What changed in this filing

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Item 1. Financial Statements

2023-05-11 compared with 2022-11-14 · 421 added, 1023 removed, 158 unchanged (90% of the section changed)

4 unchanged sentences

(In thousands, except par value amount)

September 30,

Current assets:

Other receivable

Other receivables

Prepaid expenses and other current assets

Total current assets

Restricted cash

Property and equipment, net

Right-of-use assets - operating leases

In-process research and development

Investment in non-controlling interest

3 unchanged sentences

Accrued expenses

Income taxes payable

Operating lease liabilities, current

Finance lease liabilities, current

Due to related party, current

Other current liabilities

2 unchanged sentences

Operating lease liabilities, non-current

Finance lease liabilities, non-current

Due to related party, non-current

Deferred revenue

Other liabilities

2 unchanged sentences

Preferred stock, $ 0.005 par value, 1,000 shares authorized, 156

designated and outstanding of Series A convertible preferred stock at September 30 , 2022 and December 31 , 2021 , $ 156 liquidation

Common stock, $ 0.005 par value, 100,000 shares authorized at September 30, 2022 and December 31, 2021;

2,942 and 2,601 issued and outstanding at September 30 , 2022 and December 31 , 2021 ,

designated and outstanding of Series A convertible preferred stock at March 31 , 2023 and December 31 , 2022 , $ 156 liquidation

Common stock, $ 0.005 par value, 100,000 shares authorized at March 31, 2023 and December 31, 2022;

5,127 issued and outstanding at both March 31 , 2023 and December 31 , 2022

Additional paid-in capital

2 unchanged sentences

Total liabilities and stockholders’ equity

Share and per share data have been adjusted for all periods

presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

STATEMENTS OF

(In thousands, except per share amounts)

Three months ended September 30 ,

Nine months ended September 30 ,

ended March 31,

Operating expenses:

License costs

Research and development

In-process research and development

General and administrative

Transaction costs

Total operating expenses

Loss from operations

Other income (expense), net:

Loss on sale of NTN assets

Other expense, net:

Change in fair value of warrant liabilities

Loss on non-controlling investment

Other (expense) income, net

Total other income (expense), net

Other income (expense), net

Total other expense, net

Loss before income taxes

Provision for income taxes

Series A preferred stock dividend

Net loss attributable to common stockholders

Net loss per common share - basic and diluted

Weighted average shares outstanding - basic and diluted

Share and per share data have been adjusted for all periods

presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

ETERNA THERAPEUTICS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’ EQUITY

For the three and nine months ended September 30, 2022 and 2021 (unaudited)

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

For the three months ended March 31, 2023 and 2022 (unaudited)

(in thousands)

1 unchanged sentence

Additional Paid-

Balances at July 1, 2022

Issuance of common stock from vested restricted stock units

Issuance of common stock from exercise of pre-funded warrants

Stock-based compensation

Balances at September 30 , 2022

Balances at January 1, 2023

Issuance of common stock in connection with private offering

Forfeiture of unvested restricted stock

Issuance of common stock from vested restricted stock units

Issuance of common stock from exercise of pre-funded warrants

Stock-based compensation

Cash dividends to Series A preferred stockholders

Balances at September 30 , 2022

Share and per share data have been adjusted for all periods presented to

reflect a 1-for-20 reverse stock split effective October 17, 2022.

The accompanying notes are an integral part of these condensed consolidated financial statements.

ETERNA THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ AND MEMBERS’

For the three and nine months ended September 30, 2022 and 2021

(in thousands)

Membership Equity

Series A Preferred

Additional Paid -

Balances at July 1, 2021

Common stock to be retained by NTN stockholders

Issuance of common stock from the exercise of stock options

Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net

Issuance of common stock in lieu of cash dividend to Series A preferred stockholders

Issuance of common stock in connection with the acquisition of Novellus, Inc.

Forfeiture of unvested restricted stock

Stock-based compensation

Balances at September 30 , 2021

Balances at March 31, 2023

Balances at January 1, 2022

Brooklyn rights offerings membership units

Elimination of Brooklyn’s historical members’ equity

Issuance of common stock for business combination

Series A preferred stock retained in business combination

Issuance of common stock to Brooklyn members

Issuance of common stock to Financial Advisor upon consummation of merger

Issuance of common stock from the exercise of stock options

Issuance of common stock related to stock purchase agreement with Lincoln Park Capital Fund, LLC, net

Issuance of common stock in lieu of cash dividend to Series A preferred stockholders

Issuance of common stock in connection with the acquisition of Novellus, Inc.

Issuance of common stock and pre-funded warrants in connection with private offering, net.

Forfeiture of unvested restricted stock

Issuance of common stock from vested restricted stock units

Stock-based compensation

Balances at September 30 , 2021

Share and per share data have been adjusted for all periods presented to reflect a 1-for-20 reverse stock split effective October 17, 2022.

Balances at March 31, 2022

The accompanying notes are an integral part of these condensed consolidated financial statements.

2 unchanged sentences

(in thousands)

September 30,

For the three

Cash flows used in operating activities:

3 unchanged sentences

Amortization of right-of-use asset

Impairment of right-of-use asset

Impairment of in-process research and development

In-process R&D acquired in Novellus asset acquisition

Transaction costs - shares to Financial Advisor

Loss on sale of NTN assets

Loss on disposal of fixed assets

Gain on forgiveness of PPP loan

Gain on lease termination

Gain on lease warrant liabilities

Loss on change in warrant liabilities

Loss on non-controlling investment

Changes in operating assets and liabilities:

Other receivable

Other receivables

Prepaid expenses and other current assets

2 unchanged sentences

Operating lease liability

Due to related party

Deferred revenue

Other liabilities

2 unchanged sentences

Purchase of property and equipment

Purchase of Novellus, net of common stock issue and cash acquired

Proceeds from the sales of fixed assets

Purchase of NTN, net of cash acquired

Proceeds from the sale of NTN assets, net of cash disposed

Net cash used in investing activities

1 unchanged sentence

Proceeds from issuance of common stock and warrants in connection with private offering

Issuance of common stock from exercise of pre-funded warrants

Payroll tax remitted on net share settlement of equity awards

Dividends paid to Series A preferred stockholders

Principal payments on finance leases

Proceeds from issuance of common stock to Lincoln Park

Fees incurred in connection with the common stock issued to Lincoln Park

Proceeds from sale of members ’ equity

Proceeds from the exercise of stock options

Repayment of NTN ’ s PPP loan

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Cash and cash equivalents at beginning of period

Cash and cash equivalents at end of period

Cash, cash equivalents and restricted cash at beginning of period

Cash, cash equivalents and restricted cash at end of period

Supplemental disclosures of cash flow information:

Cash paid during the period for:

Supplemental disclosure of non-cash investing and financing activities:

Conversion of warrant liability to equity

Issuance of common stock for Series A preferred stock dividend

Issuance of common stock for business combination

Issuance of common Stock for Novellus acquisition

Series A preferred stock retained in business combination

Initial measurement of ROU assets, net of tenant improvement allowance

Initial measurement of operating lease liabilities

Initial measurement of finance lease liabilities

Reconciliation of cash, cash equivalents and restricted cash at end of period:

Cash and cash equivalents

Restricted cash

Total Cash, cash equivalents and restriced cash at end of period

The accompanying notes are an integral part of these condensed consolidated financial statements.

4 unchanged sentences

Description of Business

On October 11, 2022, Eterna Therapeutics Inc., a Delaware corporation, (“Eterna” or the “Company”), filed with the Secretary of State of the State of Delaware a Certificate of A mendment to its Restated Certificate of Incorporation, as amended (the “Charter”), to change its name from Brooklyn ImmunoTherapeutics, Inc.

to Eterna Therapeutics Inc., which became effective on October 17, 2022

(the “Name Change”).

The Name Change did not require approval of the Company’s stockholders and did not affect the rights of the Company’s security holders.

In connection with the Name Change, the trading symbol of the Company’s common stock, par value

$ 0.005 per share (“common stock”), on The Nasdaq Global Market changed from “BTX” to “ERNA.”

Eterna, together with its subsidiaries including Brooklyn ImmunoTherapeutics LLC ( “Brooklyn LLC”), Novellus,

(“Novellus”) and Novellus Therapeutics Limited (“Novellus Ltd.”), is a biopharmaceutical company using its mRNA technology platform, including mRNA-based cell reprogramming and gene editing technologies, to create next generation mRNA,

gene editing and cell therapies, including iPSC therapies for multiple therapeutic indications.

The Company also plans to develop and advance a pipeline of therapeutic products both internally and through strategic partnerships.

As used herein, the

“Company” refers collectively to Eterna and its subsidiaries.

On August 12, 2020, Eterna (then known as “NTN Buzztime, Inc.”), Brooklyn 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 Brooklyn LLC, with Brooklyn LLC continuing as a wholly owned

subsidiary of Eterna and as the surviving company of the merger (the “Merger”).

