What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-13 · 325 added, 266 removed, 156 unchanged (79% of the section changed)

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

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

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 for the fiscal year ended December 31, 2023 filed with the Securities

1 unchanged sentence

18, 2024 (as amended, the “2023 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 2023 10-K and as described from time to time in our other filings with the

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

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

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 refer to

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

We license our mRNA technology platform from Factor Bioscience Limited (“Factor Limited”) under an exclusive license agreement.

believe that our proprietary technology platform can be used to develop novel pharmaceutical products to treat a broad range of diseases

and address unmet medical needs.

the short term, we are planning to derive revenue by leveraging our core intellectual property (“IP”) portfolio by licensing

our IP to third parties in out-licensing or co-development arrangements.

In addition, we are also planning to enhance our developmental

activities through preclinical studies in selected indications.

the mid-term, we are planning to transform our preclinical stage company into a clinical-stage company through investigational new drug

application (“IND”)-enabling studies, IND approval, and initiation of our first-in-human study.

After achieving the initial

milestones, we’ll seek to diversify our pipeline of product candidates and strengthen the mRNA technology platform with the goal

of generating IND applications each year.

the long term, we aspire to become a therapeutics company with multiple approved gene and cellular therapy products across multiple indications

in oncology, autoimmune diseases, and rare diseases.

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

reprogramming.”

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.

However, the 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.

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 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.

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”).

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 therapies.

Cell Reprogramming

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.

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.

Sublessor Draw on Letter

of Credit and Termination of Sublease

2022, we entered into a sublease for office and laboratory space in Somerville, Massachusetts.

See Note 8 to the accompanying condensed

consolidated financial statements for additional information regarding the sublease.

As previously reported, on May

3, 2024, we received a notice from the sublessor regarding past due rent of approximately $2.3 million that we did not pay for the months

of February, March, April and May 2024.

We also did not pay the rent for June, July or August 2024 and, as of August 1, 2024, we owed

approximately $4.0 million in the aggregate in past due rent.

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 this report and in Part I, Item

1A of the 2023 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.

are a preclinical-stage cell therapy company.

Our vision is to improve the lives of patients with difficult-to-treat diseases through

innovative, effective, and safe, but accessible cellular therapies, and our mission is to develop allogenic off-the-shelf cellular therapies,

leveraging induced pluripotent stem cell (“iPSC”)-derived mesenchymal stem cells (“iMSCs”) to target solid tumors.

lead product ERNA-101 is allogenic IL-7 and IL-15-secreting iMSCs.

ERNA-101 capitalizes on the intrinsic tumor-homing ability of MSCs

to slip through the tumor’s defenses and to deliver potent pro-inflammatory factors directly to the tumor microenvironment (“TME”),

limiting systemic exposure and potential toxicity while unleashing potent anti-cancer immune responses including enhancement of T-cell

anti-tumor activity.

Our initial focus is to develop ERNA-101 in triple negative breast cancer and platinum-resistant, tp53-mutant ovarian

We collaborated with the University of Texas MD Anderson Cancer Center to investigate the ability of ERNA-101 to induce and modulate

antitumor immunity in ovarian cancer and breast cancer model.

We are expecting to complete the Investigational New Drug (“IND”)

enabling studies and IND submission by 2026.

We are also planning to investigate anti-inflammatory cytokine (e.g.

IL-10)-secreting iMSCs

in inflammatory/auto-immune disorders like Rheumatoid arthritis.

We are actively seeking strategic partnerships to co-develop or out-license

therapeutic assets and engage with potential collaborators to expand developmental opportunities.

October 29, 2024, we closed a private placement in which we sold an aggregate of 1,401,994 shares of our common stock and pre-funded

warrants to purchase 115,000 shares of our common stock at a purchase price of $0.75 per share of common stock and $0.745 per pre-funded warrant.

We received approximately $1.1 million in gross proceeds from the issuance of

such securities.

