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Item 2. Management’s Discussion and Analysis

2023-05-11 compared with 2022-11-14 · 239 added, 448 removed, 71 unchanged (91% of the section changed)

1 unchanged sentence

You should read this discussion together with the unaudited interim condensed consolidated financial statements, related notes, and other financial information

included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K/A filed with the Securities and Exchange Commission (the “SEC”) on June 30, 2022 (the “10-K/A”), as well as the information contained in our Annual Report on Form 10-K for the year ended December 31, 2021 (the

“Original 10-K”), filed with the SEC on April 15, 2022, to the extent the information contained in the Original 10-K was not superseded by the information contained in the 10-K/A.

The following discussion contains or is based on assumptions,

estimates and other forward-looking statements that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the 10-K/A and as described from time to time in our other filings with the

These risks could cause our actual results to differ materially from those anticipated in these forward-looking statements.

We are a biopharmaceutical company using our 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.

We plan to develop and advance a pipeline of therapeutic products both internally and through strategic

partnerships.

Our mRNA technology platform, which includes novel lipid nanoparticles (“LNPs”) for mRNA delivery and targeted transgene insertion, was acquired through a license with Factor Bioscience Limited (“Factor Limited”) and through our

acquisition of Novellus, Inc.

and Novellus, Ltd.

in July 2021, which we refer to as the Novellus Acquisition.

Name Change and Ticker Symbol Change

Effective October 17, 2022, we changed our name from Brooklyn ImmunoTherapeutics, Inc.

to Eterna Therapeutics Inc.

pursuant to an amendment to our Certificate of Incorporation, as

amended (the “Name Change”).

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

In connection with the Name Change, the trading symbol of our common stock on The Nasdaq Global

Market changed from “BTX” to “ERNA.”

Merger with NTN Buzztime, Inc.

On March 25, 2021, we completed the Merger with NTN Buzztime, Inc., changed our name from “NTN Buzztime, Inc.” to “Brooklyn ImmunoTherapeutics, Inc.” and consummated a one-for-two reverse split

of our common stock.

On March 26, 2021, we sold the rights, title and interest in and to the assets relating to the business operated under the name “NTN Buzztime, Inc.” prior to the Merger to eGames.com Holdings

LLC, or eGames.com, in exchange for eGames.com’s payment of a purchase price of $2.0 million and assumption of specified liabilities relating to such pre-Merger business.

This transaction, which we refer to as the Disposition, was completed in

accordance with the terms of an asset purchase agreement dated September 18, 2020, as amended, between us and eGames.com.

The Merger has been accounted for as a reverse acquisition in accordance with U.S.

generally accepted accounting principles, or GAAP.

Under this method of accounting, Brooklyn LLC was deemed the

“acquiring” company and Eterna (then known as NTN Buzztime, Inc.) was treated as the “acquired” company for financial reporting purposes.

Operations prior to the Merger are those of Brooklyn ImmunoTherapeutics, LLC (“Brooklyn LLC”), and the

historical financial statements of Brooklyn LLC became the historical financial statements of Eterna with respect to periods prior to the completion of the Merger.

Acquisition of Novellus

On July 16, 2021, we acquired Novellus, Inc.

and Novellus, Inc.’s wholly owned subsidiary, Novellus, Ltd.

Eterna also acquired 25.0% of the total outstanding equity interests of NoveCite, Inc.

As consideration for the Novellus Acquisition, we paid $22.9 million in cash and delivered 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.

mRNA, Gene-Editing, and Cellular Medicines

We are advancing the technology that we obtained through a license with Factor Limited and through the Novellus Acquisition in

July 2021 to evaluate and develop mRNA, gene-editing, and cellular medicines, with an initial focus on hematologic and solid tumors.

We expect that the first-generation product candidates will include gene-editing mRNA for in vivo cell

engineering and induced pluripotent stem cell (“iPSC”)-derived cytotoxic lymphocytes (“iCLs”) and immune-modulating cells (“iIMCs”).

We expect to begin preclinical development, including manufacturing process development, of iCLs and iIMCs for

clinical indications including hematologic and solid tumors, as well as other indications that require overcoming molecular cues of the tissue microenvironment.

The prior work of Novellus, Inc.

and NoveCite shows evidence for preclinical

efficacy of iPSC-derived cells in inflammatory conditions (for example, acute respiratory distress syndrome, or ARDS).

Interactions with the FDA provided guidance on Chemistry, Manufacturing and Controls (“CMC”), and manufacturing plans, which

will be undertaken in a similar manner for additional applications.

We expect that second generation products will involve more complex gene editing, for which we anticipate using the stepwise addition of genes provided by the in-licensed

Factor Limited gene editing machinery, NoveSlice, to efficiently place genes and regulatory sequences into safe harbor locations.

Development of processes to advance CMC and manufacturing will follow the experience from first generation

We are also exploring opportunities to advance in vivo mRNA cell engineering therapies for hematologic and solid tumors by combining the NoveSlice gene editing technology with ToRNAdo TM , the in-licensed LNP technology.

In conjunction with our internal efforts, we are actively seeking strategic partners to license and advance our technology.

IRX-2 is a mixed, human-derived cytokine product with multiple active constituents including Interleukin-2, or IL2, and other key cytokines.

Together, these cytokines are believed to signal,

enhance and restore immune function suppressed by the tumor, thus enabling the immune system to attack cancer cells, unlike many existing cancer therapies, which rely on targeting the cancer directly.

IRX-2 is prepared from the supernatant of

pooled allogeneic peripheral blood mononuclear cells, known as PBMCs, that have been stimulated using a proprietary process employing a specific population of cells and a specific mitogen.

Unlike existing recombinant IL2 therapies, IRX-2 is derived from human blood cells.

We believe this may promote better tolerance, broader targeting and a natural molecular conformation leading to

greater activity, and may permit low physiologic dosing, rather than the high doses needed in other existing IL2 therapies.

Results of the Phase 2b INSPIRE trial, or the INSPIRE trial, released in June 2022, showed outcomes favored IRX-2 in certain predefined subgroups but the INSPIRE trial did not meet the primary

endpoint of Event-Free Survival (“EFS”) at two years of follow up.

One hundred and fifty patients were enrolled in the study.

At two years of follow-up in the intention-to-treat (ITT, n=105) population the median EFS was 48.3 months and was not

reached in the control arm (Hazard Ratio 1.10 (95% Confidence Interval, 0.6-2.1;

p value=0.62)).