The Merger closed on March 25, 2021.

In connection with the Merger, the Company changed its name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.,”

and, as described above, the Company has since changed

its name to Eterna Therapeutics Inc.

The Merger was accounted for as a reverse acquisition, in which Brooklyn 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 business operated under the name “NTN

Buzztime, Inc.” (the “Disposition”) prior to the Merger 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 (a) Novellus LLC, (b) Novellus (the sole equity holder of Novellus Ltd.

and, prior to the closing under the Novellus Acquisition Agreement, a subsidiary of Novellus

LLC), and (c) a seller representative (the “Novellus Acquisition”), pursuant to which Eterna acquired Novellus and its subsidiary, Novellus Ltd.

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.

Eterna Therapeutics Inc.

(“Eterna”), together with its subsidiaries including Eterna Therapeutics LLC (“Eterna LLC”), Novellus, Inc.

(“Novellus”) and Novellus Therapeutics Limited (“Novellus

Limited”), is a life science 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 NoveSliceTM and UltraSliceTM

gene-editing proteins, and the ToRNAdoTM 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.

Basis of Presentation

accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the instructions to

Form 10-Q and Article 8 of Regulation S-X.

The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial statements and with the

instructions to Form 10-Q and Article 8 of Regulation S-X.

Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements.

In the opinion of management, the unaudited financial statements include all the

normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.

condensed consolidated financial statements should be read together with the audited consolidated financial statements and notes thereto contained in Eterna’s Annual Report on Form 10-K/A for the year ended December 31, 2021 filed with the

Securities and Exchange Commission (the “SEC”) on June 30, 2022 (the “10-K/A”).

The accompanying condensed consolidated balance sheet as of December 31, 2021 has been derived from the audited financial statements contained in the 10-K/A but does

not include all of the information and footnotes required by GAAP for complete financial statements.

The results of operations for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be anticipated

for the entire year ending December 31, 2022, or any other period.

Reverse Stock Split

A s 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 “Reverse Stock Split”).

The Reverse Stock Split became effective under Delaware law at 11:59 p.m.

Eastern time on October 16, 2022.

Upon the effectiveness of the 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 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 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 Quarterly Report on Form 10-Q have been adjusted for all periods presented to reflect the Reverse

Reclassifications

Certain reclassifications have been made

to Eterna’s prior years’ financial statements to conform to the current year presentation.

These reclassifications had no effect on Eterna’s previously reported results of operations or accumulated deficit.

In the opinion of management, the unaudited financial

statements include all the normal recurring adjustments that are necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.

These condensed consolidated financial statements should be read together with the audited consolidated financial statements and notes thereto contained in Eterna’s Annual Report on Form 10-K for the year ended December 31, 2022 filed

with the Securities and Exchange Commission (the “SEC”) on March 20, 2023 (the “2022 10-K”).

The accompanying condensed consolidated balance sheet as of December 31, 2022 has been derived from the audited financial statements contained in the

2022 10-K but does not include all of the information and footnotes required by GAAP for complete financial statements.

The results of operations for the three months ended March 31, 2023 are not necessarily indicative of the results to be

anticipated for the entire year ending December 31, 2023, or any other period.

LIQUIDITY AND CAPITAL RESOURCES

The Company has incurred significant operating losses and has an accumulated deficit as a result of ongoing efforts to develop product candidates, including conducting clinical trials and providing general and

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 September 30, 2022, the Company had a cash balance of approximately $ 13.3 million and

an accumulated deficit of approximately $ 160.8 million.

For the three and nine months ended September 30, 2022, the Company

incurred a net loss of $ 7.3 million and $ 20.1 million, respectively, and for the nine months ended September 30, 2022, the Company used cash in operating activities of $ 15.5 million.

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.

As of March 31, 2023, the Company had an unrestricted cash balance of approximately $ 5.4

million and an accumulated deficit of approximately $ 170.7 million.

For the three months ended March 31, 2023, the Company incurred

a net loss of $ 5.4 million, and the Company used cash in operating activities of $ 6.0 million.

In October 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

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.

The Company’s deposit of this restricted cash reduced the amount

of working capital the Company has to fund its operations.

See Note 15, Subsequent

Events, for more information on the

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three and nine months ended September 30, 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 the remaining availability under an equity line purchase agreement with Lincoln Park Capital Fund, LLC (the “Second Purchase Agreement”) (to the extent the Company is

permitted to use such agreement) (see Note 12), public or private equity offerings, debt financings, corporate collaborations or other means.

The Company may also seek governmental grants to support its clinical trials and preclinical trials.

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 condensed 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.

accompanying condensed 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.

MERGER, DISPOSITION AND ACQUISITION TRANSACTIONS

On August 12, 2020, Eterna, Brooklyn LLC and the Merger Sub

entered into the Merger Agreement, and the Merger closed on March 25, 2021.

The Merger was accounted for as a reverse acquisition, in which Brooklyn LLC was deemed the acquiring company for accounting purposes.

Brooklyn 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.

Brooklyn LLC was determined to be the accounting acquirer

based upon the terms of the Merger and other factors including that (i) Brooklyn 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 Brooklyn LLC under the terms of the Merger Agreement and (iii) existing members of Brooklyn LLC’s

management became the management of Eterna immediately after the Merger.

At the closing of the Merger, all the outstanding membership

interests of Brooklyn 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 Brooklyn LLC’s financial advisor for its services to Brooklyn LLC in connection with the

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 for approximately 76,000 shares common stock 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 Brooklyn 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):

March 25, 2021

Cash and cash equivalents

Accounts receivable

Prepaid expense and other current assets

Property and equipment, net

Software development costs

Accounts payable, accrued liabilities and other current liabilities

Net assets acquired, excluding goodwill

Total consideration

Net assets acquired, excluding goodwill

Brooklyn 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 Brooklyn LLC had the

required funds, certain beneficial holders of Brooklyn LLC’s Class A membership interests entered into contractual commitments to invest $ 10.0

million into Brooklyn 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.

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:

Assume advance/loans

Interest on advance/loans

Carrying value of assets sold:

Cash and cash equivalents

Accounts receivable

Prepaids and other current assets

Property and equipment, net

Software development costs

Liabilities transferred upon sale:

Accounts payable and accrued expenses

Obligations under finance leases

Lease liability

Deferred revenue

Other current liabilities

Transaction costs

Total loss on sale of assets

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 Ltd.

became Eterna’s indirectly owned subsidiary;

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 $ 290.5060 per share.

At the date of issuance, the fair value of the shares was approximately $ 58.7 million.

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 Ltd.

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

The lock-up agreements include customary exceptions for transfers during the applicable lock-up period.

Company expects the Novellus Acquisition will advance its evolution into a platform company with a pipeline of next generation mRNA cellular and gene editing programs.

In addition, the acquisition of Novellus Ltd.

builds on the License Agreement

(as defined in Note 10).

As a result of the Novellus Acquisition, in accordance with the terms of the Novellus-Factor License Agreement, the rights and obligations of Novellus Ltd.

thereunder pertaining to any and all licensed products have

inured to Eterna.

The License Agreement with Factor Bioscience Limited (“Factor Limited”) under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain next-generation mRNA gene editing and cell therapy products,

remained unchanged after the completion of the Novellus Acquisition.

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 Accounting Standards Codification (“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 in-process research and

development (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

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 acquired

Unrestricted shares

Restricted shares

Total fair value of consideration paid

Less amount of cash paid for NoveCite investment

Fair value of IPR&D acquired

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

a result of the Novellus Acquisition, Eterna acquired and currently owns 25 % of NoveCite and Citius Pharmaceuticals, Inc.

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 Meth od 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 condensed consolidated statement of operations.

The investment may also reflect an equity loss in the event that circumstances indicate an other-than-temporary impairment.

For the three and nine months ended September 30, 2022, the Company recorded approximately $ 21,000 and $ 0.9 million, respectively,

in losses from its investment in NoveCite, and of the $ 0.9 million loss for the nine months ended September 30, 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 providing further financial support for NoveCite.

Therefore, the Company will record losses only up to its investment carrying amount.

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.

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 Subleas e.

On April 5, 2023, the Company entered into a purchase agreement and a registration rights agreement with Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park committed

to purchase up to $ 10.0 million of the Company’s common stock in an “equity line” financing arrangement.

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three months ended March 31, 2023, 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.

Other than the two-year purchase agreement with the investment group discussed above, 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 condensed 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 condensed 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.

CONTRACT WITH CUSTOMER

On February 21, 2023, the Company and Lineage Cell Therapeutics, Inc.

entered into an exclusive option and license agreement (the “Lineage Agreement”), pursuant to which, prior to August 22, 2023, Lineage may request that the Company develop for, and deliver 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 certain indications.

Agreement also provides Lineage with the option (the “Option Right”) 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.

