What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-11 · 867 added, 273 removed, 306 unchanged (79% of the section changed)

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Deferred revenue

Contingent consideration liability

Other liabilities

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

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

designated and outstanding of Series A convertible preferred stock at June 30 , 2023 and December 31 , 2022 , $ 156 liquidation

Common stock, $ 0.005 par value, 100,000 shares authorized at June 30, 2023 and December 31, 2022;

5,410 and 5,127 issued and outstanding at June 30 , 2023 and December 31 , 2022 ,

Additional paid-in capital

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CONDENSED CONSOLIDATED

STATEMENTS OF

STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

ended March 31,

Three months ended June 30 ,

Six months ended June 30 ,

Operating expenses:

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General and administrative

Acquisition of Exacis in-process research and development

Impairment of in-process research and development

Total operating expenses

Loss from operations

Other expense, net:

Other income (expense), net:

Change in fair value of warrant liabilities

Change in fair value of contingent consideration

Loss on non-controlling investment

Other income (expense), net

Total other expense, net

Other expense, net

Total other income (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

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ETERNA THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

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

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

For the three and six months ended June 30, 2023 and 2022 (unaudited)

(in thousands)

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Additional Paid-

Balances at April 1, 2023

Issuance of common stock in connection with Exacis

asset acquisition

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

Cash dividends to Series A preferred stockholders

Stock-based compensation

Balances at June 30, 2023

Balances at January 1, 2023

Issuance of common stock in connection with Exacis asset acquisition

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

Cash dividends to Series A preferred stockholders

Stock-based compensation

Balances at March 31, 2023

Balances at June 30, 2023

Balances at April 1, 2022

Issuance of common stock from vested restricted stock units

Cash dividends to Series A preferred stockholders

Stock-based compensation

Balances at June 30, 2022

Balances at January 1, 2022

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

Forfeiture of unvested restricted stock

Issuance of common stock in connection with private offering

Issuance of common stock from vested restricted stock units

Forfeiture of unvested restricted stock

Cash dividends to Series A preferred stockholders

Stock-based compensation

Balances at March 31, 2022

Balances at June 30, 2022

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

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(in thousands)

For the three

Cash flows used in operating activities:

Cash flows from operating activities:

Adjustments to reconcile net loss to net cash used in operating activities:

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Stock-based compensation

Commitment shares issued to Lincoln Park Capital, LLC

Loss on shares sold to Lincoln Park Capital, LLC

Amortization of right-of-use asset

Impairment of right-of-use-asset

Non-cash component of acquisition of Exacis in-process research and development

Impairment of in-process research and development

Loss on disposal of fixed assets

Gain on lease termination

Loss on change in warrant liabilities

Change in fair value of warrant liabilities

Change in fair value of contingent consideration liability

Loss on non-controlling investment

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Net cash used in operating activities

Cash flows used in investing activities:

Cash flows from investing activities:

Purchase of property and equipment

Proceeds from the sale of fixed assets

Net cash used in investing activities

Cash flows provided by financing activities:

Cash flows from financing activities:

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

Proceeds from sale of common stock pursuant to stock purchase agreement with Lincoln Park Capital Fund, LLC

Payroll tax remitted on net share settlement of equity awards

Dividends paid to Series A preferred stockholders

Net cash provided by financing activities

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Cash paid during the period for:

Supplemental disclosure of non-cash investing and financing activities:

Contingent consideration for Exacis asset acquisition

Issuance of common stock for Exacis asset acquisition

Initial measurement of right-of-use asset

Initial measurement of lease liability

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

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Restricted cash

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

Total cash, cash equivalents and restricted cash at end of period

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

ETERNA THERAPEUTICS INC.

NOTES TO CONDENSED CONSOLIDATED

FINANCIAL STATEMENTS

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION

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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.

The results of operations for the three and six months ended June 30, 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

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administrative support for operations.

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

As of June 30, 2023, the Company had an unrestricted cash balance of approximately $ 1.8

million and an accumulated deficit of approximately $ 175.2 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 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.

For the three and six months ended June 30, 2023, the Company

incurred a net loss of $ 4.5 million and $ 9.9 million, respectively, and the Company used cash in operating activities of $ 9.9 million

during the six months ended June 30, 2023.

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 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 Subleas e.

On April 5, 2023, the Company entered into a standby equity purchase agreement (the “SEPA”) 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

During the three and six months ended June 30, 2023, the Company issued and sold approximately 214,000 shares

of common stock under the SEPA for gross proceeds of $ 0.3 million.

On July 13, 2023, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with certain investors providing for the private placement (the “Private Placement”) to the investors of (i)

approximately $ 8.7 million in aggregate principal convertible promissory notes (the “Notes”) and (ii) warrants to purchase an

aggregate of approximately 6.1 million shares of the Company’s common stock (the “Note Warrants”).

The Notes bear interest at

6 % per annum, payable quarterly in arrears, and the Company may pay interest in cash or in-kind by increasing the outstanding

principal amount of the Notes.

The Notes mature in July 2028 and can be converted into shares of the Company’s common stock at the option of the applicable investor.

The Private Placement closed on July 14, 2023, and the Company intends

to use the proceeds for general working capital purposes.

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three and six months ended June 30, 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 condensed consolidated financial statements.

The Company will need to raise additional capital in addition to the Private Placement completed in July 2023, which could be through the remaining availability under the SEPA,

public or private equity offerings, debt financings, strategic partnerships or other means.