Subgroups favoring the IRX-2 arm included patients with later stage (III and IV) disease and those that did not receive chemotherapy.

Trends in EFS

rates as defined by the Kaplan-Meier estimate at two years of follow-up in patients with later stage (III and IV) disease were 57.2 (40.3, 70.9) vs 49.4 (28.3, 67.4) in favor of IRX-2.

In patients that did not receive chemotherapy (radiation

only) as part of adjuvant treatment, the EFS Kaplan-Meier estimate at two years of follow-up was 76.4 (52.2, 89.4) vs 60.6 (29.4, 81.4) in favor of IRX-2.

There were no new safety signals observed with IRX-2.

We currently do not have plans to

further develop the IRX-2 product candidate.

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.

Impact of COVID-19 Pandemic

The development of our product candidates has been, and could continue to be, disrupted and materially adversely affected by past and continuing impacts of the COVID-19 pandemic.

This is largely

a result of measures imposed by the governments and hospitals in affected regions, businesses and schools were suspended due to quarantines intended to contain this outbreak.

The spread of COVID-19 from China to other countries resulted in the

Director General of the World Health Organization declaring COVID-19 a pandemic in March 2020.

Despite progress in vaccination efforts, the longer-term impact of the COVID-19 pandemic on our development plans and on the ability to conduct our

clinical trials remains uncertain and cannot be predicted with confidence.

COVID-19 could continue to disrupt production and cause delays in the supply and delivery of products used in our operations, may affect our operations, including the

conduct of clinical studies, or the ability of regulatory bodies to grant approvals or supervise our candidates and products, may further divert the attention and efforts of the medical community to coping with the COVID-19 and disrupt the

marketplace in which we operate and may have a material adverse effects on our operations.

COVID-19 may also affect our employees and employees and operations at suppliers that may result in delays or disruptions in supply.

In addition, a

recession or market correction resulting from the spread of COVID-19 could materially affect our business and the value of our common stock.

Additionally, if the COVID-19 pandemic has a significant impact on our business and financial results for

an extended period of time, our liquidity and cash resources could be negatively impacted.

The extent to which the COVID-19 pandemic and ongoing global efforts to contain its spread will impact our operations will depend on future developments,

which are highly uncertain, and include the duration, severity and scope of the pandemic and the actions taken to contain or treat the COVID-19 pandemic.

Further, the specific clinical outcomes, or future pandemic related impacts of emerging

COVID-19 variants cannot be reliably predicted.

included elsewhere in this Quarterly Report on Form 10-Q together with our audited consolidated financial statements, related notes, and other information contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March 20, 2023 (the “2022 10-K”).

The following discussion contains or is based on assumptions, estimates and other forward-looking statements

that involve a number of risks and uncertainties, including those discussed under “Risk Factors,” in Part I, Item 1A of the 2022 10-K and as described from time to time in our other filings with the SEC.

These risks could cause our actual

results to differ materially from those anticipated in these forward-looking statements.

We are a life science company committed to realizing the potential of mRNA cell engineering to provide patients with transformational new medicines.

We have in-licensed a portfolio of over 100

patents covering key mRNA cell engineering technologies, including technologies for mRNA cell reprogramming, mRNA gene editing, the NoveSlice TM and UltraSlice TM gene-editing proteins, and the ToRNAdo TM mRNA delivery system, which we collectively

refer to as our “mRNA technology platform.” We plan to develop and advance a pipeline of therapeutic products, both internally and through strategic partnerships, with the near-term focus on deploying our mRNA technology platform through

strategic partnerships.

We license our mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under the Exclusive Factor License Agreement (as defined below).

Through strategic partnerships, we expect that our mRNA technology platform will be used for preclinical and eventual clinical development of product candidates for a variety of clinical

We expect that the initial product candidates developed by our strategic partners utilizing our mRNA technology platform will include hypoimmune induced pluripotent stem cell (“iPSC”)-derived product candidates for the treatment of

neurological indications and iPSC-derived immune-modulating cells (“iIMCs”) for indications such as acute myeloid leukemia (“AML”) and solid tumors.

We refer to aspects of our mRNA technology platform as “mRNA delivery,” “mRNA gene editing” and “mRNA cell reprogramming.”

mRNA Delivery

Nucleic acids, such as mRNA, can be used to induce cells to express desired proteins, including proteins that are capable of re-writing genetic and epigenetic cellular programs.

plasma membrane surrounding cells normally protects cells from exogenous nucleic acids, preventing efficient uptake and protein translation.

Delivery systems can be used to enhance the uptake of nucleic acids by cells.

Conventional delivery

systems, such as lipid nanoparticle (“LNP”)-based delivery, often suffer from endosomal entrapment and toxicity, which can limit their therapeutic use.

Our mRNA delivery technology is designed to use a novel chemical substance that is designed

to deliver nucleic acids, including mRNA, to cells both ex vivo and in vivo .

Our nucleic-acid delivery technology is also designed for ex vivo delivery of mRNA encoding gene-editing proteins and reprogramming factors, including to primary cells, insertion of exogenous sequences into genomic safe-harbor loci, and in vivo

delivery of mRNA to the brain, eye, skin, and lung, which may be useful for the development of mRNA-based therapeutic.

mRNA Gene Editing

Our mRNA gene-editing technology is designed to delete, insert, and repair DNA sequences in living cells, which may be useful for correcting disease-causing mutations, making cells resistant to

infection and degenerative disease, modulating the expression of immunoregulatory proteins to enable the generation of durable allogeneic cell therapies, and engineering immune cells to more effectively fight cancer.

Conventional gene-editing technologies typically employ plasmids or viruses to express gene-editing proteins, which can result in low-efficiency editing and unwanted mutagenesis when an exogenous

nucleic acid fragment is inserted at random locations in the genome.

Our mRNA gene-editing technology instead is designed to employ mRNA to express gene-editing proteins, which can potentially enable gene editing without unwanted insertional

mutagenesis, because, unlike conventional gene-editing technologies that employ viruses or DNA-based vectors, mRNA does not typically cause unwanted insertional mutagenesis.

We believe the efficiency of our mRNA gene-editing technology has the

potential to support development of product candidates that could create new therapeutic approaches.

For example, we anticipate that our mRNA gene-editing technology can be used to generate allogeneic chimeric antigen receptor T-cell (“CAR-T”)

therapies for the treatment of cancer.