Upon entry into the Lineage Agreement, Lineage paid the

Company a $ 250 ,000 non-refundable up-front payment (the “Option Fee”) for the Option Right.

The Company is also entitled to

certain cell line customization fees with respect to cell lines that Lineage may request that it develop for Lineage, and royalty payments with respect to any such licensed products, certain sublicense fees and certain milestone payments under the

Lineage Agreement.

The Company recognizes revenue under ASC 606, Revenue

from Contracts with Customers (“ASC 606”), when a customer obtains control of promised goods or services in an amount that reflect the consideration that the Company expects to receive in exchange for those goods or services.

performs the following five steps in order to recognize revenue:

Identify the contract with a customer;

Identify the performance obligations in the contracts;

Determine the transaction price;

Allocate the transaction price to the performance obligations;

Recognize revenue when (or as) the performance obligations are satisfied.

The Company has determined that as of contract inception, the Option Right contains a

material right because by entering into the agreement, the Option Right allows the customer to obtain a license that no other customer can receive.

As a result, the Option Right is a separate performance obligation under the agreement.

line customization activities that the Company may perform and the granting of the license that the Company may provide to the customer are not considered performance obligations as of contract inception, as these are goods and services that the

customer may request in the future and will be accounted for as separate contracts when the customer exercises the Option Right or provides its request to the Company to perform the cell line customization activities.

As a result, the Option Right

performance obligation is the only performance obligation as of contract inceptions, and 100 % of the Option Fee is allocated to the

Option Right.

Revenue from the Option Right will be recognized when the customer enters into the sublicense or when the Option Right expires.

As of March 31, 2023, the Company has recorded $ 250 ,000 as deferred revenue related to the upfront, nonrefundable Option Fee.

As provided for in the Exclusive Factor License Agreement discussed in Note 9, the

Company is obligated to pay Factor Limited 20 % of the Option Fee when the Company received payment from the customer in February 2023.

Accordingly, the Company recognized a license cost of $ 50 ,000 during the three months ended March 31, 2023.

FAIR VALUE OF FINANCIAL INSTRUMENTS

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 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.

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

The fair value hierarchy is as follows:

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.

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.

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.

T here were no liabilities measured at fair value as of Decem ber 31, 2021.

The following tables summarize the liabilities that are measured at fair value as of September 30, 2022 (in thousands) :

As of September 30,

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

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.

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,

restricted cash, accounts payable and accrued expenses, other current liabilities and other liabilities approximate fair value based due to their short maturities.

The following tables summarize the liabilities that are measured at fair value as of March 31, 2023 and December 31,2022 (in thousands):

Warrant liabilities - Common Warrants

March 9, 2022, the Company issued pre-funded warrants exercisable for approximately 68,000 shares of common stock (the “Pre-Funded

Warrants”) and warrants exercisable for approximately 343,000 shares of common stock (the “Common Warrants”) to the PIPE Investor in

connection with the PIPE Transaction (as each such term is defined in Note 12).

On July 12, 2022, the PIPE Investor exercised its 68,000

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 PIPE Investor on July 14, 2022 upon receipt of the cash proceeds.

Following the exercise, no Pre-Funded

Warrants remained outstanding.

See Note 12 for more information related to the PIPE Transaction.

The Common Warrants and 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 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 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 Pre-Funded Warrants were directly

observable from the Company’s publicly-traded common stock.

Upon exercise of the Pre-Funded Warrants on July 12, 2022, the Company reclassified the fair value of the Pre-Funded Warrants to equity as of such date.

The fair values of the Common Warrants and the 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 PIPE Transaction.

The excess $ 0.6 million represents an inducement to the purchaser to enter into the PIPE Transaction and was recorded in warrant liabilities expense in the accompanying consolidated

statement of operations.

Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms available at the time of the transaction.

The Company remeasured the fair value of the Common Warrants as of September 30, 2022.

The following table presents the changes in the warrant

liabilities from the issuance date (in thousands):

Common Warrants

Total Warrant

The Company uses a Black-Scholes option pricing model to

estimate the fair value of the 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 Company remeasured the fair value of

the Common Warrants

as of March 31, 2023.

following table presents the changes in the warrant liabilities from January 1, 2023 (in thousands):

Fair value at January 1, 2023

Fair value at March 9, 2022 (issuance date)

Change in fair value of warrant liabilities

Exercise of pre-funded warrants

Fair value at September 30, 2022

Operating Leases

The Company has operating leases for office and laboratory space in the borough of Manhattan in New York, New York and in Cambridge, Massachusetts, which expire in 2026 and 2028, respectively.

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 is 62 months and

the lease commencement date was April 19, 2022.

The San Diego Lease will expire in June 2027.

See Note 15 for information regarding an additional lease the Company entered into in October 2022.

Base rent for the San Diego Lease is $ 6.35

per square foot in the first year of the San Diego Lease, with a rent abatement for the second and third full months of the first year.

The base rent will increase by approximately 3 % on each anniversary of the lease commencement date.

The Company is also required to pay its share of operating expenses and property taxes.

The San Diego Lease provides for a one-time

option to extend the lease term for an additional five years at the then fair rental value.

The Company recorded a $ 1.7 million right-of-use (“ROU”) asset and $ 1.7 million lease liabilities

for the San Diego Lease.

During the second quarter of 2022, the Company decided to

consolidate its research and development efforts in Cambridge, Massachusetts, and the Company intends 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 the nine months ended September 30, 2022, which is recorded in general and administrative expense on the condensed

consolidated statements of operations.

There was no impairment charge recognized for the three months ended September 30, 2022.

On March 5, 2022, the Company entered into an Agreement to Assign Space Lease with Regen Lab USA LLC (“Regen”) pursuant to which the Company

agreed to assign its Brooklyn, New York lease (the “Brooklyn Lease”) to Regen.

The effective date of the assignment was contingent upon, among other things, a consent from BioBat, Inc.

(the “Landlord”).

Additionally, Regen agreed to purchase

certain equipment from the Company for $ 50,000 , partly reimburse the Company $ 50,000 toward certain existing unamortized leasehold improvements, and to reimburse the Company for the existing security deposit the Company had under the Brooklyn Lease of approximately

O n March 25, 2022, the Company entered into an Assignment and Assumption of Lease Agreement (the “Assignment Agreement”) with Regen,

which included the Landlord’s consent to the assignment.

The effective date of the assignment was March 28, 2022.

Under the Assignment Agreement, Regen (i) accepted the assignment of the Brooklyn Lease;

(ii) assumed all of the obligations,

liabilities, covenants and conditions of the Company’s as tenant under the Brooklyn Lease;

(iii) assumed and agreed to perform and observe all of the obligations, terms, requirements, covenants and conditions to be performed or observed by

the Company under the Brooklyn Lease;

and (iv) made all of the representations and warranties under the Brooklyn Lease with the same force and effect as if Regen had executed the Brooklyn Lease originally as the tenant.

N otwithstanding Regen’s assumption of the Brooklyn Lease, the Company remains liable and responsible for the due keeping, and full

performance and observance, of all the provisions of the Brooklyn Lease applicable to the tenant thereunder.

As a result of the Assignment Agreement, the Company wrote off the remaining ROU asset balance and the corresponding lease liability .

The Company accounts for leases under ASC 842, Leases .

Operating leases are included in

“Right-of use assets - operating leases” within the Company’s balance sheets and represent the Company’s right to use an underlying asset for the lease term.

The Company’s related obligation to make lease payments are included in “Operating lease

liabilities, non-current” and “Operating lease liabilities, current” within the Company’s balance sheets.

ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

rate implicit in the lease is not readily determinable, the Company uses its incremental borrowing rates based on the information available at the lease commencement date in determining the present value of lease payments.

Lease expense for lease

payments is recognized on a straight-line basis over the lease term.

Leases with an initial term of 12 months or less are not recorded on the balance sheet and are recognized as lease expense on a straight-line basis over the lease term.

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 lease payments is not included in the ROU assets or lease liabilities.

Rather, variable payments, other than those dependent upon 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.

During the three and nine months ended September 30, 2022 and 2021, the net operating lease expenses were as follows (in thousands):

Three months ended September 30,

Operating lease expense

Sublease income

Variable lease expense

Total lease expense

Nine months ended September 30,

Fair value at March 31, 2023

The 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.

In March 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 .

Company recorded a $ 1.7 million right of use (“ROU’) asset and a $ 1.7 million lease liability 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.

On January 31, 2023, the Company terminated its lease in San Diego, California pursuant to a

lease termination agreement entered into with the lessor in November 2022 and amended in December 2022.

The Company paid a $ 0.1

million lease termination fee in January 2023.

The lease termination was accounted for as a modification because the Company did not contemporaneously terminate the lease when it entered into the lease termination agreement on November 30,

2022 (the “Modification Date”) and had a continued right-of-use of the facility through January 31, 2023.