Other than the SEPA, 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

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classifications of liabilities that may result from uncertainty related to the Company’s ability to continue as a going concern.

ASSET ACQUISITION

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 and, with respect to specified provisions therein, Factor Limited (the “Exacis

Acquisition”).

Pursuant to the Exacis Purchase Agreement, the Company acquired from Exacis substantially all of Exacis’ intellectual property assets (the “Exacis 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

Exacis Assets, on the closing date of the transaction, the Company issued to Exacis an aggregate of approximately 69,000 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 shares were issued to Exacis at

a price based on the Company having an assumed equity valuation of $ 75.0 million, divided by the number of issued and outstanding

shares of common stock as of the close of business two trading days prior to the closing date.

For accounting purposes, t he shares issued were valued at $ 3.00 per share, which was the closing price of the Company’s common stock on the date of issuance.

The Company additionally agreed to make the following contingent payments:

if, at any time during the three-year period commencing on the 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;

if, at any time during the three-year period commencing on the 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 (collectively with (i) above, the “Market Cap Contingent Consideration”);

during the five-year period commencing on the closing date and ending on the five-year anniversary of the closing date, the Company will pay or deliver to Exacis 20 % of all cash or other consideration (collectively, “License Contingent 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 Contingent Consideration shall not in any event exceed $ 45.0 million.

The Company accounted

for the Exacis Acquisition as an asset acquisition because it determined that substantially all of the fair value of the assets acquired was concentrated in the Purchased License.

Assets acquired in an asset acquisition are recognized based on their

cost to the acquirer and generally allocated to the assets on a relative fair value basis.

The Company’s cost for acquiring the Exacis Assets includes the issuance of the Company’s common stock, direct acquisition-related costs and contingent

consideration.

table below shows the total fair value of the consideration paid for the Exacis Assets (in thousands).

See Note 4 for more information on the fair value measurement of the assets acquired.

Fair Value of

Consideration

Shares issued

Contingent consideration

Total fair value

The Company allocated 100 % of the fair value of the consideration to the Purchased License, which the Company determined is an in-process research and development (“IPR&D”)

IPR&D assets acquired through an asset purchase that have no alternative future uses and no separate economic values from their original intended purpose are expensed in the period the cost is incurred.

As a result, the Company expensed

the fair value of the Purchased License during the three and six months ended June 30, 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 willing market participants.

A fair value hierarchy has been established for valuation inputs that gives the

highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.

The fair value hierarchy is as follows:

1 Inputs – Valued based on quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.

Level 2 Inputs – Valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.

These might include quoted prices for similar assets or

liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability (such as interest rates,

volatilities, prepayment speeds, credit risks, etc.) or inputs that are derived principally from or corroborated by market data by correlation or other means.

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, other receivable, prepaid assets and other current assets, accounts payable and accrued expenses, other current liabilities and other

liabilities approximate fair value based due to their short maturities.

The following tables summarize the liabilities that are measured at fair value as of June 30, 2023 and December 31, 2022 (in thousands) :

Warrant liabilities - Common Warrants

Market Cap Contingent Consideration

The Company has Common Warrants related to the March PIPE, as defined and discussed in Note 12, that are recognized as liabilities.

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.

The Company also has contingent consideration liabilities related to the Exacis Acquisition, as discussed in Note 3.

The Market Cap Contingent

Consideration is indexed to or settled in the Company’s own shares.

As a result, the Company classified the Market Cap Contingent Consideration as a liability measured at fair value because the financial instrument embodies a conditional

obligation (the Company would only issue the shares on the condition that the market capitalization thresholds are met), and at inception, the monetary value of the obligation is based solely on a fixed monetary amount ($ 2.0 million of shares for each target), which will be settleable with a variable number of the Company’s shares.

The Company uses a Monte Carlo

simulation model to estimate the fair value of the Market Cap Contingent Consideration, which is considered a Level 3 fair value measurement.

As of the acquisition date, the fair value of the Market Cap Contingent Consideration was

approximately $ 0.2 million.

The Company remeasured the fair value of the Market Cap Contingent Consideration as of June 30,

2023, which resulted in a decrease of $ 0.1 million to approximately $ 0.1 million.

The following assumptions were used in the fair valuation calculation as of the acquisition date and June 30, 2023:

Acquisition Date

June 30, 2023

Risk-free rate

Dividend yield

Expected term

The License Contingent Consideration is to be settled

in cash and is generally recognized when the liability is probable and estimable.

As of the acquisition date and as of June 30, 2023, the Company concluded that paying the License Contingent Consideration was not probable or estimable.

Therefore, there was no applicable contingent consideration liability recognized.

Certain inputs used in this Black-Scholes and Monte Carlo pricing models 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 or contingent consideration liabilities, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

The following table presents the changes in the warrant liabilities from January 1, 2023 through June 30, 2023, as well as the initial measurement of the Market Cap Contingent Consideration as of the

acquisition date of the Exacis Assets and the changes in such contingent consideration as of June 30, 2023 (in thousands):

Contingent Consideration

Fair value at January 1, 2023

Initial measurement

of Market Cap Contingent Consideration

Change in fair value

Fair value at June 30, 2023

CONTRACT WITH CUSTOMER

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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.

The Lineage 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.

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

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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.

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.

The cell 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

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:

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

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

Change in fair value of warrant liabilities

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”).

