not count against the number of shares available for issuance under the Restated Plan; however, if any award is cancelled forfeited or terminated in order to pay the exercise price of a stock option, purchase price or any taxes or tax withholdings on an award, such shares will not be available for future awards under the Restated Plan. The number of shares authorized for issuance under the Restated Plan and the foregoing share limitations are subject to customary adjustments for stock splits, stock dividends or similar transactions effected after the effective time of the Restated Plan. Terms and Conditions of Options Options granted under the Restated Plan may be either ISOs or “nonstatutory stock options,” or NSOs, that do not meet the requirements of Section 422 of the Code. The Compensation Committee will determine the exercise price of options granted under the Restated Plan. The exercise price of options may not be less than the fair market value per share of common stock on the date of grant (or 110% of fair market value in the case of ISOs granted to a ten-percent stockholder). If on the date of grant the common stock is listed on a stock exchange or is quoted on an automated quotation system, the fair market value will generally be the closing sale price on the last trading day before the date of grant. If no such prices are available, the fair market value will be determined in good faith by the Compensation Committee based on the reasonable application of a reasonable valuation method. No option may be exercisable for more than ten years (five years in the case of an ISO granted to a ten-percent stockholder) from the date of grant. Options granted under the Restated Plan will be exercisable at such time or times as the Compensation Committee prescribes at the time of grant. No employee may receive ISOs that first become exercisable in any calendar year in an amount exceeding $100,000. Generally, the option price may be paid (a) in cash or by certified check, bank draft or money order, (b) through delivery of shares of common stock having a fair market value equal to the purchase price, or (c) any other methods of payment that the Compensation Committee permits in its sole and absolute discretion, including a cashless exercise program. 61 Table of Contents Stock Appreciation Rights The Compensation Committee may grant SARs under the Restated Plan. The Compensation Committee will determine the other terms applicable to SARs. The exercise price per share of a SAR will not be less than 100% of the fair market value of a share of common stock on the date of grant, as determined by the Compensation Committee. The maximum term of any SAR granted under the Restated Plan is ten years from the date of grant. Generally, each SAR will entitle a participant upon exercise to an amount equal to: • the excess of the fair market value on the exercise date of one share of common stock over the exercise price, multiplied by • the number of shares of common stock covered by the SAR. Payment may be made in shares of common stock, in cash, or partly in common stock and partly in cash, all as determined by the Compensation Committee. Restricted Stock and Restricted Stock Units The Compensation Committee may award restricted common stock and/or restricted stock units under the Restated Plan. Restricted stock awards consist of shares of stock that are transferred to a participant subject to restrictions that may result in forfeiture if specified conditions are not satisfied. Restricted stock units confer the right to receive shares of common stock, cash, or a combination of shares and cash, at a future date upon or following the attainment of certain conditions specified by the Compensation Committee. The restrictions and conditions applicable to each award of restricted stock or restricted stock units may include performance-based conditions. Dividends with respect to restricted stock may be paid to the holder of the shares as and when dividends are paid to stockholders or at the time that the restricted stock vests, as determined by the Compensation Committee. Dividend equivalent amounts may be paid with respect to restricted stock units either when cash dividends are paid to stockholders or when the units vest. Unless the Compensation Committee determines otherwise, holders of restricted stock will have the right to vote the shares. Performance Shares and Performance Units The Compensation Committee may award performance shares and/or performance units under the Restated Plan. Performance shares and performance units are awards, denominated in either shares or U.S. dollars, which are earned during a specified performance period subject to the attainment of performance criteria, as established by the Compensation Committee. The Compensation Committee will determine the restrictions and conditions applicable to each award of performance shares and performance units. Other Stock-Based and Cash-Based Awards The Compensation Committee may award other types of equity-based or cash-based awards under the Restated Plan, including the grant or offer for sale of shares of common stock that do not have vesting requirements and the right to receive one or more cash payments subject to satisfaction of such conditions as the Compensation Committee may impose. Transferability of an Award No award option may be transferred other than by will or by the laws of descent and distribution, and during a recipient’s lifetime an option may be exercised only by the recipient. However, the Compensation Committee may permit the holder of an option, restricted stock or other award to transfer the option, restricted stock or other award to immediate family members. 62 Table of Contents 2021 Inducement Plan On May 20, 2021, the Board also approved our 2021 Inducement Stock Incentive Plan (the “ 2021 Inducement Plan ”). The 2021 Inducement Plan was adopted without stockholder approval pursuant to Section 711 of the Company Guide of the NYSE American LLC, the stock exchange on which our common stock was previously listed . The 2021 Inducement Plan provides for the grant of equity-based awards, including non-qualified stock options, performance shares, performance unis, restricted stock, restricted stock units, and stock appreciation rights, and its terms are substantially similar to the Restated Plan, including with respect to treatment of equity awards in the event of a “Change in Control” as defined under both Restated Plan and the 2021 Inducement Plan. The awards available for grant under the 2021 Inducement Plan are available only to new employees and cannot be issued pursuant to ISOs under Section 422 of the Code. Benefits and Perquisites Employee Benefit Plans Named executive officers are eligible to participate in our employee benefit plans, including our medical, disability and life insurance plans, in each case, on the same basis as all of our other employees. The employee benefit plans are designed to assist in attracting and retaining skilled employees critical to our long-term success. We also maintain a 401(k) plan for the benefit of our eligible employees, including the named executive officers, as discussed below. 401(k) Plan We maintain a retirement savings plan, or 401(k) plan, that provides eligible U.S. employees with an opportunity to save for retirement on a tax advantaged basis. Under the 401(k) Plan, eligible employees may defer up to 90% of their compensation subject to applicable annual contribution limits imposed by the Internal Revenue Code of 1986, as amended, or the Code and limits imposed by non-discrimination testing. Our employees’ pre-tax contributions are allocated to each participant’s individual account and participants are immediately and fully vested in their contributions. The 401(k) plan is intended to be qualified under Section 401(a) of the Code with the 401(k) plan’s related trust intended to be tax exempt under Section 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan. As of December 31, 2022, we had not contributed a match to the employees’ contribution. Beginning on January 1, 2023, we began matching employees’ contributions at a rate of 100% of the first 3% of the employee’s contribution and 50% of the next 2% of the employee’s contribution, for a maximum match of 4%. Pension Benefits We do not maintain any pension benefit or retirement plans other than the 401(k) Plan. Nonqualified Deferred Compensation We do not maintain any nonqualified deferred compensation plans. Executive Employment Agreements and Change in Control Arrangements The following descriptions summarize the principal terms of our employment agreements with our named executive officers as of December 31, 2022. Matthew Angel On May 24, 2022, the Board appointed Dr. Angel as our interim Chief Executive Officer and President, which appointment became effective on May 26, 2022. On June 6, 2023, Dr. Angel was appointed as a member of our Board. Dr. Angel did not receive a salary or other cash compensation during his tenure as interim Chief Executive Officer and President, and he does not receive compensation for services as a member of the Board. On August 1, 2022, we granted Dr. Angel a time-based non-qualified stock option covering 124,350 shares of common stock, of which 5,181 shares vested immediately on the grant date and the remaining 119,169 shares vest in 46 substantially equal monthly installments thereafter (the “2022 Grant”). 63 Table of Contents On December 30, 2022, we entered into an offer letter with Dr. Angel (the “Offer Letter”) effective on January 1, 2023 with respect to terms of his employment as our Chief Executive Officer and President. The compensatory terms of the Offer Letter, including equity awards, were approved by the Compensation Committee. Dr. Angel’s hiring, and his Offer Letter, were approved by the Board. We have been working together with Dr. Angel to negotiate in good faith and execute and deliver a formal, written employment agreement by March 31, 2023 containing such other terms and conditions as are mutually acceptable to Dr. Angel and us (the “Employment Agreement”) as contemplated by the Offer Letter. Under the terms of the Offer Letter, we will pay Dr. Angel an annual base salary of $350,000, which amount is subject to annual review by the Board or the Compensation Committee and subject to adjustment to reflect market practices among our peers in the sole discretion of the Board or the Compensation Committee. We also paid Dr. Angel a cash signing bonus of $210,959, which represents the salary Dr. Angel would have earned for the period during which he served as interim Chief Executive Officer had the Offer Letter been in effect as of May 26, 2022. Dr. Angel will be eligible to receive a performance bonus (the “Performance Bonus”) equal to two percent of the gross proceeds that we actually receive pursuant to all licensing, option, collaboration, partnership, joint venture, settlement, other similar agreements that we entered into, or other actions, judgments, or orders that generate cash proceeds to us, that are originated, negotiated and/or entered into by us during Dr. Angel’s employment (commencing on May 26, 2022), subject to certain conditions to be set forth in the Employment Agreement, including that Dr. Angel has not voluntarily resigned other than for good reason or has been terminated for cause. In accordance with the terms of the Offer Letter, on January 12, 2023, we granted to Dr. Angel a time-based incentive stock option covering 132,003 shares of common stock, of which 110,043 shares vested immediately on the grant date and the remaining 21,960 shares vest in 35 substantially equal monthly installments on the first day of each month thereafter (the “2023 Grant”). For both the 2022 Grant and the 2023 Grant, vesting generally requires Dr. Angel’s continued employment through the relevant vesting date. If Dr. Angel’s employment is terminated by us without Cause or by Dr. Angel for Good Reason (which shall have the meaning as mutually agreed in the Employment Agreement), the portion of the 2022 Grant, the 2023 Grant and any other grant subsequently issued that would have vested during the twelve months following the date of termination would immediately vest, and Dr. Angel will have twelve months following the date of termination to exercise any vested options. In addition, the Performance Bonus will remain a continuing obligation of ours to pay Dr. Angel so long as Dr. Angel has remained employed by us for two years following the applicable agreement/arrangement underlying the applicable Performance Bonus and so long as Dr. Angel does not voluntarily resign other than for Good Reason or for Cause. Pursuant to the Offer Letter, Dr. Angel is eligible for (a) reimbursement of reasonable business expenses, (b) participation in our benefit plans and (c) paid vacation days in accordance with our policies, as in effect from time to time. For information on related party transactions with Dr. Angel, see Item 13, Certain Relationships and Related Transactions, and Director Independence. Howard J. Federoff We entered into an executive employment agreement, dated April 1, 2021 and effective as of April 16, 2021, with Howard J. Federoff with respect to terms of his employment as our Chief Executive Officer and President. The compensatory terms of the executive employment agreement, including equity awards, were approved by the Compensation Committee, which consists of two disinterested members of the Board. Dr. Federoff’s hiring, and his executive employment agreement, were approved by the Board. 64 Table of Contents The executive employment agreement provided for our at-will employment of Dr. Federoff as our Chief Executive Officer and President for a term commencing on April 16, 2021 and continuing until terminated by us or Dr. Federoff. Dr. Federoff resigned as the Company’s Chief Executive, which became effective on May 26, 2022. Under the terms of the executive employment agreement, we paid Dr. Federoff an annual base salary of $450,000, which amount was subject to annual review by the Board or the Compensation Committee and subject to adjustment to reflect market practices among our peers in the sole discretion of the Board or the Compensation Committee. Dr. Federoff was also eligible to receive an annual cash bonus award in an amount up to 50% of his base salary upon achievement of reasonable performance targets set by the Board or the Compensation Committee, each in its sole discretion. The bonus would be determined by the Board or the Compensation Committee and paid annually in March in the year following the performance year on which such bonus was based. For the year ended December 31, 2021 we paid Dr. Federoff a $159,375 cash bonus. The agreement also provided for the grant of certain equity awards and severance benefits. Effective May 26, 2022 (the “Separation Date”), Dr. Federoff resigned as an employee. Upon the effective date of his resignation, we entered into a Separation Agreement and General Release with Dr. Federoff (the “Separation Agreement”), pursuant to which Dr. Federoff resigned from his positions as Chief Executive Officer and as an officer, director and employee of the Company and all subsidiaries. In consideration for Dr. Federoff’s execution of the Separation Agreement and non-revocation of a waiver and release of claims relating thereto, Dr. Federoff was entitled to the following benefits under the Separation Agreement: • a lump sum cash severance benefit in the amount of $225,000, representing Dr. Federoff’s target bonus for 2022; • payment of Dr. Federoff’s annual base salary for a period of twelve (12) months after the expiration of the applicable revocation period (the “Separation Period”), for a total gross amount equal to $450,000; • payment of Dr. Federoff’s premiums for continued health benefits provided under COBRA for the Separation Period; • full acceleration of the vesting of all outstanding options (with the exception of the Milestone Options) that would have vested during the Separation Period, and such options, together with outstanding options that vested prior to the Separation Date, representing collectively 71,004 shares of common stock, may be exercised for a period of thirty-six (36) months after the Separation Date; • acceleration and vesting of 25/36 th of the Milestone Options, and such accelerated options, representing collectively 20,737 shares of common stock, may be exercised for a period of thirty-six (36) months after the Separation Date; and • a lump sum cash severance benefit in the amount of $130,347, representing the value Dr. Federoff would have received if he was entitled to receive a settlement of a pro rata portion of the Federoff PSU Grant through the expiration of the Separation Period, assuming the performance metrics were waived and assuming a per share value of $16.20. Under the Separation Agreement, Dr. Federoff agreed to cooperate with and assist us regarding certain matters and transitioning his employment duties and responsibilities. Subject to certain exceptions and limitations, the Separation Agreement included a general release of claims by Dr. Federoff in favor of us and certain related persons and parties, and customary confidentiality and mutual non-disparagement provisions. The Separation Agreement also included certain other customary representations, warranties and covenants of Dr. Federoff, and provided for reimbursement of certain expenses incurred by Dr Federoff. The Separation Agreement superseded all other agreements or arrangements between Dr. Federoff and us regarding the subject matter of the agreement, including those with respect to severance payments and benefits. Andrew Jackson We entered into an amended and restated employment agreement, dated as of May 10, 2022, with Andrew Jackson with respect to his employment as our Chief Financial Officer. The employment agreement provides for our at-will employment of Mr. Jackson as our Chief Financial Officer for a term commencing on May 31, 2022 and continuing until terminated by us or Mr. Jackson. 65 Table of Contents Under the terms of the employment agreement, we will pay Mr. Jackson an annual base salary of $415,000, which amount is subject to periodic review by the Board or the Compensation Committee. Mr. Jackson is eligible to receive an annual cash bonus award in an amount up to 40% of his base salary upon achievement of agreed upon performance targets. The bonus will be determined by the Board or the Compensation Committee and paid annually by March 15 in the year following the performance year on which such bonus is based. For the year ended December 31, 2022, there was no bonus earned. In accordance with the terms of the employment agreement, Mr. Jackson is entitled to receive equity awards, consisting of a time-based nonqualified stock option, which we refer to as the Jackson Option Grant, covering 33,239 shares of common stock, 25% of which will vest on the first anniversary of the employment agreement’s effective date, and the remainder will vest ratably on a monthly basis over the three-year period thereafter. Vesting generally requires Mr. Jackson’s continued employment through the relevant vesting date. If Mr. Jackson’s employment is terminated by us without Cause or by Mr. Jackson for Good Reason (each such capitalized term as defined in the employment agreement), we will pay Mr. Jackson all amounts accrued but unpaid as of the effective date of such termination, as well as continuation of his salary and benefits for the following nine month period (such period, the “Severance Period”). Notwithstanding the foregoing, if a termination without Cause or for Good Reason occurs within three months before or twelve months after a Change in Control (as defined in the employment agreement), Mr. Jackson will receive the benefits described in the preceding sentence, but the Severance Period shall run for a period of twelve months, and, in addition, Mr. Jackson will receive a lump-sum payment of his target bonus and the Jackson Option Grant shall become fully vested. Any such severance benefits under the employment agreement are contingent on Mr. Jackson entering into and not revoking a general release of claims in favor of our company. The employment agreement provides for (a) reimbursement of reasonable business expenses, (b) participation in our benefit plans and (c) paid vacation days in accordance with our policies, as in effect from time to time, and up to an additional seven floating paid vacation days a year. The employment agreement contains customary covenants related to non-solicitation for one year following termination of employment, as well as customary covenants related to non-competition, confidentiality, inventions and intellectual property rights. Roger Sidhu We had entered into an employment agreement, effective as of September 20, 2021, with Roger Sidhu with respect to terms of his employment as our Chief Medical Officer. The employment agreement provided for at-will employment of Dr. Sidhu as our Chief Medical Officer for a term commencing on September 20, 2021 and continuing until terminated by us or Dr. Sidhu. Dr. Sidhu resigned as our Chief Medical Officer effective January 31, 2023. Under the terms of the employment agreement, we paid Dr. Sidhu an annual base salary of $447,200, which amount was subject to annual review by the Board or the Compensation Committee and subject to adjustment to reflect market practices among our peers in the sole discretion of the Board or the Compensation Committee. Dr. Sidhu was eligible to receive an annual cash bonus award in an amount up to 40% of his base salary upon achievement of reasonable performance targets set by the board or the Compensation Committee, each in its sole discretion. The bonus would be determined by the Board or the Compensation Committee and paid annually in March in the year following the performance year on which such bonus was based. For the year ended December 31, 2021 we paid Dr. Sidhu a $48,277 cash bonus. In accordance with the terms of the employment agreement, we granted to Dr. Sidhu, effective as of September 20, 2021, a time-based nonqualified stock option, which we refer to as the Sidhu Option Grant, and a time-based restricted stock unit grant, which we refer to as the RSU Grant. The Sidhu Option Grant covered 8,065 shares of common stock, and the RSU Grant covered 4,032 shares of common stock. The Sidhu Option Grant and the RSU Grant each vested over four years, with vesting generally subject to Dr. Sidhu’s continued employment through the relevant vesting date. Consistent with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide, the equity award to Dr. Sidhu was made as an inducement material to his entering into employment with us and was approved by the Compensation Committee without need for stockholder approval. 66 Table of Contents If Dr. Sidhu’s employment was terminated by us without Cause or by Dr. Sidhu for Good Reason (each such capitalized term as defined in the employment agreement), he would be entitled to, among other things, continued base salary for nine months following the termination date and the total monthly cost of health care continuation coverage pursuant to COBRA for such period. Notwithstanding the foregoing, if a termination without Cause or for Good Reason occurs within ninety days before or twelve months after a Change in Control (as defined in the employment agreement), Dr. Sidhu would become entitled to (a) receive the continued-based salary and total monthly cost of health care continuation coverage described in the preceding sentence for a period of twelve months rather than nine months, (b) receive a lump sum payment of his target annual bonus and (c) accelerated vesting in full of the Sidhu Option Grant and the RSU Grant. Any of such severance benefits under the employment agreement are contingent on Dr. Sidhu entering into and not revoking a general release of claims in favor of our company. The employment agreement provided for (a) reimbursement of reasonable business expenses, (b) participation in our benefit plans and (c) twenty paid vacation days per year. The employment agreement also contained customary covenants related to non-competition and non-solicitation for one year following termination of employment, as well as customary covenants related to confidentiality, inventions and intellectual property rights. On March 11, 2022, we issued Dr. Sidhu a performance-based restricted stock unit grant (the “Sidhu PSU Grant”). The Sidhu PSU Grant covered 7,108 shares of common stock and were subject to the achievement of four performance goals, which were weighted equally. Once a performance goal was achieved, the tranche of shares allocated to that performance goal would be earned and would begin to vest annually over a three-year period beginning on the date the performance goal was achieved subject to Dr. Sidhu’s continued employment through the relevant vesting date. If a performance goal was not achieved, then tranche of shares allocated to that performance goal would be unearned and forfeited. As of December 31, 2022, none of the performance goals were achieved, and as a result, the shares covered under the Sidhu PSU Grant were cancelled. There was no separation agreement entered into upon Dr. Sidhu’s voluntary resignation effective January 31, 2023. Kevin D’Amour We entered into an employment agreement, dated June 5, 2021 and effective as of June 28, 2021, with Kevin A. D’Amour with respect to terms of his employment as our Chief Scientific Officer. The employment agreement provided for our at-will employment of Dr. D’Amour as our Chief Scientific Officer for a term commencing on June 28, 2021 and continuing until terminated by us or Dr. D’Amour. Dr. D’Amour resigned as our Chief Scientific Officer effective August 26, 2022. Under the terms of the employment agreement, we paid Dr. D’Amour an annual base salary of $415,000, which amount was subject to annual review by the Board or the Compensation Committee and subject to adjustment to reflect market practices among our peers in the sole discretion of the Board or the Compensation Committee. Dr. D’Amour was eligible to receive an annual cash bonus award in an amount up to 40% of his base salary upon achievement of reasonable performance targets set by the Board or the Compensation Committee, each in its sole discretion. The bonus would be determined by the Board or the Compensation Committee and paid annually in March in the year following the performance year on which such bonus was based. For the year ended December 31, 2021 we paid Dr. D’Amour a $84,886 cash bonus. We additionally granted certain equity awards to Dr. D’Amour under his employment agreement. 