As a result, on the Modification Date, 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 on the Modification Date by approximately $ 1.4 million to the present value of the remeasured lease liability of approximately $ 0.2 million and reduced the ROU asset by approximately $ 0.8 million to zero .

As of March 31, 2023, the Company had no

remaining lease liabilities associated with this lease.

In October 2022, the Company entered into the Sublease

Squibb & Sons, L.L.C., a 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 a building currently under construction located in Somerville, Massachusetts.

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.

The Sublessor has agreed to 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 March 31, 2023, 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 during the second quarter of 2023, and it is anticipated that the construction will be

substantially complete during the fourth quarter of 2023.

As a result, the commencement date of the Sublease did not occur as of March 31, 2023, and accordingly, the Company did not recognize a lease liability and corresponding ROU asset for

the Sublease as of March 31, 2023.

As of March 31, 2023, the Company had incurred

approximately $ 0.7 million in costs in connection with the Sublease, which consisted of approximately $ 0.6 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 condensed consolidated balance sheet as of March 31, 2023.

For the three months ended March 31, 2023 and 2022, the net operating lease expenses were as follows (in thousands):

Three months ended

Operating lease expense

2 unchanged sentences

Total lease expense

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 September, 2022, including the changes during the period (in thousands).

Operating Lease

Operating lease ROU assets at

January 1, 2022

Initial measurement of operating lease ROU assets

Amortization of operating lease

Impairment of ROU assets

Remeasurement of ROU asset

Write off of ROU asset due to lease termination

Operating lease ROU assets at

September 30, 2022

Operating Lease

Operating lease liabilities at

January 1, 2022

Initial measurement of operating lease liabilities

Principal payments on operating

lease liabilities

Write off of operating lease liability due to lease termination

Operating lease liabilities at

September 30, 2022

The tables below show the beginning balances of the operating ROU assets and lease liabilities as of January 1, 2023 and the ending balances

as of March 31, 2023, including the changes during the period (in thousands).

Operating Lease ROU Assets

Operating lease ROU assets at January 1, 2023

Amortization of operating lease ROU assets

Operating lease ROU assets at March 31, 2023

Operating Lease Liabilities

Operating lease liabilities at January 1, 2023

Principal payments on operating lease liabilties

Operating lease liabilities at March 31, 2023

Less non-current portion

Current portion at September 30,

As of September 30, 2022, the Company’s operating leases had a weighted-average

remaining life of 4.9 years with a weighted-average discount rate of 8.97 %.

The maturities of the operating lease liabilities are as follows (in thousands):

September 30,

Current portion at March 31, 2023

As of March 31, 2023, the Company’s operating leases had a weighted-average remaining life of 4.8 years with a weighted-average discount rate of 10.23 %.

The maturities of the

operating lease liabilities are as follows (in thousands):

Total payments

1 unchanged sentence

Total operating lease liabilities

IN-PROCESS RESEARCH & DEVELOPMENT AND GOODWILL

The weighted-average remaining life, the weighted-average discount rate and the maturities of the operating lease liabilities shown above do not include the Sublease, as the commencement date of the Sublease had not

begun as of March 31, 2023, and therefore, the Company did not record a corresponding lease liability and ROU asset.

In 2018, the Company acquired IRX Therapeutics (“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.

IPR&D assets acquired in a business combination are considered to be indefinite lived until the completion or abandonment of the associated

research and development projects.

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.

The Company also recorded goodwill in the amount of $ 2.0

million related to the IRX acquisition.

Goodwill and indefinite-lived IPR&D assets are not amortized but are tested for impairment annually, or more frequently if the Company becomes aware of any events occurring or changes in circumstances

that indicate that the fair value of the entity is less than its carrying values.

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

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 (at two years of follow up).

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.

IRX-2 has been studied externally in other clinical settings outside of

head and neck cancer in the form of investigator sponsored trials, which have either ended or are not currently active.

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 condensed consolidated statement of operations during the second quarter of 2022, which reduced the value of the asset to zero .

As of September 30, 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.

The Company recorded goodwill in the

amount of $ 2.0 million related to the IRX acquisition .

Goodwill is not amortized but is

tested for impairment annually, or more frequently if the Company becomes aware of any events occurring or changes in circumstances that indicate that the fair value of the entity is less than 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.

As a result of the

decline in the Company’s stock price from $ 10.40 per share as of June 30, 2022 to $ 4.94 per share as of September 30, 2022, the Company determined that there were indications of impairment.

Accordingly, the Company proceeded to the first step in the

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 no t impaired as of September 30, 2022.

CEO SEPARATION AGREEMENT

On May 24, 2022, Dr.

Federoff resigned as the Company’s Chief Executive

Officer and President effective May 26, 2022.

In connection with Dr.

Federoff’s resignation, the Company 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.

Federoff’s resignation from the Board was not due to any disagreement with the

Company on any matter relating to the Company’s operations, policies or practices.

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 will

receive following benefits under the Separation Agreement:

a lump sum cash severance benefit in the amount of $ 0.2 million, representing Dr.

target bonus for 2022;

payment of Dr.

Federoff’s annual base salary for a period of twelve months after the expiration of the applicable revocation period (the “Separation Period”), for a total gross amount equal to $ 0.5 million;

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 Grant (as defined below) 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 approximately 76,000

shares of common stock, may be exercised for a period of thirty-six months after the separation date (see Note 11 for

modification accounting impact);

acceleration and vesting of 25/36 th of the Milestone Grant options, representing collectively approximately 21,000 shares of

common stock, may be exercised for a period of thirty-six months after the separation date (see Note 11 for modification

accounting impact);

a lump sum cash severance benefit in the amount of $ 0.1 million, representing the value Dr.

Federoff would have received if he was entitled to receive a settlement of a pro rata portion of his performance restricted stock units through the expiration of the Separation Period, assuming the performance metrics were waived and

assuming a per share value of $ 16.20 .

The Separation Agreement also includes certain other customary representations,

warranties and covenants of Dr.

Federoff, and provides for reimbursement of certain expenses incurred by Dr Federoff.

The Separation Agreement supersedes all other agreements or arrangements between Dr.

Federoff and the Company regarding the

subject matter of the agreement, including those with respect to severance payments and benefits.

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 .

March 31, 2023, the Company evaluated potential triggering events that could indicate that the fair value of the entity is less than its carrying value and determined there were no such events that occurred.

RELATED PARTY TRANSACTIONS

On September 9, 2022, the Company entered into

a Master Services Agreement (the “MSA”) with Factor Bioscience Inc.

(“Factor”), pursuan t to which Factor has agreed to provide services to the Company as agreed between the Company and Factor and as set forth in one or more work orders under

the MSA, including the first work order included in the MSA.

Under the first work order, Factor 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 an initial fee of $ 5.0 million, payable in twelve equal monthly installments of approximately $ 0.4 million.

Following the initial 12-month period, the Company has agreed to pay Factor a monthly fee of $ 0.4 million until such time as the first work

order under the MSA is terminated.

The Company paid a deposit of $ 0.4 million, which will be applied to the last month of the first work

Company may terminate the first work under the MSA on or after the second anniversary of the date of the MSA, subject to providing Factor with 120

The agreements described below 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.

As of March 31, 2023, the following

agreements were in place related to Factor Bioscience Inc.

(including its affiliates, “Factor Bioscience”) and Dr.

Matthew Angel:

2022, the Company entered into a Master Services Agreement (the “MSA”) with 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.

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 may terminate such work order only on and after the fourth anniversary of the date of the MSA, su bject 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, on September

9, 2022, Factor’s subsidiary, Factor Limited, entered into a waiver agreement (the “Waiver Agreement”) with Brooklyn 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 Brooklyn LLC under a license agreement by and among Factor Limited, Novellus Ltd., and

Brooklyn LLC.

See Note 10, License Agreements , for more information on this

Under the terms of the Waiver Agreement, the License Fee Obligation is waived conditionally on the Company paying Factor Inc.

amounts due under the MSA.

result of entering into the Waiver Agreement and the MSA on September 9, 2022, 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.

Factor Bioscience may terminate such work order only on and after the fourth anniversary of the date of the MSA, su bject 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

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 exclusive license agreement entered into in April 2021 by and among Eterna LLC, Novellus Limited and Factor Limited, as amended in November

2022 (the “Original Factor License Agreement”).

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 .

Because the License Fee Obligation was conditionally waived until such amount

has been paid under the MSA, the Company recorded a liability of $ 3.5 million.

As of March 31 2023, there was approximately $ 2.5 million of the License Fee Obligation remaining, which is recorded on the accompanying condensed consolidated balance sheet in the “due to

related party” line items.

On February 20, 2023, the Company and

Factor Limited entered into an exclusive license agreement (the “Exclusive Factor License Agreement”) , which terminated and superseded the Original Factor License Agreement.

Subject to certain exclusive licenses or other rights granted by

Factor Limited to other third parties as of the effective date of the Exclusive Factor License Agreement, Factor granted the Company the exclusive, sublicensable license under certain patents owned by Factor Limited (the “Factor Patents”).