In such allogeneic CAR-T therapies, mRNA encoding gene-editing proteins would be used to inactivate the endogenous T-cell receptor to prevent therapeutic T-cells from causing graft-versus-host disease

GvHD occurs when transplanted cells view the patient’s (i.e.

the host’s) cells as a threat and attack the host’s cells.

We expect that this same mechanism of action can generate allogeneic stem cell-derived therapies in which mRNA

encoding gene-editing proteins could be used to inactivate one or more components of the human leukocyte antigen (“HLA”) complex to render the cells immuno-nonreactive or “stealth,” which may be useful for the development of allogeneic cell-based

mRNA Cell Reprogramming

Our mRNA cell-reprogramming technology is capable of generating clonal lines of pluripotent stem cells that can be expanded and differentiated into many desired cell types that may be useful for

the development of regenerative cell therapies.

Conventional cell-reprogramming technologies (e.g., using Sendai virus or episomal vectors) can result in low efficiency reprogramming, can select for cells with abnormal growth characteristics,

and can leave traces of the vector in reprogrammed cells.

Our mRNA cell-reprogramming technology instead is designed to employ mRNA to express reprogramming factors, which can enable cell reprogramming

without leaving traces of the vector in reprogrammed cells, because, unlike conventional cell-reprogramming technologies that employ viruses or DNA-based vectors, mRNA does not typically leave traces of the vector in reprogrammed cells.

Recent Developments

Reverse Stock Split

Effective at 11:59 p.m.

Eastern time on October 16, 2022, we effected a reverse stock split at a ratio of 1-for-20 (the “Reverse Stock Split”).

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 our 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, we 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.

We 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 Stock Split.

Facility Sublease

On October 18, 2022, we entered into a sublease agreement (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, we were required to deliver to the Sublessor a security deposit in the form of a letter of credit in

the amount of $4.1 million.

Provided there are no events of default by us under the Sublease, the letter of credit will be reduced on an incremental basis throughout the Term.

The letter of credit was issued by our commercial bank, which

required that we cash collateralize the letter of credit by depositing $4.1 million of restricted cash in a separate account maintained by such bank.

The amount of restricted cash that we are required to maintain in such account will decline

during the Term in parallel with the reduction of the amount of the letter of credit.

This restricted cash requirement reduced the amount of working capital we have to fund our operations.

Pursuant to the Sublease, we have agreed to pay base rent of $0.4 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 Asset Purchase

On April 26, 2023, we 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, we 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”).

We 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, we issued to Exacis an aggregate of 69,343 shares of our common stock, which shares are

subject to a 12-month lockup, pursuant to which Exacis may not sell or otherwise transfer such shares.

We 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, our market capitalization equals or exceeds $100.0 million for at least ten consecutive trading days, then we 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 our 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, our market capitalization equals or exceeds $200.0 million for at least ten consecutive trading days, then we 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 our 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”), we will pay or deliver to Exacis 20% of all cash or other consideration (collectively, “License Consideration”) actually received by us during the Five-Year Period from (i) third-party

licensees or sublicensees of the intellectual property rights acquired by us 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 million.

Matthew Angel, our President and Chief Executive Officer, is the co-founder, President, CEO, and a director of Factor Bioscience Inc., which is the parent of Factor

Limited and a wholly owned subsidiary of Factor Bioscience LLC, the latter of which is the majority stockholder of Exacis.

Gregory Fiore, one of our directors, is the Chief Executive Officer and a 10% stockholder of Exacis.

Purchase Agreement and the transactions contemplated thereby were approved by the audit committee of our board of directors, as well as by all of our disinterested directors, comprising a majority of the board of directors.

Standby Securities Purchase Agreement

On April 5, 2023, we and Lincoln Park Capital Fund, LLC (the “Lincoln Park”) entered into a purchase agreement (the “ELOC Purchase

Agreement”), pursuant to which we have the right, but not the obligation, to sell to Lincoln Park, and Lincoln Park would be obligated to purchase, up to $10.0 million of shares of our common stock.

Sales of common stock by us are subject to

certain limitations, and may occur from time to time, at our sole discretion.

As consideration for Lincoln Park’s commitment to purchase shares of common stock in accordance with the ELOC Purchase Agreement, we issued to Lincoln Park 73,659

shares of common stock.

In connection with entry into the ELOC Purchase Agreement, we terminated our prior purchase agreements with Lincoln Park entered into during 2021.

Cell Line Customization and License Agreement

On February 21, 2023, we entered into a cell line customization and license agreement (the “Lineage Agreement”) with Lineage Cell Therapeutics, Inc.

(“Lineage”) ,

pursuant to which, prior to August 22, 2023 , Lineage may request that we 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

The Lineage Agreement also provides Lineage with the option to obtain an exclusive sublicense to certain related technology for preclinical, clinical and

commercial purposes, which would permit Lineage to sublicense such intellectual property, subject to payment of certain sublicense royalty fees.

Lineage has six months

from our delivery to Lineage of such induced pluripotent stem cell lines to exercise such option, and upon any such exercise, Lineage would agree to use its commercially

reasonable efforts to exploit and make commercially available one or more licensed products derived from such induced pluripotent stem cell lines in accordance with the Lineage Agreement .

Upon entry into the

Lineage Agreement, Lineage paid us a $250,000 non-refundable up-front payment.

We are also entitled to certain cell line customization fees with respect to cell lines that Lineage

may request that we develop for Lineage , as well as royalty payments with respect to any such licensed products, certain sublicense fees and certain milestone payments under the Lineage

Certain Related Party Transactions

On September 9, 2022, we entered into a Master Services Agreement (the “MSA”) with Factor Bioscience Inc.

(“Factor”), pursuant to which Factor has agreed to provide services to

us as agreed between us and Factor and set forth in one or more work orders under the MSA, including the first work order included in the MSA.

Factor has agreed to provide us with mRNA cell engineering research support services, including

access to certain facilities, equipment, materials and training, and we have 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,

we have agreed to pay Factor a monthly fee of $0.4 million until such time as the first work order under the MSA is terminated.

We 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 days’ prior notice.

terminate such work order only on and after the fourth anniversary of the date of the MSA, subject to providing us with 120 days’ prior notice.

In connection with entering into the MSA, on September 9, 2022, Factor’s subsidiary, Factor

Limited, entered into a waiver agreement with Brooklyn LLC, pursuant to which Factor Limited agreed to waive payment of $3.5 million otherwise payable to it in October 2022 by Brooklyn LLC under its license agreement with Factor Limited.