67 Table of Contents Effective August 26, 2022, Dr. D’Amour resigned as an employee. Upon the effective date of his resignation, we entered into a Separation Agreement and General Release with Dr. D’Amour (the “D’Amour Separation Agreement”), pursuant to which Dr. D’Amour resigned from his position as Chief Scientific Officer. In consideration for Dr. D’Amour’s execution of the D’Amour Separation Agreement and non-revocation of a waiver and release of claims relating thereto, Dr. D’Amour was entitled to the following benefits under the D’Amour Separation Agreement: • payment of Dr. D’Amour’s annual base salary for a period of nine (9) months after the expiration of the applicable revocation period (the “D’Amour Separation Period”), for a total gross amount equal to $311,250; • payment of Dr. D’Amour’s premiums for continued health benefits provided under COBRA for the D’Amour Separation Period; and • the vested portions of all Dr. D’Amour’s outstanding options, representing 57,296 shares of the Company’s common stock, were eligible to be exercised for a period of ninety (90) days following the separation date, and all unvested options, restricted stock units and performance stock units were immediately forfeited as of the separation date. Under the D’Amour Separation Agreement, Dr. D’Amour agreed to cooperate with and assist us regarding certain matters and transitioning his employment duties and responsibilities. Subject to certain exceptions and limitations, the D’Amour Separation Agreement included a general release of claims by Dr. D’Amour in favor of us and certain related persons and parties, and customary confidentiality and mutual non-disparagement provisions. The D’Amour Separation Agreement also included certain other customary representations, warranties and covenants of Dr. D’Amour, and provided for reimbursement of certain expenses incurred by Dr D’Amour. The D’Amour Separation Agreement superseded all other agreements or arrangements between Dr. D’Amour and us regarding the subject matter of the agreement, including those with respect to severance payments and benefits. Outstanding Equity Awards at 2022 Fiscal Year-End The following table summarizes the number of shares of our common stock underlying outstanding equity incentive plan awards for each named executive officer as of December 31, 2022. ​ ​ Option Awards Stock Awards Name ​ Grant Date ​ Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: Number of securities underlying unexercised unearned options (#) Option exercise price ($) Option expiration date Number of shares or units of stock that have not vested (#) Market value of shares of units of stock that have not vested ($) Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#) Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested shares ($) Matthew Angel, Chief Executive Officer and President (2) ​ 8/1/2022 (1) ​ 15,542 108,808 — 9.80 8/1/2032 — — — — Howard J. Federoff, Former Chief Executive Officer and President ​ 4/16/2021 (2) ​ 68,434 — — 158.80 5/26/2025 — — — — ​ 4/16/2021 (2) 3/11/2022 (2) ​ 20,737 — — 158.80 5/26/2025 — — — — 8,043 — — 38.60 5/26/2025 — — — — Andrew Jackson, Chief Financial Officer (3) ​ 6/3/2022 (3) ​ — 33,239 — 12.17 6/3/2032 — — — — Roger Sidhu, Chief Medical Officer ​ 9/20/2021 (3) ​ 2,520 5,545 — 199.20 9/20/2031 — — — — ​ 9/20/2021 (4) 3/11/2022 (5) ​ — — — — — 3,024 9,737 — — 1,776 5,329 — 38.60 3/11/2032 — — — — Kevin D’Amour, Chief Scientific Officer ​ — ​ — — — — — — — — — ​ — ​ — — — — — — — — — 1. The option vests at a rate of 2/48 th of the shares subject to the award on the grant date, with the remaining shares subject to the award vesting in 46 substantially equal monthly installments thereafter. 2. The options vested pursuant to Dr. Federoff’s Separation Agreement. 3. The option vests at a rate of 25% of the shares subject to the award on the one-year anniversary of the grant date, with the remaining shares subject to the award vesting in 36 substantially equal monthly installments thereafter. 4. The restricted stock units vest at a rate of 25% of the shares subject to the award in four substantially equal annual installments on the anniversary of the grant date. 5. The option vests over 36 substantially equal monthly installments. 68 Table of Contents Hedging and Pledging Company Securities Our Insider Trading Policy prohibits our directors, officers, employees, family members of such persons and entities controlled by such persons from engaging in hedging, short sales, or trading in publicly traded put or call options with respect to our securities. Additionally, such policy prohibits the same persons from purchasing our securities on margin, borrowing against any account in which our securities are held, or pledging our securities as collateral for a loan. Compensation-Related Risk Assessment Our Compensation Committee assesses and monitors whether any of our compensation policies and programs is reasonably likely to have a material adverse effect on our Company. The Compensation Committee and management do not believe that the Company presently maintains compensation policies or practices that are reasonably likely to have a material adverse effect on the Company’s risk management or create incentives that could lead to excessive or inappropriate risk taking by employees. In reaching this conclusion, the Compensation Committee considered all components of our compensation program and assessed any associated risks. The Compensation Committee also considered the various strategies and measures employed by the company that mitigate such risk, including: (i) the overall balance achieved through our use of a mix of cash and equity, annual and long-term incentives and time-and performance-based compensation; (ii) our use of multi-year vesting periods for equity grants; and (ii) the oversight exercised by the Compensation Committee over the performance metrics and results under the Restated Plan and the 2021 Inducement Plan. 69 Table of Contents Director Compensation. We compensate our non-employee directors for their service in such capacity with annual retainers and equity compensation as described below. Directors who are also our employees do not receive any additional compensation for their services as directors. We do not pay fees to any of our directors for meeting attendance. Compensation Element ​ ​ Amount Annual Board Member Compensation ​ ​ Paid in cash or stock options, at the Board’s discretion. Cash paid in quarterly installments or upon the effective date of an earlier resignation of the non-employee director. Stock Options to vest quarterly over one year from grant date: ​ a. ​ ​ Board Member: $40,000 ​ b. ​ ​ Board Chair: $70,000 ​ ​ ​ ​ Committee Member Retainers ​ ​ Paid in cash or stock options, at the Board’s discretion. Cash paid in quarterly installments or upon the effective date of an earlier resignation of the non-employee director. Stock Options to vest quarterly over one year from grant date: ​ c. ​ ​ Audit Committee: $7,500 ​ d. ​ ​ Compensation Committee: $5,000 ​ e. ​ ​ Nominating/Governance Committee: $4,000 ​ ​ ​ ​ Leadership Supplemental Retainer ​ ​ Paid in cash or stock options, at the Board’s discretion. Cash paid in quarterly installments or upon the effective date of an earlier resignation of the non-employee director. Stock Options to vest quarterly over one year from grant date: ​ f. ​ ​ Audit Committee Chair: $15,000 ​ g. ​ ​ Compensation Committee Chair: $10,000 ​ h. ​ ​ Nominating/Governance Committee Chair: $8,000 ​ ​ ​ ​ New Director Equity Award (outside directors) ​ ​ Option for 8,260 shares of Common Stock, which option shall have an exercise price equal to the fair market value per share of common stock, as determined under the 2020 Plan, and, subject to continued service on the Board, vest in an initial installment of 1/3 of the shares on the first anniversary of the grant date, with the remaining shares to vest in 24 substantially equal installments thereafter. The Board and the Compensation Committee designed our non-employee director compensation program to reward directors for their contributions to our success, align the director compensation program with stockholder interests, and provide competitive compensation necessary to attract and retain high quality non-employee directors. The Compensation Committee expects to review director compensation periodically to ensure that director compensation remains competitive such that we can recruit and retain qualified directors. 70 Table of Contents 2022 Director Compensation The following table provides summary information concerning compensation paid or accrued by us to or on behalf of our non-employee directors for services rendered to us during the last fiscal year. Name Fees Earned or Paid in Cash ($) Stock awards ($) Option awards ($) (1) Non-equity incentive plan compensation ($) ​ Nonqualified deferred compensation earnings ($) All other compensation ($) Total ($) Charles Cherington 21,661 — 134,516 — ​ — — 156,177 Gregory Fiore (2) — — 92,178 — ​ — — 92,178 Nicholas Singer (2) — — 110,171 — ​ — — 110,171 William Wexler (2) — — 112,288 — ​ — — 112,288 Dennis Langer (3) 10,382 — — — ​ — — 10,382 Erich Mohr (3) 9,569 — — — ​ — — 9,569 Erin Enright (3) 10,822 — 162,073 — ​ — — 172,895 Heather Redman (3) 9,299 — 162,073 — ​ — — 171,372 1. As of December 31, 2022, our non-employee directors had the following options outstanding: Name Options Outstanding Charles Cherington 22,395 Gregory Fiore 13,045 Nicholas Singer 15,595 William Wexler 15,895 Dennis Langer — Erich Mohr — Erin Enright — Heather Redman — The amounts reported in this column represents the aggregate grant date fair value of stock options granted during the applicable year. These amounts were calculated in accordance with FASB ASC Topic 718, Compensation – Stock Compensation, except that any estimate of forfeitures was disregarded. For a description of the assumptions used in computing the dollar amount recognized for financial statement reporting purposes, see Note 14, Stock-Based Compensation, in the Notes to the Consolidated Financial Statements contained in this Annual Report on Form 10-K. (2) Appointed to the Board on June 6, 2022. (3) Resigned from the Board effective June 5, 2022 71 Table of Contents ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters STOCK OWNERSHIP The following table sets forth information known to us regarding beneficial ownership of common stock as of March 20, 2023 by: • each person known by us to be the beneficial owner of more than 5% of outstanding common stock; • each of our named executive officers and directors; and • all of our executive officers and directors as a group. Beneficial ownership is determined according to the rules of the SEC, which generally provide that a person has beneficial ownership of a security if he, she or it possesses sole or shared voting or investment power over that security, including options and warrants that are currently exercisable or exercisable within 60 days. In computing the number of shares beneficially owned by a person or entity and the percentage ownership of that person or entity in the table below, all shares subject to options, warrants and restricted stock units held by such person or entity were deemed outstanding if such securities are currently exercisable, or exercisable or would vest based on service-based vesting conditions within 60 days of March 20, 2023, assuming that the liquidity event vesting conditions had been satisfied as of such date. These shares were not deemed outstanding, however, for the purpose of computing the percentage ownership of any other person or entity. The beneficial ownership of our common stock is based on 5,127,070 shares of our common stock outstanding as of March 20, 2023. Unless otherwise indicated, we believe that each person named in the table below has sole voting and investment power with respect to all shares of common stock beneficially owned by him. Unless otherwise noted, the business address of each of these shareholders is c/o Eterna Therapeutics, Inc., 1035 Cambridge Street, Suite 18A, Cambridge, MA 02141. 72 Table of Contents Name and Address of Beneficial Owner Common Shares Beneficially Owned Percentage of Common Shares Beneficially Owned Series A Convertible Preferred Stock Beneficially Owned Percentage of Series A Convertible Preferred Stock Beneficially Owned Percentage of Total Voting Power Greater than 5% Stockholders : Charles Cherington (1) 574,104 11.2 % 71,306 45.7 % 11.2 % George Denny (2) 460,209 9.0 % 71,306 45.7 % 9.0 % John Halpern (3) 452,283 8.8 % — — 8.8 % Nicholas J. Singer (4) 398,349 7.8 % — — 7.8 % Factor Bioscience Inc. (5) 129,033 2.5 % — — 2.5 % Named Executive Officers and Directors : Charles Cherington (1) 574,104 11.2 % 71,306 45.7 % 11.2 % Nicholas J. Singer (4) 398,349 7.8 % — — 7.8 % Matthew Angel (6) 315,460 6.0 % — — 6.0 % William Wexler (7) 10,538 * — — * Gregory Fiore (7) 8,401 * — — * Andrew Jackson — — — — — Howard Federoff (7) 97,214 1.9 % — — 1.9 % Roger Sidhu 1,008 * ― ― * Kevin D’Amour 574 * — — * AlAll current directors and executive officers as a group (7 persons) (8) 1,309,747 24.6 % 71,306 45.7 % 24.6 % * Less than 1% (1) Includes 14,668 shares of common stock subject to issuance upon exercise of options and 2,971 shares of common stock issuable upon conversion of Series A convertible preferred stock. (2) Includes 2,971 shares of common stock issuable upon conversion of Series A convertible preferred stock. Denny Family Partners II, LLC owns 50,453 shares of common stock and the George Denny III Trust dated 6/11/1981 owns 406,785 shares of common stock. Mr. Denny disclaims beneficial ownership of the shares held by Denny Family Partners II, LLC except to the extent of his pecuniary interest therein. Mr. Denny’s address is. Mr. Denny has sole voting and dispositive power over 204 shares and has shared voting and dispositive power over 460,209 shares. (3) Shares held by the John D. Halpern Revocable Trust, of which, Mr. Halpern and Katherine H. Halpern are trustees. Mr. Halpern and Ms. Halpern share voting and dispositive powers. Mr. Halpern’s address is PO Box 540 Portsmouth, New Hampshire 03802.. (4) Includes (i) 121,882 shares of common stock held by Purchase Capital LLC and (ii) 266,214 shares of common stock held by Pacific Premier Trust as Custodian for the benefit of Mr. Singer. Mr. Singer has sole voting and investment power over all 398,349 shares. Also includes 64,478 shares of common stock subject to issuance upon exercise of options. (5) Factor Bioscience Inc. owns 129,033 shares of common stock, over which Messrs. Angel and Rohde have shared voting and investment power. Mr. Angel also has sole voting and investment power over 45,449 shares, and Mr. Rohde has sole voting and investment power over 67,885 shares. Factor Biosciences, Inc. and Messers. Angel and Rohde have entered into lock-up agreements with respect to 168,884 shares of common stock listed above. Each lock-up agreement extends for a period of three years, provided that up to 75% of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on The Nasdaq Capital Market stock exchange exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period. Factor Bioscience, Inc.’s address is 1035 Cambridge Street, Suite 17B, Cambridge, MA 02141. (6) Includes 129,033 shares of common stock owned by Factor Biosciences Inc., of which Dr. Angel owns approximately 64% of the outstanding equity, and 140,978 shares of common stock subject to issuance upon exercise of options. (7) Represents shares of common stock subject to issuance upon exercise of options. (8) Includes 187,124 shares of common stock issuable upon exercise of options and 2,971 shares of common stock issuable upon conversion of Series A convertible preferred stock. 73 Table of Contents SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS The following table contains information as of December 31, 2022 with respect to compensation plans under which any of our equity securities are authorized for issuance. ​ Equity Compensation Plan Information Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted- average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) ​ (a) (b) (c) Equity compensation plans approved by securityholders 258,092 $ 16.72 165,694 Equity compensation plans not approved by securityholders (1) 105,072 $ 160.83 56,774 Total 363,164 $ 57.18 222,468 (1) Our 2021 Inducement Plan was not approved by our stockholders. For additional information on the 2021 Inducement Plan, see “Item 11. Executive Compensation—Narrative to Summary Compensation Table—Equity-Based Compensation Programs—2021 Inducement Plan” contained in this Annual Report on Form 10-K. ITEM 13. Certain Relationships and Related Transactions, and Director Independence Except as set forth below, since January 1, 2021, there has not been nor are there currently proposed any transactions or series of similar transactions to which we were or are to be a party in which the amount involved exceeds the lesser of $120,000 or one percent (1%) of the average of our total assets at year-end for the last two completed fiscal years and in which any director, executive officer, holder of more than 5% of the common stock or any member of the immediate family of any of the foregoing persons had or will have a direct or indirect material interest. As previously reported, we paid consideration totaling approximately $124.0 million in respect of our acquisition of Novellus, Inc., which we refer to as the Novellus Acquisition, consisting of (a) $22.8 million in cash and (b) approximately 351,000 shares of our common stock, which under the terms of the agreement and plan of acquisition, dated as of July 16, 2021, by and between us, Novellus and the other parties thereto (the “Novellus Acquisition Agreement”), were valued at a total of $102.0 million, based on a price of 290.51 per share of our common stock. In connection with the Novellus Acquisition, (i) Factor, of which Dr. Angel beneficially owns approximately 64% of its outstanding equity, received approximately $1.7 million in cash consideration from us and approximately 129,000 shares of common stock, and (ii) Dr. Angel received approximately $2.0 million in cash consideration from us and approximately 31,000 shares of common stock. In addition, Dr. Angel also received approximately 14,000 shares of common stock, which we had placed in escrow for a period that ended on July 16, 2022 to secure indemnification obligations to us under the Novellus Acquisition Agreement. In November 2020, Novellus Limited, our wholly owned subsidiary following the Novellus Acquisition, and Factor Limited entered into the Third Amended and Restated Exclusive License Agreement (the “ Novellus-Factor License Agreement ”), pursuant to which Factor Limited granted to Novellus Limited an exclusive license under certain patents owned by Factor Limited for the development of certain stem cell-based cellular therapies for treating diseases and conditions in humans and animals (the “ Factor Licensed Technology ”). In December 2020, Eterna LLC, our wholly owned subsidiary, entered into option agreements (the “Novellus-Factor Option Agreements”) with Novellus Limited. and Factor Limited (together, the “Licensors”) to obtain the right to exclusively license the Licensors’ intellectual property and mRNA cell reprogramming and gene editing technology for use in the development of certain cell-based therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia (the “Licensed Technology”). 74 Table of Contents In April 2021, Eterna LLC and the Licensors entered into an exclusive license agreement (the “Original Factor License Agreement”) pursuant to which Eterna LLC acquired an exclusive worldwide license to the Licensed Technology for use in the development of certain mRNA, gene-editing, and cellular therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia. As a result of our July 2021 Novellus Acquisition, the rights and obligations of Novellus Limited under the Novellus-Factor License Agreement pertaining to any and all licensed products from Factor Limited inured to Eterna. Our agreement with Factor Limited under the Original Factor License Agreement remained unchanged after the completion of the Novellus Acquisition. In November 2022, following the expiration of one of the delineated milestone deadlines for certain regulatory filings required under the Novellus-Factor License Agreement expired, which permitted Factor Limited to terminate the license granted to Novellus Limited thereunder, we entered into the first amendment to the Original Factor License Agreement (the “Amended Factor License Agreement”), pursuant to which, among other things, Factor Limited granted to Eterna LLC an exclusive, sublicensable license under certain patents owned by Factor Limited (the “ Factor Patents ”) for the purpose of identifying and pursuing certain opportunities to grant to third parties sublicenses to the Factor Patents. The Amended Factor License Agreement also (i) terminated the Novellus-Factor License Agreement, (ii) confirmed Factor Limited’s grant to Eterna LLC of the rights and licenses Novellus Limited previously granted to Eterna LLC under the Novellus-Factor License Agreement on the same terms and conditions as granted by Novellus Limited to Eterna LLC under such agreement, (iii) confirmed that the sublicense granted by Novellus Limited in accordance with the Novellus-Factor License Agreement to NoveCite (as discussed below), survived termination of the Novellus-Factor License Agreement; and (iv) removed Novellus Limited from the Amended Factor License Agreement and the NoveCite Agreement and replaced Novellus Limited with Factor Limited as the direct licensor to Eterna LLC and NoveCite under such agreements, respectively. On February 20, 2023, we and Factor Limited entered into an exclusive license agreement (the “Exclusive Factor License Agreement”), which terminated and replaced in its entirety the Amended Factor License Agreement. Subject to certain exclusive licenses or other rights granted by Factor Limited to certain third parties as of the effective date of the Amended Factor License Agreement, Factor granted us the exclusive, sublicensable license under the Factor Patents. The term of the Exclusive Factor License Agreement expires on November 22, 2027 (the “Expiration date”) but will be automatically extended for an additional two and a half years (such period, the “Renewal Term”) if we receive at least $100 million in fees from sublicenses to the Factor Patents (“Sublicense Fees”) granted by it pursuant to the Exclusive Factor License Agreement. Pursuant to the Exclusive Factor License Agreement, we will pay to Factor 20% of any Sublicense Fee received by us before the Expiration Date and 30% of any Sublicense Fees received by us during the Renewal Term. We may terminate the Exclusive Factor License Agreement upon 120 days’ written notice to Factor, and both parties otherwise have additional customary termination rights, including in connection with certain uncured material breaches of the Exclusive Factor License Agreement and specified bankruptcy events. Under the Exclusive Factor License Agreement, we are obligated to pay the expenses incurred by Factor Limited in preparing, filing, prosecuting and maintaining the Factor Patents and agreed to bear all costs and expenses associated with enforcing and defending the Factor Patents in any action or proceeding arising from pursuit of sublicensing opportunities under the license granted under the Exclusive Factor License Agreement. There can be no assurance that we can successfully develop and commercialize the technology licensed under the Exclusive Factor License Agreement. See “Risk Factors—Risks Related to our Business and Industry — We depend substantially, and expect in the future to continue to depend, on in-licensed intellectual property. Such licenses impose obligations on our business, and if we fail to comply with those obligations, we could lose license rights, which would substantially harm our business.” 