The term of the Exclusive Factor License Agreement expires on November 22, 2027, but will be automatically extended for an additional two and a half years (such period, the “Renewal Term”) if the Company receives at least $ 100 million in fees from sublicenses

to the Factor Patents (“Sublicense Fees”) granted by the Company pursuant to the Exclusive Factor License Agreement.

The Company will pay to Factor Limited 20 % of any Sublicense Fee received by the Company before the initial expiration date of such license and 30 %

of any Sublicense Fees received by the Company during the Renewal Term.

The Company may terminate the Exclusive Factor License Agreement upon 120

days’ written notice to Factor Limited, and both parties otherwise have additional customary termination rights.

Under the Exclusive Factor License Agreement, the Company is obligated to pay the expenses incurred by Factor Limited in

preparing, filing, prosecuting and maintaining the Factor Patents and has 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.

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 Sowydra legal matters described in Note 10 (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.

On Sept ember

6, 2022, the Company entered into an

assignment and assumption of contracts agreement (the “Assignment and Assumption Agreement”) with Factor, pursuant to which the Company assumed certain contracts with third parties that Factor 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 15).

Under the Assignment and Assumption Agreement, the Company agreed to reimburse Factor

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.

MSA, any work orders under the MSA, the Waiver Agreement, the Waiver and Assignment Agreement, and the Assignment and Assumption Agreement have been deemed related party transactions, as the Company’s Interim Chief Executive Officer, Dr.

Matthew Angel, is also the Chairman and Chief Executive Officer of Factor and the Director of Factor Limited.

ACCRUED EXPENSES AND OTHER LIABILITIES

against the Founders, Novellus and/or the Company by or on behalf of the Westman and Sowyrda legal matters described in Note 9 (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.

ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

September 30,

Legal fees and settlements

Professional fees

Accrued compensation

Accrued research and development expenses

Accrued general and administrative expenses

Total accrued expenses

Other liabilities consisted of the following (in thousands):

September 30,

Current portion of License Fee Obligation

Insurance policy premiums

Total other current liabilities

Long term portion of License Fee Obligation

Total other liabilities

Accrued compensation at September 30,

2022 includes approximately $ 1.0 million of severance, of which, approximately $ 0.3 million relates to severance for Dr.

Federoff pursuant to the Separation Agreement discussed above.

Accrued general and administration expenses at

September 30, 2022 includes $ 0.6 million for legal-related matters.

COMMITMENTS AND CONTINGENCIES

Legal Matters

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.

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.

Dhesh Govender v.

Immunotherapeutics, LLC, et al., Index No.

650847/2021 (N.Y.

or about February 5, 2021, Dhesh Govender, a former short-term consultant of Brooklyn LLC, filed a complaint against Brooklyn LLC and certain individuals that plaintiff alleges were directors of Brooklyn LLC.

The complaint is captioned, Dhesh

Brooklyn Immunotherapeutics, LLC, et al., Index No.

650847/2021 (N.Y.

Plaintiff alleges that Brooklyn 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 asserts various breach of contract, fraud and quantum meruit claims based on an alleged oral agreement pursuant to which he alleges Brooklyn LLC agreed to hire

him as an executive once the Merger was completed.

In particular, plaintiff alleges that, in exchange for transferring an opportunity to obtain an agreement to acquire a license from Novellus for its mRNA-based gene editing and cell

reprogramming technology to Brooklyn LLC, he was promised a $ 0.5 million salary and 7 % of the equity of Brooklyn LLC.

Based on these and other allegations, plaintiff seeks damages of not less than $ 10 million .

By Order dated November 10, 2021, the Court granted defendants’ motion to compel Govender to arbitrate all of his claims against them, based on the arbitration clause of his consulting agreement with Brooklyn

Govender thereafter filed his Statement of Claim (the “Demand”) with the American Arbitration Association (“AAA”), Case No.

01-21-0017-9417, on December 15, 2021 against the same defendants, and served it on defendants’ counsel on

February 3, 2022.

In his Demand, Govender continues to assert statutory discrimination claims against all defendants, claims against Brooklyn LLC premised on the breach of an alleged oral promise to issue Govender 7 % of the equity of Brooklyn LLC and to employ Govender at a $ 0.5 million annual salary in exchange for allegedly arranging and negotiating the Novellus license, common law fraud claims against Brooklyn LLC and Cherington based on the breach of these same promises and a

claim for quantum meruit against the Brooklyn LLC.

In his Demand, Govender now claims that the fair and reasonable value of his services on the quantum meruit claim exceeded $ 100 million and is seeking damages in an amount to be determined at the hearing.

Defendants filed an answering statement to the Demand on February 28, 2022 and the

parties have selected a three -member arbitration panel.

The date on which arbitration is

scheduled to begin has not yet been set.

Defendants intend to vigorously defend themselv es against these claims.

At this stage in the litigation, the Company is not able to predict the probability of a favorable or unfavorable

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

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.

In October 2021, Emerald requested that Eterna produce additional information related to the

authority, purpose and justification for the restriction imposed on the sale of Eterna common stock following the Merger and the timing of share delivery to Eterna stockholders, following which request Eterna agreed to produce

certain additional information and emails relating to these topics.

On March 30, 2022, counsel to Emerald advised the Company that it was prepared to file suit against the Company, certain current and former directors of the

Company, and the Company’s financial advisor in connection with the Merger, on behalf of Emerald and a class of similarly situated stockholders with respect to some or all of the foregoing matters, alleging claims for breach

of fiduciary duty, conversion and aiding and abetting breach of fiduciary duty.

Emerald’s counsel expressed a willingness to engage in private pre-suit early resolution discussions with the Company and its financial advisor on

behalf of individual stockholders whom counsel represents in addition to Emerald (collectively, the “Emerald Plaintiffs”);

and the Company engaged in such discussions in lieu of incurring the legal costs anticipated in respect

of litigating the Emerald Plaintiffs’ claims, all of which the Company disputes.

Following such 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 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 .

John Westman v.

Novellus, Inc., Christopher Rohde, and Matthew Angel, Civil Action No.

(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 the company’s founders and former executives, Dr.

Christopher Rohde and Dr.

Matthew Angel (collectively, “Defendants”).

The case includes allegations that Novellus,

violated the Massachusetts Wage Act.

Eterna acquired Novellus, Inc.

on July 16, 2021.

Westman’s claims relate to alleged conduct that took place before Eterna acquired Novellus, Inc.

Defense and liability in

association with any Wage Act claims have been assumed by Dr.

Rohde and Dr.

On December 24, 2021, Westman dismissed the case without prejudice so the parties could mediate the matter.

The parties’ February 2022

mediation was unsuccessful and the dispute is currently pending in arbitration.

The Company reserves for costs relating to these matters when a loss is probable, and the

amount can be reasonably estimated.

Novellus, Inc .

2 unchanged sentences

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 the Company’s acquisition of Novellus,

Inc.), alleging breach of fiduciary duty, breach of contract and civil conspiracy.

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.

1 unchanged sentence

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.

amended the complaint to withdraw all claims against all defendants except Paul Sowyrda and John Westman.

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.

against Novellus LLC, Dr.

Christopher Rohde, Dr.

2 unchanged sentences

Angel et al., C.A.

2021-1014-JRS and by Westman against Novellus LLC captioned Westman v.

2021-1014-JRS and by Westman against Novellus LLC captioned Westman

Novellus LLC, C.A.

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.

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.

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.

Defense and liability in association with any Wage Act claims have been assumed by Dr.

Rohde and Dr.

filed its opposition to Sowyrda and Westman’s motions on August 19, 2022.

On September 9, 2022, Westman and Sowyrda filed replies in support of their motions and requested to be heard.

The hearing is scheduled for November

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.

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.

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.

remaining Counterclaim Defendants served a motion to dismiss most of the remaining counterclaims on January 27, 2023.

The motion to dismiss is now fully briefed, and the Court has scheduled oral argument for May 23, 2023 on

(a) the Counterclaim Defendants’ motion to dismiss, and (b) Sowyrda’s and Westman’s motion to enforce.

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

However, a future advance or reimbursement is not currently probable

nor can it be reasonably estimated.

Licensing Agreements

Brooklyn LLC has license agreements with University of

South Florida Research Association, Inc.

(“USF”), granting Brooklyn 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, Brooklyn LLC is obligated to repay patent prosecution expenses incurred by USF.

To date, Brooklyn 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.

Novellus Ltd.

and Factor Limited

In December 2020, Brooklyn LLC entered into option agreements (the

“Option Agreements”) with Novellus Ltd.

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”).

The option was exercisable

before February 28, 2021 (or April 30, 2021 if the Merger had not closed by that date) and required Brooklyn LLC to pay a non-refundable option fee of $ 0.5 million and then an initial license fee of $ 4.0 million (including

the non-refundable fee of $ 0.5 million) in order to exercise the option.