As a result of entering into the Waiver Agreement and the MSA during third quarter of 2022, we recognized $3.5 million in

research and development expense and a corresponding liability for the committed obligation in the License Agreement that is being paid through the MSA.

On September 6, 2022, we entered into an assignment and assumption of contracts agreement (the “Assignment and Assumption Agreement”) with Factor, pursuant to which we 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, we entered into the sublease for the premises.

See Note 15 to

our unaudited interim financial statements included in this Quarterly Report on Form 10-Q for more information on this subsequent event.

Under the Assignment and Assumption Agreement, we agreed to reimburse Factor for costs already incurred and

paid by Factor under the assumed contracts in the amount of approximately $0.1 million, and we assumed the future obligations under these contracts, which relate to the design and build-out of the subleased space.

The foregoing have been deemed related party transactions, as our Interim Chief Executive Officer, Dr.

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

and the Director of Factor Limited.

For more information please see Note 8 and Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q.

Exacis Option Agreement

On October 8, 2022, we entered into an option agreement (the “Option Agreement”) with Exacis Biotherapeutics, Inc., a Delaware corporation (“Exacis”), pursuant to which Exacis

granted us the option to negotiate and enter into an exclusive worldwide license to certain of the technology licensed by Exacis for the treatment of cancer in humans (the “Option”).

The Option Agreement provides that we 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 us 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 our Board members, Dr.

Gregory Fiore, is the Chief Executive Officer of Exacis.

Additionally, our

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.

For more information please

see Note 15 to our unaudited interim financial statements included in this Quarterly Report on Form 10-Q.

PIPE Transaction

On March 6, 2022, we entered into a Securities 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 (the “Units”), each of which consisted of (i) one share of our common stock (or, in lieu thereof, one pre-funded warrant (the “Pre-Funded Warrants”) to purchase one share of common stock) and (ii) one warrant (the

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

The PIPE Transaction closed on March 9, 2022.

We incurred fees of $1.0 million through September

30, 2022 related to the PIPE Transaction.

Each Pre-Funded Warrant has an exercise price of $0.10 per share of common stock, was immediately exercisable and may be exercised at any time and has no expiration date and is subject to

customary adjustments.

The Pre-Funded Warrants may 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.

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.

We 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.

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.

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,

as these warrants provide for a cashless settlement provision that fails the requirement of the indexation guidance under ASC 815-40.

The 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.

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.

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.

In connection with the PIPE Transaction, we and the PIPE Investor also entered into a registration rights agreement, dated March 6, 2022, pursuant to which we agreed to prepare and file a

registration statement with the SEC 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.

We agreed to use our 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.

We filed such registration statement on April 29,

2022, which became effective on May 11, 2022.

Pursuant to the registration rights agreement, we are 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 related securities 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, we provided the PIPE Investor with notice that it was not able to resell the securities under the registration agreement because we did not timely file our

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 we filed the Q1 2022 10-Q.

Because the PIPE Investor was unable to use

the resale registration statement for at least 10 consecutive calendar days, we accrued $0.2 million during the first quarter of 2022 for the estimated contingent loss we expect to incur 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.

We paid the $0.2 million liquidated damages payment in June 2022.

On June 30, 2022, we filed the Q1 2022 10-Q along with the 10-K/A, and on July 1, 2022, we provided notice to the PIPE Investor that it may resume use of the resale

registration statement.

On February 20, 2023, we and Factor Limited entered into an exclusive license agreement (the “Exclusive Factor License Agreement”), which terminated and replaced in its entirety the Factor

License Agreement, dated as of April 26, 2021, and amended on November 22, 2022, by and among us, Eterna Therapeutics LLC, Factor Limited and Novellus Therapeutics Limited.

Subject to certain exclusive licenses or other rights granted by

Factor Limited to certain third parties as of the effective date of the Exclusive Factor License Agreement, Factor granted us 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

we receive at least $100 million in fees from sublicenses to the Factor Patents (“Sublicense Fees”) granted by us pursuant to the Exclusive Factor License Agreement.

Pursuant to the Exclusive Factor License Agreement, we will pay to Factor

Limited 20% of any Sublicense Fee received by us before the initial expiration date of such license and 30% of any Sublicense Fees received by us during the Renewal Term.

We may terminate the Exclusive Factor License Agreement upon 120 days’

written notice to Factor Limited, and both parties otherwise have additional customary termination rights, including in connection with certain uncured material breaches of the Exclusive Factor License Agreement and specified bankruptcy

Under the Exclusive Factor License Agreement, we are obligated to pay the expenses incurred by Factor Limited in preparing, filing, prosecuting and maintaining the Factor Patents and agreed to bear all costs and expenses associated

with enforcing and defending the Factor Patents in any action or proceeding arising from pursuit of sublicensing opportunities under the license granted under the Exclusive Factor License Agreement.

There can be no assurance that we can successfully develop and commercialize the technology licensed under the Exclusive Factor License Agreement.

See Item 1A “Risk Factors—Risks Related to

our Business and Industry — We depend substantially, and expect in the future to continue to depend, on in-licensed intellectual property.

Such licenses impose obligations on our business, and if we fail to

comply with those obligations, we could lose license rights, which would substantially harm our business” contained in the 202210-K.

Basis of Presentation

Reverse Stock Split

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 Stock Split.

We are a development stage company and have had no revenues from product sales to date.

We are a pre-clinical stage company and have had no revenues from product sales to date.

We will not have revenues from product sales until such time as we receive regulatory approval of our

product candidates, successfully commercialize our products or enter into a licensing agreement which may include up-front licensing fees, of which there can be no assurance.

product candidates and successfully commercialize our products.

During the quarter ended March 31, 2023, we entered into the Lineage Agreement, which is an agreement with a customer that includes an up-front option fee recognized as deferred

revenue until the applicable performance obligation has been satisfied.

This agreement could also include additional licensing and cell line customization revenues at Lineages’s discretion.

There can be no assurances that we will recognize such

additional revenues or that we will enter into other agreements with customers in the future.

License Costs

We recognize certain license costs payable to Factor Limited under the Exclusive Factor License Agreement in connection with contracts with customers..

Research and Development Expenses

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support for selected investigator-sponsored research.

Upfront payments and milestone payments for the licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not expected to

have any alternative future uses other than the specific research and development project for which it was intended.