For additional information regarding this private placement, see Note 5 to the accompanying condensed consolidated financial

on October 29, 2024, in accordance with exchange agreements we entered into with the holders of certain of our warrants and convertible

notes, we issued an aggregate of 38,302,029 shares of our common stock in exchange for:

(i) warrants to purchase an aggregate of approximately

4.4 million shares of our common stock that we issued in December 2022 with an exercise price of $1.43 per share;

(ii) $8.7 million in

the aggregate principal amount of convertible notes that we issued in July 2023 and warrants to purchase an aggregate of approximately

6.1 million shares of our common stock that we issued in July 2023 with an exercise price of $1.43 per share;

(iii) $9.2 million in the

aggregate principal amount of convertible notes that we issued in December 2023 and warrants to purchase an aggregate of approximately

9.6 million shares of our common stock that we issued in December 2023 with an exercise price of $1.43 per share.

holders of the warrants described in the paragraph above exchanged all their warrants for shares of our common stock at an exchange ratio

of 0.5 of a share of common stock for every one share of common stock issuable upon exercise of the applicable warrant (rounded up to

the nearest whole number), and the holders of the convertible notes described in the paragraph above exchanged all their convertible

notes for shares of our common stock at an exchange ratio equal to (A) the sum expressed in U.S.

dollars of (1) the principal amount

of the applicable convertible note, plus (2) all accrued and unpaid interest thereon through the date the applicable convertible note

is exchanged plus (3) all interest that would have accrued through, but not including, the maturity date of applicable convertible note

if it was outstanding from the date such convertible note is exchanged through its maturity date, divided by (B) $1.00 (rounded up to

the nearest whole number).

additional information regarding the exchange transactions, see Note 5 to the accompanying condensed consolidated financial statements.

of Bridge Notes

September 24, 2024, we closed a private placement in which we sold an aggregate principal amount of approximately $3.9 million of 12.0%

senior convertible notes (the “bridge notes”).

October 29, 2024, in accordance with the terms of the bridge notes, approximately $3.0 million of the principal amount of the bridge

notes plus all accrued and unpaid interest thereon, plus such amount of interest that would have accrued on the principal amount through

December 24, 2024, was automatically converted at a conversion price of $0.50 into 6,244,237 shares of our common stock, and approximately

$0.9 million of the principal amount of the bridge notes plus all accrued and unpaid interest thereon, plus such amount of interest that

would have accrued on the principal amount through December 24, 2024, was automatically converted at a conversion price of $0.50 into

pre-funded warrants to purchase 1,764,000 shares of our common stock.

additional information regarding the private placement and conversion of the bridge notes, see Note 5 to the accompanying condensed consolidated

financial statements.

In total, the Company issued

approximately 45.9 million shares of common stock and 1.9 million pre-funded warrants on October 29, 2024 pursuant to the private placement,

the exchange transactions and the conversion of the bridge notes discussed above and had 51.4 million shares of common stock issued and

with Factor Bioscience

September 24, 2024, we entered into the Exclusive License and Collaboration Agreement (“the Factor L&C Agreement”) with

Factor Bioscience Limited (“Factor Limited”).

The Factor L&C Agreement terminated the Amended and Restated Factor License

Agreement (the “A&R Factor License Agreement”) entered into on November 14, 2023 as well as an exclusive license agreement

we acquired from Dilos Bio (formerly known as Exacis Biotherapeutics Inc.

(“Exacis”)) under an asset purchase agreement in

the Factor L&C Agreement, we have obtained an exclusive license in the fields of cancer, autoimmune disorders, and rare diseases

with respect to certain licensed technology and we have the right to develop the licensed technology directly or enter into co-development

agreements with partners who can help bring such technology to market.

The Factor L&C Agreement also provides for certain services

and materials to be provided by Factor to facilitate our development of the licensed technology and to enable us to scale up production

at third party facilities.

initial term of the Factor L&C Agreement is one year after the effective date, and it automatically renews yearly thereafter.

may terminate the Factor L&C Agreement for any reason upon 90 days’ written notice to Factor, and the parties otherwise have

customary termination rights, including in connection with certain uncured material breaches and specified bankruptcy events.

to the Factor L&C Agreement, we will pay Factor $0.2 million per month for the first twelve months, $0.1 million per month for the

first nine months toward patent costs, certain milestone payments, royalty payments on net sales of commercialized products and sublicensing

fee payments.

Assignment Agreement

September 24, 2024, we entered into an agreement with Factor Bioscience Inc.

(“Factor”) whereby we assigned the exclusive

option and license agreement (the “Lineage Agreement”) to Factor (the “Lineage Assignment Agreement”).

and obligations under the agreement are now Factor’s responsibility.

related to the Lineage Agreement will now be subject to the Lineage Assignment Agreement, which provides for Factor paying us thirty

percent (30%) of all amounts it actually receives from Lineage in the event that Lineage exercises its Option Right.

