What changed in this filing

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Item 1. Financial Statements

2023-11-13 compared with 2023-08-11 · 460 added, 781 removed, 392 unchanged (76% of the section changed)

4 unchanged sentences

(In thousands, except par value amount)

September 30,

Current assets:

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Due to related party, current

Deferred revenue, current

Other current liabilities

Total current liabilities

Convertible notes payable, net

Warrant liabilities

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Due to related party, non-current

Deferred revenue

Deferred revenue, non-current

Contingent consideration liability

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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 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 ,

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

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

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

Additional paid-in capital

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CONDENSED CONSOLIDATED

STATEMENTS OF OPERATIONS

STATEMENTS OF

(In thousands, except per share amounts)

Three months ended June 30 ,

Six months ended June 30 ,

Three months ended September 30 ,

Nine months ended September 30 ,

Cost of revenues

Operating expenses:

License costs

Research and development

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Loss from operations

Other income (expense), net:

Other (expense) income, net:

Change in fair value of warrant liabilities

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Other expense, net

Total other income (expense), net

Total other (expense) income, net

Loss before income taxes

Provision for income taxes

Benefit (provision) for income taxes

Series A preferred stock dividend

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ETERNA THERAPEUTICS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

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

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS’ EQUITY

For the three and nine months ended September 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

Balances at July 1, 2023

Issuance of warrants in connection with the July 2023 Financing, net of fees

Stock-based compensation

Balances at June 30, 2023

Balances at September 30, 2023

Balances at January 1, 2023

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

Issuance of warrants in connection with the July 2023 Financing, net of fees

Cash dividends to Series A preferred stockholders

Stock-based compensation

Balances at June 30, 2023

Balances at April 1, 2022

Balances at September 30, 2023

Balances at July 1, 2022

Issuance of common stock from vested restricted stock units

Cash dividends to Series A preferred stockholders

Issuance of common stock from exercise of pre-funded warrants

Stock-based compensation

Balances at June 30, 2022

Balances at September 30, 2022

Balances at January 1, 2022

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Forfeiture of unvested restricted stock

Issuance of common stock from exercise of pre-funded warrants

Cash dividends to Series A preferred stockholders

Stock-based compensation

Balances at June 30, 2022

Balances at September 30, 2022

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

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(in thousands)

September 30,

Cash flows from operating activities:

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Gain on lease termination

Amortization of debt discount and debt issuance costs

Change in fair value of warrant liabilities

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Proceeds from the sale of fixed assets

Net cash used in investing activities

Net used in investing activities

Cash flows from financing activities:

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

Proceeds received from the July 2023 Financing

Fees paid related to the July 2023 Financing

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

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

Issuance of common stock from exercise of pre-funded warrants

Payroll tax remitted on net share settlement of equity awards

Dividends paid to Series A preferred stockholders

Issuance of common stock from vested restricted stock units

Principal payments on finance leases

Net cash provided by financing activities

Net (decrease) increase in cash and cash equivalents

Net decrease in cash and cash equivalents

Cash, cash equivalents and restricted cash at beginning of period

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Issuance of common stock for Exacis asset acquisition

Initial measurement of right-of-use asset

Initial measurement of lease liability

Warrants issued in connection with the July 2023 Financing

Unpaid fees incurred in connection with the July 2023 Financing

Initial measurement of ROU assets

Initial measurement of lease liabilities

Conversion of warrant liability to equity

Initial measurement of finance lease liabilities

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

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ETERNA THERAPEUTICS INC.

NOTES TO CONDENSED

CONSOLIDATED FINANCIAL STATEMENTS

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 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.

The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the

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

Reclassifications

Certain reclassifications have

been made to the Company’s prior year amounts to conform to the current year presentation.

LIQUIDITY AND CAPITAL RESOURCES

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administrative support for operations.

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

As of September 30, 2023, the Company had an unrestricted cash balance of approximately $ 4.6

million and an accumulated deficit of approximately $ 180.8 million.

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.

For the three and nine months ended September 30, 2023, the

Company incurred a net loss of $ 5.6 million and $ 15.5 million, respectively, and the Company used cash in operating activities of $ 15.7

million during the nine months ended September 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.