In-Process Research and Development (“IPR&D”) that is acquired through an asset acquisition and has no alternative future

uses and, therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.

The major components of research and development costs include preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical trials,

expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our product

development efforts.

We also have a Master Services Agreement with Factor under which Factor provides us with mRNA cell engineering research support services, including access to certain facilities, equipment,

materials and training.

In the normal course of our business, we contract with third parties to perform various clinical study and trial activities in the on-going development and testing of potential products.

financial terms of these agreements are subject to negotiation and vary from contract to contract and may result in uneven payment flows.

Payments under the contracts depend on factors such as the achievement of certain events or milestones, the

successful enrollment of patients, the allocation of responsibilities among the parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions.

Preclinical and clinical study and trial associated

activities such as production and testing of clinical material require significant up-front expenditures.

We anticipate paying significant portions of a study’s or trial’s cost before such begins and incurring additional expenditures as the study

or trial progresses and reaches certain milestones.

Upfront payments and milestone payments we make for the in-licensing of technology are expensed as research and development in the period in which they are incurred if the technology is not

expected to have any alternative future uses other than the specific research and development project for which it was intended.

In-process research and development (“IPR&D”) that we acquire and which has no alternative future uses and,

therefore, no separate economic values, is expensed to research and development costs at the time the costs are incurred.

The major components of research and development costs have included preclinical study costs, clinical manufacturing costs, clinical study and trial expenses, insurance coverage for clinical

trials, expensed licensed technology, consulting, scientific advisors and other third-party costs, salaries and employee benefits, stock-based compensation expense, supplies and materials and allocations of various overhead costs related to our

product development efforts.

We have contracted with third parties to perform various clinical study and trial activities in the development and testing of potential products.

financial terms of these agreements vary from contract to contract and may result in uneven payment flows.

We accrue for third party expenses based on estimates of the services received and efforts expended during the reporting period.

actual timing of the performance of the services or the level of effort varies from the estimate, the accrual is adjusted accordingly.

The expenses for some third-party services may be recognized on a straight-line basis if the expected costs

are expected to be incurred ratably during the period.

Payments under the contracts depend on factors such as the achievement of certain events or milestones, the successful enrollment of patients, the allocation of responsibilities among the

parties to the agreement, and the completion of portions of the clinical study or trial or similar conditions.

Preclinical and clinical study and trial associated activities such as production and testing of clinical material require significant

up-front expenditures.

General and Administrative Expenses

Our general and administrative expenses consist primarily of salaries, benefits and other costs, including equity-based compensation, for our executive and administrative personnel, legal and

other professional fees, travel, insurance, other costs of being a publicly traded company and other corporate costs.

other professional fees, travel, insurance, and other corporate costs.

Results of Operations

Comparison of the Three and Nine Months Ended September 30, 2022 and 2021

Three months ended September 30,

Comparison of the Three Months Ended March 31, 2023 and 2022

Three months ended March 31,

(in thousands)

Operating expenses:

License costs

Research and development

In-process research and development

General and administrative

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Loss from operations

Other income, net:

Other expense, net:

Change in fair value of warrant liabilities

Loss on non-controlling investment

Other (expense) income, net

Total income, net

Loss before income taxes

Provision for income taxes

Nine months ended September 30,

(in thousands)

Operating expenses:

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

Change in fair value of warrant liabilities

Loss on non-controlling investment

Other (expense) income, net

Total other income (expense), net

Total other expense, net

Loss before income taxes

Provision for income taxes

License Costs

During the three months ended March 31, 2023, we recognized $50,000 of direct costs for amounts owed to Factor Limited in connection with the $250,000 of deferred revenue received from the

Lineage Agreement, which represents Factor Limited’s share of such amount in accordance with the Exclusive Factor License Agreement.

There was no comparable expense for the three months ended March 31, 2022.

Research and Development Expenses

Three months ended September 30,

(in thousands)

Stock-based compensation

Payroll-related

Other expenses, net

Total research and development expenses

Nine months ended September 30,

Three months ended March 31,

(in thousands)

Clinical trials

Payroll-related

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Total research and development expenses

For the three months ended September 30, 2022, our total research and development expenses increased compared to the prior year

period, which was primarily the result MSA expenses recognized during the three months ended September 30, 2022.

There were no comparable MSA expense in the prior year period.

This increase in expense was offset by a decrease in stock-based

compensation expense for the three months ended September 30, 2022, resulting from stock option and restricted stock unit forfeitures.

For the nine months ended September 30, 2022, our research and development expenses decreased primarily due to a $4.0 million

license fee paid in 2021 to Factor Limited and Novellus, Ltd.

(the “Licensors”) under the License Agreement with the Licensors, as well as due to a decrease in clinical trial and other miscellaneous expense, offset by increased expenses related

to the MSA, increased payroll due to severance expense and stock compensation expense related to an increase in equity awards granted during 2022 when compared to the same period in 2021.

In January 2022, we completed a reduction in our workforce involving eight research and development employees.

As a result, we incurred approximately $0.5 million for severance and

termination-related costs, which we recorded during the first quarter of 2022.

In June 2022, we made the decision to consolidate our research and development in Cambridge, Massachusetts, and as a result, we accrued approximately $0.1 million for

severance and termination-related costs for certain employees in the San Diego, California location.

In August 2022, we recognized approximately $0.3 million in severance expense related to the resignation of a San Diego executive.

Impairment of In-Process Research and Development

Three months ended September 30,

(in thousands)

Impairment of in-process research and development

Nine months ended September 30,

(in thousands)

Impairment of in-process research and development

As discussed above, in June 2022, we received the results from the INSPIRE phase 2 trial of IRX-2.

The IRX-2 multi-cytokine biologic immunotherapy represents substantially all the fair value

assigned to the technologies of IRX that we acquired in 2018.

Despite outcomes that favored IRX-2 in certain predefined subgroups, the INSPIRE trial did not meet the primary endpoint of Event-Free Survival (EFS) at two years of follow up.

Significant additional clinical development work will 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

The INSPIRE trial is 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, we currently do not have plans to further develop the IRX-2 product candidate.

As such, we determined that the carrying value of the IPR&D asset was impaired and recognized

a non-cash impairment charge of approximately $6.0 million for the nine months ended September 30, 2022.

During the three and nine months ended September 30, 2021, we expensed the $80.5 million fair value of IPR&D acquired in the Novellus Acquisition because there was no future alternative use

for the IPR&D other than for its intended purpose.