As of June 30, 2023, the customer has not exercised

the Option Right.

Therefore, the $ 250 ,000 Option Fee remains recorded as deferred revenue in the accompanying condensed consolidated

balance sheet as of June 30, 2023

As provided for in the Exclusive Factor License Agreement discussed in Note 9, the Company was 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 six months ended June 30, 2023.

There were no license costs for the three months ended June 30, 2023.

currently has operating leases for office and laboratory space in New York, New York, Cambridge, Massachusetts and Somerville, Massachusetts, which expire in

2026, 2028, and 2033, respectively.

During the second quarter of 2022, the Company determined to consolidate its research and development efforts in Cambridge,

Massachusetts and sublease its San Diego lab and office space.

As a result, the Company recognized an impairment charge of approximately $ 0.8

million on the San Diego Lease ROU asset for the three and six months ended June 30, 2022.

In November 2022, the Company entered into a lease termination agreement, effective January 31, 2023, and, as of June 30, 2023, there was no lease liability or ROU asset balances remaining for the San Diego lease.

In October 2022, the Company entered into the Sublease with E.R.

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.

The lease expires in November 2033 and is subject to a five-year extension.

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.

The Company will pay base rent of

approximately $ 0.5 million per month during the first year of the term, which will increase 3 % per year thereafter.

The Company will also make monthly payments for parking, which is based on market rates that can change from time-to-time, as well as pay its share

of traditional lease expenses, including certain taxes, operating expenses and utilities.

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.

The Sublessor has agreed to provide the Company with a tenant improvement allowance

(“TIA”) 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

It is anticipated that the construction will be substantially

complete by the end of 2023.

The Company obtained access and control of the Premises on June 21, 2023, and as such, the Company determined that the

commencement date for accounting purposes was June 21, 2023.

The Company also performed an analysis on the accounting ownership of the tenant improvement assets and determined that such assets were Sublessor/Lessor owned.

As a result, TIA

payments made by the Sublessor to the Company for the tenant improvement assets are considered a reimbursement rather than a lease incentive and not included as part of the consideration of the contract.

Amounts paid by the Company for

Sublessor/Lessor owned assets that are in excess of the TIA are considered non-cash lease payments and are added to the consideration in the contract.

The Company measured the lease liability and corresponding ROU asset for the Somerville Sublease as of June 21, 2023, which includes lease

payments the Company must make over the ten-year lease term.

The Company did not include the option to extend the lease for an additional five years in the initial measurement because the Company was not reasonably certain as of June 21,

2023 that it would exercise its right to extend the lease term.

As a result, the Company recorded a lease liability of $ 34.2

million, which includes $ 0.6 million for the incremental amount above the TIA that the Company expects to pay for Sublessor/Lessor

owned assets, and a corresponding ROU asset of $ 34.4 million as of June 30, 2023.

As of June 30, 2023, the Company has recorded

approximately $ 0.3 million as an other receivable for amounts submitted for reimbursement under the TIA for Sublessor/Lessor owned

assets and approximately $ 0.7 million recorded in other current assets for amounts paid by the Company but not yet submitted for

reimbursement of Sublessor/Lessor owned assets.

For the six months ended June 30, 2023 and 2022, the net operating lease expenses were as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Operating lease expense

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Total lease expense

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

The above table does not include lease expense related to the Somerville Sublease from the June 21, 2023 commencement date through

June 30 2023 because such amount was immaterial.

The Company will begin recognizing lease expense for the Somerville Sublease on July 1, 2023.

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 June 30, 2023, including the changes during the period (in thousands).

Operating Lease

Operating lease ROU assets at

January 1, 2023

Recognition of ROU asset for Somerville Sublease

Amortization of operating lease

Operating lease ROU assets at

June 30, 2023

Operating Lease

Operating lease liabilities at

January 1, 2023

Recognition of lease liability for Somerville Sublease

Principal payments on operating

lease liabilties

Operating lease liabilities at

June 30, 2023

Less non-current portion

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):

Current portion at June 30, 2023

As of June 30, 2023, the Company’s operating leases had a weighted-average remaining

life of 10.3 years with a weighted-average discount rate of 12.6 %.

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

June 30, 2023

Total payments

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Total operating lease liabilities

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.

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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.

As of June 30, 2023, the Company performed a qualitative assessment to determine whether it was more likely than not that the fair

value of the entity is less than its carrying value of goodwill.

Such qualitative factors included macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant events.

result of the decline in the Company’s stock price from $ 3.40 per share as of March 31, 2023 to $ 2.26 per share as of June 30, 2023, 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 not impaired as of June 30, 2023.

RELATED PARTY TRANSACTIONS

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.

Agreements with Factor Bioscience Inc.

and Affiliates

As of June 30, 2023, the agreements below were in place related to Factor Bioscience

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

Matthew Angel.

These agreements 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.

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

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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

terminated by either party upon 30 days’ prior notice, subject to any superseding termination provisions contained in a particular

In connection with entering into the MSA, Factor Bioscience’s subsidiary , Factor Limited, entered into a waiver

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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 .

Under the terms of the Waiver Agreement, the License Fee Obligation is waived conditionally on the Company paying Factor Bioscience a minimum of $ 3.5 million 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.

As of June 30, 2023, there was approximately $ 2.1 million of the unamortized 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”).

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.