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.

During the nine months ended September 30, 2023, the Company issued and sold approximately 214,000 shares of common

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

The Company did no t sell any shares under the SEPA for the three months ended September 30, 2023.

On July 14, 2023, the Company closed a financing with certain investors providing for the private placement to the investors of (i) approximately $ 8.7 million in aggregate principal convertible promissory notes (the “ Convertible Notes”) and (ii) warrants to purchase an aggregate of approximately 6.1 million shares of the Company’s common stock (the “Note Warrants,” and together with the Convertible Notes, the “July 2023 Financing”).

The Convertible 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 Convertible Notes.

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

In connection with preparing the accompanying condensed consolidated financial statements as of and for the three and nine months ended September 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 July 2023 Financing, 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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ASSET ACQUISITION

On April 26, 2023, the

In April 2023, the

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

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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.

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.

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 used a Monte Carlo simulation model to estimate the fair value of the Market Cap Contingent Consideration as of the acquisition date using the following

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.

acquisition date and as of September 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.

The table below shows the

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

Fair Value of

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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

the fair value of the Purchased License during the nine months ended September 30, 2023.

CONTRACT WITH CUSTOMER

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

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

induced pluripotent stem cell lines, which Lineage would use to evaluate the possible development of cell transplant therapies for treatment of diseases of the central nervous system in humans, excluding certain indications.

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.

The Company recognizes revenue under ASC 606, Revenue

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

performs the following five steps in order to recognize revenue:

entered into an exclusive option and license agreement (the “Agreement”), which provided 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 further sublicense such intellectual property, subject to payment of certain sublicense royalty fees.

Lineage paid the Company a $ 0.3 million non-refundable up-front payment (the “Option Fee”) for the Option Right.

the Agreement, Lineage could also request that the Company develop for, and deliver to, Lineage certain induced pluripotent stem cell lines, which Lineage would use to evaluate the possible development of cell transplant therapies for treatment

of diseases of the central nervous system in humans, excluding certain indications.

Lineage had until August 22, 2023 to request that the Company develop the customized cell line, at which point, the Company would be entitled to certain cell

line customization fees.

Upon Lineage’s

request for the Company to develop the customized cell line, Lineage would then have six months from delivery to Lineage of such induced pluripotent stem cell lines to exercise the Option Right and obtain the sublicense.

If Lineage obtains the

sublicense, the Company would be entitled to receive additional license fees, including milestone payments and royalties.

The Company recognizes revenue under ASC 606, Revenue from Contracts with Customers (“ASC 606”), which requires the Company to perform the following five steps in order to recognize revenue:

Identify the contract with a customer;

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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.

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 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.

Pursuant to ASC 606 the Company determined that the Option Right was an unexercised right held by Lineage under the Agreement at contract inception, as the cell line

customization activities and the sublicense were optional purchases at contract inception.

These optional purchases of goods and services would be treated as separate contracts if and when Lineage determines that it will make such purchases.

Therefore, 100 % of the Option Fee was allocated to the Option Right.

The Option Fee will remain in deferred revenue until such

time that Lineage enters into the sublicense or when the Option Right expires.

On August 21, 2023, Lineage requested that the Company begin

developing certain induced pluripotent stem cell lines in exchange for a fixed fee, subject to certain constraints as discussed further below.

Also on August 21, 2023, the Company and Lineage entered into an amendment of the

Agreement, which provided for changes specifically related to the cell line customization activities such as (i) payment terms, (ii) certain definitions, (iii)

certain courses of action if the customized cell line selected by Lineage is not successful and (iv) documentation requirements.

As previously concluded, the Option Right and the cell line customization activities

are accounted for as separate contracts, and the Company has determined that the amended terms discussed above represent a modification to the cell line customization contract.

Because there were no goods or services transferred to Lineage

before entering into the amendment, and therefore, no previously recognized revenue, there was no catch-up adjustment to revenue required during the three and nine months ended September 30, 2023.

Lineage will make payments to the Company for the cell line customization activities

over the development period.

During the three months ended September 30, 2023, the Company received an initial payment of $ 0.4 million to

commence the cell line customization activities, per the amended payment terms.