75 Table of Contents Pursuant to the MSA we entered into with Factor Bioscience and the related Work Order No. 1 (the “WO1”), Factor Bioscience is providing us with certain mRNA cell engineering research support services, including (i) access to Factor Bioscience’s research laboratory facilities located in Cambridge, Massachusetts, (ii) access to Factor Bioscience’s scientific equipment, (iii) training of our research staff in mRNA, iPSC, and gene editing technology, (iv) copies of protocols, formulations, and sequences useful for the development of mRNA cell engineering products and (v) in vitro transcription templates, mRNA constructs, and iPS cells useful for the development of mRNA cell engineering products. In consideration for entry into the MSA, we agreed to pay Factor Bioscience an initial fee of $5.0 million, payable in twelve equal monthly installments of approximately $0.4 million, and, following the initial 12-month period, a monthly fee of $0.4 million until such time as the WO1 is terminated. We may terminate the work under the WO1 on or after the second anniversary of the date of the MSA, subject to providing Factor Bioscience with 120 days’ prior notice. Factor Bioscience may terminate such work order only on and after the fourth anniversary of the date of the MSA, subject to providing us with 120 days’ prior notice. On October 8, 2022, we entered into the Exacis Option Agreement with Exacis, pursuant to which Exacis granted us the option to negotiate and enter into an exclusive worldwide license to certain of the technology licensed by Exacis for the treatment of cancer in humans. The Exacis Option Agreement provided for us paying Exacis a fee of $250,000 for the option, which would be creditable against the fees or purchase price payable under any such license if entered into by us in accordance with Exacis Option Agreement. We did not exercise the option, and the Exacis Option Agreement terminated on December 31, 2022. On November 23, 2022, the Company entered into the Q4-22 Purchase Agreement with the Q4-22 PIPE Investors in respect of the Q4-22 PIPE Transaction, pursuant to which the Company issued and sold to the Q4-22 PIPE Investors approximately 2,185,000 units, each unit consisting of (i) one share of common stock and (ii) two Q4-22 Warrants, each exercisable to purchase one share of common stock at an exercise price of $3.28 per share, at a purchase price of $3.53 per unit (inclusive of $0.125 per Q4-22 Warrant). The Company received aggregate gross proceeds of approximately $7.7 million, and the Q4-22 PIPE Transaction closed on December 2, 2022. Each Q4-22 Warrant becomes exercisable six months following the date of closing, expires five-and-one-half years following such date, and is subject to customary adjustments. Mr. Charles Cherington, Chairman of the Company’s Board of Directors, and Mr. Nicholas Singer, a director of the Company, participated in the Q4-22 PIPE Transaction on the same terms and subject to the same conditions as all other Q4-22 PIPE Investors. Related Party Transaction Policy Our Audit Committee is responsible for the review, approval, or ratification of any potential conflict of interest transaction involving any of our directors or executive officers, director nominees, any person known by us to be the beneficial owner of more than 5% of our outstanding capital stock, or any family member of or related party to such persons, including any transaction required to be reported under Item 404(a) of Regulation S-K promulgated by the SEC. In reviewing any such proposed transaction, our Audit Committee is tasked with considering all relevant facts and circumstances, including the commercial reasonableness of the terms, the benefit or perceived benefit, or lack thereof, to us, opportunity costs of alternate transactions, the materiality and character of the related person’s direct or indirect interest and the actual or apparent conflict of interest of the related person. Under our policy, employees are required to report any material transaction or relationship that could result in a conflict of interest to our compliance officer. Director Independence Our Board undertook a review of the independence of each director. Based on information provided by each director concerning his or her background, employment, and affiliations, our Board has determined that the Board meets independence standards under the applicable rules and regulations of the SEC and the listing standards of Nasdaq. The Board of Directors has affirmatively determined that the following Directors are “independent” as defined in the listing standards of Nasdaq: Charles Cherington; Nicholas J. Singer; and William Wexler. In making these determinations, our Board considered the current and prior relationships that each non-employee director has with our Company and all other facts and circumstances our Board deemed relevant in determining their independence, including the beneficial ownership of our capital stock by each non-employee director, and the transactions involving them described in the section titled “Certain Relationships and Related Party Transactions.” 76 Table of Contents ITEM 14. Principal Accounting Fees and Services Change in Certifying Accountant On January 18, 2022, we notified Marcum LLP (“Marcum”) that it would be dismissed as our independent registered public accounting firm effective after the completion of Marcum’s audit of our financial statements for the year ended December 31, 2021. The Audit Committee approved Marcum’s dismissal on January 18, 2022. Marcum performed audits of our consolidated financial statements for the years ended December 31, 2021 and 2020. Marcum’s reports for such years did not contain an adverse opinion or a disclaimer of opinion and were not qualified or modified as to uncertainty, audit scope, or accounting principles. During the two years ended December 31, 2021, and from December 31, 2020 through January 24, 2022, there were no (i) disagreements (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K promulgated by the SEC pursuant to the Exchange Act) between us and Marcum on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved to satisfaction of Marcum, would have caused Marcum to make reference to the subject matter of such disagreements in connection with its report, or (ii) “reportable events,” as described in Item 304(a)(1)(v) of Regulation S-K, that would require disclosure under Item 304(a)(1)(v) of Regulation S-K, except for the material weaknesses previously reported in our Quarterly Report on Form 10-Q for the period ended September 30, 2021 related to (a) segregation of duties and (b) documentation of policies and procedures critical to the accomplishment of financial reporting objectives. We previously furnished Marcum with a copy of the disclosure under this heading “Change in Certifying Accountant” prior to filing a Current Report on Form 8-K containing such disclosure with the SEC on January 24, 2022 and requested that Marcum furnish it with a letter addressed to the SEC stating whether or not it agreed with the statements made by us in such Current Report on Form 8-K insofar as they related to Marcum’s audit services and engagement as our independent registered public accounting firm. A copy of Marcum’s letter concurring with the foregoing disclosures was attached as Exhibit 16.1 to the Current Report on Form 8-K filed by us on January 24, 2022. Marcum’s dismissal became effective on April 15, 2022, and no events had occurred since the filing of such Form 8-K that would have required the filing of an amendment to such Form 8-K. On January 18, 2022, we notified Grant Thornton LLP (“Grant Thornton”) that the Audit Committee had selected Grant Thornton to serve as our independent registered public accounting firm for the fiscal year ending December 31, 2022 and related interim periods, and Grant Thornton’s engagement became effective on April 18, 2022. During the two years ended December 31, 2021 and from December 31, 2019 through April 19, 2022 (the date on which we filed a Current Report on Form 8-K, reporting the respective effective dates of Marcum’s dismissal and Grant Thornton’s engagement), neither we nor anyone acting on its behalf has consulted Grant Thornton regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on our financial statements, and no written report or oral advice was provided to us by Grant Thornton that Grant Thornton concluded was an important factor considered by us in reaching a decision as to an accounting, auditing or financial reporting issue; or (ii) any matter that was either subject of a disagreement, as that term is defined in Item 304 (a)(1)(iv) of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a “reportable event,” as that term is described in Item 304(a)(1)(v) of Regulation S-K. Fees and Services of Independent Registered Public Accounting Firm The table below summarizes the fees and expenses billed to us by Grant Thornton and Marcum for the years ended December 31, 2022 and 2021. Year Audit Fees Audit-Related Fees Tax Fees All Other Fees Total 2022 $ 435,750 $ — $ — $ — $ 435,750 2021 $ 357,925 $ — $ 18,540 $ — $ 376,465 77 Table of Contents Audit Fees. Audit fees consist of services rendered by an independent registered public accounting firm for the audit of our consolidated financial statements (including tax services performed to fulfill the auditor’s responsibility under generally accepted auditing standards) and our internal control over financial reporting, reviews of the interim financial statements included in Forms 10-Q and includes services that generally only an external auditor can reasonably provide, such as comfort letters, statutory audits, attest services, consents and assistance with and review of documents filed with the SEC. Audit-Related Fees. Audit-related fees consist of assurance and related services (e.g., due diligence) by an external auditor that are reasonably related to the audit or review of financial statements, including employee benefit plan audits, due diligence related to mergers and acquisitions, accounting consultations and audits in connection with proposed or consummated acquisitions, internal control reviews, attest services related to financial reporting that are not required by statute or regulation, and consultation concerning financial accounting and reporting standards. Tax Fees. Tax fees consist of services rendered by an external auditor for tax compliance, tax consulting and tax planning. All Other Fees. All other fees are for any other permissible work that is not an Audit, Audit-Related or Tax Fee. Policy for Approval of Audit and Permitted Non-Audit Services All audit and permissible non-audit services provided by the independent auditors are pre-approved by the Audit Committee (or the Chair of the Audit Committee, pursuant to a delegation of authority). These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Audit Committee regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Audit Committee may also pre-approve particular services on a case-by-case basis. 78 Table of Contents PART IV ITEM 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as a part of this Annual Report on Form 10-K: (1) Consolidated Financial Statements. The consolidated financial statements of the Company and its consolidated subsidiaries are set forth in the “Index to Consolidated Financial Statements” on page F-1. (2) Financial Statement Schedules. None (3) Exhibits. The following exhibits are submitted with this Annual Report on Form 10-K or, where indicated, incorporated by reference to other filings. TBD Exhibit Description Incorporated By Reference 2.1(b) Agreement and Plan of Merger and Reorganization, dated August 12, 2020, among NTN Buzztime, Inc., BIT Merger Sub, Inc. and Eterna Therapeutics LLC Exhibit 2.1 to the proxy statement/prospectus on Form S-4/A filed on January 20, 2021 2.2(b) Agreement and Plan of Acquisition, dated as of July 16, 2021, by and among Eterna Therapeutics Inc., Brooklyn Acquisition Sub, Inc., Novellus LLC, Novellus, Inc., and the Sellers’ Representative Exhibit 10.1 to Form 8-K filed on July 19, 2021 3.1 Composite Restated Certificate of Incorporation of the Company Filed herewith 3.2 Second Amended and Restated Bylaws of the Company Exhibit 3.2 to Form 8-K filed on October 11, 2022 3.3 Certificate of Validation of Eterna Therapeutics Inc., as filed with the Secretary of State of the State of Delaware on September 3, 2021 Exhibit 3.1 to Form 8-K filed on September 13, 2021 4.1 Description of Registrant’s Securities Registered Pursuant to Section 12 of the Securities Exchange Act of 1934 Exhibit 4.1 to Form 10-K filed on April 15, 2022 10.1 Securities Purchase Agreement, dated as of March 6, 2022, between Eterna Therapeutics Inc. and the purchaser party thereto Exhibit 10.1 to Form 8-K filed on March 9, 2022 10.2 Registration Rights Agreement, dated as of March 6, 2022, between Eterna Therapeutics Inc. and the purchaser party thereto Exhibit 10.4 to Form 8-K filed on March 9, 2022 10.3 Form of Pre-Funded Warrant Exhibit 10.2 to Form 8-K filed on March 9, 2022 10.4 Form of Common Stock Warrant Exhibit 10.3 to Form 8-K filed on March 9, 2022 10.5 Agreement to Assign Space Lease dated March 5, 2022 between Eterna Therapeutics LLC and Regen Lab USA LLC. Exhibit 10.5 to Form 10-Q filed on July 1, 2022 10.6 Assignment and Assumption of Lease dated March 25, 2022 between Eterna Therapeutics LLC and Regen Lab USA LLC Exhibit 10.6 to Form 10-Q filed on July 1, 2022 10.7(a) Amended and Restated Executive Employment Agreement, dated as of May 10, 2022, by and between Eterna Therapeutics Inc. and Andrew Jackson Exhibit 10.1 to Form 8-K filed on May 31, 2022 10.8(a) Separation Agreement and General Release, dated May 25, 2022, by and between Eterna Therapeutics Inc. and Howard J. Federoff Exhibit 10.2 to Form 8-K filed on May 31, 2022 10.9 Torrey Pines Science Center Lease, dated March 31, 2022, between Eterna Therapeutics Inc. and Torrey Pines Science Center Limited Partnership Exhibit 10.3 to Form 10-Q filed on August 11, 2022 10.10 Exclusive License Agreement, dated as of April 26, 2021, between Factor Bioscience Limited, Novellus Therapeutics Limited and Eterna Therapeutics Exhibit 10.3 to Form 8-K filed on April 30, 2021 10.11 First Amendment to Exclusive License Agreement, dated November 22, 2022, by and among Eterna Therapeutics Inc., Eterna Therapeutics LLC, Novellus Therapeutics Limited and Factor Bioscience Limited Exhibit 10.1 to Form 8-K filed on November 22, 2022 79 Table of Contents 10.12 Exclusive License Agreement, dated February 20, 2023, by and between Factor Bioscience Limited and Eterna Therapeutics Inc. Exhibit 10.1 to Form 8-K filed on February 22, 2023 10.13 Third Amended and Restated Exclusive License Agreement, dated November 1, 2020, by and between Factor Bioscience Limited and Novellus Therapeutics Limited Exhibit 10.3 to Form 10-Q filed on November 14, 2022 10.14 Master Services Agreement, dated September 9, 2022, by and between Factor Bioscience Inc. and Eterna Therapeutics Inc. Exhibit 10.1 to Form 8-K filed on September 15, 2022 10.15(a) Separation Agreement and General Release, dated August 24, 2022, by and between Eterna Therapeutics Inc and Kevin D’Amour Exhibit 10.1 to Form 8-K/A filed on September 1, 2022 10.16 Sublease Agreement, dated October 18, 2022, by and between E.R. Squibb & Sons, LLC and Eterna Therapeutics Inc. Filed herewith 10.17 Option Agreement, dated October 8, 2022, by and between Exacis Biotherapeutics, Inc. and Eterna Therapeutics Inc. Exhibit 10.1 to Form 8-K filed on October 14, 2022 10.18 Securities Purchase Agreement, dated as of November 23, 2022, by and among Eterna Therapeutics Inc. and the purchasers party thereto Exhibit 10.1 to Form 8-K filed on November 25, 2022 10.19 Form of Warrant Exhibit 10.1 to Form 8-K filed on December 5, 2022 10.20 Registration Rights Agreement, dated as of December 2, 2022, by and among Eterna Therapeutics Inc. and the purchasers party thereto Exhibit 10.2 to Form 8-K filed on December 5, 2022 10.21 Lease Termination Agreement, dated November 30, 2022, by and between Torrey Pines Science Center Limited Partnership and Eterna Therapeutics Inc. Filed herewith 10.22 First Amendment to Lease Termination Agreement, dated December 29, 2022, by and between Torrey Pines Science Center Limited Partnership and Eterna Therapeutics Inc. Filed herewith 10.23 Angel Offer Letter, dated December 30, 2022, by and among Eterna Therapeutics Inc. and Dr. Matthew Angel Exhibit 10.1 to Form 8-K filed on January 4, 2023 10.24 Registration Rights Agreement, dated as of April 26, 2021, between Eterna Therapeutics Inc. and Lincoln Park Capital Fund, LLC Exhibit 10.2 to Form 8-K filed on April 30, 2021 10.25 Registration Rights Agreement, dated as of May 26, 2021, between Eterna Therapeutics Inc. and Lincoln Park Capital Fund, LLC Exhibit 10.2 to Form 8-K filed on May 26, 2021 10.26 Registration Rights Agreement, dated as of July 16, 2021, by and among Eterna Therapeutics Inc. and the individuals and entities named therein. Exhibit 10.2 to Form 8-K filed on July 19, 2021 10.27 Purchase Agreement, dated as of April 26, 2021, between Eterna Therapeutics Inc. and Lincoln Park Capital Fund, LLC Exhibit 10.1 to Form 8-K filed on April 30, 2021 10.28 Purchase Agreement, dated as of May 26, 2021, between Eterna Therapeutics Inc. and Lincoln Park Capital Fund, LLC Exhibit 10.1 to Form 8-K filed on May 26, 2021 10.29(a) Eterna Therapeutics Inc. 2021 Inducement Stock Incentive Plan Exhibit 10.3 to Form 8-K filed on May 26, 2021 10.29(a) Eterna Therapeutics Inc. Restated 2020 Stock Incentive Plan Exhibit 99.1 to Form 8-K filed on September 13, 2021 16.1 Marcum, LLP letter dated January 24, 2022 Exhibit 16.1 to Form 8-K filed on January 24, 2022 16.2 Marcum, LLP letter dated April 19, 2022 Exhibit 16.1 to Form 8-K filed on April 19, 2022 21.1 Subsidiaries of the Company Filed herewith 23.1 Consent of the Independent Registered Accounting Firm, Grant Thornton LLP Filed herewith 23.2 Consent of the Independent Registered Accounting Firm, Marcum LLP. Filed herewith 31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 80 Table of Contents 32.1 Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Furnished herewith 32.2 Certification of Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Furnished herewith 101.INS Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) Filed herewith 101.SCH Inline XBRL Taxonomy Extension Schema Document Filed herewith 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document Filed herewith 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document Filed herewith 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document Filed herewith 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document Filed herewith 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) (a) Indicates management contract or compensatory plan. ITEM 16. Form 10-K Summary None. 81 Table of Contents SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized . ETERNA THERAPEUTICS INC. Date: March 20, 2023 By: /s/ Andrew Jackson Andrew Jackson Chief Financial Officer (Principal Financial Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. Name Title Date /s/ Matthew Angel Chief Executive Officer, President and Director (Principal Executive Officer) March 20, 2023 Matthew Angel /s/ Andrew Jackson Chief Financial Officer (Principal Financial Officer) March 20, 2022 Andrew Jackson /s/ Sandra Gurrola Vice President of Finance (Principal Accounting Officer) March 20, 2022 Sandra Gurrola /s/ Charles Cherington Chairman of the Board March 20, 2022 Charles Cherington /s/ Gregory Fiore Director March 20, 2022 Gregory Fiore /s/ Nicholas Singer Director March 20, 2022 Nicholas Singer /s/ William Wexler Director March 20, 2022 William Wexler 82 Table of Contents ETERNA THERAPEUTICS INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 248 ) F-2 Report of Independent Registered Public Accounting Firm (PCAOB ID: 688 ) F-3 Consolidated Financial Statements: Consolidated Balance Sheets as of December 31, 2022 and 2021 F-4 Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 F-5 Consolidated Statements of Members’/Stockholders’ Equity for the years ended December 31, 2022 and 2021 F-6 Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 F-7 Notes to the Consolidated Financial Statements F-8 F-1 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders Eterna Therapeutics, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheet of Eterna Therapeutics, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022, the related consolidated statements of operations, changes in members’/stockholders’ equity, and cash flows for the year then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022, and the results of its operations and its cash flows for the year then ended, in conformity with accounting principles generally accepted in the United States of America. Going concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company incurred a net loss of $24,579,000 during the year ended December 31, 2022. This condition, along with other matters as set forth in Note 2, 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 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2022. New York, New York March 20, 2023 F-2 Table of Contents REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders, Members and Board of Directors of Eterna Therapeutics Inc. (formerly known as Brooklyn ImmunoTherapeutics, Inc.) Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Eterna Therapeutics Inc. (formerly known as Brooklyn ImmunoTherapeutics, Inc.) (the “Company”) as of December 31, 2021, the related consolidated statements of operations, stockholders’ and members’ equity and cash flows for the year ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021, and the results of its operations and its cash flows for the year ended December 31, 2021, 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 more fully described in Note 2, the Company has has incurred significant losses and needs to raise additional funds to meet its obligations and sustain its operations. 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 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Restatement of Previously Issued Financial Statements As disclosed in Note 3 to the 2021 consolidated financial statements, the Company has restated its financial statements for the year ended December 31, 2021 to correct an error. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum llp Marcum llp We are uncertain as to the year we began serving consecutively as the auditor of the Company’s financial statements; however, we are aware that we were the Company’s auditor consecutively since at least 2013 through 2022. New York, NY April 15, 2022, except for Note 3, Restatement of Previously Reported Information and Note 15, Income Taxes, as to which the date is June 30, 2022 F-3 Table of Contents ETERNA THERAPEUTICS INC. CONSOLIDATED BALANCE SHEETS (In thousands, except par value amounts) December 31, 2022 December 31, 2021 ASSETS Current assets: Cash $ 11,446 $ 16,985 Other receivable 951 684 Prepaid expenses and other current assets 1,284 1,097 Total current assets 13,681 18,766 Restricted cash 4,095 - Property and equipment, net 236 670 Right-of-use assets - operating leases 1,030 2,567 Goodwill 2,044 2,044 In-process research and development - 5,990 Investment in non-controlling interest 59 1,000 Other assets 1,134 488 Total assets $ 22,279 $ 31,525 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,620 $ 1,755 Accrued expenses 3,626 1,249 Due to related party, current 1,750 - Operating lease liabilities, current 295 426 Other current liabilities 363 247 Total current liabilities 7,654 3,677 Due to related party, non-current 1,206 - Warrant liabilities 331 - Operating lease liabilities, non-current 887 2,297 Other liabilities 94 48 Total liabilities 10,172 6,022 Commitments and contingencies (Note 12) Stockholders’ equity: Preferred stock, $ 0.005 par value, 1,000 shares authorized, 156 designated and outstanding of Series A convertible preferred stock at December 31, 2022 and 2021, $ 156 liquidation preference 1 1 Common stock, $ 0.005 par value, 100,000 shares authorized at December 31, 2022 and 2021 ; 5,127 and 2,601 issued and outstanding at December 31, 2022 and 2021 , respectively 26 13 Additional paid-in capital 177,377 166,191 Accumulated deficit ( 165,297 ) ( 140,702 ) Total stockholders’ equity 12,107 25,503 Total liabilities and stockholders’ equity $ 22,279 $ 31,525 The accompanying notes are an integral part of these consolidated financial statements. F-4 Table of Contents ETERNA THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share amounts) Year ended December 31, 2022 2021 Operating expenses: Research and development $ 10,392 $ 12,705 Impairment of in-process research and development 5,990 - In-process research and development - 80,538 General and administrative 16,835 14,724 Transaction costs - 5,765 Total operating expenses 33,217 113,732 Loss from operations ( 33,217 ) ( 113,732 ) Other income (expenses): Loss on sale of NTN assets - ( 9,648 ) Change in fair value of warrant liabilities 10,795 - Loss on non-controlling investment ( 941 ) - Other (expense) income, net ( 1,171 ) 899 Total other income (expenses), net 8,683 ( 8,749 ) Loss before income taxes ( 24,534 ) ( 122,481 ) Provision for income taxes ( 45 ) ( 64 ) Net loss ( 24,579 ) ( 122,545 ) Series A preferred stock dividend ( 16 ) ( 16 ) Net loss attributable to common stockholders $ ( 24,595 ) $ ( 122,561 ) Net loss per common share - basic and diluted $ ( 8.06 ) $ ( 56.61 ) Weighted average shares outstanding - basic and diluted 3,051 2,165 The accompanying notes are an integral part of these consolidated financial statements. F-5 Table of Contents ETERNA THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF MEMBERS’/STOCKHOLDERS’ EQUITY For the years ended December 31, 2022 and 2021 (In thousands) Series A Preferred Additional Membership Equity Common Stock Stock Paid-in Accumulated Class A Class B Class C Common Shares Amount Shares Amount Capital Deficit Total Balances at January 1, 2021 $ 23,202 $ 1,400 $ 1,000 $ 198 - $ - - $ - $ - $ ( 18,141 ) $ 7,659 Brooklyn rights offerings membership units 10,500 - - - - - - - - - 10,500 Elimination of Eterna LLC’s historical members’ equity ( 33,702 ) ( 1,400 ) ( 1,000 ) ( 198 ) - - - - 36,300 - - Common stock to be retained by NTN stockholders - - - - 76 - - - 8,178 - 8,178 Issuance of Series A preferred stock retained by NTN stockholders - - - - - - 156 1 ( 1 ) - - Issuance of common stock to Eterna LLC members - - - - 1,946 10 - - ( 10 ) - - Issuance of common stock to Financial Advisor upon consummation of merger - - - - 53 - - - 5,765 - 5,765 Issuance of common stock from the exercise of stock options - - - - - - - - 10 - 10 Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net - - - - 178 1 - - 52,024 - 52,025 Issuance of common stock in connection with the acquisition of Novellus, Inc. - - - - 351 2 - - 58,682 - 58,684 Cash dividends to Series A preferred stockholders - - - - - - - - - ( 8 ) ( 8 ) Issuance of common stock in lieu of cash dividend to Series A preferred stockholders - - - - - - - - 8 ( 8 ) - Forfeiture of unvested restricted stock - - - - ( 3 ) - - - - - - Stock based compensation - - - - - - - - 5,235 - 5,235 Net loss - - - - - - - - - ( 122,545 ) ( 122,545 ) Balances at December 31, 2021 - - - - 2,601 13 156 1 166,191 ( 140,702 ) 25,503 Issuance of common stock and pre-funded warrants in connection with March 2022 private offering, net. - - - - 275 1 - - ( 1 ) - - Issuance of common stock from exercise of pre-funded warrants - - - - 68 - - - 874 - 874 Issuance of common stock and warrants in connection with November 2022 private offering, net. - - - - 2,185 12 - - 7,383 - 7,395 Forfeiture of unvested restricted stock - - - - ( 4 ) - - - - - - Issuance of common stock from vested restricted stock units - - - - 2 - - - ( 5 ) - ( 5 ) Cash dividends to Series A preferred stockholders - - - - - - - - - ( 16 ) ( 16 ) Stock based compensation - - - - - - - - 2,935 - 2,935 Net loss - - - - - - - - - ( 24,579 ) ( 24,579 ) Balances at December 31, 2022 $ - $ - $ - $ - 5,127 $ 26 156 $ 1 $ 177,377 $ ( 165,297 ) $ 12,107 The accompanying notes are an integral part of these consolidated financial statements. F-6 Table of Contents ETERNA THERAPEUTICS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) For years ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 24,579 ) $ ( 122,545 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 161 117 Stock-based compensation 2,935 5,235 Amortization of right-to-use asset 336 342 Impairment of right-of-use asset 772 - Gain on remeasurement of operating lease liability and right-of-use-asset ( 642 ) - Impairment of in-process research and development 5,990 - In-process research and development - 80,538 Loss on disposal of fixed assets 280 13 Gain on lease termination ( 85 ) - Gain on warrant liabilities ( 10,795 ) - Loss on non-controlling investment 941 - Transaction costs - shares to Financial Advisor - 5,765 Loss on sale of NTN assets - 9,648 Gain on forgiveness of PPP loan - ( 310 ) Changes in operating assets and liabilities: Other receivables ( 262 ) ( 659 ) Prepaid expenses and other current assets ( 187 ) ( 850 ) Other non-current assets ( 646 ) - Accounts payable and accrued expenses 2,034 ( 485 ) Due to related party 2,956 - Operating lease liability ( 340 ) ( 322 ) Other liabilities 155 25 Net cash used in operating activities ( 20,976 ) ( 23,488 ) Cash flows from investing activities: Purchase of property and equipment ( 297 ) ( 154 ) Proceeds from the sale of fixed assets 250 - Purchase of NTN, net of cash acquired - 147 Purchase of Novellus, net of common stock issued and cash acquired - ( 22,854 ) Proceeds from the sale of NTN assets, net of cash disposed - 119 Net cash used in investing activities ( 47 ) ( 22,742 ) Cash flows from financing activities: Proceeds from issuance of common stock and warrants in connection with private offerings 19,706 - Expenses paid in connection with private offering ( 110 ) - Issuance of common stock from exercise of pre-funded warrants 7 - Payroll tax remitted on net share settlement of equity awards ( 5 ) - Principal payments on finance leases ( 2 ) - Dividends paid to Series A preferred shareholders ( 16 ) ( 8 ) Cash paid for fractional shares in connection with reverse stock split ( 1 ) - Net proceeds of common stock issued to Lincoln Park - 52,025 Proceeds from sale of members’ equity - 10,500 Proceeds from the exercise of stock options - 10 Repayment of NTN’s PPP loan - ( 532 ) Principal payments on notes payable - ( 410 ) Net cash provided by financing activities 19,579 61,585 Net (decrease) increase in cash, cash equivalents and restricted cash ( 1,444 ) 15,355 Cash, cash equivalents and restricted cash at beginning of period 16,985 1,630 Cash, cash equivalents and restricted cash at end of period $ 15,541 $ 16,985 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 30 $ 225 Income taxes $ 15 $ 1 Supplemental disclosure of non-cash investing and financing activities: Conversion of warrant liability to equity $ 867 $ - Initial measurement of ROU assets and operating lease liabilities $ 1,706 $ 866 Unpaid fees incurred in connction with private offering $ 208 $ - Initial measurement of finance lease liability $ 10 $ - Issuance of common stock for Series A preferred stock dividend $ - $ 8 Issuance of common stock for business combination $ - $ 8,178 Issuance of common Stock for Novellus acquisition $ - $ 58,684 Preferred shares issued in connection with reverse merger $ - $ 1 Reconciliation of cash, cash equivalents and restricted cash at end of period: Cash and cash equivalents $ 11,446 $ 16,985 Restricted Cash 4,095 - Total Cash, cash equivalents and restriced cash at end of period $ 15,541 $ 16,985 The accompanying notes are an integral part of these consolidated financial statements. F-7 Table of Contents ETERNA THERAPEUTICS INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the Years Ended December 31, 2022 and 2021 1) Organization and Description of Business Operations On October 11, 2022, Eterna Therapeutics Inc., a Delaware corporation, (“Eterna” or the “Company”), changed its name from Brooklyn ImmunoTherapeutics, Inc. to Eterna Therapeutics Inc. upon its filing with the Secretary of State of the State of Delaware a Certificate of Amendment to its Restated Certificate of Incorporation, as amended (the “Charter”). Eterna, together with its subsidiaries including Eterna Therapeutics LLC (formerly Brooklyn Immunotherapeutics LLC) (“Eterna LLC”), Novellus, Inc. (“Novellus”) and Novellus Therapeutics Limited (“Novellus Limited”), is a preclinical-stage biopharmaceutical company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines. Eterna has in -licensed a portfolio of over 100 patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSlice TM and UltraSlice TM gene-editing proteins, and the ToRNAdo TM mRNA delivery system. Eterna plans to develop and advance a pipeline of therapeutic products both internally and through strategic partnerships, with the near-term focus on strategic partnerships. Eterna licenses its mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under an exclusive license agreement. As used herein, the “Company” refers collectively to Eterna and its subsidiaries. On August 12, 2020, Eterna (then known as “NTN Buzztime, Inc.”), Eterna LLC (then known as “Brooklyn Immunotherapeutics LLC”) and BIT Merger Sub, Inc., a wholly owned subsidiary of Eterna (the “Merger Sub”), entered into an agreement and plan of merger and reorganization (the “Merger Agreement”) pursuant to which, among other matters, Merger Sub merged with and into Eterna LLC, with Eterna LLC surviving the merger as a wholly owned subsidiary of Eterna (the “Merger”). The Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Eterna LLC was deemed the acquiring company for accounting purposes. On March 26, 2021, Eterna sold its rights, title and interest in and to the assets relating to the pre-Merger business operated under the name “NTN Buzztime, Inc.” (the “Disposition”) to eGames.com Holdings LLC (“eGames.com”) in accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between Eterna and eGames.com (the “Asset Purchase Agreement”). On July 16, 2021, Eterna and its newly formed, wholly owned subsidiary Brooklyn Acquisition Sub, Inc. entered into an agreement and plan of acquisition (the “Novellus Acquisition Agreement”) with Novellus LLC, Novellus (the sole equity holder of Novellus Limited and, prior to the closing under the Novellus Acquisition Agreement, a subsidiary of Novellus LLC), and (c) a seller representative, pursuant to which Eterna acquired Novellus and its subsidiary, Novellus Limited (the “Novellus Acquisition”). As part of the Novellus Acquisition, Eterna also acquired 25.0 % of the total outstanding equity interests of NoveCite, Inc. (“NoveCite”), a corporation focused on developing an allogeneic mesenchymal stem cell product for patients with acute respiratory distress syndrome, including from COVID-19. 2) Liquidity and Capital Resources The Company has incurred significant operating losses and has an accumulated deficit as a result of its efforts to develop product candidates, including conducting clinical trials and providing general and administrative support for operations. As of December 31, 2022, the Company had an unrestricted cash balance of approximately $ 11.4 million and an accumulated deficit of approximately $ 165.3 million. For the year ended December 31, 2022, the Company incurred a net loss of $ 24.6 million, and the Company used cash in operating activities of $ 21.0 million. On March 6, 2022, the Company entered into a securities purchase agreement (the “Q1-22 Purchase Agreement”) with an investor (the “Q1-22 PIPE Investor”), providing for the private placement (the “Q1-22 PIPE Transaction”) to the Q1-22 PIPE Investor of approximately 343,000 units, each unit consisting of (i) one share of our common stock, par value $ 0.005 per share (or, in lieu thereof, one pre-funded warrant (each, a “ Q1-22 Pre-Funded Warrant ”) to purchase one share of common stock) and (ii) one warrant (each, a “Q1-22 Common Warrant”) to purchase one share of common stock, for an aggregate gross purchase price of approximately $ 12.0 million. The Q1-22 PIPE Transaction closed on March 9, 2022. F-8 Table of Contents On October 18, 2022, the Company entered into a facility sublease agreement (the “Sublease”) for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts. Pursuant to the Sublease, the Company delivered to the sublessor a security deposit in the form of a letter of credit in the amount of $ 4.1 million, which will be reduced on an incremental basis throughout the term of the lease. The letter of credit was issued by the Company’s commercial bank, which required that the Company cash collateralize the letter of credit by depositing $ 4.1 million in a restricted cash account with such bank. The amount of required restricted cash collateral will decline in parallel with the reduction in the amount of the letter of credit over the term of the Sublease; and the amount of restricted cash reduces by an equal amount the Company’s available working capital. On November 23, 2022, the Company entered into a securities purchase agreement (the “Q4-22 Purchase Agreement”) with certain investors (the “Q4-22 PIPE Investors”), providing for the private placement (the “Q4-22 PIPE Transaction”) to the Q4-22 PIPE Investors of approximately of 2,185,000 units, each unit consisting of (i) one share of common stock and (ii) two warrants, each exercisable to purchase one share of common stock at an exercise price of $ 3.28 per share (the “Q4-22 Warrants”), at a purchase price of $ 3.53 per unit (inclusive of $ 0.125 per Q4-22 Warrant). The Company received aggregate gross proceeds of approximately $ 7.7 million, and the Q4-22 PIPE Transaction closed on December 2, 2022. Each Q4-22 Warrant becomes exercisable six months following the date of closing, expires five-and-one-half years following such date, and is subject to customary adjustments. In connection with preparing the accompanying consolidated financial statements as of and for the year ended December 31, 2022, the Company’s management concluded that there is substantial doubt regarding the Company’s ability to continue as a going concern because it does not expect to have sufficient cash or working capital resources to fund operations for the twelve-month period subsequent to the issuance date of these financial statements. The Company will need to raise additional capital, which could be through public or private equity offerings, debt financings, strategic partnerships or other means. The Company currently has no arrangements for such capital, and no assurances can be given that it will be able to raise such capital when needed, on acceptable terms, or at all. The accompanying consolidated financial statements have been prepared on a going-concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern. 3) Basis of Accounting Presentation and Summary of Significant Accounting Policies Basis of Accounting Presentation The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”). All significant intercompany balances and transactions have been eliminated in consolidation. As described above, the Merger closed on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Eterna LLC was deemed the acquiring company for accounting purposes. Eterna LLC’s historical financial statements replaced Eterna’s historical financial statements with respect to periods prior to the completion of the Merger (when Eterna operated under the name “NTN Buzztime, Inc.”). The Company retrospectively adjusted the weighted average shares used in determining loss per common share to reflect the conversion of the outstanding Class A units, Class B units, Class C units, and common units of Eterna LLC that converted into shares of Eterna’s common stock upon consummation of the Merger and to reflect the effect of a 2-to-1 reverse stock split of Eterna’s common stock that occurred immediately prior to the Merger. Also as described above, the Novellus Acquisition closed on July 16, 2021. The Novellus Acquisition was accounted for as an asset acquisition, and substantially all of the value was attributed to in-process research and development (“IPR&D”), with the exception of the cash paid for the investment in NoveCite, which has been accounted for as an investment in equity securities. The IPR&D had no alternative future uses and no separate economic value from its originally intended purpose and was therefore expensed at the acquisition date. October 2022 Reverse Stock Split As approved by the Company’s stockholders at the Company’s Annual Meeting of Stockholders held on September 21, 2022, the Company effected a reverse stock split of its common stock at a ratio of 1-for-20 , as determined by the Company’s Board of Directors within the parameters approved by the Company’s stockholders (the “October 2022 Reverse Stock Split”). The October 2022 Reverse Stock Split became effective under Delaware law at 11:59 p.m. Eastern time on October 16, 2022. F-9 Table of Contents Upon the effectiveness of the October 2022 Reverse Stock Split, every twenty shares of the issued and outstanding common stock were automatically combined and reclassified into one issued and outstanding share of common stock. The October 2022 Reverse Stock Split did not affect any stockholder’s ownership percentage of the common stock, alter the par value of the common stock or modify any voting rights or other terms of the common stock. The number of authorized shares of common stock under the Charter remains unchanged. No fractional shares were issued in connection with the October Reverse Stock Split. In lieu of any fractional shares to which a stockholder would otherwise be entitled, the Company paid an amount of cash equal to the product of (i) the fractional share to which the holder would otherwise be entitled and (ii) the then fair value of a share as determined in good faith by the Board. The Company paid an aggregate of $ 719 for a total of 175 fractional shares. All share and per share data in this Annual Report on Form 10-K have been adjusted for all periods presented to reflect the October 2022 Reverse Stock Split. Summary of Significant Accounting Policies Use of Estimates The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect: (a) the reported amounts of assets and liabilities; (b) disclosure of contingent assets and liabilities at the date of the consolidated financial statements; (c) the reported amounts of expenses during the reporting period; and (d) the reported amount of the fair value of assets acquired in connection with business combinations. On an ongoing basis, the Company evaluates its estimates, including those related to the recoverability and useful lives of long-lived assets; stock-based compensation assumptions; valuation assumptions of warrants; contingencies; and the provision for income taxes, including the valuation allowance. The Company bases its estimates on a combination of historical experience and various other assumptions that it believes are reasonable under the circumstances. Actual results may differ materially from these estimates. Cash, Cash Equivalents and Restricted Cash The Company classifies highly liquid investments with a remaining contractual maturity at date of purchase of three months or less as cash equivalents. The Company had no cash equivalents as of December 31, 2022 or 2021. Restricted cash consists of a cash collateralization of $ 4.1 million for a security deposit in the form of a letter of credit issued by the Company’s commercial bank and delivered to the sublessor of the Sublease. The amount of required restricted cash collateral will decline in parallel with the reduction in the amount of the letter of credit over the term of the Sublease. Property and Equipment Property and equipment are recorded at cost and are depreciated over their estimated useful lives using the straight-line method. Laboratory and manufacturing equipment are depreciated over an estimated useful life of seven years . Leasehold improvements are depreciated over the shorter of their estimated useful life, or the lease term. Computer equipment are depreciated over an estimated useful life of three years . Upon retirement or other disposition of these assets, the cost and related accumulated depreciation of these assets are removed from the accounts and the resulting gain or losses are reflected in the results of operations. Expenditures for maintenance and repairs are charged to operations. Renewals and betterments are capitalized. Goodwill Goodwill represents the excess of the purchase price over the fair value of identifiable net assets acquired in the acquisition of IRX Therapeutics, Inc. (“IRX”) in November 2018 (the “IRX Acquisition”), which was accounted for as a business combination. Goodwill is not amortized but is tested for impairment annually or if events occur or circumstances change that would reduce the fair value of a reporting unit below its carrying value. Because management evaluates the Company as a single reporting unit, goodwill is tested for impairment at the entity level by first performing a qualitative assessment to determine whether it is more likely than not that the fair value of the entity is less than its carrying value. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. If the entity does not pass the qualitative assessment, then the entity’s carrying value is compared to its fair value. Goodwill is considered impaired if the carrying value of the entity exceeds its fair value. F-10 Table of Contents IPR&D IPR&D assets represent the fair value assigned to technologies that were acquired in connection with the IRX Acquisition, which have not reached technological feasibility and have no alternative future use. IPR&D assets are considered to be indefinite lived until the completion or abandonment of the associated research and development projects. During the period that the IPR&D assets are considered indefinite-lived, they are tested for impairment on an annual basis or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the IPR&D assets are less than their carrying amounts. If and when development is complete, which generally occurs upon regulatory approval, and the Company is able to commercialize products associated with the IPR&D assets, these assets are then deemed definite-lived and are amortized based on their estimated useful lives beginning at that point in time. If development is terminated or abandoned, the Company may have a full or partial impairment charge related to the IPR&D assets, calculated as the excess of carrying value of the IPR&D assets over fair value. Research and Development The Company expenses its research and development costs as incurred. Research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as support for selected investigator-sponsored research. Upfront payments and milestone payments made for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to have any alternative future uses other than the specific research and development project for which it was intended. IPR&D that is acquired through an asset acquisition (as opposed to a business combination) and has no alternative future uses and, therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred. The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials, expensed licensed technology, expensed IPR&D, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product development efforts. The Company has contracted with third parties to perform various clinical study and trial activities in the development and testing of potential products. The financial terms of these agreements vary from contract to contract and may result in uneven payment flows. The Company accrues for third party expenses based on estimates of the services received and efforts expended during the reporting period. If the actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly. The expenses for some third-party services may be recognized on a straight-line basis if the expected costs are expected to be incurred ratably during the period. Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions. Preclinical and clinical study and trial associated activities such as production and testing of clinical material require significant up-front expenditures. Income Taxes The Company records deferred tax liabilities and assets based on the differences between the consolidated financial statements carrying amounts and the tax basis of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse and establishing a valuation allowance when it was more likely than not that some portion or all of the deferred tax assets would not be realized. Income tax expense consists of the tax payable for the period and the change during the period in deferred tax assets and liabilities. Tax benefits from uncertain tax positions are recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such a position are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate resolution. The Company has no material uncertain tax positions for any of the reporting periods presented. Loss Per Share Basic and diluted loss per common share have been computed by dividing the losses attributable to common stockholders by the weighted average number of common shares outstanding. The Company’s basic and fully diluted loss per share calculations are the same because the increased number of shares that would be included in the diluted calculation from assumed exercise of common stock equivalents would be anti-dilutive to the net loss in each of the years shown in the consolidated financial statements. F-11 Table of Contents Segment Reporting The Company’s chief operating decision maker, who is the chief executive officer, reviews operating results on a consolidated basis to make decisions about allocating resources and assessing performance of the Company. As a result, in accordance with ASC No. 280, Segment Reporting, the Company has determined that it operates as one operating segment. Concentration of Credit Risk The Company maintains its cash balances in financial institutions located in the United States. Accounts at each institution are insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. The Company’s cash balances are uninsured for deposit accounts that exceed the FDIC insurance limit. In the Company’s business, vendor concentrations could be indicative of vulnerabilities in the Company’s supply chain, which could ultimately impact the Company’s ability to continue its research and development activities. For the years ended December 31, 2022 and 2021, there was no vendor concentration related to the Company’s research and development activities. Fair Value of Financial Instruments Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between willing market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarchy is as follows: • Level 1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. • Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. These might include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates, volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means. • Level 3 Inputs – Valued based on inputs for which there is little or no market value, which require the reporting entity to develop its own assumptions. The carrying amounts reported on the balance sheet for cash and cash equivalents, accounts receivable, prepaid assets and other current assets, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities. Leases The Company accounts for its leases under ASC Topic 842, Leases. Operating lease liabilities represent the present value of lease payments not yet paid. Right-of-use (“ROU”) assets represent the Company’s right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepaid or accrued lease payments, initial direct costs, lease incentives and impairment of operating lease assets. If the interest rate implicit in the lease is not readily determinable, the Company uses the incremental borrowing rates for collateralized borrowings in an amount equal to the lease payments under similar terms. The Company has elected the practical expedient to not separate non-lease components from the lease components to which they relate and instead account for each as a single lease component for all underlying asset classes. Some leasing arrangements require variable payments that are dependent on usage or may vary for other reasons, such as payments for insurance, tax payments and other miscellaneous costs. The variable portion of payments contemplated in the lease that do not depend on an index or rate are not included in the ROU assets or lease liabilities. Rather, variable payments that do not depend on an index or rate are expensed when the obligation for those payments is incurred and are included in lease expenses. Accordingly, all expenses associated with a lease contract are accounted for as lease expenses. F-12 Table of Contents The Company has also elected not to recognize ROU and lease liabilities for short-term leases that have a term of 12 months or less. Commitment and Contingencies The Company follows ASC No.450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. Stock-Based Compensation The Company recognizes stock-based compensation expense for equity awards granted to employees, directors and certain consultants. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period on a straight-lined basis. Warrants The Company accounts for common stock warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the warrants and applicable authoritative guidance in ASC 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, or meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own stock and whether the holders of the warrants could potentially require net cash settlement in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. Recent Accounting Standards Newly Adopted Accounting Standards: In July 2021, the FASB issued Accounting Standards Update (“ASU”) 2021-05, Leases (Topic 842) – Lessors - Certain Leases with Variable Lease Payments, which amends the lessor classification guidance to introduce additional criteria when classifying leases with variable lease payments that do not depend on a reference index or a rate. The Company adopted this ASU effective January 1, 2022, which did not have a material impact on its financial statements. In May 2021, the FASB issued ASU 2021-04 , Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options . ASU 2021-04 addresses the accounting for certain modifications or exchanges of freestanding equity-classified written call options. The Company adopted this ASU effective January 1, 2022, which did not have a material impact on the Company’s financial statements. In November 2021, the FASB issued ASU 2021-10, Disclosures by Business Entities about Government Assistance, which requires a business entity to disclose information about certain government assistance that it has received, including (i) the type of assistance, (ii) an entity’s accounting for the assistance and (iii) the effect of the assistance on the entities accounting statements. The Company adopted this standard effective January 1, 2022, which did not have a material impact on the Company’s financial statements. The Company has approximately $ 0.6 million in payroll tax refunds recorded in other receivable on the accompanying consolidated balance sheets as of December 31, 2022 and 2021 pursuant to the Employee Retention Credit program under the CARES Act. Accounting Standards to be Adopted: In June 2022, the FASB issued ASU No. 2022-03, Fair Value Measurement (Topic 820): Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”). The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to contractual sale restrictions that are measured at fair value in accordance with Topic 820. ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted. The Company is evaluating when to adopt the amendments in ASU 2022-02. The Company does not expect a material impact as a result of adopting this ASU. F-13 Table of Contents 4) Merger, Disposition and Acquisition Transactions Merger On August 12, 2020, Eterna, Eterna LLC and the Merger Sub entered into the Merger Agreement and consummated the Merger on March 25, 2021. The Merger was accounted for as a reverse acquisition, in which Eterna LLC was deemed the acquiring company for accounting purposes. Eterna LLC, as the accounting acquirer, recorded the assets acquired and liabilities assumed of Eterna in the Merger at their fair values as of the acquisition date. Eterna LLC was determined to be the accounting acquirer based upon the terms of the Merger and other factors including that (i) Eterna LLC members received common stock in the Merger that represented 96.35 % of Eterna’s outstanding common stock on a fully diluted basis, (ii) all of the directors of Eterna immediately after the Merger were designated by Eterna LLC under the terms of the Merger Agreement and (iii) existing members of Eterna LLC’s management became the management of Eterna immediately after the Merger. At the closing of the Merger, all the outstanding membership interests of Eterna LLC converted into the right to receive an aggregate of approximately 1,999,000 shares of common stock, of which 53,000 shares were issued as compensation to Eterna LLC’s financial advisor for its services to Eterna LLC in connection with the Merger. The purchase price of $ 8.2 million, which represents the consideration transferred in the Merger to stockholders of Eterna immediately before the Merger, was calculated based on the closing price of $ 108 per share of common stock for approximately 76,000 shares that those stockholders owned on March 25, 2021 immediately prior to the Merger because that represented a more reliable measure of the fair value of consideration transferred in the Merger. Under the acquisition method of accounting, the total purchase price has been allocated to the acquired tangible and intangible assets and assumed liabilities of Eterna based on their estimated fair values as of March 25, 2021, the Merger closing date. Because the consideration paid by Eterna LLC in the Merger is more than the estimated fair values of Eterna’s net assets deemed to be acquired, goodwill is equal to the difference of approximately $ 8.6 million, which has been calculated using the fair values of the net assets of Eterna as of March 25, 2021. The allocation of the purchase price to the tangible and intangible assets acquired and liabilities deemed to be assumed from Eterna, based on their estimated fair values as of March 25, 2021, is as follows (in thousands): Historical Balance Sheet of Eterna at March 25, 2021 Fair Value Adjustment to Eterna Pre-Merger Assets Purchase Price Allocation Cash and cash equivalents $ 148 $ - $ 148 Accounts receivable 103 - 103 Prepaid expense and other current assets 329 - 329 Property and equipment, net 1,015 - 1,015 Software development costs 1,296 ( 368 ) 928 Customers - 548 548 Trade name - 299 299 Accounts payable, accrued liabilities and other current liabilities ( 3,781 ) - ( 3,781 ) Net assets acquired, excluding goodwill $ ( 890 ) $ 479 $ ( 411 ) Total consideration $ 8,178 Net assets acquired, excluding goodwill ( 411 ) Goodwill $ 8,589 F-14 Table of Contents Eterna LLC was obligated under the Merger Agreement to have $ 10.0 million in cash and cash equivalents on its balance sheet at the effective time of the Merger. To ensure Eterna LLC had the required funds, certain beneficial holders of Eterna LLC’s Class A membership interests entered into contractual commitments to invest $ 10.0 million into Eterna LLC immediately prior to the closing of the Merger. During March 2021, Eterna offered its Class A unit holders an additional 5 % rights offering for an additional $ 0.5 million to be raised by a rights offering. Eterna received funds from the rights offering between February 17, 2021 and April 5, 2021. Disposition On March 26, 2021, Eterna sold its rights, title and interest in and to the assets relating to the business it operated (under the name NTN Buzztime, Inc.) prior to the Merger to eGames.com in exchange for a purchase price of $ 2.0 million and assumption of specified liabilities relating to that business. The sale was completed in accordance with the terms of the Asset Purchase Agreement. Details of the Disposition are as follows (in thousands) : Proceeds from sale: Cash $ 132 Escrow 50 Assume advance/loans 1,700 Interest on advance/loans 68 Carrying value of assets sold: Cash and cash equivalents ( 14 ) Accounts receivable ( 75 ) Prepaids and other current assets ( 124 ) Property and equipment, net ( 1,014 ) Software development costs ( 927 ) Customers ( 548 ) Trade name ( 299 ) Goodwill ( 8,589 ) Other assets ( 103 ) Liabilities transferred upon sale: Accounts payable and accrued expenses 113 Obligations under finance leases 17 Lease liability 26 Deferred revenue 55 Other current liabilities 149 Transaction costs ( 265 ) Total loss on sale of assets $ ( 9,648 ) Acquisition On July 16, 2021, Eterna and Brooklyn Acquisition Sub, Inc. entered into the Novellus Acquisition Agreement. The Novellus Acquisition closed contemporaneously with the execution and delivery of the Novellus Acquisition Agreement. At the closing: • Eterna acquired all of the outstanding equity interests of Novellus as the result of the merger of Brooklyn Acquisition Sub, Inc. with and into Novellus, following which, Novellus, as the surviving corporation, became Eterna’s wholly owned subsidiary and Novellus Limited became Eterna’s indirectly owned subsidiary; and • Eterna acquired 25.0 % of the total outstanding equity interests of NoveCite. As consideration for the Novellus Acquisition, Eterna paid $ 22.9 million in cash and delivered approximately 351,000 shares of common stock, which under the terms of the Novellus Acquisition Agreement, were valued at a total of $ 102.0 million based on an agreed upon price of $ 290.51 per share. At the date of issuance, the fair value of the shares was approximately $ 58.7 million. F-15 Table of Contents The Novellus Acquisition Agreement contained customary representations, warranties and certain indemnification provisions. Approximately 37,000 of the shares issued as consideration were placed in escrow to secure indemnification obligations to Eterna under the Novellus Acquisition Agreement, and all such shares were released to the sellers in July 2022. The Novellus Acquisition Agreement also contains certain non-competition and non-solicitation provisions pursuant to which Novellus LLC agreed not to engage in certain competitive activities for a period of five years following the closing, including customary restrictions relating to employees. No employees of Novellus Limited or Novellus prior to the Novellus Acquisition continued their employment, or were otherwise engaged by Eterna, immediately following the Novellus Acquisition. In connection with the Novellus Acquisition, the co-founders of Novellus entered into lock-up agreements with respect to approximately 169,000 of the shares of common stock received in the Novellus Acquisition, and Eterna’s Chairman of the Board and its former Chief Executive Officer and President entered into identical lock-up agreements with respect to their current holdings of Eterna stock. Each lock-up agreement extends for a period of three years , provided that up to 75 % of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on the Nasdaq exceeds specified thresholds. The lock-up agreements include customary exceptions for transfers during the applicable lock-up period. The Company executed the Novellus Acquisition to advance its evolution into a platform company with a pipeline of next generation mRNA cellular and gene editing programs. Although Eterna acquired all of the outstanding equity interests of Novellus, the Company accounted for the Novellus Acquisition as an asset acquisition (as the assets acquired did not constitute a business as defined in ASC Topic 805, Business Combinations ), and was measured by the amount of cash paid and by the fair value of the shares of common stock issued. As a result, substantially all of the value acquired was attributed to IPR&D, with the exception of the cash paid for the investment in NoveCite, which is being accounted for as an investment in equity securities, as discussed further below. Eterna paid $ 22.9 million in cash, net of cash acquired, as part of the consideration for the Novellus Acquisition, of which $ 1.0 million was paid in cash for the investment in NoveCite. Eterna also issued approximately 351,000 shares of the Company’s common stock, of which approximately 182,000 shares are unrestricted and 169,000 shares are subject to the three-year lockup. The unrestricted shares were valued at $ 201 per share, which was the closing price of Eterna’s common stock on July 16, 2021. The fair value of the restricted shares was discounted by approximately 35 % to $ 130.60 per restricted share, which was derived from the average discount rate between the Black Scholes and Finnerty valuation models. The resulting fair value of the asset acquired is as follows (in thousands): Fair Value of Consideration Cash paid $ 22,882 Cash acquired ( 28 ) Unrestricted shares 36,628 Restricted shares 22,056 Total fair value of consideration paid 81,538 Less amount of cash paid for NoveCite investment ( 1,000 ) Fair value of IPR&D acquired $ 80,538 IPR&D that is acquired through an asset purchase that has no alternative future uses and no separate economic values from its original intended purpose is expensed in the period the cost is incurred. Accordingly, the Company expensed the fair value of the IPR&D during the third quarter of 2021 in the amount of $ 80.5 million. Investment in NoveCite As a result of the Novellus Acquisition, Eterna acquired and currently owns 25 % of NoveCite, and Citius Pharmaceuticals, Inc. (“Citius”) owns the remaining 75 %. A member of the Company’s management is entitled to hold one of three board seats on NoveCite’s board of directors. Citius’ s officers and directors hold the other two board seats. The Company is accounting for its interest in NoveCite under ASC Topic 323, Investments – Equity Method and Joint Ventures. The investment was recorded at cost, which was $ 1.0 million, and is adjusted for the Company’s share of NoveCite’s earnings or losses, which are reflected in the accompanying consolidated statements of operations. The investment may also reflect an equity loss in the event that circumstances indicate an other-than-temporary impairment. For the year ended December 31, 2022, the Company recorded approximately $ 0.9 million in losses from its investment in NoveCite, and, of the $ 0.9 million loss for year ended December 31, 2022, $ 0.5 million related to NoveCite’s year ended December 31, 2021. The Company does not guarantee obligations of NoveCite nor is it otherwise committed to provide financial support for NoveCite. Therefore, the Company will record losses only up to its investment carrying amount. F-16 Table of Contents 5) Fair Value of Financial Instruments There were no liabilities measured at fair value as of December 31, 2021. The following tables summarize the liabilities that are measured at fair value as of December 31, 2022 (in thousands): As of December 31, 2022 Description Level 1 Level 2 Level 3 Liabilities: Warrant liabilities - Q1-22 Common Warrants $ - $ - $ 331 Total $ - $ - $ 331 On March 9, 2022, upon closing the Q1-22 PIPE Transaction, the Company issued to the Q1-22 PIPE Investor the Q1-22 Pre-Funded Warrants, exercisable for approximately 68,000 shares of common stock, and the Q1-22 Common Warrants, exercisable for approximately 343,000 shares of common stock. On July 12, 2022, the Q1-22 PIPE Investor exercised all of the Q1-22 Pre-Funded Warrants at an exercise price of $ 0.10 per share for an aggregate exercise price of approximately $ 7 ,000 in cash, and the Company issued 68,000 shares of common stock to the Q1-22 PIPE Investor upon receipt of the cash proceeds. Following the exercise, no Q1-22 Pre-Funded Warrants remained outstanding. See Note 15 for more information related to the Q1-22 PIPE Transaction. The Q1-22 Common Warrants and Q1-22 Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, Derivatives and Hedging, Contracts in Entity’s Own Equity (“ASC 815-40”), as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. These warrant liabilities were measured at fair value at inception and are then subsequently measured on a recurring basis, with changes in fair value presented within the Company’s statements of operations. The Company uses a Black-Scholes option pricing model to estimate the fair value of the Q1-22 Common Warrants, which is considered a Level 3 fair value measurement. Certain inputs used in this Black-Scholes pricing model may fluctuate in future periods based upon factors that are outside of the Company’s control. A significant change in one or more of these inputs used in the calculation of the fair value may cause a significant change to the fair value of the Company’s warrant liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations. The estimated fair value of the Q1-22 Pre-Funded Warrants was deemed a Level 2 measurement as all significant inputs to the valuation model used to estimate the fair value of the Q1-22 Pre-Funded Warrants were directly observable from the Company’s publicly-traded common stock. Upon exercise of the Q1-22 Pre-Funded Warrants on July 12, 2022, the Company reclassified the approximately $ 0.9 million fair value of the Pre-Funded Warrants to equity. The fair values of the Q1-22 Common Warrants and the Q1-22 Pre-Funded Warrants at the issuance date totaled $ 12.6 million in the aggregate, which was $ 0.6 million more than the $ 12.0 million proceeds received in the Q1-22 PIPE Transaction. The excess $ 0.6 million represents an inducement to the purchaser to enter into the Q1-22 PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations. The Company remeasured the fair value of the Q1-22 Common Warrants as of December 31, 2022. The following table presents the changes in the warrant liabilities from the issuance date (in thousands): Q1-22 Pre-Funded Warrants (Level 2) Q1-22 Common Warrants (Level 3) Total Warrant Liabilities Fair value at January 1, 2022 $ - $ - $ - Fair value at March 9, 2022 (issuance date) 2,646 9,943 12,589 Change in fair value of warrant liabilities ( 1,779 ) ( 9,612 ) ( 11,391 ) Exercise of Q1-22 Pre-Funded Warrants ( 867 ) - ( 867 ) Fair value at December 31, 2022 $ - $ 331 $ 331 F-17 Table of Contents 6) Property and Equipment Property and equipment consist of the following (in thousands): As of December 31, 2022 2021 Laboratory and manufacturing equipment $ 28 $ 258 Leasehold improvements - 464 Computer equipment and programs 240 155 268 877 Less accumulated depreciation and amortization ( 32 ) ( 207 ) Property and equipment, net $ 236 $ 670 During the year ended December 31, 2022, the Company consolidated its research and development activities in Cambridge, Massachusetts and entered into lease termination agreements for its Brooklyn, New York and San Diego, California facilities. (See Note 7 for more information on lease terminations.) As a result, the Company disposed of certain assets it would no longer use and recognized a loss on disposal of fixed assets of approximately $ 0.3 million, which was composed of $ 0.6 million in remaining net book value of such assets, offset by proceeds received from selling certain fixed assets for approximately $ 0.3 million. Depreciation expense totaled $ 161,000 and $ 117,000 for the years ended December 31, 2022 and 2021, respectively. No depreciation expense is recorded on fixed assets in process until such time as the assets are completed and are placed into service. 