On July 12, 2023, The Company and Factor Limited entered

into the First Amendment to the Exclusive Factor License Agreement (the “Exclusive License Agreement Amendment”), which amended the Exclusive Factor License Agreement to (i) expand the field of use of the Factor Patents to include veterinary uses, (ii) extend the Renewal Term from two and a half years to five years if the Company pays at

least $ 6.0 million to Factor Limited from Sublicense Fees, other cash on hand or a combination of both sources of funds, (iii) reduce

the Sublicense Fees payable to Factor Limited during the Renewal Term from 30 % to 20 %, (iv) eliminate Factor Limited’s termination rights with respect to Factor Patents that are not sublicensed, or for which an opportunity has not been identified, in

each case by a certain date and (v) provide for the Company’s payment to Factor Limited of a monthly maintenance fee of approximately $ 0.4

million, beginning in September 2024.

September 2022, Novellus and Eterna entered into a Second Amendment to the Limited Waiver and Assignment Agreement (the “Waiver and Assignment Agreement”) with Drs.

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Covered Claims.

Exacis Asset Acquisition

O n April 26, 2023, the Company entered into the Exacis Purchase Agreement

to acquire the Exacis Assets, including all of Exacis’ right, title and interest in the Purchased License.

The Company assumed none of Exacis’ liabilities, other than liabilities under the Purchased License that accrue subsequent to the

closing date.

T he Exacis Acquisition has been deemed a related party transaction because Dr.

Gregory Fiore, who was the Chief Executive Officer of

Exacis, is a Director of the Company.

Additionally, Dr.

Angel was Chairman of Exacis’ scientific advisory board, he 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 .

Consulting Agreement with Dr.

In May 2023, the Company entered into a consulting agreement with Dr.

Fiore, a Director of the Company, whereby Dr.

would provide business development consulting services to the Company for a monthly retainer of $ 20,000 .

The consulting agreement was

terminable for any reason by either party upon 15 days’ written notice, and the Company terminated the consulting

agreement, effective July 31, 2023.

Convertible Note Financing

On July 13, 2023, the Company consummated the Private Placement of the Notes.

Binder and Richard Wagner, who are current directors of the Company, and Charles Cherington and Nicholas Singer, who are former directors of the Company, participated in the Private Placement under the same terms and subject to the same

conditions as all the other Purchasers.

ACCRUED EXPENSES

Accrued expenses consisted of the following (in thousands):

Accrued expenses at June 30, 2023 and December 31, 2022 consisted of the following

(in thousands):

Legal fees and settlements

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

On November 15, 2022, prior to a decision on Westman’s and Sowyrda’s motion to compel or stay, the Parties agreed to voluntarily dismiss and

consolidate the Delaware Actions with this action.

O n 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.

Rohde, Novellus LLC, Novellus

Inc., Factor Bioscience Inc., and Eterna Therapeutics Inc.

(“Counterclaim Defendants”) alleging against various Counterclaim Defendants breach of contract, breaches of the implied duty of good faith and fair dealing,

breaches of fiduciary duty, breaches of the operating agreement, aiding and abetting breaches of fiduciary duty, tortious interference with contract, equitable accounting, violations of the Massachusetts Wage Act,

Massachusetts Minimum Fair Wage Law, the Fair Labor Standards Act, unjust enrichment, and quantum meruit.

Also on December 15, 2022, Westman filed an answer to the Amended Complaint and asserted similar counterclaims

against the same Counterclaim Defendants.

Westman and Sowyrda each asserted claims for indemnification and/or advancement against Novellus, Inc.

On January 11, 2023, Westman and Sowyrda served a joint motion

to enforce their advancement and/or indemnification rights against Novellus Inc.

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.

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.

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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.

The Court entered an order granting the Counterclaim Defendants’ motion to dismiss and denying Sowyrda

and Westman’s motion to enforce on June 15, 2023.

The Court’s order dismissed all of Westman’s claims against Counterclaim Defendants except his claim for indemnification, and all of Sowyrda’s claims except his claim for

indemnification and his employment-related claims, which Counterclaim Defendants did not move to dismiss.

On July 6, 2023, Westman and Sowyrda filed a petition for interlocutory review with a single justice of the

Massachusetts Appeals Court, seeking to overturn the judge’s decision granting the Counterclaim Defendants’ motion to dismiss most of the remaining counterclaims, but not the decision denying Westman and Sowyrda’s motion

to enforce advancement rights.

On July 25, 2023, the parties to the appeal filed a joint motion to the single justice in the appellate court to stay the appeal, indicating that Counterclaim Plaintiffs intended to file

amended counterclaims with the consent of Counterclaim Defendants who may then move to dismiss the amended counterclaims.

Pursuant to the motion, which was allowed on July 27, 2023, the appeal is stayed pending resolution

of Counterclaim Defendants’ motion to dismiss the amended counterclaims or the expiration of the time for Counterclaim Defendants to move to dismiss the amended counterclaims .

Under applicable Delaware law and Novellus Inc.’s organizational documents, the Company may be required to advance or

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nor can it be reasonably estimated.

eTheRNA Immunotherapies NV and eTheRNA Inc.

Eterna Therapeutics Inc.

On July 31, 2023, eTheRNA Immunotherapies NV and eTheRNA Inc.

filed a complaint against Eterna Therapeutics Inc.

the following claims:

(1) federal trademark infringement;

(2) federal unfair competition;

(3) Massachusetts state common law trademark infringement;

(4) Massachusetts state unfair competition.

Service of process for the

complaint was completed on August 1, 2023.