The Company will only earn the remaining full amount of the cell line customization fee if it makes

certain progress towards delivery of the customized cell line.

The Company estimates the amount of consideration it expects to recognize as revenue that is not probable of having a significant reversal of such recognized revenue, and it places a

constraint on the remaining contractual consideration.

The Company has determined that $ 0.4 million of consideration could be

recognized without the probability of being reversed, and it has placed a constraint on the remaining contractual customization fee.

million is being recognized equally over ten months (which is the expected development period), as the level of effort to perform the services is happening at the same rate over time.

As it becomes evident that the constrained amounts are no

longer at risk of a significant reversal of revenue, the Company will remove the constraint from the related revenue and recognize a cumulative catch-up adjustment to revenue in the period in which the constraint was removed, with the remaining

unconstrained revenue being recognized over the remaining development time.

For the three and nine months ended September 30, 2023, the Company recognized less than $ 0.1 million of revenue for the customization activities.

The granting of the license that the Company may provide to Lineage if Lineage

exercises the Option Right is not considered a performance obligation at this time, as it is an optional request that the customer may make in the future and will be accounted for as a separate contract when the customer exercises the Option

The Company recognizes direct labor and supplies used in the customization

activities as incurred and are recorded as a cost of revenue.

As provided for in the Exclusive Factor License Agreement discussed in Note 9, the Company is obligated to pay Factor Limited 20 % of any amounts the Company receives from a customer that is related to the licensed technology under the Exclusive Factor License Agreement, which is also recorded as a cost of

JULY 2023 FINANCING

July 14, 2023, the Company completed the July 2023 Financing, which provided for the issuance of approximately $ 8.7 million in aggregate

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

of common stock.

The Company recognized approximately $ 0.2 million in fees associated with the transaction.

The Convertible 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

Convertible Notes.

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

The Company may not redeem

the Convertible Notes at its option prior to maturity.

At the option of the investors, the Convertible 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, recapitalization and the like.

As of September 30, 2023, there were no Convertible Notes

that were converted into shares of common stock.

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

The Convertible Notes purchased by 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 Convertible 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 Convertible Notes;

the occurrence of a material adverse effect event (as defined in the related securities purchase

agreement) and certain events of bankruptcy.

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

price equal to 100 % of the principal amount of the Convertible 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 date of issuance and are subject to customary adjustments.

The Note Warrants purchased by 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.

The Company determined that there

were no embedded derivatives within the Convertible Notes that required bifurcation from the host agreement.

The Company allocated the gross proceeds received and the fees incurred over the Convertible Notes and the Note Warrants based on their

relative fair values.

For purposes of the allocation, the Company used an estimated fair value of $ 8.7 million for the Convertible

Notes based off of a valuation performed by a third-party specialist.

The fair value of the Note Warrants, which qualified for equity classification, was approximately $ 13.1 million using the Black-Scholes pricing model as of the transaction date of July 14, 2023.

As a result, the Company allocated approximately $ 5.2 million in proceeds and approximately $ 0.1 million in fees

to the Note Warrants and a corresponding reduction in the carrying value of the Convertible Notes for the debt discount and debt issuance costs, both of which are amortized as a component of interest expense, based on the effective interest rate

method, over the contractual terms of the Convertible Notes.

As of September 30, 2023, the outstanding principal of the Convertible Notes was $ 8.7 million, and the unamortized balance of the debt discount and debt issuance costs was $ 5.2 million.

The Company accrued approximately $ 0.1 million in interest expense related to the

Convertible Notes, which is recorded in accrued expenses in the accompanying condensed consolidated balance sheet.

For both the three and nine months

ended September 30, 2023, the Company recognized approximately $ 0.2 million in interest expense, which is included in other

expense, net in the accompanying condensed consolidated statement of operations.

The interest expense related to the Convertible Notes includes approximately $ 0.1 million for the amortization of the debt discount and debt issuance costs.

T he Company 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 during the nine months ended September 30, 2022.

In November 2022, the Company entered into a lease termination agreement, effective January 31, 2023;

and as of September 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”).

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.