Upon receipt of

payment for the customization activities set forth in the Lineage Agreement, Factor will pay the Company twenty percent (20%) of all

amounts Factor receives from Lineage.

October 2022, we entered into a sublease for office and laboratory space in Somerville, Massachusetts.

In connection with entering into

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collateralized with $4.1 million of cash deposited in a restricted account.

On August 5, 2024, the sublessor

drew down on the letter of credit for the full $4.1 million to cover the approximately $4.0 million of past due rent payments, plus interest

and penalties.

On August 9, 2024, we and the

sublessor entered into a sublease termination agreement pursuant to which the parties agreed to terminate the sublease effective August

Pursuant to the sublease termination agreement, we agreed to surrender and vacate the premises, all of our right, title and

interest in all furniture, fixtures and laboratory equipment at the premises will become the property of the sublessor, and both parties

will be released of their obligations under the sublease.

As a result of the sublease termination, we expect to save approximately $58.5

million in base rental payments plus parking, operating expenses, taxes and utilities that we would have paid over the remaining lease

We do not expect

that the termination of the sublease will impact our current business needs.

Parte Re-examination Certificates Received

November 16, 2022, three of our in-licensed patents were subject to re-examination by the United States Patent and Trademark Office (“USPTO”),

under Re-examination Request Nos.

US 90/019,127, US 90/019,128, and US 90/019,129.

We have now received Ex Parte Reexamination Certificates

for each of these requests, as of June 5, 2024, June 28, 2024, and June 21, 2024, respectively.

In each case, the challenged patents

survived this challenge to their validity.

The challenged claims were minimally amended, and none were invalidated.

The claims have now

been twice examined by the USPTO and twice allowed.

Non-Compliance

with Nasdaq’s Minimum Stockholders’ Equity Rule

As previously reported, on March 19, 2024, we received a notice from The Nasdaq Stock Market LLC stating that we

are not in compliance with Nasdaq Listing Rule 5550(b)(1) (the “Minimum Stockholders’ Equity Rule”) because we reported

stockholders’ equity of less than $2.5 million as of December 31, 2023.

Our stockholders’ equity was $2.2 million as of December

August 5, 2024, the sublessor drew down on the letter of credit for the full $4.1 million to cover the approximately $4.0 million of

past due rent payments for February 2024 through August 2024, plus interest and penalties.

August 9, 2024, we and the sublessor entered into a sublease termination agreement pursuant to which the parties agreed to terminate

the sublease effective August 31, 2024.

Pursuant to the sublease termination agreement, we agreed to surrender and vacate the premises,

all of our right, title and interest in all furniture, fixtures and laboratory equipment at the premises will become the property of

the sublessor, and both parties will be released of their obligations under the sublease.

As a result of the sublease termination, we

recognized a gain on lease termination of approximately $1.6 million for the three and nine months ended September 30, 2024, and we expect

to save approximately $72 million in base rental payments, parking, operating expenses, taxes and utilities that we would have paid over

the remaining lease term.

On March 19, 2024, we received a notice from the Listing Qualifications Staff (“Staff”) of The Nasdaq

Stock Market LLC (“Nasdaq”) stating that we were not in compliance with the Nasdaq listing rule 5550(b)(1) (the “Minimum

Stockholders’ Equity Rule”) because we reported stockholders’ equity of less than $2.5 million as of December 31, 2023.

The notice had no immediate effect on our Nasdaq listing.

In May 2024, we submitted a plan to Nasdaq advising of actions we

have taken or will take to regain compliance with the Minimum Stockholders’ Equity Rule.

Nasdaq accepted our plan and granted us

a 180-day extension, or through September 16, 2024, to regain compliance with the Minimum Stockholders’ Equity Rule.

factor titled “Our failure to meet the continued listing requirements of Nasdaq could result in a delisting of our common stock,”

Risk Factors of Part II of this report.

In May 2024, we submitted a plan to Nasdaq advising

of actions we have taken or will take to regain compliance with the Minimum Stockholders’ Equity Rule.

Nasdaq accepted our plan

and granted us a 180-day extension, or through September 16, 2024, to regain compliance with the Minimum Stockholders’ Equity Rule.