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

Licensing Agreements

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.

On July 12, 2023, the Company and Factor Limited entered into the Exclusive License Agreement Amendment.

See Note 8 for details of

these agreements.

Retirement Savings Plan

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Stock Options

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

following stock options (in thousands):

Three months ended March 31,

During the three and six months ended June 30, 2023 and 2022, the Company granted

the following stock options (in thousands):

Three months ended June 30,

Six months ended June 30,

Stock options granted

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,

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 and six months ended June 30, 2023 and 2022:

Three months ended June 30,

Six months ended June 30,

Weighted average risk-free rate

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Expected term

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.

The per-share weighted average grant-date fair value of stock options granted during the three and six months ended June 30, 2023

and 2022 was as follows:

Three months ended June 30,

Six months ended June 30,

Weighted average grant date fair value

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

As of June 30,

2023, there were approximately 522,000 stock options outstanding.

Restricted Stock Units

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 six months ended June 30, 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.

three months ended June 30, 2022 or during the three and six months ended June 30, 2023.

Company recognizes the fair value of RSUs as expense on a straight-line basis over the requisite service period.

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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.

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.

During the three and six months ended June 30, 2023,

less than 1,000 RSUs vested.

During both the three and six months ended June 30, 2022, there were approximately 1,000 RSUs that vested.

As of June 30, 2023, there were approximately 1,000 RSUs outstanding.

Stock-Based Compensation Expense

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,

For the three and six months ended June 30, 2023 and 2022, the Company recognized stock-based compensation expense as follows (in thousands):

Three months ended June 30,

Six months ended June 30,

Research and development

General and administrative

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.

On March 6, 2022, the Company entered into a securities 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, pre-funded warrants to purchase approximately 68,000 shares of common stock (the “Pre-Funded Warrants”) and warrants to purchase approximately 343,000 shares of common stock (the “Common Warrants”) for an aggregate gross purchase price of approximately $ 12.0 million.

The transaction closed on March 9, 2022.

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than the Subscription Amount.

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

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 six months ended June 30, 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 ,

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.

As of June 30, 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

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November 2022 PIPE

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

of June 30, 2023, the weighted average remaining contractual life of the warrants outstanding was 4.88 years and the weighted

average exercise price was $ 5.82 .

See Note 16 for warrants issued subsequent to June 30, 2023.

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.

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,

Diluted net loss per share is calculated by dividing net loss by the

weighted-average number of common shares outstanding plus dilutive securities.

Shares of common stock issuable upon exercise, conversion or vesting of stock options, RSUs, warrants and other convertible securities, including our outstanding

Series A Convertible Preferred Stock, are considered potential common shares and are included in the calculation of diluted net loss per share using the treasury method when their effect is dilutive.

Diluted net loss per share is the same as

basic net loss per share for periods in which the effect of potentially dilutive shares of common stock is antidilutive.

The following table presents the amount of warrants, stock options, convertible preferred stock and RSUs that were excluded

from the computation of diluted net loss per common share for the three and six months ended June 30, 2023 and 2022, as their effect was anti-dilutive (in thousands):

Three and Six months ended June 30,

Stock options

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Total potential common shares excluded from computation

STANDBY EQUITY PURCHASE AGREEMENT

April 5, 2023, the Company entered into the SEPA with 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 approximately 74,000 shares of common stock (the “Commitment Shares”).

The value of the Commitment Shares was recorded as a

period expense and included in other expense, net, in the accompanying condensed consolidated statements of operations for the three and six months ended June 30, 2023.

Company evaluated the contract that includes the right to require Lincoln Park to purchase shares of common stock in the future (“put right”) considering the guidance in ASC 815-40, Derivatives and Hedging — Contracts on an Entity’s Own

Equity and concluded that it is an equity-linked contract that does not qualify for equity classification, and therefore requires fair value accounting.

The Company has analyzed the terms of the freestanding put right and has concluded that it

has an immaterial value as of June 30, 2023.

of June 30, 2023, the Company had issued and sold 214,000 shares of common stock under the SEPA , including the 74,000 commitment shares, for

gross proceeds of approximately $ 0.3 million, and there were approximately 2,860,000 shares remaining to be sold under the SEPA.

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

RECENT ACCOUNTING PRONOUNCEMENTS

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SUBSEQUENT EVENTS

Private Placement of Convertible Notes and Warrants

On July 13, 2023, the Company entered into the Purchase Agreement with certain investors for the Private Placement of $ 8.7

million in aggregate principal amount of Notes and the issuance of the Note Warrants to purchase an aggregate of approximately 6.1

million shares of common stock.

The Private Placement closed on July 14, 2023 (the “Closing Date”), and the Company intends to use the net proceeds from the Private Placement for general working capital purposes.

The Notes bear interest at 6 % per annum, payable quarterly in arrears.

At the Company’s election, it may pay interest

either in cash or in-kind by increasing the outstanding principal amount of the Notes.

The Notes mature on July 14, 2028 ,

unless earlier converted or repurchased.

The Company may not redeem the Notes at its option prior to maturity.

At the option of the investors, the Notes may be converted from time-to-time in whole or in part into shares of common stock at an initial conversion rate of $ 2.86 per share, subject to customary adjustments for stock splits, stock dividends and recapitalization.

The Notes do not contain any ratchet or other financial antidilution provisions.