7) Leases T he Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York, in Cambridge, Massachusetts and in Somerville, Massachusetts, which expire in 2026, 2028, and 2032 respectively . The Company also leased a facility in Brooklyn, New York (the “Brooklyn Lease”). On March 5, 2022, the Company entered into an agreement to assign the Brooklyn Lease to Regen Lab USA LLC (“Regen”). Regen agreed to purchase certain equipment from the Company for $ 50,000 , which partially reimbursed the Company for certain existing unamortized leasehold improvements, and to reimburse the Company for the existing security deposit the Company had under the Brooklyn Lease of approximately $ 63,000 . On March 25, 2022, the Company entered into an Assignment and Assumption of Lease Agreement (the “Assignment Agreement”) with Regen. The effective date of the assignment was March 28, 2022. Under the Assignment Agreement, Regen assumed all of the obligations, liabilities, covenants and conditions of the Company as tenant under the Brooklyn Lease. As a result of the lease assignment, the Company wrote off the remaining ROU asset balance of approximately $ 1.4 million and the corresponding lease liability of approximately $ 1.5 million. On March 31, 2022, the Company entered into a facility lease in San Diego, California (the “San Diego Lease”) with Torrey Pines Science Center Limited Partnership for approximately 5,200 square feet of laboratory and office space. The term of the San Diego Lease was 62 months and the lease commencement date was April 19, 2022. The Company recorded a $ 1.7 million ROU asset and $ 1.7 million lease liabilities for the San Diego Lease. During 2022, the Company decided to consolidate its research and development efforts in Cambridge, Massachusetts, and the Company determined to sublease the San Diego laboratory and office space. As a result, the Company recognized an impairment charge of approximately $ 0.8 million on the San Diego Lease ROU asset during 2022, which is recorded in general and administrative expense on the consolidated statements of operations. On November 30, 2022, the Company and the lessor of the San Diego Lease entered into a lease termination agreement, as amended on December 29, 2022 (the “Lease Termination Agreement”), pursuant to which the lessor agreed to terminate the San Diego lease effective January 31, 2023 provided that (i) the Company pay a $ 0.1 million lease termination fee and (ii) the lessor was able to enter into a new lease for the space with a new tenant by January 15, 2023. On January 9, 2023, the lessor provided notice to the Company that it had entered into a new lease with a new tenant, and the Company paid the $ 0.1 million termination fee. As a result, the San Diego Lease terminated on January 31, 2023. F-18 Table of Contents The Lease Termination Agreement was accounted for as a modification to the San Diego Lease rather than as a lease termination because the Company did not contemporaneously terminate the San Diego Lease upon the November 30, 2022 modification date and had a continued right-of-use of the facility through January 31, 2023. As a result, the Company remeasured the remaining lease payments, including the $ 0.1 million termination fee, and reduced the lease liability the Company had on its balance sheet at the time of the modification by approximately $ 1.4 million to the present value of the remeasured lease liability of approximately $ 0.2 million. For a lease modification that is not accounted for as a separate contract, a lessee recognizes the amount of the remeasured lease liability as an adjustment to the corresponding ROU asset without affecting profit or loss. However, because the ROU asset balance as of the modification date was only $ 0.8 million due to the impairment charge of $ 0.8 million the Company recognized during the second quarter of 2022 (as discussed above), the Company reduced the ROU asset to zero , and the remaining $ 0.6 million of the $ 1.4 million adjustment was recognized as a credit to general and administrative expense on the consolidated statement of operations for the year ended December 31, 2022. On October 18, 2022, the Company entered into the Sublease with E.R. Squibb & Sons, L.L.C., a Delaware limited liability company and subsidiary of Bristol-Myers Squibb Company (“Sublessor”), for office, laboratory and research and development space (the “Premises”). The Premises consist of approximately 45,500 square feet on the ninth floor of the building currently under construction located at 250 Water Street, Somerville, Massachusetts 02141. Payments of the Sublease rent commence on the date that is the earlier of (i) the date that the Company commences business operations from the Premises and (ii) the one-year anniversary of the date that Sublessor obtained the primary landlord’s consent for the Sublease, which was November 29, 2022 (such applicable date, the “Rent Commencement Date”). The Sublease has a term of 10 years from the Rent Commencement Date (the “Term”), subject to a five-year extension in accordance with the terms of the Sublease. Pursuant to the Sublease, the Company paid the Sublessor a security deposit in the form of a letter of credit in the amount of approximately $ 4.1 million. Provided there are no events of default by the Company under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term. Pursuant to the Sublease, the Company has agreed to pay base rent of approximately $ 0.5 million per month during the first year of the Term, increasing on an incremental basis each subsequent year of the Term for a total of approximately $ 63.0 million in base rental payments, as well as parking and traditional lease expenses, including certain taxes, operating expenses and utilities. Pursuant to the Sublease, the Sublessor will provide the Company with a tenant improvement allowance of $ 190 per rentable square foot, or $ 8.6 million. Tenant improvements to the Premises in excess of this amount, if any, will be at the Company’s own cost. As of December 31, 2022, the Premises had not been made available for the Company to begin the construction of the tenant improvements. It is expected that the Premises will be made available to begin the construction in March or April 2023, and it is anticipated that the construction will be complete and ready for operational use in November or December 2023. As a result, the commencement date of the Sublease did not occur as of December 31, 2022, and accordingly, the Company did no t recognize a lease liability and corresponding ROU asset for the Sublease as of December 31, 2022. As of December 31, 2022, the Company had incurred approximately $ 0.6 million in costs in connection with the Sublease, which consisted of approximately $ 0.5 million for the architect to design the tenant improvements to the Premises and for a project manager to manage the construction of the tenant improvements as well as approximately $ 0.1 million in bank fees related to the issuance of the letter of credit discussed above. These costs are recorded in other assets in the accompanying consolidated balance sheet as of December 31, 2022. For the years ended December 31, 2022 and 2021, the net operating lease expenses were as follows (in thousands): Years ended December 31, 2022 2021 Operating lease expense $ 595 $ 688 Sublease income ( 84 ) ( 84 ) Variable lease expense 150 19 Total lease expense $ 661 $ 623 F-19 Table of Contents The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2022 and the ending balances as of December 31, 2022, including the changes during the period (in thousands). Operating Lease ROU Assets Operating lease ROU assets at January 1, 2022 $ 2,567 Initial measurement of ROU asset 1,706 Amortization of operating lease ROU assets ( 336 ) Impairment of ROU asset ( 772 ) Remeasurment of ROU asset ( 813 ) Reclassification from fixed assets to ROU assets 50 Write off of ROU asset due to lease termination ( 1,372 ) Operating lease ROU assets at December 31, 2022 $ 1,030 Operating Lease Liabilities Operating lease liabilities at January 1, 2022 $ 2,723 Initial measurement of operating lease liabilities 1,706 Principal payments on operating lease liabilties ( 340 ) Remeasurment of lease liability ( 1,454 ) Write off of lease liability due to lease termination ( 1,453 ) Operating lease liabilities at December 31, 2022 1,182 Less non-current portion 887 Current portion at December 31, 2022 $ 295 As of December 31, 2022, the Company’s operating leases had a weighted-average remaining life of 4.5 years with a weighted-average discount rate of 9.98 %. The maturities of the operating lease liabilities are as follows (in thousands): As of December 31, 2022 2023 $ 403 2024 272 2025 274 2026 267 2027 163 Thereafter 82 Total payments 1,461 Less imputed interest ( 279 ) Total operating lease liabilities $ 1,182 The maturities of the operating lease liabilities show in the table above does not include future payments due under the Sublease that the Company entered into in October 2022, as the commencement date of the Sublease had not begun as of December 31, 2022, and therefore, the Company did no t record a corresponding lease liability and ROU asset. Sublease Agreement In April 2019, the Company entered into a sublease agreement with Nezu Asia Capital Management, LLC (the “Tenant”), whereby the Tenant agreed to sublease approximately 999 square feet of space currently rented by the Company in the borough of Manhattan in New York, New York commencing on May 15, 2019. The term of this sublease expires on October 31, 2026 with no option to extend the sublease term. Rent payments provided by the Tenant under the sublease agreement began on September 1, 2019. The sublease agreement stipulates an annual rent increase of 2.25 %. The Tenant is also responsible for paying to the Company all tenant energy costs, annual operating costs, and annual tax costs attributable to the subleased space during the term of the sublease. The Company received sublease payments of approximately $ 0.1 million for each of the years ended December 31, 2022 and 2021, respectively. In accordance with ASC Topic 842, the Company treats the sublease as a separate lease, as the Company was not relieved of the primary obligation under the original lease. The Company continues to account for the Manhattan lease as a lessee and in the same manner as prior to the commencement date of the sublease. The Company accounts for the sublease as a lessor of the lease. The sublease is classified as an operating lease, as it does not meet the criteria of a sale-type or direct financing lease. The following tables shows the future payments the Company expects to receive from the Tenant over the remaining term of the sublease (in thousands): As of December 31, 2022 2023 $ 84 2024 86 2025 88 2026 75 $ 333 8) In-Process Research & Development and Goodwill In-Process Research & Development In 2018, the Company acquired IRX, which was accounted for as a business combination. The Company recorded IPR&D in the amount of $ 6.0 million, which represented the fair value assigned to technologies that were acquired in connection with the IRX acquisition and which have not reached technological feasibility and have no alternative future use. F-20 Table of Contents In June 2022, the Company received results from the INSPIRE phase 2 trial of IRX-2, a multi-cytokine biologic immunotherapy, in patients with newly diagnosed stage II, III or IVA squamous cell carcinoma of the oral cavity. The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair value assigned to the technologies of IRX that the Company acquired. Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of Event-Free Survival. Significant additional clinical development work would be required to advance IRX-2 in the form of additional Phase 2 and 3 studies to further evaluate the treatment effect of IRX-2 in patient subgroups and in combination with checkpoint inhibitor therapies. The INSPIRE trial was the only Company-sponsored study of IRX-2. Based on the totality of available information, the Company currently does not have plans to further develop the IRX-2 product candidate. As such, the Company determined that the carrying value of the IPR&D asset was impaired and recognized a non-cash impairment charge of approximately $ 6.0 million on the consolidated statement of operations during 2022, which reduced the value of the asset to zero . Goodwill The Company recorded goodwill in the amount of $ 2.0 million related to the IRX Acquisition. As of December 31, 2022, the Company performed a qualitative assessment to determine whether it was more likely than not that the fair value of the entity is less than its carrying value of goodwill. Such qualitative factors include macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events. Due to the decline in the Company’s stock price during 2022, the Company determined there were indications of impairment of the goodwill. Accordingly, the Company proceeded to a quantitative assessment of impairment and determined that the fair value of the reporting unit exceeded the carrying amount of goodwill, and therefore, the goodwill was not impaired as of December 31, 2022. 9) Related Party Transactions Agreements Related to Factor Bioscience and Dr. Matthew Angel In September 2022, the Company entered into a Master Services Agreement (the “MSA”) with Factor Bioscience Inc. (“Factor Bioscience”), pursuant to which Factor Bioscience has agreed to provide services to the Company as agreed between the Company and Factor Bioscience and as set forth in one or more work orders under the MSA, including the first work order included in the MSA (“WO1”). Under WO1, Factor Bioscience has agreed to provide the Company with mRNA cell engineering research support services, including access to certain facilities, equipment, materials and training, and the Company has agreed to pay Factor Bioscience an initial fee of $ 5.0 million, payable in twelve equal monthly installments of approximately $ 0.4 million. Of the $ 5.0 million, the Company allocated $ 3.5 million to the License Fee Obligation (as defined below). Following the initial 12-month period, the Company has agreed to pay Factor Bioscience a monthly fee of $ 0.4 million until such time as WO1 is terminated. The Company paid a deposit of $ 0.4 million, which will be applied to the last month of the first work order. The Company may terminate WO1 under the MSA on or after the second anniversary of the date of the MSA, subject to providing Factor Bioscience with 120 days’ prior notice. Factor Bioscience may terminate such work order only on and after the fourth anniversary of the date of the MSA, subject to providing the Company with 120 days ’ prior notice. The MSA contains customary confidentiality provisions and representations and warranties of the parties, and the MSA may be terminated by ether party upon 30 days ’ prior notice, subject to any superseding termination provisions contained in a particular work order. In connection with entering into the MSA, Factor Bioscience’s subsidiary, Factor Limited, entered into a waiver agreement (the “Waiver Agreement”) with Eterna LLC, pursuant to which Factor Limited agreed to waive payment of $ 3.5 million otherwise payable to it (the “License Fee Obligation”) in October 2022 by Eterna LLC under the Original Factor License Agreement, as defined in Note 13, License Agreements . Under the terms of the Waiver Agreement, the License Fee Obligation is waived conditionally on the Company paying Factor Bioscience amounts due under the MSA. As a result of entering into the Waiver Agreement and the MSA, the Company recognized $ 3.5 million in research and development expense, as the license does not have an alternative future use, and a corresponding liability for the License Fee Obligation. As of December 31, 2022, there was approximately $ 3.0 million of the License Fee Obligation remaining, which is recorded on the accompanying consolidated balance sheet in the “due to related party” line items. F-21 Table of Contents In September 2022, Novellus and Eterna entered into a Second Amendment to the Limited Waiver and Assignment Agreement (the “Waiver and Assignment Agreement”) with Drs. Matthew Angel and Christopher Rohde (the “Founders”) whereby the Company has agreed to be responsible for all future, reasonable and substantiated legal fees, costs, settlements and judgments incurred by the Founders, the Company or Novellus for certain claims and actions and any pending or future litigation brought against the Founders, Novellus and/or the Company by or on behalf of the Westman and Sowyrda legal matters described in Note 12 (the “Covered Claims”). The Founders will continue to be solely responsible for any payments made to satisfy a judgement or settlement of any pending or future wage act claims. Under the Waiver and Assignment Agreement, the Founders agreed that they are not entitled to, and waived any right to, indemnification or advancement of past, present or future legal fees, costs, judgments, settlement or other liabilities they may have been entitled to receive from the Company or Novellus in respect of the Covered Claims. The Company and the Founders will share in any recoveries up to the point at which the parties have been fully compensated for legal fees, costs and expenses incurred, with the Company retaining any excess recoveries. The Company has the sole authority to direct and control the prosecution, defense and settlement of the Covered Claims. In September 2022, the Company entered into an assignment and assumption of contracts agreement (the “Assignment and Assumption Agreement”) with Factor Bioscience, pursuant to which the Company assumed certain contracts with third parties that Factor Bioscience had previously entered into in anticipation of entering into a sublease for premises in Somerville, Massachusetts. In October 2022, the Company entered into a sublease for the premises (see Note 7). Under the Assignment and Assumption Agreement, the Company agreed to reimburse Factor Bioscience for costs already incurred or paid by it under the assumed contracts in the amount of approximately $ 0.1 million, and the Company assumed the future obligations under these contracts, which relate to the design and build-out of the subleased space. In November 2022, following the expiration of one of the delineated milestone deadlines for certain regulatory filings required under the Novellus-Factor License Agreement (as defined in Note 12), which permitted Factor Limited to terminate the license granted to Novellus Limited thereunder, the Company entered into the first amendment to the Original Factor License Agreement (the “Amended Factor License Agreement”), pursuant to which, among other things, Factor Limited granted to Eterna LLC an exclusive, sublicensable license under certain patents owned by Factor Limited (the “Factor Patents”) for the purpose of identifying and pursuing certain opportunities to grant to third parties sublicenses to the Factor Patents. The Amended Factor License Agreement also (i) terminated the Novellus-Factor License Agreement, (ii) confirmed Factor Limited’s grant to Eterna LLC of the rights and licenses Novellus Limited previously granted to Eterna LLC under the Novellus-Factor License Agreement on the same terms and conditions as granted by Novellus Limited to Eterna LLC under such agreement, (iii) confirmed that sublicense granted by Novellus Limited in accordance with the Novellus-Factor License Agreement to NoveCite (as discussed in Note 12), survived termination of the Novellus-Factor License Agreement; and (iv) removed Novellus Limited from the Amended Factor License Agreement and the NoveCite Agreement (as defined in Note 12) and replaced Novellus Limited with Factor Limited as the direct licensor to Eterna LLC and NoveCite under such agreements, respectively. The agreements discussed above have been deemed related party transactions, as the Company’s Chief Executive Officer, Dr. Matthew Angel, is also the Chairman and Chief Executive Officer of Factor Bioscience and a Director of Factor Limited. Exacis Option Agreement On October 8, 2022, the Company entered into an option agreement (the “Exacis Option Agreement”) with Exacis Biotherapeutics, Inc., a Delaware corporation (“Exacis”), pursuant to which Exacis granted the Company the option to negotiate and enter into an exclusive worldwide sublicense by December 31, 2022 to certain technology licensed by Exacis for the treatment of cancer in humans (the “Exacis Option”). Under the Exacis Option Agreement, the Company paid Exacis a fee of $ 0.3 million for the Exacis Option, which would be creditable against the fees or purchase price payable under any such license if entered into by the Company in accordance with the Exacis Option Agreement. The Exacis Option Agreement provided for certain payments upon the execution of a definitive license agreement, which would become payable only upon execution and in accordance with the terms of the applicable license agreement, if any. The Company decided not to exercise the Exacis Option, and the Exacis Option Agreement expired in accordance with its terms on December 31, 2022. The Exacis Option Agreement has been deemed a related party transaction, as one of the Company’s Board members, Dr. Gregory Fiore, is the Chief Executive Officer of Exacis. Additionally, the Company’s Chief Executive Office, Dr. Matthew Angel, is Chairman of Exacis’ scientific advisory board. Dr. Angel is also the Chairman and Chief Executive Officer of Factor Bioscience LLC, which is the majority shareholder of Exacis. Q4-22 PIPE Transaction On November 23, 2022, the Company entered into the Q4-22 Purchase Agreement with the Q4-22 PIPE Investors in respect of the Q4-22 PIPE Transaction, pursuant to which the Company issued and sold to the Q4-22 PIPE Investors approximately 2,185,000 units, each unit consisting of (i) one share of common stock and (ii) two Q4-22 Warrants, at a purchase price of $ 3.53 per unit (inclusive of $ 0.125 per Q4-22 Warrant). The Company received aggregate gross proceeds of approximately $ 7.7 million, The Q4-22 PIPE Transaction closed on December 2, 2022. F-22 Table of Contents Each Q4-22 Warrant becomes exercisable six months following the date of closing, expires five-and-one-half years following such date, and is subject to customary adjustments. Mr. Charles Cherington, Chairman of the Company’s Board of Directors, and Mr. Nicholas Singer, a director of the Company, participated in the Q4-22 PIPE Transaction on the same terms and subject to the same conditions as all other Q4-22 PIPE Investors. On the closing date of the Q4-22 PIPE Transaction, the Company and the Q4-22 PIPE Investors, including Messrs. Cherington and Singer, entered into a registration rights agreement, pursuant to which the Company has agreed to prepare and file a registration statement on Form S-3 with the Securities and Exchange Commission no later than 30 days following the date on which the Company becomes eligible to use Form S-3 to register the resale of the shares of common stock included in the units described above and the shares of common stock issuable upon exercise of the Q4-22 Warrants. 10) Accrued Expenses Accrued expenses consisted of the following (in thousands): As of December 31, 2022 2021 Accrued compensation $ 1,065 $ 656 Legal fees and related 1,138 241 Clinical 570 200 Q4-22 PIPE 208 - Other 645 152 Total accrued expenses $ 3,626 $ 1,249 11) Debt Loans Payable In connection with the IRX Acquisition in 2018, Eterna LLC assumed certain notes payable (the “IRX Notes”) in the amount of $ 0.4 million. On January 27, 2020, the IRX Notes were amended to extend the maturity date to the earlier of (i) a change of control, as defined in the IRX Notes, and (ii) December 31, 2021. On December 31, 2021, the Company paid the outstanding $ 0.4 million in principal plus accrued and unpaid interest of approximately $ 0.2 million under the IRX Notes, and the Company has no further obligations thereunder. Payment Protection Program Loan On May 4, 2020, Eterna LLC issued a note in the principal amount of approximately $ 0.3 million to Silicon Valley Bank evidencing a loan (the “Eterna LLC PPP Loan”) that Eterna LLC received under the Paycheck Protection Program (the “PPP”) of the Coronavirus Aid, Relief, and Economic Security Act administered by the U.S. Small Business Administration (the “CARES Act”). Eterna LLC PPP Loan incurred interest at a rate of 1.0 % per annum. Under the terms of the CARES Act, certain amounts of the Eterna LLC PPP Loan could be forgiven if they were used for qualifying expenses, as described in the CARES Act. In September 2021, the lender informed Eterna LLC that the U.S Small Business Administration approved the forgiveness of 100% of the outstanding principal and interest of the Eterna LLC PPP Loan. As a result, the Company recognized a gain during 2021 of $ 0.3 million during recorded in other (expense) income, net, on the accompanying consolidated statements of operations. The Company has no further obligations under this loan . 