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.

Rental payments for the Sublease will begin on November 29, 2023.

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

The Company will also make monthly payments for parking, which are 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.

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

Tenant improvements to the Premises in excess of this amount, if any, will be at the Company’s own cost.

It is anticipated that the construction will be substantially

complete by the end of 2023.

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

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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,

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 September 30, 2023, the Company has recorded approximately $ 1.1

million as other receivables in the condensed consolidated balance sheet for amounts submitted for reimbursement under the TIA for Sublessor/Lessor owned assets and approximately $ 3.5 million recorded in other current assets in the condensed consolidated balance sheet for amounts paid by the Company but not yet submitted for reimbursement of

Sublessor/Lessor owned assets.

For the three and nine months ended September 30, 2023 and 2022, the net operating lease expenses were as follows (in

Three months ended September 30,

Nine months ended September 30,

Operating lease expense

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Total lease expense

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).

balances of the operating ROU assets and lease liabilities as of January 1, 2023 and the ending balances as of September 30, 2023, including the changes during the period (in thousands).

Operating Lease

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Operating lease ROU assets at

June 30, 2023

September 30, 2023

Operating Lease

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Recognition of lease liability for Somerville Sublease

Accretion of interest for Somerville Sublease

Principal payments on operating

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Operating lease liabilities at

June 30, 2023

September 30, 2023

Less non-current portion

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 %.

Current portion at September 30,

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

remaining life of 10.0 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

September 30, 2023

Total payments

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Total operating lease liabilities

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

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.

liabilities approximate fair value based due to their short maturities.

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

September 30,

Warrant liabilities - Common Warrants

Market Cap Contingent Consideration

The Company uses a

Black-Scholes option pricing model to estimate the fair value of its warrant liabilities and a Monte Carlo simulation model to estimate the fair value of the Market Cap Contingent Consideration, both of which are considered a Level 3 fair

value measurement.

The Company remeasures the fair value of the warrant liabilities and the Market Cap Contingent Consideration at each reporting period and changes in the fair values are recognized in the statement of operations.

Certain inputs used in Black-Scholes, and Monte Carlo 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 liabilities measured at fair value from January 1, 2023, or from the initial measurement date if later than January 1, 2023, through September 30, 2023 (in thousands):

Consideration

Fair value at January 1, 2023

Initial measurement

Change in fair value

Fair value at September 30, 2023

The Company assessed the fair value of the Market Cap

Contingent Consideration at September 30, 2023 and determined that there were no material changes to the inputs used in the June 30, 2023 remeasurement that would have resulted in a material change to the liability at September 30, 2023.

Therefore, the Company did no t recognize a change in the fair value of the Market Cap Contingent Consideration for the three

months ended September 30, 2023.

The table below is provided for comparative purposes only and presents information about the fair value of the Company’s Convertible Notes relative to the

carrying values recognized in the condensed consolidated balance sheet as of September 30, 2023 (in thousands).

The Company did not have the Convertible Notes as of December 31, 2022.

September 30, 2023

Convertible Notes

The Company assesses the fair value of the Convertible Notes using a binomial model, which is considered a Level 3

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 .

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.

As of September 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.

As a result of

the decline in the Company’s stock price from $ 2.26 per share as of June 30, 2023 to $ 2.18 per share as of September 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 September 30, 2023.

RELATED PARTY TRANSACTIONS

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and Affiliates

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

As of September 30, 2023, the agreements below were in place related to Factor Bioscience Inc.

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

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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

forth in one or more work orders under the MSA, including the first work order included in the MSA (“WO1”).

Under WO1, Factor Bioscience has agreed to provide the Company with mRNA cell engineering research support services, including access to

certain facilities, equipment, materials and training, and the Company has agreed to pay Factor Bioscience an initial fee of $ 5.0

million, payable in twelve equal monthly installments of approximately $ 0.4 million.

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 agreed to provide services to the Company as agreed between the Company and Factor Bioscience and as set forth in

one or more work orders under the MSA, including the first work order included in the MSA (“WO1”).