The Notes purchased by certain of the investors contain conversion limitations, providing that no conversion may be made if the aggregate number of

shares of common stock beneficially owned by the holder thereof would exceed 4.99 %, 9.99 % or 19.99 % immediately after conversion thereof,

subject to certain increases not in excess of either 9.99 % or 19.99 % at the option of such holder.

The Notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, the following:

nonpayment of principal or interest;

breach of covenants or other

agreements in the Notes;

and certain events of bankruptcy.

Generally, if an event of default occurs and is continuing under the Notes, the holder thereof may require the Company to repurchase some or all of their Notes at a repurchase price

equal to 100 % of the principal amount of the Notes being repurchased, plus accrued and unpaid interest thereon.

The Note Warrants are immediately exercisable, have an exercise price of $ 2.61 per share, expire five years following the Closing Date and are subject to customary adjustments.

The Note Warrants purchased by certain of the investors contain

a provision pursuant to which such Note Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 %, 9.99 % or 19.99 % immediately after exercise thereof, subject to certain increases not in excess of either 9.99 % or 19.99 % at the option of such holder.

Amendment to Exclusive License Agreement

On July 12, 2023, the Company entered into the Exclusive License Agreement Amendment.

8 for additional information.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 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

Private Placement of Convertible Notes and Warrants

On July 13, 2023, we entered into a purchase agreement with certain purchasers for the private placement (the “Private Placement”) of $8.7 million in aggregate principal amount of convertible

notes (the “Notes”) and the issuance of the warrants (the “Note Warrants”) to purchase an aggregate of approximately 6.1 million shares of Common Stock.

The Private Placement closed on July 14, 2023 (the “Closing Date”), and we intend to use the net proceeds from the Private Placement for general working capital purposes.

The Notes bear interest at 6% per annum, payable quarterly in arrears.

At our election, we may pay interest either in cash or in-kind by increasing the outstanding principal amount of the

The Notes mature on July 14, 2028, unless earlier converted or repurchased.

We may not redeem the Notes at our option prior to maturity.

At the option of the holders, the Notes may be converted from time-to-time in whole or in part into shares of Common Stock at an initial conversion rate of $2.86 per share, subject to customary

adjustments for stock splits, stock dividends and recapitalization.

The Notes do not contain any ratchet or other financial antidilution provisions.

The Notes purchased by certain of the Purchasers contain conversion limitations, providing that

no conversion may be made if the aggregate number of shares of Common Stock beneficially owned by the holder thereof would exceed 4.99%, 9.99% or 19.99% immediately after conversion thereof, subject to certain increases not in excess of either

9.99% or 19.99% at the option of such holder.

The Notes provide for customary events of default which include (subject in certain cases to customary grace and cure periods), among others, the following:

nonpayment of

principal or interest;

breach of covenants or other agreements in the Notes;

and certain events of bankruptcy.

Generally, if an event of default occurs and is continuing under the Notes, the holder thereof may require the Company to repurchase

some or all of their Notes at a repurchase price equal to 100% of the principal amount of the Notes being repurchased, plus accrued and unpaid interest thereon.

The Note Warrants are immediately exercisable, have an exercise price of $2.61 per share, expire five years following the Closing Date and are subject to customary adjustments.

The Note Warrants purchased by certain of the Purchasers contain a provision pursuant to which such Note Warrants may not be exercised if the aggregate number of shares of Common Stock beneficially owned by the holder thereof would exceed

4.99%, 9.99% or 19.99% immediately after exercise thereof, subject to certain increases not in excess of either 9.99% or 19.99% at the option of such holder.

Amendment to Exclusive Factor License Agreement

On February 20, 2023, the Company and Factor Limited entered into an exclusive license agreement (the “Exclusive Factor License Agreement”), which terminated and superseded our original

license agreement with Factor Limited.

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”).

For additional information, see Note 8 to the unaudited condensed consolidated financial statements included in this Quarterly Report on

On July 12, 2023, the Company and Factor Limited entered into the First Amendment to the Exclusive Factor License Agreement (the “Exclusive License Agreement Amendment”).

The Exclusive License Agreement Amendment amended the

Exclusive Factor License Agreement to (i) expand the field of use of the Factor Patents to include veterinary uses, (ii) extend the Renewal Term from two and a half years to five years if the Company pays at least $6.0 million to Factor Limited

from Sublicense Fees, other cash on hand or a combination of both sources of funds, (iii) reduce the Sublicense Fees payable to Factor Limited during the Renewal Term from 30% to 20%, (iv) eliminate Factor Limited’s termination rights with

respect to Factor Patents that are not sublicensed, or for which an opportunity has not been identified, in each case by a certain date and (v) provide for the Company’s payment to Factor Limited of a monthly maintenance fee of approximately

$0.4 million, beginning in September 2024.

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

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 2022 10-K.

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.

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 and, with respect to specified provisions therein, Factor Limited (the “Exacis Acquisition”).

Pursuant to the Exacis Purchase Agreement, we acquired from Exacis substantially all of Exacis’ intellectual property

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.

For additional information, see Note 8 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q .

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 Equity Purchase Agreement

On April 5, 2023, we and Lincoln Park Capital Fund, LLC (the “Lincoln Park”) entered into a purchase agreement (the “SEPA”), 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 SEPA, we issued to Lincoln Park approximately 74,000 shares of common stock.

As of August 9,

2023, we had issued and sold 214,000 shares of our common stock under the SEPA, including the 74,000 commitment shares, for gross proceeds of approximately $0.3 million.