12) Commitments and Contingencies Litigation Matters The Company is involved in litigation and arbitrations from time to time in the ordinary course of business. Legal fees and other costs associated with such actions are expensed as incurred. In addition, the Company assesses the need to record a liability for litigation and contingencies. The Company reserves for costs relating to these matters when a loss is probable, and the amount can be reasonably estimated. F-23 Table of Contents Dhesh Govender v. Eterna Therapeutics LLC, et al., Index No. 650847/2021 (N.Y. Sup. Ct. N.Y. Cty. 2021) On or about February 5, 2021, Dhesh Govender, a former short-term consultant of Eterna LLC, filed a complaint against Eterna LLC and certain individuals that plaintiff alleged were directors of Eterna LLC. Plaintiff alleged that Eterna LLC and certain of its officers and directors (“defendants”) engaged in unlawful and discriminatory conduct based on race, national origin and hostile work environment. Plaintiff also asserted various breach of contract, fraud and quantum meruit claims based on an alleged oral agreement pursuant to which he alleged Eterna LLC agreed to hire him as an executive once the Merger was completed. On December 15, 2022, the parties executed a Confidential Settlement Agreement and Release of All Claims. On January 11, 2023, the parties filed a Stipulation to Discontinue in the Court action. Also on January 11, 2023, Govender voluntarily dismissed the arbitration. John Westman v. Novellus, Inc., Christopher Rohde, and Matthew Angel, Civil Action No. 2181CV01949 (Middlesex County (Massachusetts) Superior Court) On or about September 7, 2021, John Westman, a former employee of Novellus, Inc. filed a Complaint in Middlesex County (Massachusetts) Superior Court against Novellus, Inc. and Novellus, Inc.’s founders and former executives, Dr. Christopher Rohde and Dr. Matthew Angel (collectively, “Defendants”). The case includes allegations that Novellus, Inc. violated the Massachusetts Wage Act (“Wage Act”). Eterna acquired Novellus, Inc. on July 16, 2021. Mr. Westman’s claims relate to alleged conduct that took place before Eterna acquired Novellus, Inc. Westman agreed to dismiss the lawsuit and proceed with his claims in arbitration. Following mediation, the parties settled this dispute in December 2022. The aggregate settlement amount payable by the Company for the two matters discussed above is approximately $ 0.5 million. Novellus, Inc. v. Sowyrda et al., C.A. No. 2184CV02436-BLS2 On October 25, 2021 Novellus, Inc. filed a complaint in the Superior Court of Massachusetts, Suffolk County, against former Novellus, Inc. employees Paul Sowyrda and John Westman and certain other former investors in Novellus LLC (Novellus, Inc.’s former parent company prior to our acquisition of Novellus, Inc.), alleging breach of fiduciary duty, breach of contract and civil conspiracy. Eterna acquired Novellus, Inc. on July 16, 2021. On May 27, 2022 Novellus, Inc. amended the complaint to withdraw all claims against all defendants except Paul Sowyrda and John Westman. On July 1, 2022, Westman filed a motion to compel arbitration or in the alternative, to stay the litigation pending the disposition of certain litigation in the Court of Chancery for the State of Delaware filed by Mr. Sowyrda against Novellus LLC, Dr. Christopher Rohde, Dr. Matthew Angel, Leonard Mazur and Factor Bioscience, Inc. captioned Zelickson et al., v. Angel et al., C.A. 2021-1014-JRS and by Westman against Novellus LLC captioned Westman v. Novellus LLC , C.A. No. 2021-0882-NAC (the “Delaware Actions”). On July 1, 2022, Sowyrda answered the complaint and asserted counterclaims against Novellus, Inc, and third-party defendants Dr. Matthew Angel and Dr. Christopher Rohde alleging violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, breach of contract, unjust enrichment and quantum meruit. Sowyrda also joined in Westman’s motion to stay the case pending the Delaware Actions. Novellus, Inc.’s claims and Mr. Sowyrda’s counterclaims relate to alleged conduct that took place before Eterna acquired Novellus, Inc. On November 15, 2022, prior to a decision on Westman’s and Sowyrda’s motion to compel or stay, the Parties agreed to voluntarily dismiss and consolidate the Delaware Actions with this action. On December 15, 2022, Sowyrda filed an Amended Answer to the Amended Complaint, asserted affirmative defenses and filed Amended Counterclaims against Dr. Angel, Dr. Rohde, Novellus LLC, Novellus Inc., Factor Bioscience Inc., and Eterna Therapeutics Inc. (“Counterclaim Defendants”) alleging against various Counterclaim Defendants breach of contract, breaches of the implied duty of good faith and fair dealing, breaches of fiduciary duty, breaches of the operating agreement, aiding and abetting breaches of fiduciary duty, tortious interference with contract, equitable accounting, violations of the Massachusetts Wage Act, Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, unjust enrichment, and quantum meruit. Also on December 15, 2022, Westman filed an answer to the Amended Complaint and asserted similar counterclaims against the same Counterclaim Defendants. Westman and Sowyrda each asserted claims for indemnification and/or advancement against Novellus, Inc. On January 11, 2023, Westman and Sowyrda served a joint motion to enforce their advancement and/or indemnification rights against Novellus Inc. Novellus Inc. vigorously opposes this motion and served its opposition on January 27, 2023. On February 8, 2023, Westman and Sowyrda served a reply in support of their motion to enforce indemnification/advancement rights, and submitted the motion to the Court. Novellus Inc. answered Westman and Sowyrda’s counterclaims on January 27, 2023, denying liability. The remaining Counterclaim Defendants served a motion to dismiss most of the remaining counterclaims on January 27, 2023. Sowyrda’s and Westman’s oppositions to the motion to dismiss were served on March 3, 2023, and Counterclaim Defendants’ reply is due March 24, 2023, at which point the motion to dismiss will be fully briefed. The Court announced that it would hold oral argument on April 5, 2023 on (a) the Counterclaim Defendants’ motion to dismiss, and (b) Sowyrda’s and Westman’s motion to enforce. The parties attended an initial status and scheduling conference with the Court on February 7, 2023. The Court deferred entering a case scheduling until after the April 5 hearing. F-24 Table of Contents Under applicable Delaware law and Novellus Inc.’s organizational documents, the Company may be required to advance or reimburse certain legal expenses incurred by former officers and directors of Novellus, Inc. in connection with the foregoing Westman and Sowyrda matters. However, a future advance or reimbursement is not currently probable nor can it be reasonably estimated. Emerald Private Equity Fund, LLC Matter By a letter dated July 7, 2021, Emerald Private Equity Fund, LLC (“Emerald”), a stockholder of Eterna, made a demand pursuant to 8 Del. C. 220 to inspect certain books and records of Eterna. The stated purpose of the demand was to investigate possible wrongdoing by persons responsible for the implementation of the Merger and the issuance of paper stock certificates, including investigating whether: (i) Eterna’s stock certificates were issued in accordance with the Merger Agreement; (ii) certain restrictions on the sale of Eterna common stock following the Merger were proper and applied without favor; (iii) anyone received priority in post-Merger issuances of Eterna’s stock certificates that allowed them to benefit from an increase in the trading price of Eterna’s common stock; and (iv) it should pursue remedial measures and/or report alleged misconduct to the SEC. Eterna responded to the demand letter and produced certain information to Emerald in connection with the demand, which is subject to the terms of a confidentiality agreement entered into among the parties, including certain additional stockholders who subsequently joined as parties to such agreement. Following discussions, with no admission of wrongdoing, the Company and the Emerald Plaintiffs entered into a confidential settlement agreement, pursuant to which the Company paid $ 1.2 million in 2022 in full settlement of all of the Emerald Plaintiffs’ purported claims, including a release by the Emerald Plaintiffs in favor of the Company in respect of any and all such claims. Licensing Agreements Exclusive Factor License Agreement. In April 2021, Eterna LLC and the Licensors entered into an exclusive license agreement (the “Original Factor License Agreement”) pursuant to which Eterna LLC acquired an exclusive worldwide license to the Licensed Technology for use in the development of certain mRNA, gene-editing, and cellular therapies to be evaluated and developed for treating human diseases, including certain types of cancer, sickle cell disease, and beta thalassemia. As a result of the Novellus Acquisition, the rights and obligations of Novellus Limited under the Novellus-Factor License Agreement pertaining to any and all licensed products from Factor Limited inured to Eterna. The Company’s agreement with Factor Limited under the Original Factor License Agreement remained unchanged after the completion of the Novellus Acquisition. In November 2022, the Company entered into the first amendment to the Original Factor License Agreement (the “Amended Factor License Agreement”), pursuant to which, among other things, Factor Limited granted to Eterna LLC an exclusive, sublicensable license under the Factor Patents for the purpose of identifying and pursuing certain opportunities to grant to third parties sublicenses to the Factor Patents. The term of the Amended Factor License Agreement is five years from the effective date of this amendment and is extendable for an additional two and a half years if the Company receives at least $ 100 million from sublicenses granted by it with respect to the sublicensing opportunities contemplated by the Amended Factor License Agreement. Pursuant to the Amended Factor License Agreement, the Company will pay to Factor Limited 20 % of any sublicense fees it receives under a sublicense during the first five years and 30 % of any sublicense fees it receives during the potential additional two and a half years . USF Eterna LLC has license agreements with University of South Florida Research Association, Inc. (“USF”), granting Eterna LLC the right to sell, market, and distribute IRX- 2, subject to a 7 % royalty payable to USF based on a percentage of gross product sales. Under the license agreement with USF, Eterna LLC is obligated to repay patent prosecution expenses incurred by USF. To date, Eterna LLC has not recorded any product sales, or obligations related to USF patent prosecution expenses. The license agreement terminates upon the expiration of the IRX- 2 patents. F-25 Table of Contents Royalty Agreements While the agreements described below remain in force, the Company currently does not have plans to further develop the IRX-2 product candidate . Collaborator Royalty Agreement Pursuant to a royalty agreement the Company assumed when it acquired the assets of IRX in November 2018, the Company will pay a former collaborator a royalty equal to 6 % of any sales of IRX-2, for the period of time beginning with the first sale of IRX-2 through the later of (i) the twelfth anniversary of the first sale of IRX-2 or (ii) the expiration of the last IRX patent, or other exclusivity of IRX- 2. Royalty Agreement with certain former IRX Therapeutics Investors Pursuant to a royalty agreement (the “IRX Investor Royalty Agreement”) with certain former IRX investors the Company assumed when it acquired the assets of IRX in November 2018, when Eterna LLC becomes obligated to pay royalties to USF under the agreement described above under “Licensing Agreements-USF,” it will pay an additional royalty of 1 % of gross sales to an entity organized by such former investors. Investor Royalty Agreement On March 22, 2021, Eterna LLC restated its royalty agreement with certain beneficial holders of Brooklyn ImmunoTherapeutics Investors GP LLC and Brooklyn ImmunoTherapeutics Investors LP, whereby such beneficial holders will continue to receive, on an annual basis, royalties in an aggregate amount equal to 4 % of the net revenues of IRX-2, a cytokine-based therapy that was previously being developed by Eterna LLC to treat patients with cancer. Retirement Savings Plan The Company established a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees to defer up to 90 % of their pay on a pre-tax basis. As of December 31, 2022, the Company had not contributed a match to the employees’ contribution. Beginning on January 1, 2023, the Company began matching employees’ contributions at a rate of 100 % of the first 3 % of the employee’s contribution and 50 % of the next 2 % of the employee’s contribution, for a maximum Company match of 4 %. 13) Basic and Diluted Loss per Common Share Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period. Diluted net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding plus dilutive securities. Shares of common stock issuable upon exercise, conversion or vesting of stock options, RSUs, warrants and other convertible securities, including our outstanding Series A Convertible Preferred Stock, are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive. Diluted net loss per share is the same as basic net loss per share for periods in which the effect of potentially dilutive shares of common stock is antidilutive. The following table presents the amount of warrants, stock options, convertible preferred stock and RSUs that were excluded from the computation of diluted net loss per common share for the years ended December 31, 2022 and 2021, as their effect was anti-dilutive (in thousands): Years ended December 31, 2022 2021 Warrants 4,713 - Stock options 359 199 Preferred stock converted into common stock 7 2 RSUs 4 12 Total potential common shares excluded from computation 5,083 213 F-26 Table of Contents 14) Stock-Based Compensation Equity Incentive Plans The Company’s stock-based compensation plans consist of the Restated 2020 Equity Incentive Plan (the “Restated 2020 Plan”) and the 2021 Inducement Equity Incentive Plan (the “2021 Inducement Plan”). The Company’s board of directors has designated its Compensation Committee as the administrator of the foregoing plans (the “Plan Administrator”). Among other things, the Plan Administrator selects persons to receive awards and determines the number of shares subject to each award and the terms, conditions, performance measures, if any, and other provisions of the award. The Restated 2020 Plan provides for (a) approximately 424,000 shares of common stock that can be issued under the Restated 2020 Plan and (b) an annual increase in the number of shares reserved for issuance on January 1 of each year from 2022 through 2031 equal to the lesser of (i) 5 % of the number of shares of common stock outstanding on the immediately preceding December 31 and (ii) such smaller number of shares of common stock as may be determine by the board of directors (the “Annual Evergreen Shares”). Based on the number of shares of common stock outstanding on December 31, 2022, the maximum increase to the number of Annual Evergreen Shares of common stock that can be issued under the Restated 2020 Plan in 2023 is approximately 256,000 shares. As of December 31, 2022, there have been no Annual Evergreen Shares added to the Restated 2020 Plan. Awards under the Restated 2020 Plan may be granted to officers, directors, employees and consultants of the Company. Stock options granted under the Restated 2020 Plan may either be incentive stock options or nonqualified stock options, may have a term of up to ten years , and are exercisable at a price per share not less than the fair market value on the date of grant. As of December 31, 2022, there was approximately 166,000 shares of common stock remaining to be issued under the Restated 2020 Plan. As of December 31, 2021, there were approximately 258,000 stock options outstanding under the Restated 2020 Plan. There were no RSUs outstanding under the Restated 2020 Plan as of December 31, 2022. The 2021 Inducement Plan provides for the grant of up to 75,000 share-based awards as material inducement awards to new employees in accordance with the employment inducement grant rules set forth in Section 711(a) of the NYSE American LLC Company Guide. The 2021 Inducement Plan expires in May 2031. As of December 31, 2022, there was approximately 57,000 shares of common stock remaining to be issued under the Restated 2020 Plan. As of December 31, 2021, there were approximately 12,000 stock options outstanding and approximately 4,000 RSUs outstanding under the Restated 2020 Plan. Equity Awards Stock Options The Company records stock-based compensation in accordance with ASC Topic 718, Compensation – Stock Compensation. The Company estimates the fair value of stock options using the Black-Scholes option pricing model. The fair value of stock options granted is recognized as expense over the requisite service period on a straight-lined basis. The risk-free rate is based on the observed interest rates appropriate for the expected life. The expected life (estimated period of time outstanding) of the stock options granted is estimated using the “ simplified ” method as permitted by the SEC’s Staff Accounting Bulletin No. 110, Share-Based Payment . Expected volatility is based on the volatility of the Company’s peer group over the expected life of the stock option granted, and the Company assumes no dividends. Forfeitures are recognized as incurred. The following weighted-average assumptions were used for stock options granted during the years ended December 31, 2022 and 2021: Year ended December 31, 2022 2021 Weighted average risk-free rate 2.52 % 1.09 % Weighted average volatility 90.49 % 134.64 % Dividend yield 0 % 0 % Expected term 5.79 years 6.10 years F-27 Table of Contents The following table summarizes stock option activity for the years ended December 31, 2022 and 2021 (in thousands except for per-share and remaining contractual life data): Outstanding Options Weighted Average Exercise Price per Share Weighted Average Remaining Contractual Life (in years) Aggregate Intrinsic Value Outstanding January 1, 2021 - $ - - $ - Granted 199 168.04 Cancelled - - Outstanding December 31, 2021 199 $ 168.04 9.38 $ - Granted 287 17.29 Cancelled ( 127 ) 140.56 Outstanding December 31, 2022 359 $ 57.18 7.57 $ - Options vested and exercisable at December 31, 2022 146 $ 109.60 4.79 $ - The per-share weighted average grant-date fair value of stock options granted during the year ended December 31, 2022 and 2021 was $ 12.91 and $ 151.40 , respectively. Pursuant to a separation agreement entered into in May 2022 with the Company’s former chief executive officer, Dr. Howard Federoff, the Company accelerated the vesting of approximately 40,000 stock options under certain time-based vesting stock option grants previously awarded to Dr. Federoff. The Company also waived a performance condition under a performance-based stock option grant and accelerated the vesting of approximately 21,000 stock options under such grant. Lastly, the Company extended the post-termination exercise period from 90 days to 36 months immediately following his separation date for any options that were vested, including the options that accelerating in vesting, as described above. The above modifications to Dr. Federoff’s stock options grants resulted in modification accounting under ASC 718, Compensation – Stock Compensation . As a result, the Company immediately recognized approximately $ 0.1 million during 2022 for the incremental fair value of stock options that were vested prior to the modification by calculating the difference between the fair value of the modified award and the fair value of the original award immediately before it was modified. For stock options that were not vested prior to the modification but then vested as a result of the acceleration, the Company reversed any stock compensation expense previously recognized, remeasured the fair value of the modified award and immediately recognized approximately $ 0.1 million during 2022 of stock compensation expense in full since there was no future service period required to be provided. As of December 31, 2022, the unamortized stock-based compensation expense related to outstanding unvested options was approximately $ 3.2 million with a weighted average remaining requisite service period of 2.70 years. The Company expects to amortize this expense over the remaining requisite service period of these stock options. Vesting of all stock options grants is subject to continuous service with the Company through such vesting dates. F-28 Table of Contents Restricted Stock Units The following table summarizes RSU activity for the years ended December 31, 2022 and 2021 (in thousands except for per-share data): Outstanding Restricted Stock Units Weighted Average Fair Value per Share January 1, 2021 - $ - Granted 12 276.00 December 31, 2021 12 276.00 Granted 55 38.60 Released ( 3 ) 271.42 Cancelled ( 60 ) 61.03 December 31, 2022 4 $ 236.36 Balance expected to vest at December 31, 2022 4 The Company recognizes the fair value of RSUs granted as expense on a straight-line basis over the requisite service period. For performance based RSUs, the Company begins recognizing the expense once the achievement of the related performance goal is determined to be probable. Outstanding RSUs are settled in an equal number of shares of common stock on the vesting date of the award. An RSU award is settled only to the extent vested. Vesting generally requires the continued employment or service by the award recipient through the respective vesting date. Because RSUs are settled in an equal number of shares of common stock without any offsetting payment by the recipient, the measurement of cost is based on the quoted market price of the stock at the measurement date, which is the grant date. In lieu of paying cash to satisfy withholding taxes due upon the settlement of vested RSUs, at the Company’s discretion, an employee may elect to have shares of common stock withheld that would otherwise be issued at settlement, the value of which is equal to the amount of withholding taxes payable. There were no RSUs that vested during the year ended December 31, 2021. The following table shows the number of RSUs that vested and were settled during the year ended December 31, 2022, as well as the number of shares of common stock withheld to cover the withholding taxes and the net shares issued upon settlement (in thousands): Year ended December 31, 2022 RSUs vested 3 Common stock withheld to cover taxes ( 1 ) Common stock issued 2 Restricted Stock Pursuant to the Merger, Eterna LLC’s approximately 3,000 outstanding restricted common units were exchanged for approximately 32,000 shares of Eterna’s restricted common stock. There were no changes to any conditions and requirements of the restricted common stock. The shares vested quarterly beginning on March 31, 2021 and were to continue through December 31, 2022, contingent on continued service. Due to the modification of the restricted common units, the fair value of the restricted common stock immediately after the Merger was compared to the fair value of the restricted common units immediately prior to the Merger, and the change in fair value of $ 0.3 million was recognized in the statement of operations during the year ended December 31, 2021. The Company recognizes the fair value of restricted common stock as an expense on a straight-line basis over the requisite service period. During the year ended December 31, 2022, approximately 4,000 shares of unvested restricted common stock were forfeited due to the holders of such shares no longer providing services to the Company. As of December 31, 2022 there were no shares of unvested restricted stock outstanding. Stock-Based Compensation Expense For the years ended December 31, 2022 and 2021, the Company recognized stock-based compensation expense as follows (in thousands): Years ended December 31, 2022 2021 Research and development $ 1,249 $ 1,597 General and administrative 1,686 3,638 Total $ 2,935 $ 5,235 F-29 Table of Contents 15) Equity and Warrants Private Placements of Equity Q4-22 PIPE Transaction On November 23, 2022, the Company entered into the Q4-22 Purchase Agreement with the Q4-22 PIPE Investors for the Q4-22 PIPE Transaction, pursuant to which the Company issued to the Q4-22 PIPE Investors an aggregate of approximately 2,185,000 units, with each unit consisting of (i) one share of common stock and (ii) two Q4-22 Warrants, each exercisable to purchase one share of common stock at an exercise price of $ 3.28 per, at a purchase price of $ 3.53 per unit (inclusive of $ 0.125 per Q4-22 Warrant). The Company received aggregate gross proceeds of approximately $ 7.7 million, and the Q4-22 PIPE Transaction closed on December 2, 2022. The Company incurred fees of approximately $ 0.3 million through December 31, 2022 related to the Q4-22 PIPE Transaction. Each Q4-22 Warrant has an exercise price of $ 3.28 per share, becomes exercisable six months following the closing of the Q4-22 PIPE Transaction, expires five-and-one-half years from the date of issuance and is subject to customary adjustments. Certain of the Q4-22 Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 % immediately after exercise thereof, subject to increase to 9.99 % at the option of the holder. The Q4-22 