In April 2021, Brooklyn LLC and the Licensors amended the Option Agreements to extend the exercise period to May 21, 2021 and to require Brooklyn LLC to pay a total $ 1.0 million of the $ 4.0 million

initial license fees to the Licensors by April 15, 2021.

April 2021, Brooklyn LLC and the Licensors entered into an exclusive license agreement (the “License Agreement”) pursuant to which Brooklyn 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.

Under the terms of the License Agreement, Brooklyn

LLC is obligated to pay the Licensors a total of $ 4.0 million in connection with the execution of the License Agreement, all

of which was paid as of June 2021.

As a result of the Novellus Acquisition, in accordance with the terms of the Novellus-Factor License Agreement, the rights and obligations of Novellus Ltd.

thereunder pertaining to any and all licensed

products have inured to Eterna .

The agreement with Factor Limited under the License Agreement, which grants Brooklyn LLC exclusive rights to develop certain

next-generation mRNA gene editing and cell therapy products, remained unchanged after the completion of the Novellus Acquisition.

Accordingly, under the License Agreement, Brooklyn LLC remained obligated to pay to Factor

Limited a fee of $ 3.5 million in October 2022, which would have been in addition to a fee of $ 2.5 million paid to Factor Limited in October 2021.

In connection with the Company entering into the MSA (see Note 8), Factor Limited

entered into the Waiver Agreement with Brooklyn LLC, pursuant to which Factor Limited waived payment of the $ 3.5 million

otherwise payable to it in October 2022 by Brooklyn LLC .

Brooklyn LLC is also

required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical development and regulatory milestones and specified commercialization milestones.

In general, upon its achievement of

these milestones, Brooklyn LLC will be obligated to pay, in the case of development and regulatory milestones, milestone payments to the Licensors in specified amounts and, in the case of commercialization milestones, specified

royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers.

In the event Brooklyn LLC fails to timely achieve certain delineated milestones, the Licensors will have the right to terminate Brooklyn

LLC’s rights under provisions of the License Agreement relating to those milestones.

Novellus Ltd.

also has a license agreement with Factor Limited, which was entered into in February 2015, amended in June

2018 and March 2020, and then amended and restated in November 2020 (the “Novellus-Factor License Agreement”).

The Novellus-Factor License Agreement grants to Novellus Ltd.

an exclusive license to use certain technology owned by Factor

Limited for the development of mesenchymal stem cell-based cellular therapies for treating diseases and conditions in humans and animals (the “Novellus-Factor Licensed Technology”).

Under the License Agreement, Novellus Ltd.

granted a sublicense to Brooklyn LLC to use the Novellus-Factor Licensed Technology to develop up to four mesenchymal stem cell-based therapy products for use in the treatment of cancer in humans.

Under the Novellus-Factor License Agreement, Novellus Ltd.

is required to use commercially reasonably efforts to achieve

certain delineated milestones, including specified clinical development and regulatory milestones and specified commercialization milestones.

The Novellus-Factor License Agreement states that upon its achievement of these milestones,

Novellus Ltd.

will be obligated to make milestone payments of up to $ 51.0 million in aggregate to Factor Limited as well as

specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers.

In the event Novellus Ltd.

fails to timely achieve certain delineated milestones under the Novellus-Factor License Agreement,

Factor Limited could seek to terminate the license granted thereunder.

The Novellus-Factor License Agreement provides that in the event of termination of the Novellus-Factor License Agreement, if Novellus Ltd.

requests that its

sublicense to Brooklyn LLC under the License Agreement survive such termination, such sublicense shall be considered a direct license from Factor Limited to Brooklyn LLC, provided that Brooklyn LLC agrees in writing that (i) Factor

Limited is entitled to enforce all relevant provisions directly against Brooklyn LLC, and (ii) Factor Limited shall not assume, and shall not be responsible to Brooklyn LLC for, any representations, warranties or obligations of Novellus

to Brooklyn LLC, other than to permit Brooklyn LLC to exercise any rights to the technology sublicensed by Novellus Ltd.

to Brooklyn LLC.

Factor Limited also agreed under the License Agreement that upon the termination of the

Novellus-Factor License Agreement for any reason other than Brooklyn LLC’s breach of the License Agreement, the rights and licenses granted to Brooklyn LLC by Novellus Ltd.

under the License Agreement shall survive such termination of

the Novellus-Factor License Agreement, and Factor Limited grants to Brooklyn LLC such rights and licenses on the same terms and conditions as granted by Novellus Ltd.

to Brooklyn LLC under the License Agreement..

Following the

expiration of one of the delineated milestone deadlines in the Novellus-Factor License Agreement without Novellus Ltd.’s achievement of the required regulatory filing on November 1, 2022, Novellus Ltd., Brooklyn LLC and Factor began

discussions regarding an amendment to the terms of the License Agreement and the Novellus-Factor License Agreement in order for Brooklyn LLC, among other things, to directly license the Novellus-Factor Licensed Technology from Factor

and consolidate and amend the milestone, payment and other terms with respect thereto accordingly.

There can be no assurance that such an amendment will be made on the forgoing terms, if at all.

In October 2020, Novellus Ltd.

sublicensor) and NoveCite (as sublicensee) entered into an exclusive license agreement (the “Sublicense”) to license novel cellular therapy for acute respiratory distress syndrome, which NoveCite is licensing from Factor Limited.

Under the sublicense agreement, NoveCite is required to use commercially reasonably efforts to achieve certain delineated milestones, including specified clinical development and regulatory milestones and specified

commercialization milestones.

In general, upon its achievement of these milestones, NoveCite will be obligated, in the case of development and regulatory milestones, to make milestone payments to the Novellus Ltd.

amounts and, in the case of commercialization milestones, specified royalties with respect to product sales, sublicense fees or sales of pediatric review vouchers.

Under the terms of the Sublicense, in the event

that Novellus Ltd.

receives any revenue involving the original cell line included in the licensed technology, then Novellus Ltd.

shall remit to NoveCite 50 % of such revenue.

Royalty Agreements

Collaborator Royalty Agreement

Effective June 22, 2018, IRX terminated its Research,

Development and Option Facilitation Agreement and its Options Agreement (the “RDO and Options Agreements”) with a collaborative partner (the “Collaborator”), pursuant to a termination agreement (the “Termination Agreement”).

The Termination Agreement was assigned to Brooklyn LLC in November 2018 when Brooklyn LLC acquired the assets of IRX.

In connection

with the Termination Agreement, all of the rights granted to the Collaborator under the RDO and Options Agreements were terminated, and Brooklyn LLC has no obligation to refund any payments received from the Collaborator.

As consideration for

entering into the Termination Agreement, the Collaborator will receive a royalty equal to 6 % of revenues from the sale 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

On May 1, 2012, IRX Therapeutics entered into a royalty agreement (the “IRX Investor Royalty Agreement ” )

with certain investors who participated in a financing transaction.

The IRX Investor Royalty Agreement was assigned to Brooklyn LLC in November 2018 when Brooklyn LLC acquired the assets of IRX.

Pursuant to the IRX Investor Royalty Agreement,

when Brooklyn 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 the investors who participated in such financing transaction.

There are no termination provisions in the IRX Investor Royalty Agreement.

Brooklyn LLC has not recognized any revenues to date, and no royalties are due pursuant to any of the above-mentioned royalty agreements.

Investor Royalty Agreement

March 22, 2021, Brooklyn 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 being developed

by Brooklyn LLC to treat patients with cancer.

Exclusive Factor License Agreement.

On February 20, 2023, the Company and Factor Limited entered into the

Exclusive Factor License Agreement, which terminated and superseded the Original Factor License Agreement.

See Note 7 for details of this agreement.

Retirement Savings Plan

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.

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 %.

STOCK-BASED COMPENSATION

Stock Options

During the three and nine months ended September 30, 2022 and 2021, the Company

granted the following stock options (in thousands):

Three months ended September 30,

Nine months ended September 30,

During the three months ended March 31, 2023 and 2022, the Company granted the

following stock options (in thousands):

Three months ended March 31,

Stock options granted

The following weighted-average assumptions were used for stock options granted during the three and nine months ended

September 30, 2022 and 2021:

Three months ended September 30,

Weighted average risk-free rate

Weighted average volatility

Dividend yield

Expected term

Nine months ended September 30,

The Company recognizes

stock-based compensation expense for stock options 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.

The following weighted-average assumptions were used for stock options granted during the three months ended March 31,

2023 and 2022:

Three months ended March 31,

Weighted average risk-free rate

2 unchanged sentences

Expected term

During the three and nine months ended September 30, 2022, options to purchase approximately 124,000 shares of common stock were granted to Dr.

Matthew Angel, the Company’s Interim Chief Executive Officer.