On September 17, 2024, we received a notice from the Staff stating that the Staff has determined that we

did not meet the terms of the extension to confirm or demonstrate compliance with the Minimum Stockholders’ Equity Rule by September

16, 2024, and, as a result, unless we request an appeal of such determination by September 24, 2024, trading of our common stock will

be suspended at the opening of business on September 26, 2024, and a Form 25-NSE will be filed with the SEC, which will remove our securities

from listing and registration on Nasdaq.

On September 24, 2024,we submitted a timely request for a hearing with the Nasdaq’s Hearings

Panel to appeal the Staff’s determination.

The request stayed the suspension of trading of our common stock and the filing of the

Form 25-NSE pending the Hearing Panel’s decision.

The hearing was scheduled for November 12, 2024.

giving effect to (i) the reclassification of the debt represented by the convertible notes to equity as a result of the exchange of the

convertible notes that occurred on October 29, 2024, (ii) the receipt of net proceeds we received in the October 2024 private placement

of our common stock and pre-funded warrants to purchase shares of our common stock, and (iii) the reclassification of the debt represented

by the bridge notes to equity as a result of the conversion of the bridge notes into shares of our common stock or pre-funded warrants

to purchase shares of our common stock, and after taking into account the savings resulting from the termination of our former sublease,

our stockholders’ equity exceeds $2.5 million on a proforma basis as of September 30, 2024, which we communicated in our pre-hearing

submission of materials to the Hearing Panel on October 23, 2024.

Additionally, due to issuing over 45.9 million shares of common stock

from the transactions described above and having a total of 51.4 million shares of common stock issued and outstanding as of October

29, 2024, the market value of our listed securities has exceeded the minimum of $35 million under Nasdaq Listing Rule 5550(b)(2) for

ten consecutive trading days.

As a result, the Staff informed the Company that is has regained compliance with Nasdaq Listing Rule 5550(b)

and our stock will continue to be listed and traded on Nasdaq.

Accordingly, the Hearing Panel cancelled the November 12, 2024 hearing.

of Presentation

near-term focus is on deploying our mRNA technology platform through strategic partnerships.

are not currently developing any product candidates.

Our future revenue, if any, is primarily expected to come from out-licensing our

mRNA technology platform and/or aspects thereof.

February 2023, we entered into an exclusive option and license agreement with a third party, under which we granted such third party

an option to obtain an exclusive sublicense to certain of our technology for preclinical, clinical and commercial purposes in exchange

for a non-refundable up-front payment to us of $0.3 million.

In August 2023, that third party requested that we begin developing certain

induced pluripotent stem cell lines in exchange for a cell line customization fee.

The third party paid us $0.4 million towards the customization

fee, which we are recognizing ratably over the customization period, which is expected to be approximately 20 to 25 months.

earn the remaining amount of the customization fee if we make certain progress towards delivery of the customized cell line.

the amount of consideration we expect to recognize as revenue that is not probable of having a significant reversal of such recognized

revenue, and we place a constraint on the remaining contractual consideration.

As it becomes evident that the constrained amounts are

no longer at risk of a significant reversal of revenue, we 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.

For additional information, see Note 3 to the accompanying

condensed consolidated financial statements.

February 2023, we entered into the Lineage Agreement with Lineage, under which we granted Lineage an option to obtain an exclusive sublicense

to certain of our technology for preclinical, clinical and commercial purposes in exchange for a non-refundable up-front payment to us

of $0.3 million.

In August 2023, Lineage requested that we begin developing certain induced pluripotent stem cell lines in exchange for

a cell line customization fee.

Lineage paid us $0.4 million towards the customization fee, which we were recognizing ratably over the

customization period.

On September 24, 2024, we entered into the Lineage Assignment Agreement with Factor Inc.

to assign all our rights

and obligations under that the Lineage Agreement to Factor Inc.

Payments to us related to the Lineage Agreement will now be subject to

the Lineage Assignment Agreement, which provides for Factor Inc.

paying the us thirty percent (30%) of all amounts it receives

from Lineage in the event that Lineage obtains a sublicense from Factor Inc.

Upon receipt of future payments for the customization activities

set forth in the Lineage Agreement, Factor Inc.

will pay the us twenty percent (20%) of all amounts Factor Inc.

receives from Lineage.

Because we have no further obligations under the agreement with Lineage, we have fully recognized as revenue amounts previously recorded

in deferred revenue of approximately $0.5 million for the three and nine months ended September 30, 2024.