Under WO1, Factor Bioscience agreed to provide the Company with mRNA cell engineering research support services, including access to certain

facilities, equipment, materials and training, and the Company agreed to pay Factor Bioscience an initial fee of $ 5.0 million,

payable in twelve equal monthly installments of approximately $ 0.4 million.

Of the $ 5.0 million, the Company allocated $ 3.5 million to the License Fee Obligation (as defined below).

Following the initial 12-month period, the Company has agreed to pay Factor Bioscience

a monthly fee of $ 0.4 million until such time as WO1 is terminated.

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

Following the initial 12-month period, the Company agreed to continue paying Factor

Bioscience the monthly fee of $ 0.4 million until such time as WO1 is terminated.

Upon entering into the MSA, the Company paid a

deposit of $ 0.4 million, which will be applied to the last month of WO1 .

Company may terminate WO1 under the MSA on or after the second anniversary of the date of the MSA, subject to providing Factor Bioscience with 120

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

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

As of September 30, 2023, there was approximately $ 1.6 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.

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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

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

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

Matthew Angel and Christopher Rohde (the “Founders”) whereby the Company has

agreed to be responsible for all future, reasonable and substantiated legal fees, costs, settlements and judgments incurred by the Founders, the Company or Novellus for certain claims and actions and any pending or future litigation brought

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

The Founders will continue to be solely responsible for any payments made to satisfy a

judgement or settlement of any pending or future wage act claims.

Under the Waiver and Assignment Agreement, the Founders agreed that they are not entitled to, and waived any right to, indemnification or advancement of past, present or future

legal fees, costs, judgments, settlement or other liabilities they may have been entitled to receive from the Company or Novellus in respect of the Covered Claims.

The Company and the Founders will share in any recoveries up to the point at

which the parties have been fully compensated for legal fees, costs and expenses incurred, with the Company retaining any excess recoveries.

The Company has the sole authority to direct and control the prosecution, defense and settlement of the

Covered Claims.

Matthew Angel and Christopher Rohde (the “Founders”) whereby the Company agreed

to be responsible for all future, reasonable and substantiated legal fees, costs, settlements and judgments incurred by the Founders, the Company or Novellus for certain claims and actions and any pending or future litigation brought against

the Founders, Novellus and/or the Company by or on behalf of the Westman and Sowyrda legal matters described in Note 11 (the “Covered Claims”).

The Founders will continue to be solely responsible for any payments made to satisfy a judgement or

settlement of any pending or future wage act claims.

Under the Waiver and Assignment Agreement, the Founders agreed that they are not entitled to, and waived any right to, indemnification or advancement of past, present or future legal fees,

costs, judgments, settlement or other liabilities they may have been entitled to receive from the Company or Novellus in respect of the Covered Claims.

The Company and the Founders will share in any recoveries up to the point at which the

parties have been fully compensated for legal fees, costs and expenses incurred, with the Company retaining any excess recoveries.

The Company has the sole authority to direct and control the prosecution, defense and settlement of the Covered

Exacis Asset Acquisition

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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.

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

Gregory Fiore, who was the Chief Executive Officer of Exacis, was also a member

of the Company’s board of directors at the time of the Exacis Acquisition.

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 .

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.

Fiore, a former director of the Company, whereby Dr.

Fiore agreed to

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.

July 2023 Financing

On July 14, 2023, the Company closed the July 2023 Financing.

Brant Binder, Richard Wagner Charles

Cherington and Nicholas Singer, who were former directors of the Company, participated in the July 2023 Financing under the same terms and subject to the same conditions as all the other purchasers.

ACCRUED EXPENSES

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

(in thousands):

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

following (in thousands):

September 30,

Buildout costs for Somerville facility

Legal fees and settlements

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Total accrued expenses

The $ 3.2 million shown above for the Somerville buildout costs will be subject to the TIA reimbursement described in Note 6 once such amount has been paid by the Company.

COMMITMENTS AND CONTINGENCIES

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

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.

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

On December 15, 2022, Sowyrda filed an Amended Answer to the Amended Complaint, asserted affirmative defenses and filed Amended Counterclaims against Dr.

Rohde, Novellus LLC, Novellus

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

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

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

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

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

against the same Counterclaim Defendants.