For the three months ended March 31, 2023, our total research and development expenses decreased compared to the three months ended March 31, 2022, which was primarily the result of less payroll

expense and stock-based compensation expense due to employee terminations, offset by an increase in expense recognized during the three months ended March 31, 2023 related to the MSA with Factor (see Note 7 to the

unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) , which did not exist during the three months ended March 31, 2022.

General and Administrative Expenses

Three months ended September 30,

(in thousands)

Professional fees

Stock-based compensation

Payroll-related

Occupancy expense

Loss on disposal of assets

Other expenses, net

Total general and administrative expenses

Nine months ended September 30,

Three months ended March 31,

(in thousands)

Payroll-related

Impairment of ROU asset

Loss on disposal of fixed assets

Stock-based compensation

Occupancy expense

Professional fees

Stock-based compensation

Other expenses, net

Total general and administrative expenses

Our general and administrative expenses decreased for the three months ended September 30, 2022, as compared to the same period in 2021, primarily due to a decrease in professional fees for

accounting services, decreased stock-based compensation expense from the forfeitures of stock-options and restricted stock units, and decreased payroll-related expense due to a decrease in headcount, which was offset by an increase in severance

expense when compared to the same period in 2021.

These decreases were further offset by increases for the three months ended September 30, 2022 in insurance premiums, the disposal of certain assets related to consolidating our research and

development activities in Cambridge, Massachusetts, and other expenses due to legal-related matters, as compared to the same period in 2021.

The increase in general and administrative expense for the nine months ended September 30, 2022 was primarily related to increased headcount as well as severance expense for certain employees,

including our former Chief Executive Officer, who resigned effective May 26, 2022.

We also recognized a non-cash impairment charge on our San Diego, California right-of-use (“ROU”) operating lease asset due to consolidating our research and

development activities in Cambridge, Massachusetts and our intention to sublease the San Diego, California facility.

Other increases included premiums for public company insurance policies, losses on the disposal of fixed assets and other fees

primarily due to legal-related matters, as compared to the same period in 2021.

These increases were offset by decreased professional fees for accounting and legal services and decreased stock-based compensation expense due to primarily to

forfeitures of stock options and restricted stock units when compared to the same periods in 2021.

Transaction Costs

The $5.8 million in transaction costs incurred for the nine months ended September 30, 2021 related to the issuance of common stock to Brooklyn LLC’s financial advisor upon consummation of the

Merger, and there were no comparable transaction costs for same period in 2022.

Loss on Sales of NTN Assets

We incurred a $9.6 million loss on the sale of NTN assets for the nine months ended September 30, 2021 in connection with the Disposition, and there were no comparable transaction costs for

either the three or nine-month periods ended September 30, 2022.

Warrant Liabilities Expense

For the three months ended September 30, 2022, we recognized a credit of $1.0 million for the change in the fair value of warrant liabilities due to a decrease in the market price of our common

stock during the quarter.

For the nine months ended September 30, 2022, we recognized a credit of $11.1 million for the change in the fair value of warrant liabilities, which was offset by $0.6 million in expense related to the excess fair

value of the Common Warrants and Pre-Funded Warrant issued in connection with the PIPE Transaction over the $12.0 million gross proceeds received.

There were no comparable expenses for same periods in 2021.

Our general and administrative expenses decreased for the three months ended March 31, 2023 primarily due to decreases in payroll expenses and stock-based compensation expense resulting from

lower headcount, occupancy expense due to having fewer leased offices, as well as professional fees and other miscellaneous expenses when compared to the three months ended March 31, 2022.

Change in Fair Value of Warrant Liabilities

For the three months ended March 31, 2023, we recognized an increase in the change in the fair value of warrant liabilities due to an increase in the market price of our common stock as of March

The $1.3 million of warrant liabilities expense recognized for the three months ended March 31, 2022 included (i) $0.6 million related to the excess fair value of the Common Warrants and Pre-Funded Warrant (each as defined in Note 4 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) issued in connection with the March 2022 private placement over the $12.0 million gross proceeds

received and (ii) the change in the aggregate fair value of the Common Warrants and Pre-Funded Warrants of approximately $0.7 million from the March 2022 issuance date of the warrants to March 31, 2022.

Loss on Non-Controlling Investment

We account for our investment in NoveCite under the equity method.

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

we recognized approximately $21,000 and $0.9 million of loss, respectively, on our 25% non-controlling investment in NoveCite, respectively.

Of the $0.9 million loss for the nine months ended September 30, 2022, $0.5 million relates to the

We do not have guaranteed obligation of NoveCite nor are we otherwise committed to providing further financial support for NoveCite.

Therefore, we will record losses only up to our investment carrying amount.

There were no

comparable expenses for same periods in 2021.

Other Expense, Net

Three months ended September 30,

(in thousands)

Interest expense, net

Income from PPP loan forgiveness

Total other (expense), income net

Six months ended September 30,

We account for our investment in NoveCite, Inc.

(“NoveCite”) under the equity method.

During the three months ended March 31, 2023 and 2022, we recognized approximately $0.1 million and $0.6

million of loss, respectively, on our 25% non-controlling investment in NoveCite.

We have not guaranteed any obligations of NoveCite nor are we otherwise committed to providing further financial support for NoveCite.

Therefore, we will record

losses only up to our investment carrying amount.

Other Income (Expense), Net

Three months ended March 31,

(in thousands)

PIPE transaction fees

Private placement transaction fees

Liquidated damages

Interest expense, net

Income from PPP loan forgiveness

Other income, net

Total other (expense), income net

We recognized a change from other income, net of $0.3 million for the three months ended September 30, 2021 to other expense, net of $10,000 for the three months ended September 30, 2022.

change was primarily related to income we recognized in 2021 for the forgiveness of Brooklyn LLC’s loan under the Payment Protection Program (“PPP”).

We did not have such income for the same period in 2022.

We recognized a change from other income, net of $0.3 million for the nine months ended September 30, 2021 to other expense, net of approximately $1.2 million for the nine months ended September

During the nine months ended September 30, 2022, our increase in other expense, net was primarily due to fees related to the PIPE Transaction, which was allocated to the warrants issued in connection with the transaction.

Additionally,

we recorded a loss related to the liquidated damages we incurred under our registration rights agreement with the PIPE Investor as a result of not timely filing with the SEC our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022.

During the nine months ended September 30, 2021, we recognized income from the forgiveness of our PPP loan.