In connection with entry into the SEPA, we terminated our prior purchase

agreements with Lincoln Park entered into in 2021.

Basis of Presentation

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 and successfully commercialize our products.

During the six months ended June 30, 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 indications.

The Lineage Agreement 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.

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

For additional information, see Note 5 to the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q.

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

We expense our research and development costs as incurred.

Our research and development expenses consist of costs incurred for company-sponsored research and development activities, as well as

support for selected investigator-sponsored research.

Upfront payments and milestone payments 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, and other corporate costs.

Results of Operations

Comparison of the Three and Six Months Ended June 30, 2023 and 2022

Three months ended June 30,

Six months ended June 30,

(in thousands)

Operating expenses:

License costs

Research and development

General and administrative

Acquisition of Exacis in-process research and development

Impairment of in-process research and development

Total operating expenses

Loss from operations

Other income (expense), net:

Change in fair value of warrant liabilities

Change in fair value of contingent consideration

Loss on non-controlling investment

Other expense, net

Total other income (expense), net

Loss before income taxes

Provision for income taxes

License Costs

During the six months ended June 30, 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 June 30, 2023 or for the three and six months ended June 30,

Research and Development Expenses

Three months ended June 30,

(in thousands)

Payroll-related

Stock-based compensation

Professional fees

Other expenses, net

Total research and development expenses

Six months ended June 30,

(in thousands)

Payroll-related

Stock-based compensation

Professional fees

Other expenses, net

Total research and development expenses

For the three and six months ended June 30, 2023, our total research and development expenses decreased compared to the three and six months ended June 30, 2022, which was primarily the result

of less payroll expense and stock-based compensation expense due to employee terminations, offset by an increase in professional fees related to consulting activities and expense recognized during the three and six months ended June 30, 2023

related to the MSA with Factor (see Note 8 to the unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q) , which did not exist during the three and six months

ended June 30, 2022.

General and Administrative Expenses

Three months ended June 30,

(in thousands)

Professional fees

Payroll-related

Impairment of ROU asset

Stock-based compensation

Occupancy expense

Other expenses, net

Total general and administrative expenses

Six months ended June 30,

(in thousands)

Professional fees

Payroll-related

Impairment of ROU asset

Stock-based compensation

Occupancy expense

Other expenses, net

Total general and administrative expenses

Our general and administrative expenses decreased for the three and six months ended June 30, 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, insurance expense due to a reduction in premiums, as well as professional fees and other miscellaneous expenses when compared to the three and six months ended June 30,

2022, which prior-year period also included a non-recurring impairment expense of the ROU asset related to our former San Diego facility lease.

Acquisition of Exacis In-Process Research and Development

The Purchased License acquired in the Exacis Acquisition was determined to be an IPR&D asset that has no alternative future use and no separate

economic value from its original intended purpose, which is expensed in the period the cost is incurred.

As a result, the Company expensed the fair value of the Purchased License during the three and six months ended June 30, 2023 of

approximately $0.5 million.

Impairment of In-Process Research and Development

During the three and six months ended June 30, 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 at two years of follow

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.

Based on the totality of available information, we determined we would not further develop the IRX-2 product candidate and that the carrying value of the IPR&D asset was impaired.

Accordingly, we recognized a non-cash

impairment charge of approximately $6.0 million on the condensed consolidated balance sheet as of June 30, 2022, which reduced the value of this asset to zero.

Change in Fair Value of Warrant Liabilities

For the three and six months ended June 30, 2023, we recognized credits of $0.2 million and $0.1 million, respectively, for the change in the fair value of warrant liabilities due to a decrease

in the market price of our common stock as of June 30, 2023.

For the three and six months ended June 30, 2022, we recognized credits of $10.8 million and $9.5 million, respectively, for the change in the fair value of warrant liabilities due to

a decrease in the market price of our common stock as of June 30, 2022.

Change in Fair Value of Contingent Consideration

On the closing date of the Exacis Acquisition, we recognized a contingent consideration liability of $0.2 million for future payments that may be payable to Exacis, which was included as part of

the $0.5 million fair value of the Purchased License asset and expensed as IPR&D for the three and six months ended June 30, 2023.

This contingent consideration liability is remeasured at each period end, and any change in the fair value of

the contingent liability is recognized in the statement of operations.

As of June 30, 2023, we remeasured the contingent liability and recognized a credit of $0.1 million for both the three and six months ended June 30, 2023 due to the decrease

in the fair value of the contingent consideration liability.

There were no contingent consideration liabilities during the same periods in 2022.

Loss on Non-Controlling Investment

We account for our investment in NoveCite, Inc.

(“NoveCite”) under the equity method.

For the three and six months ended June 30, 2023, we recognized approximately $8,000 and $0.1 million of

loss, respectively, on our 25% non-controlling investment in NoveCite, as compared to $0.3 million and $0.9 million for the three and six months ended June 30, 2022, respectively.

We have not guaranteed any obligations of NoveCite nor are we

otherwise committed to providing further financial support for NoveCite.

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

As of June 30, 2023, our investment carrying amount was zero.

Other Expense, Net

Three months ended June 30,

(in thousands)

SEPA commitment shares

Interest income (expense), net

Total other expense, net

Six months ended June 30,

(in thousands)

PIPE transaction fees

Liquidated damages

Interest expense, net

SEPA commitment shares

Other income, net

Total other expense, net

For the three months and six months ended June 30, 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.