Angel’s stock options vest at rate of 1/24 on the grant

date with the remaining options to vest in 46 substantially equal monthly installments thereafter.

For the nine months ended September

30, 2022, stock options to

purchase approximately 21,000 shares of common stock were granted to Dr.

Federoff, who served as the Company’s Chief

Executive Officer and President until May 26, 2022 (the “March 2022 Stock Option Grant”).

The March 2022 Stock Option Grant vests in 36

substantially equal monthly installments from the grant date and had an exercise price equal to the closing price of the Company’s common stock on the grant date.

During the nine months ended September 30, 2021 , options to purchase approximately 161,000 shares of common stock were granted to Dr.

Federoff upon his appointment as Chief Executive Officer and President in April 2021.

Approximately 131,000 stock options were under a time-based grant (the “Time-Based Grant”) and approximately 30,000 stock options were under a performance-based grant (the “Milestone Grant”).

The Time-Based Grant vests over four years , with 25 % vesting on the one-year anniversary of the grant date and

the remaining options vesting in 36 substantially equal monthly installments thereafter.

The Milestone Grant vests upon the first

concurrence by the U.S.

Food and Drug Administration that a proposed investigation may proceed following review of a Company filed investigational new drug application in connection with that the License Agreement.

Both the Time-Based Grant and the

Milestone Grant had an exercise price equal to the closing price of the Company’s common stock on the grant date.

Vesting of all stock options grants is subject to continuous service with the Company

through such vesting dates.

As discussed above, pursuant to the Separation Agreement with Dr.

Federoff, the Company accelerated the vesting of approximately 7,000 stock options under the March 2022 Stock Option Grant and

approximately 33,000 stock options under the Time-Based Grant.

The Company also waived the performance condition under the Milestone

Grant and accelerated the vesting of approximately 21,000 stock options under the Milestone Grant.

Lastly, the Company extended the

post-termination exercise period from 90 days to 36 months immediately following the Separation Date for all options that were vested after such accelerations.

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 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 of stock compensation expense in full since there was no future service period required to be provided.

During the three and nine months ended September 30, 2021, there were 65 options exercised for total cash proceeds of $ 10,202 .

The options exercised had a total intrinsic value of $ 57,212 .

There were no options exercised during the three and nine months ended September 30, 2022.

As of September 30, 2022, there were approximately 362,000 stock options outstanding.

per-share weighted average grant-date fair value of stock options granted during the three months ended March 31, 2023 and 2022 was $ 3.15

and $ 31.55 , respectively.

Vesting of all stock option grants is subject to continuous service with the Company through such vesting

As of March 31, 2023, there were approximately 560,000 stock options outstanding.

Restricted Stock Units

During the three and nine months ended September 30, 2022 and 2021, the Company granted

the following restricted stock units (“RSUs”) (in thousands):

Three months ended September 30,

Nine months ended September 30,

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.

the three months ended March 31, 2022, the Company granted approximately 55,000 performance-based restricted stock units (“RSUs”), all

of which were forfeited during 2022, as the applicable performance goals were not met.

The Company did no t grant any RSUs during the

three months ended March 31, 2023.

Company recognizes the fair value of RSUs 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.

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.

The following table shows the number of RSUs that vested and were settled during the three and nine months ended

September 30, 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):

Three months ended

Nine months ended

September 30, 2022

Common stock withheld to cover

Common stock issued

The 55,000 RSUs granted during the nine months ended September 30, 2022 are performance-based RSUs (the “2022 PSUs”), of which approximately 21,000 were awarded to Dr.

The 2022 PSUs are subject to the achievement of four

performance goals, which are weighted equally.

Once a performance goal is achieved, the tranche of shares allocated to that performance goal will be earned and will begin to vest over a three-year annual basis beginning on the date the performance goal was achieved.

If a performance goal is not achieved, the tranche of shares allocated to that performance goal will be

unearned and forfeited.

As of September 30, 2022, two of the performance goals were not achieved by the due date, and as a result,

approximately 28,000 2022 PSUs were cancelled and any previously recognized stock compensation expense was reversed.

Pursuant to Dr.

Federoff’s Separation Agreement, Dr.

Federoff’s 21,000 2022 PSUs were canceled in full (a portion of which included the PSUs allocated to the performance goal that was not achieved timely), and a lump sum cash severance benefit in the amount of $ 0.1 million was paid to Dr.

Federoff, which represents

the value Dr.

Federoff would have received if he were entitled to receive a settlement of a pro rata portion of his 2022 PSUs through the expiration of the Separation Period, assuming the performance metrics were waived and assuming a per share

value of $ 16.20 .

Any stock compensation expense previously recognized on Dr.

Federoff’s 2022 PSUs was reversed and approximately $ 0.1 million was recognized as compensation expense.

As of September 30, 2022, there were approximately 15,000 RSUs outstanding.

Restricted Stock

Pursuant to the Merger, Brooklyn 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 nine months ended September 30, 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 nine months ended September 30, 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.

September 30, 2022, there were no shares of unvested restricted stock outstanding.

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.

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 and were settled during the three months

ended March 31, 2023 and 2022

March 31, 2023, there were approximately 1,000 RSUs outstanding.

Stock-Based Compensation Expense

For the three and nine months ended September 30, 2022 and 2021,

the Company recognized stock-based compensation expense as follows, which includes the expense related to Dr.

Federoff’s modified awards discussed above (in thousands):

Three months ended September 30,

Nine months ended September 30,

For the three months ended March 31, 2023 and 2022, the Company

recognized stock-based compensation expense as follows (in thousands):

Three months ended March 31,

Research and development

General and administrative

STOCKHOLDERS’ EQUITY

Private Placement of

On March 6, 2022, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an investor (the “PIPE Investor”)

providing for the private placement (the “PIPE Transaction”) to the PIPE Investor of approximately 343,000 units (collectively,

the “Units”), each Unit consisting of (i) one share of the Company’s common stock (or, in lieu thereof, one Pre-Funded Warrant

to purchase one share of common stock) and (ii) one warrant (the “Common Warrants”) to purchase one share of common stock, for an aggregate gross purchase price of approximately $ 12.0 million (the “Subscription Amount”).

The PIPE Transaction closed on March 9, 2022.

Pursuant to the Purchase Agreement, the Company is prohibited from issuing equity in variable

rate transactions for a period of one-year following consummation of the PIPE Transaction, including issuing equity under the

Second Purchase Agreement.

On March 6, 2022, the Company entered into the March Purchase Agreement with an investor for a private placement of equity (the “March

PIPE”), pursuant to which, the Company issued 275,000 shares of common stock, approximately 68,000 Pre-Funded Warrants and approximately 343,000

Common Warrants for an aggregate gross purchase price of approximately $ 12.0 million.

The transaction closed on March 9, 2022.

Each 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 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 PIPE Transaction, the Company issued 275,000 shares of common stock and issued Pre-Funded Warrants representing approximately 68,000 shares of common stock.

On July 12, 2022, the PIPE Investor exercised its 68,000

Pre-Funded Warrants at an exercise price of $ 0.10 per share for an aggregate exercise price of $ 6,786 , in cash.

The Company issued 68,000 shares of common stock to

the PIPE Investor on July 14, 2022 upon receipt of the cash proceeds.

Subsequent to the exercise, no Pre-Funded Warrants

remained outstanding.

Each Common Warrant has an exercise price of $ 38.20 per share, becomes exercisable six months following the closing of the PIPE Transaction, expires five-and-one-half years from the date of issuance and is subject to customary adjustments.

The 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.

As of September 30, 2022, the Company had 343,000

Common Warrants outstanding with a weighted average exercise price of $ 38.20 per share and a weighted average contractual life of 4.95 years.

Common Warrants and 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.

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.

Upon exercise of the Common Warrants and Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant

liabilities to equity .

Each Common Warrant has an exercise price of $ 38.20

per share, became exercisable six months following the closing of the transaction, expires five-and-one-half years from the date of issuance and is subject to customary adjustments.

The 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 Common Warrants and 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 4 for more information related to changes in fair value.) Upon exercise of the Common Warrants and Pre-Funded Warrants, the fair value on the exercise date is reclassified from warrant liabilities to

The fair values of the Common Warrants and the 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 PIPE Investor to enter into the PIPE

Transaction and was recorded in warrant liabilities expense in the accompanying consolidated statement of operations.

Given the Company’s capital requirements and market conditions, the Company consummated this financing on market terms

available at the time of the transaction.

The Company incurred fees of approximately $ 1.0 million through September 30, 2022 related to the PIPE Transaction, which were allocated to the fair value of the Common Warrants and the Pre-Funded Warrants and recorded in other expense, net on the

accompanying condensed consolidated statement of operations.

In connection with the PIPE Transaction, the Company and the 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 Pre-Funded Warrants and the 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 is 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 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 10 consecutive calendar days or more than an aggregate of fifteen calendar days (which need not be consecutive calendar days) during any 12-month period.