We did not have such income for the same period in 2022.

These increases in expense were offset by income from the sale of certain fixed

assets and a decrease in interest expense when compared to the same period in 2021.

Interest income (expense), net

Total other income (expense), net

For the three months ended March 31, 2022, we recognized fees associated with the private placement transaction completed in March 2022, all of which were allocated to the warrants issued in

connection with the transaction, and we accrued for a loss for the estimated liquidated damages we incurred as a result of not timely filing with the SEC our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022.

no comparable expenses for the three months ended March 31, 2023.

Provision for Income Taxes

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Liquidity and Capital Resources

At September 30, 2022, we had cash and cash equivalents of approximately $13.3 million.

On March 9, 2022, we issued 275,000 shares of common stock and Pre-Funded Warrants representing approximately 68,000 shares of common stock for net proceeds of approximately $11.0 million in

connection with the PIPE Transaction.

The 68,000 shares Pre-Funded Warrants were exercised on July 12, 2022 at an exercise price of $0.10 per share for total proceeds of approximately $7,000.

Pursuant to the purchase agreement entered into in

respect of the PIPE Transaction, we are 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 October 18, 2022, we entered into the Sublease for approximately 45,500 square feet of office and laboratory space in

Somerville, Massachusetts.

At March 31, 2023, we had cash, cash equivalents and restricted cash of approximately $9.5 million, of which approximately $4.1 million was restricted cash, as discussed below.

In October 2022, we entered into a facility sublease agreement (the “Sublease”) for approximately 45,500 square feet of office and laboratory space in Somerville, Massachusetts.

The term of the Sublease is approximately 10 years, and we will pay approximately $63.0 million in base rental payments over the 10-year term, plus our share of the Sublessor’s parking

spaces and operating expenses.

As part of the Sublease, we delivered 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 our commercial bank, which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank.

The amount of required restricted cash collateral will

decline in parallel with the reduction in the amount of the letter of credit over the term of the sublease.

The required restricted cash reduced the amount of working capital we have to fund our operations.

of credit was issued by our commercial bank, which required that we cash collateralize the letter of credit with $4.1 million of cash deposited in a restricted account maintained by such bank.

The amount of required

restricted cash collateral will decline in parallel with the reduction in the amount of the letter of credit over the term of the sublease.

In February 2023, we entered into the Lineage Agreement, pursuant to which we received a $0.3 million upfront, nonrefundable payment for an option right to obtain a sublicense of intellectual

property that we license from Factor Limited under the Exclusive Factor License Agreement.

This customer agreement may also provide for future payments to us if Lineage requests that we develop certain customized cell line activities or if the

customer exercises its right to obtain the sublicense, which would include a license fee, milestone payments, royalties, and sublicense fees.

On April 5, 2023, we entered into the ELOC Purchase Agreement, pursuant to which Lincoln Park committed to purchase up to $10.0 million of our common stock.

Such sales of common stock by

us , if any, are subject to certain limitations set forth in the ELOC Purchase Agreement , and may occur from time to time, at our 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 ELOC Purchase Agreement were initially satisfied (the

“Commencement Date”).

Pursuant to a registration rights agreement entered into in connection with the ELOC Purchase Agreement, we 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 shares previously issued to Lincoln Park as consideration for entry into the ELOC Purchase Agreement, and the SEC declared such registration statement effective on April 24, 2023 .

From and after the Commencement Date, we may from time to time, on any business day selected by us on which the closing sale price per share of common stock as reported on The

Nasdaq Capital Market is not less than the “floor price” threshold set forth in the ELOC Purchase Agreement (each such business day, a “purchase date”) direct the investment group to purchase up to 30,000 shares of common stock on such purchase

date, at a purchase price per share that will be determined and fixed in accordance with the ELOC Purchase Agreement.

The maximum number of shares we may sell to Lincoln Park in a regular purchase may be increased by certain amounts to up to

90,000 shares, with the applicable maximum share limit determined by whether the closing sale price per share of common stock on the applicable purchase date for such regular purchase equals or exceeds certain minimum price thresholds;

the Lincoln Park’s maximum purchase commitment in any single regular purchase may not exceed $1,000,000.

In addition, the Selling Stockholder has committed to purchase other “accelerated amounts” or “additional accelerated amounts” under

certain circumstances.

Under applicable Nasdaq listing rules, the aggregate number of shares of common stock that we may issue to Lincoln Park under the ELOC Purchase Agreement cannot exceed 19.99%

of our shares of common stock issued and outstanding immediately prior to the execution of the ELOC Purchase Agreement (the “Exchange Cap”), unless (i) we first obtain stockholder approval to issue shares of common stock in excess of the

Exchange Cap in accordance with applicable Nasdaq listing rules, or (ii) at the time we have issued shares of common stock equal to the Exchange Cap and at all times thereafter, the average price per share of common stock for all shares of

common stock sold by us to Lincoln Park under the ELOC Purchase Agreement equals or exceeds $3.35 per share (representing the lower of the official closing price of the common stock on Nasdaq on the trading day immediately preceding the date of

the ELOC Purchase Agreement and the average official closing price of the common stock on Nasdaq for the five consecutive trading days ending on the trading day immediately preceding the date of the ELOC Purchase Agreement, as adjusted pursuant

to applicable Nasdaq rules), such that the Exchange Cap limitation would no longer apply to issuances and sales of common stock by us to Lincoln Park pursuant to the ELOC Purchase Agreement under applicable Nasdaq listing rules.

We may not direct Lincoln Park to purchase any shares of common stock under the ELOC Purchase Agreement if

such purchase would result in Lincoln Park beneficially owning more than 4.99% of our issued and outstanding shares of common stock.

We have to date incurred operating losses, and we expect these losses to continue in the future as we further develop our product development programs and operate as a publicly traded company.

Developing product candidates, conducting clinical trials and commercializing products are expensive, and we will need to raise substantial additional funds to achieve our strategic objectives.

It will likely be some years before we obtain the

necessary regulatory approvals to commercialize one or more of our product candidates.

Based on our current financial condition and forecasts of available cash, including as mentioned above, we believe we do not have sufficient funds to fund our

operations for the next twelve months from the filing of the financial statements contained in this Quarterly Report on Form 10-Q for the period ended September 30, 2022 (the “Q3 2022 10-Q”).