For the three and six months ended June 30, 2023, we recognized $249,000 in respect of the value of the commitment shares issued to Lincoln Park under the SEPA.

Provision for Income Taxes

During 2023, we expect to incur state income tax liabilities related to our operations.

We have established a full valuation allowance for all deferred tax assets, including our

net operating loss carryforwards, since we could not conclude that we were more likely than not able to generate future taxable income to realize these assets.

The effective tax rate differs from the statutory tax rate due primarily to our full

valuation allowance.

Liquidity and Capital Resources

At June 30, 2023, we had cash, cash equivalents and restricted cash of approximately $5.9 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.

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 SEPA , 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 conditions and limitations set forth in the SEPA , 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 SEPA were initially satisfied.

Pursuant to a registration rights agreement

entered into in connection with the SEPA, 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 SEPA , and the SEC declared such registration statement effective on April 24, 2023 .

To date, we have issued and sold approximately 214,000 shares of our common stock to Lincoln Park, including the 74,000 commitment shares, and have receive approximately $0.3 million in gross proceeds from such sales.

Under applicable Nasdaq listing rules, the aggregate number of shares of common stock that we had been able to issue to Lincoln Park under the

SEPA could not exceed 19.99% of our shares of common stock issued and outstanding immediately prior to the execution of the SEPA (the “Exchange Cap”) unless certain conditions were met, including obtaining stockholder approval to issue shares

of common stock in excess of the Exchange Cap in accordance with applicable Nasdaq listing rules.

On June 16, 2023, at the Company’s 2023 Annual Meeting of Stockholders, the Company’s stockholders approved, for purposes of complying with

applicable Nasdaq listing rules, the Company’s potential issuance of shares of common stock under the SEPA in excess of the Exchange Cap.

As a result, the Exchange Cap limitation no longer applies to issuances and sales of common stock by us

to Lincoln Park under the SEPA.

However, we may not direct Lincoln Park to purchase any shares of common stock under the SEPA if such purchase would result in Lincoln Park beneficially owning more than

4.99% of our issued and outstanding shares of common stock.

On July 14, 2023, we closed the Private Placement of $8.7 million in aggregate principal amount of Notes and the issuance of the Note Warrants.

We intend to use

the net proceeds from the Private Placement for general working capital purposes.

The Notes bear interest at 6% per annum, payable quarterly in arrears.

At our election, we may pay interest either in cash or in-kind by increasing the outstanding principal amount of the

The Notes mature on July 14, 2028, unless earlier converted or repurchased.

We may not redeem the Notes at our option prior to maturity.

At the option of the holders, the Notes may be converted from time-to-time in whole or in part into shares of common stock at an initial conversion rate of $2.86 per share, subject to customary

adjustments for stock splits, stock dividends and recapitalization.

The Notes do not contain any ratchet or other financial antidilution provisions.

The Notes purchased by certain of the Purchasers contain conversion limitations, providing that

9.99% or 19.99% at the option of such holder.

The Note Warrants are immediately exercisable, have an exercise price of $2.61 per share, expire five years following the Closing Date and are subject to customary adjustments.

4.99%, 9.99% or 19.99% immediately after exercise thereof, subject to certain increases not in excess of either 9.99% or 19.99% at the option of such holder.

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.

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 and six months

ended June 30, 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;

the cost and delays in product development as a result of any changes in regulatory oversight applicable to our products;

the cost and timing of establishing sales, marketing and distribution capabilities;

the effect of competition and market developments;

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 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 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 six months ended

(in thousands)

Cash (used in) provided by:

Operating activities

Investing activities

Financing activities

Net (decrease) increase in cash and cash equivalents

Net Cash Used in Operating Activities

The increase in cash used in operating activities was due to an increase in cash used in operating assets and liabilities of $4.1 million during the six months ended June 30, 2023 compared to the

six months ended June 30, 2022, offset by a decrease in net loss of $3.6 million for the six months ended June 30, 2023, after giving effect to adjustments made for non-cash transactions.

The increase in cash used in operations was primarily

driven by MSA fees and accrued severance payments for the six months ended June 30, 2023 as compared to the same period in 2022.

Net Cash Used in Investing Activities

The decrease in cash used in investing activities during the six months ended June 30, 2023 was primarily related to decreases in the purchase of capitalized equipment as compared to the six

months ended Jun 30, 2022.

Net Cash Provided by Financing Activities

Net cash provided by financing activities for the six months ended June 30, 2022 related to proceeds received in connection with the private placement of equity completed in March 2022.

the six months ended June 30, 2023, net cash provided by financing activities included the $0.3 million of gross proceeds received under the SEPA with Lincoln Park.

Critical Accounting Estimates

There were no significant changes in our critical accounting estimates during the three and six months ended June 30, 2023 from those described in “Management’s Discussion and Analysis of

Financial Condition and Results of Operations” section of the 2022 10-K, except as follows.

Contingent Consideration

Contingent consideration from an asset acquisition that is indexed to or settled in shares of our common stock and that is classified as a liability is initially measured at fair value, with

subsequent changes in fair value recognized in earnings.

Measuring the fair value requires various inputs, and 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 contingent consideration liability, which could also result in material non-cash gains or losses being reported in the Company’s consolidated statement of operations.

Recent Accounting Pronouncements

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.

Under the rules and regulations of the SEC, as a smaller reporting company we are not required to provide the information otherwise required by this item.

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