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.

answered Westman and Sowyrda’s counterclaims on January 27, 2023, denying liability.

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

The 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 .

The remaining Counterclaim

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

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 to allow for amended counterclaims to be filed by Counterclaim Plaintiffs and a motion to dismiss

to be filed by Counterclaim Defendants.

Counterclaim Plaintiffs filed an initial set of amended counterclaims on August 15, 2023.

Counterclaim Plaintiffs amended and refiled their amended counterclaims on September 29,

Counterclaim Defendants served their motion to dismiss all of the amended counterclaims, except for Sowyrda’s employment-related claims, on October 13, 2023.

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

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

filed a complaint against Eterna Therapeutics Inc.

the following claims:

filed a complaint in court against Eterna Therapeutics Inc.

alleging the following claims:

(1) federal trademark infringement;

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(4) Massachusetts state unfair competition.

Service of process for the

complaint was completed on August 1, 2023.

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

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.

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.

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

See Note 8 for details of

these agreements.

9 for details of these agreements.

Retirement Savings Plan

Company established a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees to defer up to 90 % of their pay on a pre-tax basis.

Beginning on January 1, 2023, the Company began matching employees’ contributions at a rate of 100 % of the first 3 % of the employee’s

contribution and 50 % of the next 2 % of the employee’s contribution, for a maximum Company match of 4 %.

The Company established a defined contribution plan, organized under Section 401(k) of the Internal Revenue Code, which allows employees to defer up to 90 % of their pay on a pre-tax basis.

Beginning on January 1, 2023, the Company began matching employees’ contributions at a rate of 100 % of the first 3 % of

the employee’s contribution and 50 % of the next 2 % of the employee’s contribution, for a maximum Company match of 4 %.

STOCK-BASED COMPENSATION

Stock Options

During the three and 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,

During the three and nine months ended September 30, 2023 and 2022, the Company

granted the following stock options (in thousands):

Three months ended September 30,

Nine months ended September 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 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,

The following weighted-average assumptions were used for

stock options granted during the three and nine months ended September 30, 2023 and 2022:

Three months ended September 30,

Nine months ended September 30,

Weighted average risk-free rate

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Expected term

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

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

2023 and 2022 was as follows:

Three months ended June 30,

Six months ended June 30,

Three months ended September 30,

Nine months ended September 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,

As of September 30, 2023,

there were approximately 510,000 stock options outstanding.

Restricted Stock Units

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

the nine months ended September 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 September 30, 2022 or during the three and nine months ended September 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.

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,

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 each of the nine months ended September 30, 2023 and 2022,

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.

RSUs vested during either of the three months ended September 30, 2023 and 2022.

As of September 30, 2023, there were approximately 1,000

RSUs outstanding.

Stock-Based Compensation Expense

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,

For the three and nine months ended September 30, 2023 and 2022, the Company recognized stock-based compensation expense as follows (in

Three months ended September 30,

Nine months ended September 30,

Research and development

General and administrative

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.

Each Pre-Funded Warrant had an exercise price of $ 0.10 per share of common stock, was immediately exercisable, could be

exercised at any time, had no expiration date and was subject to customary adjustments.

Each Common Warrant has an exercise price of $ 38.20

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

The Common Warrants may not be exercised if the

aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 % immediately after exercise

thereof, subject to increase to 9.99 % at the option of the holder.

The Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, as these warrants provide for a cashless

settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40.

These warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the

statement of operations.

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

The fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $ 12.6 million in the aggregate, which was $ 0.6 million more

than the Subscription Amount.

The excess $ 0.6 million represents an inducement to the 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.

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 six months ended June 30, 2022.

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

On March 9, 2022, in connection with a

private placement of equity (the “March 2022 Private Placement”), the Company issued 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”).

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 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 Common Warrants have an exercise price of $ 38.20 per share,

are currently exercisable, expire five-and-one-half years from the date of issuance and are subject to customary adjustments.

The Common Warrants may not be exercised if the aggregate number of shares of common stock beneficially owned by the holder thereof would exceed 4.99 %

immediately after exercise thereof, subject to increase to 9.99 % at the option of the holder.