Warrants meet the criteria for equity classification. Q1-22 Private Placement On March 6, 2022, the Company entered into the Q1-22 Purchase Agreement with the Q1-22 PIPE Investor for the Q1-22 PIPE Transaction, pursuant to which, the Company issued to the Q1-22 PIPE Investor approximately 343,000 units, each unit consisting of (i) one share of the Company’s common stock (or, in lieu thereof, one Q1-22 Pre-Funded Warrant to purchase one share of common stock) and (ii) one warrant Q1-22 Common Warrant to purchase one share of common stock, for an aggregate gross purchase price of approximately $ 12.0 million (the “Subscription Amount”). The Q1-22 PIPE Transaction closed on March 9, 2022. Pursuant to the Q1-22 Purchase Agreement, the Company was prohibited from issuing equity in variable rate transactions for a period of one-year following consummation of the Q1-22 PIPE Transaction, including issuing equity under the Second Purchase Agreement, which is discussed below. Each Q1-22 Pre-Funded Warrant had an exercise price of $ 0.10 per share of common stock, was immediately exercisable, could be exercised at any time, had no expiration date and was subject to customary adjustments. The Q1-22 Pre-Funded Warrants could not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 9.99 % immediately after exercise thereof. Upon the closing of the Q1-22 PIPE Transaction, the Company issued 275,000 shares of common stock, approximately 68,000 Q1-22 Pre-Funded Warrants and approximately 343,000 Q1-22 Common Warrants. Each Q1-22 Common Warrant has an exercise price of $ 38.20 per share, became exercisable six months following the closing of the Q1-22 PIPE Transaction, expires five-and-one-half years from the date of issuance and is subject to customary adjustments. The Q1-22 Common Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 % immediately after exercise thereof, subject to increase to 9.99 % at the option of the holder. The Q1-22 Common Warrants and Q1-22 Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40. These warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statement of operations. (See Note 5 for more information related to changes in fair value.) Upon exercise of the Q1-22 Common Warrants and Q1-22 Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant liabilities to equity. F-30 Table of Contents The fair values of the Q1-22 Common Warrants and the Q1-22 Pre-Funded Warrants at the issuance date totaled $ 12.6 million in the aggregate, which was $ 0.6 million more than the Subscription Amount. The excess $ 0.6 million represents an inducement to the Q1-22 PIPE Investor to enter into the Q1-22 PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations. On July 12, 2022, the Q1-22 PIPE Investor exercised its 68,000 Q1-22 Pre-Funded Warrants at an exercise price of $ 0.10 per share for an aggregate exercise price of approximately $ 7,000 , in cash. The Company issued 68,000 shares of common stock to the Q1-22 PIPE Investor on July 14, 2022 upon receipt of the cash proceeds and reclassified approximately $ 0.7 million of the fair value of the exercised warrants as of the exercise date from warrant liabilities to equity. Subsequent to the exercise, no Q1-22 Pre-Funded Warrants remained outstanding. The Company incurred fees of approximately $ 1.0 million through December 31, 2022 related to the Q1-22 PIPE Transaction, which were allocated to the fair value of the Q1-22 Warrants and the Q1-22 Pre-Funded Warrants and recorded in other expense, net on the accompanying consolidated statement of operations. In connection with the Q1-22 PIPE Transaction, the Company and the Q1-22 PIPE Investor also entered into a registration rights agreement, dated March 6, 2022, pursuant to which the Company agreed to prepare and file a registration statement with the SEC no later than 15 days following the filing date of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 Annual Report”) to register the resale of the shares of common stock included in the Units and the shares of common stock issuable upon exercise of the Q1-22 Pre-Funded Warrants and the Q1-22 Common Warrants. The Company agreed to use its best efforts to have such registration statement declared effective as promptly as possible after the filing thereof, subject to certain specified penalties if timely effectiveness were not achieved. The Company filed the 2021 Annual Report on April 15, 2022 and the registration statement on April 29, 2022. The resale registration statement became effective on May 11, 2022. Pursuant to the registration rights agreement, the Company is obligated to pay the Q1-22 PIPE Investor liquidated damages equal to 2 % of the Subscription Amount per month, with a maximum aggregate payment of 12 % of the Subscription Amount, in the event the PIPE Investor is not permitted to use the registration statement to resell the securities registered for resale thereunder for more than a specified period of time. On May 24, 2022, the Company notified the Q1-22 PIPE Investor that it was not able to use the registration agreement because the Company had not timely filed its Quarterly Report on Form 10-Q (the “Q1 2022 10-Q”) with the SEC, and that the Q1-22 PIPE Investor could not use the registration statement to resell the securities registered thereunder until the Company filed the Q1 2022 10-Q. Because of the Q1-22 PIPE Investor’s inability to use the registration statement, the Company accrued $ 0.2 million during 2022 for the contingent loss the Company incurred as liquidated damages as a result of the late Q1 2022 10Q filing, which is recorded in other expense, net for the year ended December 31, 2022 in the accompanying consolidated statements of operations. The Company paid such $ 0.2 million liquidated damages payment in June 2022. On June 30, 2022, the Company filed its Q1 2022 10-Q along with an amended Annual Report on Form 10-K/A for the year ended December 31, 2021, and on July 1, 2022, the Company provided its notice to the Q1-22 PIPE Investor that it could resume use of the resale registration statement. The following table shows the Company’s warrant activity for the year ended December 31, 2022 (in thousands except for per-share data): March 2022 Warrants Pre-Funded Warrants November 2022 Warrants Total Warrants Balance as of January 1, 2022 - - - - Granted 343 68 4,370 4,781 Exercised - ( 68 ) - ( 68 ) Balance as of December 31, 2022 343 - 4,370 4,713 As of December 31, 2022, the weighted average remaining contractual life of the warrants outstanding was 5.37 years and the weighted average exercise price was $ 5.82 . F-31 Table of Contents Equity Line Offerings On April 26, 2021, the Company entered into a common stock purchase agreement (the “First Purchase Agreement”) an investment group (the “Investment Group”), which provided that the Company could offer to the Investment Group up to an aggregate o f $ 20 million of common stock over a 36-month period commencing after May 10, 2021, the date that a registration statement covering the resale of shares of common stock issued under the First Purchase Agreement was declared effective by the SEC. As of December 31, 2022, the Company had issued and sold an aggregate of approximately 56,000 shares of common stock to the Investment Group pursuant to the First Purchase Agreement, resulting in gross proceeds of $ 20 million. On May 26, 2021, the Company entered into a second common stock purchase agreement (the “Second Purchase Agreement”) with the Investment Group, which provides that the Company may offer to the Investment Group up to an aggregate of $ 40 million of common stock over a 36-month period commencing after June 4, 2021, the date that a registration statement covering the resale of shares of common stock issued under the Second Purchase Agreement was declared effective by the SEC. As of December 31, 2022, the Company had issued and sold an aggregate of approximately 121,000 shares of common stock to the Investment Group pursuant to the Second Purchase Agreement, resulting in gross proceeds of approximately $ 34 million. As of December 31, 2022, there were approximately 22,000 shares remaining to be sold under the Second Purchase Agreement. Under the Second Purchase Agreement, the Company may direct the Investment Group to purchase up to 3,000 shares of common stock on any business day (the “Regular Purchase”), which amount may be increased up to 6,000 shares based on the closing price of the common stock, provided that the Investment Group’s maximum commitment in any single Regular Purchase may not exceed $ 2.0 million. The purchase price per share for each such Regular Purchase is based off of the common stock’s market immediately preceding the time of sale. The Second Purchase Agreement also prohibits the Company from directing the Investment Group to purchase any shares of common stock if those shares, when aggregated with all other shares of common stock then beneficially owned by the Investment Group and its affiliates, would result in the Investment Group and its affiliates having beneficial ownership, at any single point in time, of more than 4.99 % of the then total outstanding shares of common stock. The Company has the right to terminate the Second Purchase Agreement at any time, at no cost or penalty. Actual sales of shares of common stock to the Investment Group under the Second Purchase Agreement depend on a variety of factors to be determined by us from time to time, including, among others, market conditions, the trading price of the common stock and determinations by the Company as to the appropriate sources of funding for the Company and its operations. Pursuant to the Q1-22 Purchase Agreement in respect of the Q1-22 PIPE Transaction, the Company was prohibited from issuing additional shares under the Second Purchase Agreement for a period of one-year immediately following the closing of the Q1-22 PIPE Transaction. Merger Under the terms of the Merger Agreement (see Notes 1 and 4), on March 25, 2021, the Company issued shares of common stock to the equity holders of Eterna LLC. The 87,000 Class A units of Eterna LLC were converted into approximately 1,114,000 shares of common stock; the 15,000,000 Class B units were converted into approximately 126,000 shares of common stock; the 10,000,000 Class C units were converted into approximately 84,000 shares of common stock; approximately 630,000 shares of common units were converted into approximately 31,000 shares of common stock, and 10,500,000 rights options were converted into approximately 591,000 shares of common stock. The Company also issued approximately 53,000 shares of common stock to the Financial Advisor pursuant to the Merger Agreement. Acquisition Under the terms of the Novellus Acquisition (see Notes 1 and 4), on July 16, 2021, the Company issued approximately 351,000 shares of common stock, of which approximately 182,000 shares are unrestricted and approximately 169,000 shares are subject to a three-year lockup agreement, provided that up to 75 % of the shares of common stock subject to the lock-up agreement may be released from the lock-up restrictions earlier if the price of common stock on the principal market for the common stock exceeds specified thresholds. Cumulative Convertible Preferred Stock As a result of the Merger, the Company has authorized 156,000 shares of preferred stock, all of which is designated as Series A Cumulative Convertible Preferred Stock (the “Series A Preferred Stock”), and all of which were issued and outstanding as of December 31, 2022. F-32 Table of Contents The Series A Preferred Stock provides for a cumulative annual dividend of $ 0.10 per share, payable in semi-annual installments in June and December. Dividends may be paid in cash or with shares of common stock. The Company paid approximately $ 16,000 in cash for payment of dividends during the year ended December 31, 2022 . The Company paid approximately $ 8,000 in cash and issued approximately 10 shares of common stock for payment of dividends during the year ended December 31, 2021. The Series A Preferred Stock has no voting rights and has a $ 1.00 per share liquidation preference over common stock. The registered holder has the right at any time to convert shares of Series A Preferred Stock into that number of shares of common stock that equals the number of shares of Series A Preferred Stock that are surrendered for conversion divided by the conversion rate. At December 31, 2022, the conversion rate was 23.9988 and, based on that conversion rate, one share of Series A Convertible Preferred Stock would have converted into approximately 0.04 shares of common stock, and all the outstanding shares of the Series A Convertible Preferred Stock would have converted into approximately 6,000 shares of common stock in the aggregate. There were no conversions during the years ended December 31, 2022 and 2021. There is no mandatory conversion term, date or any redemption features associated with the Series A Preferred Stock. The conversion rate will adjust under the following circumstances: 1. If the Company (a) pays a dividend or makes a distribution in shares of its common stock, (b) subdivides its outstanding shares of common stock into a greater number of shares, (c) combines its outstanding shares of common stock into a smaller number of shares, or (d) issues by reclassification of its shares of common stock any shares of its common stock (other than a change in par value, or from par value to no par value, or from no par value to par value), then the conversion rate in effect immediately prior to the applicable event will be adjusted so that the holders of the Series A Convertible Preferred Stock will be entitled to receive the number of shares of common stock which they would have owned or have been entitled to receive immediately following the happening of the event, had the Series A Convertible Preferred Stock been converted immediately prior to the record or effective date of the applicable event. 2. If the outstanding shares of the Company’s common stock are reclassified (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision, combination or stock dividend), or if the Company consolidates with or merge into another corporation and the Company is not the surviving entity, or if the Company sells all or substantially all of its property, assets, business and goodwill, then the holders of the Series A Convertible Preferred Stock will thereafter be entitled upon conversion to the kind and amount of shares of stock or other equity securities, or other property or assets which would have been receivable by such holders upon such reclassification, consolidation, merger or sale, if the Series A Convertible Preferred Stock had been converted immediately prior thereto. 3. If the Company issues common stock without consideration or for a consideration per share less than the then applicable Equivalent Preference Amount (as defined below), then the Equivalent Preference Amount will immediately be reduced to the amount determined by dividing (A) an amount equal to the sum of (1) the number of shares of common stock outstanding immediately prior to such issuance multiplied by the Equivalent Preference Amount in effect immediately prior to such issuance and (2) the consideration, if any, received by the Company upon such issuance, by (B) the total number of shares of common stock outstanding immediately after such issuance. The “Equivalent Preference Amount” is the value that results when the liquidation preference of one share of Series A Convertible Preferred Stock (which is $ 1.00 ) is multiplied by the conversion rate in effect at that time; thus the conversion rate applicable after the adjustment in the Equivalent Preference Amount as described herein will be the figure that results when the adjusted Equivalent Preference Amount is divided by the liquidation preference of one share of Series A Convertible Preferred Stock. 16) Income Taxes Loss before income taxes consist of the following (in thousands): Years ended December 31, 2022 2021 (in thousands) Domestic $ ( 24,513 ) $ ( 122,476 ) Foreign ( 21 ) ( 5 ) Total loss before income taxes $ ( 24,534 ) $ ( 122,481 ) F-33 Table of Contents For each of the years ended December 31, 2022 and 2021, current tax provisions and current deferred tax provisions were recorded as follows (in thousands): Years ended December 31, 2022 2021 Current Tax Provision Federal $ - $ - State 4 5 Foreign - - 4 5 Deferred Tax Provision Federal ( 6,851 ) ( 5,840 ) State ( 1,602 ) ( 1,414 ) Foreign ( 187 ) ( 1 ) ( 8,640 ) ( 7,255 ) Change in valuation allowance 8,681 7,314 Total tax provision for income taxes $ 45 $ 64 Deferred tax assets and liabilities consist of the effects of temporary differences as shown in the table below (in thousands). Deferred tax assets have been fully reserved by a valuation allowance since it is more likely than not that such tax benefits will not be realized. As of December 31, 2022 2021 Deferred Tax Assets: Net operating losses $ 9,382 $ 5,457 Foreign net operating losses 782 595 Stock compensation 2,173 1,312 In-process research and development 1,233 - Capitalized rearch and development expenses 1,502 - R&D credit carryforwards 517 288 Compensation accrual 81 30 ROU Liabilities 334 706 Other 549 - Total gross deferred tax assets 16,553 8,388 Valuation allowance ( 16,157 ) ( 7,467 ) Net deferred tax assets 396 921 Deferred Tax Liabilities: Fixed assets ( 10 ) ( 168 ) ROU Assets ( 291 ) ( 666 ) Intangibles - goodwill ( 160 ) ( 112 ) Total deferred tax liabilities ( 461 ) ( 946 ) Net deferred taxes $ ( 65 ) $ ( 25 ) The reconciliation of computed expected income taxes to effective income taxes by applying the federal statutory rate of 21 % is as follows: As of December 31, 2022 2021 Tax at federal income tax rate 21.00 % 21.00 % State income tax, net of federal tax 6.52 % 1.15 % Foreign tax differential ( 0.01 %) 0.00 % Non-deductible expenses/excludable items 6.09 % ( 16.30 %) Change in valuation allowance ( 35.38 %) ( 5.97 %) Credits 0.98 % 0.23 % Uncertain tax positions ( 0.49 %) 0.00 % Other 1.11 % ( 0.16 %) Provision for income taxes ( 0.18 %) ( 0.05 %) F-34 Table of Contents The net increase in the total valuation allowance for the year ended December 31, 2022 was an increase of approximately $ 8.8 million. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during periods in which those temporary difference become deductible. Management considered the scheduled reversal of deferred tax liabilities, projected future taxable income and planning strategies in making this assessment. Based on the level of historical operating results and projections for the taxable income for the future, management has determined that it is more likely than not that the deferred taxes assets will not be utilized. Accordingly, the Company has recorded a full valuation allowance. The net deferred tax liability represents an indefinite life intangible liability related to tax deductible goodwill, partially offset by an indefinite life deferred tax asset. At December 31, 2022 and 2021, the Company has available net operating loss (“NOL”) carryforwards of approximately $ 35.6 million and $ 20.7 million for federal income tax purposes, respectively, of which approximately $ 35.6 million can be carried forward indefinitely. The Company has available $ 28.8 million and $ 20.7 million state NOLs for the years ended December 31, 2022 and 2021, respectively, which begin to expire in 2041 . The Company also has foreign NOL carryforwards of approximately $ 6.3 million and $ 4.8 million for the years ended December 31, 2022 and 2021, respectively, which carry forward indefinitely. Section 382 of the Internal Revenue Code (“IRC”) imposes limits on the ability to use NOL carryforwards that existed prior to a change in control to offset future taxable income. Such limitations would reduce, potentially significantly, the gross deferred tax assets disclosed in the table above related to the NOL carryforwards. The Company continues to disclose the NOL carryforwards at their original amount in the table above as no potential limitation has been quantified. The Company has also established a full valuation allowance for all deferred tax assets, including the NOL carryforwards, since the Company could not conclude that it was more likely than not able to generate future taxable income to realize these assets. At December 31, 2022 and 2021 the Company has federal and state income tax credit carryforwards of approximately $ 0.5 million and $ 0.3 million, respectively. The credits begin to expire in 2041 . In accordance with authoritative guidance, the impact of an uncertain income tax position on the income tax return must be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. The following table summarizes amounts the Company recorded for uncertain tax positions as of December 31, 2022 and 2021 (in thousands): As of December 31, 2022 2021 Beginning balance of uncertain tax positions $ - $ - Additions based on current year’s tax positions 45 - Net changes based on prior year’s tax positions 76 - Ending balance of uncertain tax positions $ 121 $ - It is reasonably possible that unrecognized tax benefits may increase or decrease within the next twelve months due to tax examination changes, expiration of statute of limitations, or changes in tax law. The Company does not anticipate any significant changes to unrecognized tax benefits over the next 12 months. The Company recognizes interest and penalties related to unrecognized tax positions within the income tax expense line in the accompanying consolidated statements of operations. There were no accrued interest and penalties associated with uncertain tax positions as of December 31, 2022 or December 31, 2021. The Company is subject to U.S. federal, state, and foreign income tax. The Company’s income tax returns are subject to examination by the relevant taxing authorities. As of December 31, 2022, the 2019 – 2022 tax years remain subject to examination in the U.S. federal tax, various state, and foreign tax jurisdictions. The Company is not currently under examination by federal state, or foreign jurisdictions. On August 16, 2022, the Inflation Reduction Act of 2022 (the “IRA”) was enacted into law. Among other changes to the tax code, the IRA imposes a 1% excise tax on certain repurchases of corporate stock by certain publicly traded corporations. The 1% stock buyback tax applies to redemptions by domestic corporations occurring in taxable years beginning after December 31, 2022. A number of exceptions to the stock buyback tax are available including exceptions to certain reorganizations. However, while these exceptions may be helpful in limiting the application of the stock buyback tax in situations in which it was not intended to apply, more guidance will be necessary for taxpayers to analyze the potential application of these exceptions and whether they will be able to rely upon them. F-35 Table of Contents 17) Subsequent Event Cell Customization and License Agreement O n February 21, 2023, the Company and Lineage Cell Therapeutics, Inc. (“Lineage”) entered into an exclusive option and license agreement (the “Lineage Agreement”), pursuant to which, Lineage may request prior to August 22, 2023 that the Company develops for, and delivers to, Lineage certain induced pluripotent stem cell lines, which Lineage would use to evaluate the possible development of cell transplant therapies for treatment of diseases of the central nervous system in humans, excluding ophthalmologic indications, (b) diseases and conditions of the peripheral nervous system, (c) psychiatric, respiratory, musculoskeletal, and hematological diseases, disorders, and conditions, and (d) cancer. The Lineage Agreement also provides Lineage with the option to obtain an exclusive sublicense to certain related technology for preclinical, clinical and commercial purposes, which would permit Lineage to sublicense such intellectual property, subject to payment of certain sublicense royalty fees. Lineage has six months from our delivery to Lineage of such induced pluripotent stem cell lines to exercise such option, and upon any such exercise, Lineage would agree to use its commercially reasonable efforts to exploit and make commercially available one or more licensed products derived from such induced pluripotent stem cell lines in accordance with the Lineage Agreement. Upon entry into the Lineage Agreement, Lineage paid the Company a $ 250,000 non-refundable up-front payment. We are also entitled to certain cell line customization fees with respect to cell lines that Lineage may request that we develop for Lineage, and royalty payments with respect to any such licensed products, certain sublicense fees and certain milestone payments under the Lineage Agreements . F-36