On May 24, 2022, the Company provided the PIPE Investor with notice that it was not able to resell the securities registered for resale under

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 PIPE Investor could not use the registration statement to resell the related securities

until the Company filed the Q1 2022 10-Q.

Because the PIPE Investor was unable to use the registration statement for at least 10

consecutive calendar days, the Company accrued $ 0.2 million during the first quarter of 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 nine months ended September 30, 2022 in the accompanying condensed consolidated statements of operations.

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 the 10-K/A, and on July 1, 2022, the Company provided its notice to the PIPE

Investor that it may resume use of the resale registration statement.

Under the terms of the Merger

Agreement (see Note 3) , on March 25, 2021, Eterna issued shares of common stock to the equity holders of Brooklyn LLC.

Class A units of Brooklyn 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.

issued approximately 53,000 shares of common stock to its financial advisor pursuant to the Merger Agreement .

The excess $ 0.6 million represents

an inducement to the investor to enter into the transaction and was recorded in warrant liabilities expense in the accompanying condensed consolidated statement of operations for the three months ended March 31, 2022.

On July 12, 2022, the investor exercised its 68,000

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 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

Pre-Funded Warrants remained outstanding.

The Company incurred fees of approximately $ 1.0 million related to the transaction, which were allocated to the fair value of the Common Warrants and the Pre-Funded Warrants and recorded in other expense, net on the accompanying

condensed consolidated statement of operations for the three months ended March 31, 2021.

As of March 31, 2023, the Company has the following warrants outstanding that were issued in connection with private placement discussed above as well as a private placement with other investors from November

Private Placement

(in thousands)

Classification

March 2022 PIPE

September 9, 2022

September 9, 2027

November 2022 PIPE

of March 31, 2023, the weighted average remaining contractual life of the warrants outstanding was 5.12 years and the weighted

average exercise price was $ 5.82 .

EARNINGS PER SHARE

Basic net loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during the period.

including the weighted average effect of the Pre-Funded Warrants the Company issued in connection with the PIPE Transaction, the exercise of which requires little or no consideration for the delivery of shares of common stock.

determined that the exercise of the Pre-Funded Warrants requires nominal consideration for the delivery of shares of common stock, and as such, has considered the 68,000 shares underlying the Pre-Funded Warrants to be outstanding effective on March 9, 2022 for the purposes of calculating basic EPS.

Diluted net loss per share is calculated by

dividing net loss by the weighted-average number of common shares outstanding (including the weighted average effect of the Pre-Funded Warrants) plus dilutive securities.

Stock options, RSUs, warrants and other convertible securities 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 in periods where the

effect of potentially dilutive shares of common stock are antidilutive.

The following table presents the amount of stock options, RSUs, warrants and convertible preferred stock that were excluded from the computation of diluted net loss per

common share for the three and nine months ended September 30, 2022 and 2021, as their effect was anti-dilutive:

Three and Nine months ended September 30,

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

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 three months ended March 31, 2023 and 2022, as their effect was anti-dilutive (in thousands):

Three months ended March 31,

Stock options

2 unchanged sentences

RECENT ACCOUNTING PRONOUNCEMENTS

In September 2022, the Financial Accounting Standard Board (the “FASB”) issued Accounting Standards Update (“ASU”) No.

2022-04, Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier

Finance Program Obligations (“ASU

ASU 2022-04 requires a buyer that uses supplier finance programs to make annual disclosures about the program’s key terms, the balance sheet presentation of related amounts, the confirmed amount outstanding at the end of the period, and

associated roll-forward information.

ASU 2022-04 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, except for the requirement to disclose roll-forward information, which is

effective for fiscal years beginning after December 15, 2023.

The Company does not expect a material impact on its financial statements as a result of adopting this amendment.

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

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.

does not expect a material impact as a result of adopting this amendment.

There have been no recent Accounting Standards Updates (“ASUs”) issued by the Financial Accounting Standards Board that would apply to the Company since the ASUs disclosed in the 2022 10-K .

SUBSEQUENT EVENTS

Facility Sublease

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 consists of approximately 45,500 square feet on the ninth floor of the building currently under construction located at 250 Water Street, Somerville, Massachusetts 02141.

The Sublease rent commences on the date that is the earlier of (i) the date that the Company commences

business operations from the Premises and (ii) the date that is the one-year anniversary of the later to occur of (A) October 18, 2022 and (B) the date that Sublessor obtains the primary landlord’s consent for the Sublease (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, within two business days following receipt of the primary landlord’s consent to the Sublease, the Company will pay 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, as well as traditional lease expenses including, certain taxes, operating expenses and utilities.

Exacis Option Agreement (Related Party Transaction)

On October 8, 2022, the Company entered into an option agreement (the “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 license to certain of the technology licensed by Exacis for the treatment of

cancer in humans (the “Option”).

The Option Agreement provides that the Company will pay Exacis a fee of $ 0.3 million for the 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 Option Agreement.

The Option Agreement provides 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 Option Agreement has been deemed a related party transaction, as one of the Company’s Board members, Dr.

Fiore, is the Chief Executive Officer of Exacis.

Additionally, the Company’s Interim Chief Executive Office, Dr.

Matthew Angel, is Chairman of Exacis’ scientific advisory board.

Angel is also the Chairman and Chief Executive Officer of Factor, which is the majority shareholder of Exacis.

Exacis Asset Purchase

On April 26, 2023, the Company entered into an asset purchase agreement (the “Exacis Purchase Agreement”), together with Exacis Biotherapeutics Inc.

(“Exacis”), the stockholders party thereto (the “Exacis Stockholders”) and, with

respect to specified provisions therein, Factor Limited.

Pursuant to the Exacis Purchase Agreement, the Company acquired from Exacis substantially all of Exacis’ intellectual property assets (the “Purchased Assets”), including all of

Exacis’ right, title and interest in and to an exclusive license agreement by and between Exacis and Factor Limited (the “Purchased License”).

The Company assumed none of Exacis’ liabilities, other than liabilities under the Purchased

License that accrue subsequent to the Closing Date.

In consideration for the Purchased Assets, on the closing date of the transaction, the Company issued to Exacis an aggregate of 69,343

shares of common stock, which shares are subject to a 12-month lockup, pursuant to which Exacis may not sell or otherwise

transfer such shares.

The Company additionally agreed to make the following contingent payments:

(i) if, at any time during the three-year

period commencing on such closing date and ending on the three-year anniversary of the closing date, the Company’s market

capitalization equals or exceeds $ 100.0 million for at least ten consecutive trading days, then the Company will issue to Exacis a number of shares of common stock equal to (x) $ 2.0 million divided by (y) the quotient of $ 100.00

million divided by the number of the Company’s then issued and outstanding shares of common stock;

(ii) if, at any time during the three-year

period commencing on such closing date and ending on the three-year anniversary of the closing date, the Company’s market capitalization equals or exceeds $ 200.0 million for at least ten consecutive trading days, then the Company will issue to Exacis

a number of additional shares of common stock equal to (x) $ 2.0 million divided by (y) the quotient of $ 200.00 million divided by the number of the Company’s then issued and outstanding shares of common stock;

and (iii) during the five-year period commencing on the closing date and ending on the five-year anniversary of the closing date (the “Five-Year Period”), the

Company will pay or deliver to Exacis 20 % of all cash or other consideration (collectively, “License Consideration”) actually

received by the Company during the Five-Year Period from (i) third-party licensees or sublicensees of the intellectual property rights acquired by the Company from Exacis pursuant to the Exacis Purchase Agreement, or (ii) subject to certain

exceptions, the sale of such intellectual property rights;

provided, that the License Consideration shall not in any event exceed $ 45.0

Standby Securities Purchase Agreement

On April 5, 2023, the Company entered into a purchase agreement and a registration rights agreement Lincoln Park Capital Fund, LLC (“Lincoln Park”), pursuant to which Lincoln Park committed to purchase up to $ 10.0 million of the Company’s common stock, subject to the terms and conditions contained in the appliable agreements.

Such sales of common

stock by the Company, if any, are subject to certain limitations set forth in the purchase agreement, and may occur from time to time, at the Company’s sole discretion, over a period of up to 24-months, commencing April 25, 2025, which was

the date on which each of the conditions to the Lincoln Park’s purchase obligations set forth in the purchase agreement were initially satisfied.

In consideration of Lincoln Park’s entry into the purchase agreement, the Company issued to

Lincoln Park 73,659 shares of common stock (the “ELOC Consideration Shares”).

Pursuant to such registration rights agreement,

the Company filed a registration statement with the SEC on April 17, 2023 to register for resale shares of common stock issuable pursuant to such purchase agreement and the ELOC Consideration Shares, and the SEC declared such registration

statement effective on April 24, 2023.

In connection with entry into such purchase agreement, the Company terminated its prior purchase agreements with Lincoln Park entered into during 2021.

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

What changed 10-Q

Item 1. Financial Statements