Common Warrants and Pre-Funded Warrants were accounted for as liabilities under ASC 815-40, as these warrants provide for a cashless settlement provision that does not meet the requirements of the indexation guidance under ASC 815-40.

warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within the statement of operations.

(See Note 7 for more information related to changes in fair value.)

fair values of the Common Warrants and the Pre-Funded Warrants at the issuance date totaled $ 12.6 million in the aggregate, which was

$ 0.6 million more than the subscription amount.

The excess $ 0.6 million represents an inducement to the investor to enter into the transaction and was recorded in warrant liabilities expense in the accompanying condensed consolidated statement of

operations for the nine months ended September 30, 2022.

Company incurred fees of approximately $ 1.0 million related to the March 2022 Private Placement, 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 nine months ended September 30, 2022.

In connection with the closing of the July 2023 Financing on July 14, 2023, the Company issued the Note Warrants to purchase an aggregate of approximately 6.1 million

shares of common stock.

The Note Warrants purchased by 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.

(See Note 5 for more information related to the Note Warrants.)

As of September 30, 2023, the Company has the following warrants outstanding that were issued in connection with transactions discussed above as well as a private placement with other investors from November 2022:

(in thousands)

Classification

March 2022 PIPE

Common Warrants

September 9, 2022

September 9, 2027

November 2022 PIPE

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.

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,

November 2022 Warrants

Note Warrants

July 14, 2023

July 14, 2028

of September 30, 2023, the weighted average remaining contractual life of the warrants outstanding was 4.72 years and the

weighted average exercise price was $ 4.01 .

NET LOSS PER SHARE

Company calculates basic and diluted net loss per share attributable to common stockholders in conformity with the two-class method required for participating securities.

The Company’s Convertible Notes contractually entitle the holders of

such notes to participate in dividends but does not contractually require the holders to participate in the Company’s losses.

As such, the two-class method is not applicable during periods with a net loss.

Basic net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period, without consideration for

potentially dilutive securities.

Diluted net loss per share is calculated by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding plus dilutive securities.

Shares of common

stock issuable upon exercise, conversion or vesting of stock options, RSUs, warrants and the outstanding Series A convertible preferred stock are considered potential shares of common stock and are included in the calculation of diluted net

loss per share using the treasury method when their effect is dilutive.

The Company’s Convertible Notes outstanding are also considered potential shares of common stock and are included in the calculation of diluted net loss per share using the

“if-converted” method, and the more dilutive of either the two-class method or the if-converted method is reported.

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.

following table presents the amount of warrants, stock options, convertible preferred stock, Convertible Notes and RSUs that were excluded from the computation of diluted net loss per share of common stock for the three and nine months ended

September 30, 2023 and 2022, as their effect was anti-dilutive (in thousands):

Three and Nine months ended September 30,

Convertible Notes converted into common stock

Stock options

Preferred stock converted into common stock

Total potential common shares excluded from computation

Total potential shares of common stock excluded from computation

STANDBY EQUITY PURCHASE AGREEMENT

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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.

Such sales of common stock by the Company, if any, are subject to certain limitations set forth in the SEPA, 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 SEPA, 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 nine months ended September 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

1 unchanged sentence

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.

has an immaterial value as of September 30, 2023.

the nine months ended September 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.

There were no shares sold under the SEPA during the three months ended September 30, 2023.

As of September 30, 2023, 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

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

SUBSEQUENT EVENTS

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, 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.

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

In October 2023, the FASB issued ASU No.

2023-06, Disclosure Improvements – Codification Amendment in Response to the SEC’s Disclosure Update and Simplification Initiative.

This ASU modified the disclosure and presentation requirements of a variety of

codification topics by aligning them with the SEC’s regulations.

The amendments to the various topics should be applied prospectively, and the effective date will be determined for each individual disclosure based on the effective date of

the SEC’s removal of the related disclosure.

If the SEC has not removed the applicable requirements from Regulation S-X or Regulation S-K by June 30, 2027, then this ASU will not become effective.

Early adoption is prohibited.

Company does not expect the amendments in this ASU to have a material impact on the Company’s consolidated financial statements .

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