There can be no assurance that we will ever be in a

position to commercialize IRX-2 or any other product candidate we may acquire, or that we will obtain any additional financing that we require in the future or, even if such financing is available, that it will be obtainable on terms acceptable

In the near-term, we intend to focus on licensing opportunities for our in-licensed technology, but there can be no assurance that we will enter into agreements with respect to such opportunities on such terms and within a timeframe necessary to

satisfy our need for working capital.

While we are not presently pursuing product development, we may do so in the future, and current and potential licensing partners may seek to do so.

Developing product candidates, conducting clinical trials

and commercializing products are expensive, and we would need to raise substantial additional funds if we were to pursue the development of one or more product candidates Based on our current financial condition and forecasts of available cash,

we believe we do not have sufficient funds to fund our operations for the next twelve months from the filing of the financial statements contained in this Quarterly Report on Form 10-Q for the three months ended March 31, 2023.

We can provide no

assurance that we will be able to satisfy our near- or long-term cash needs through licensing transactions, or that we will obtain any additional financing that we require in the future or, even if such financing is available, that it will be

obtainable on terms acceptable to us.

In that regard, our future funding requirements will depend on many factors, including:

the terms and timing of any collaborative, licensing and other agreements that we may establish;

the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights;

the cost and timing of regulatory approvals;

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the effect of competition and market developments;

the cost of filing and potentially prosecuting, defending and enforcing any patent claims and other intellectual property rights;

the scope, rate of progress and cost of our clinical trials and other product development activities;

the scope, rate of progress and cost of clinical trials and other product development activities;

future clinical trial results.

We plan to raise additional funds to support our product development activities and working capital requirements through the remaining availability under the Second Purchase Agreement (to the

extent we are permitted to use such agreement), public or private equity offerings, debt financings, strategic partnerships, out-license collaborations or other means.

We may also seek governmental grants to support our clinical trials and

preclinical trials.

Further, we may seek to raise capital to fund additional product development efforts even if we have sufficient funds for our planned operations.

Any sale by us of additional equity or convertible debt securities could result

in dilution to our stockholders.

There can be no assurance that any such required additional funding will be available to us at all or available on terms acceptable to us.

We plan to raise additional funds to support our product development activities and working capital requirements through public or private equity offerings, debt financings, strategic

partnerships, out-license collaborations or other means.

Any sale by us of additional equity or convertible debt securities could result in dilution to our stockholders.

There can be no assurance that any such required additional funding will be

available to us at all or available on terms acceptable to us.

Further, to the extent that we raise additional funds through collaborative arrangements, it may be necessary to relinquish some rights to our technologies or grant sublicenses on terms that are

not favorable to us.

If we are not able to secure additional funding when needed, we may have to delay the commercialize of our products, reduce the scope of or eliminate one or more research and development programs, which could have an adverse

effect on our business.

Cash flows from operating, investing and financing activities, as reflected in the accompanying consolidated statements of cash flows, are summarized as follows:

For the nine months ended

September 30,

If we are not able to secure additional funding when needed, we may have to delay the commercialization of our products, reduce the scope of or eliminate one or more research and development programs, which could have an

adverse effect on our business.

Cash flows from operating, investing and financing activities, as reflected in the accompanying condensed consolidated statements of cash flows, are summarized as follows:

For the three months ended

(in thousands)

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Net Cash Used in Operating Activities

The decrease in cash used in operating activities was due to a decrease in net loss of $4.3 million, after giving effect to

adjustments made for non-cash transactions, offset by an increase in cash provided by operating assets and liabilities of $5.4 million during the nine months ended September 30, 2022 compared to the same period in 2021.

The increase in cash

provided by operating assets and liabilities was primarily driven by increased accrued compensation due to higher headcount and severance, accrued costs for litigation matters, increased liabilities related to the MSA and increased insurance

The increase in cash used in operating activities was due to an increase in cash used in operating assets and liabilities of $1.7 million during the three months ended March 31, 2023 compared to

the three months ended March 31, 2022, offset by a decrease in net loss of $1.3 million for the 2023 period, after giving effect to adjustments made for non-cash transactions.

The increase in cash used in operations was primarily driven by

decreased accrued compensation due to payments of severance accruals and payments of accrued costs for litigation matters.

Net Cash Used in Investing Activities

The decrease in net cash used in investing activities was primarily due to cash used to purchase Novellus of $22.9 million during the nine months ended September 30, 2022 compared to the same

period in 2021, which was offset by proceeds of approximately $0.3 million from the Merger and the Disposition transactions.

There were no similar transactions during the nine months ended September 30, 2022.

We did not use any cash for investing activities during the three months ended March 31, 2023 and made immaterial purchases of capital equipment during the three months ended March 31, 2022.

Net Cash Provided by Financing Activities

The decrease in net cash provided by financing activities was primarily the result of a decrease in net proceeds from capital raises of approximately $51 million, net, offset by a

decrease in principal payments made for long-term debt arrangements of $0.5 million during the nine months ended September 30, 2022 compared to the same period in 2021.

Net cash provided by financing activities for the three months ended March 31, 2022 related to proceeds received in connection with the private placement of equity completed in March 2022.

did not have a comparable transaction during the three months ended March 31, 2023.

Critical Accounting Estimates

There were no significant changes in our critical accounting estimates during the three and nine months ended September 30, 2022 from those described in “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” section of the 10-K/A.

There were no significant changes in our critical accounting estimates during the three months ended March 31, 2023 from those described in “Management’s Discussion and Analysis of Financial

Condition and Results of Operations” section of the 2022 10-K.

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 2022-04”).

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.

We do not expect a material impact on our financial statements as a result

of adopting this amendment.

In June 2022, FASB issued ASU No.

2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of

Equity Securities Subject to Contractual Sale Restrictions (“ASU 2022-03”).

The FASB issued ASU 2022-03 to (1) clarify the guidance in Topic 820, Fair Value Measurement, when measuring the fair value

of an equity security subject to contractual restrictions that prohibit the sale of an equity security, (2) to amend a related illustrative example, and (3) to introduce new disclosure requirements for equity related securities subject to

contractual sale restrictions that are measured at fair value in accordance with Topic 820.

ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity

security and, therefore, is not considered in measuring fair value.

The guidance is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years with early adoption permitted.

We are evaluating when

to adopt the amendments in ASU 2022-02.

We do not expect a material impact on our financial statements 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 us since the ASUs disclosed in the 2022 10-K.

Quantitative and Qualitative Disclosures About Market Risk.

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What changed 10-Q

Item 2. Management’s Discussion and Analysis