For additional information,

see Note 4 to the accompanying condensed consolidated financial statements.

We have no other revenue generating contracts at this time.

recognize direct labor and supplies associated with generating our revenue as cost of revenues.

As provided for in the amended and restated

exclusive license agreement we entered into with Factor Limited (the “A&R Factor License Agreement”) discussed in Note

9 to the accompanying condensed consolidated financial statements, we are obligated to pay Factor Limited 20% of any amounts we receive

from a customer that is related to the licensed technology under the A&R Factor License Agreement, which we also recognize as a cost

As provided for in the A&R Factor

License Agreement discussed in Note 10 to the accompanying condensed consolidated financial statements, we were obligated to pay Factor

Limited 20% of any amounts we receive from a customer that was related to the licensed technology under the A&R Factor License Agreement,

which we also recognize as a cost of revenue.

and Development Expenses

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of Operations

of the Three and Six Months Ended June 30, 2024 and 2023

of the Three and Nine Months Ended September 30, 2024 and 2023

Three months ended

Six months ended

September 30,

Nine months ended

September 30,

Cost of revenues

Gross income (loss)

Operating expenses:

1 unchanged sentence

General and administrative

Gain on lease termination

Acquisition of Exacis in-process research and development

2 unchanged sentences

Other (expense) income, net:

Loss on extinguishment of debt

Incremental fair value of bridge note derivative liability

Change in fair value of warrant liabilities

1 unchanged sentence

Loss on non-controlling investment

Interest (expense) income, net

Interest expense, net

Other expense, net

Total other (expense) income, net

Total other expense, net

Loss before income taxes

Provision for income taxes

the three and six months ended June 30, 2024, we recognized revenue related to the cell line customization activities that we are performing

for a third party.

We did not perform any such activities, or otherwise recognize any revenue, during the three or six months ended

June 30, 2023.

the three and six months ended June 30, 2024, our cost of revenues included direct labor and materials to perform the customization cell

line activities for a third party.

During the six months ended June 30, 2023, we received a $0.3 upfront payment pursuant to a customer

contract with this third party.

Although the $0.3 million was recorded as deferred revenue as of June 30, 2023, the obligation to pay

Factor Limited the 20% license fee was incurred upon receipt of the payment from the third party, and was therefore recognized as a cost

of revenue during the six months ended June 30, 2023.

There were no such costs recognized during the three months ended June 30, 2023.

As of June 30, 2024, the $0.3 upfront payment continues to be recognized in long-term deferred revenue in the accompanying condensed

consolidated balance sheet.

(Provision) benefit for income taxes

the three and nine months ended September 30, 2024, we fully accelerated the recognition of approximately $0.5 million of deferred revenue

related to nonrefundable payments we received from Lineage due to the Lineage Assignment Agreement we entered into on September 24, 2024

with Factor Inc.

discussed earlier.

For the three and nine months ended September 30, 2023, the revenue we recognized was related to

customization activities performed for Lineage.

the nine months ended September 30, 2024, our cost of revenues included direct labor and materials to perform the customization cell

line activities for Lineage.

During the three months ended September 30, 2024, we recognized a credit for amounts previously accrued

related to customization cell line activities that were no longer due as a result of entering into the Lineage Assignment Agreement with

During the three and nine months ended September 30, 2023, we recognized direct labor and materials related to the customization

activities as well as the 20% license fee due to Factor Limited related to upfront payments received from Lineage under the customer

and Development Expenses

Three months ended June 30,

Three months ended

September 30,

(in thousands)

Professional fees

Payroll-related

MSA/license fees

Stock-based compensation

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Total research and development expenses

Six months ended June 30,

Nine months ended

September 30,

(in thousands)

2 unchanged sentences

Payroll-related

MSA/license expense

Other expenses, net

Total research and development expenses

research and development expenses decreased by approximately $0.5 million for the three months ended June 30, 2024 when compared to the

three months ended June 30, 2023 primarily due to a decrease in payroll-related expenses from a reduction in headcount as well as a reduction

in other expenses related to closing down a clinical trial we ended in 2022.

research and development expenses decreased $0.7 million for the six months ended June 30, 2024 when compared to the six months ended

June 30, 2023 primarily related to a decrease in expenses related to closing down the clinical trial from 2022 as well as a reduction

in ongoing research expenses.

research and development expenses decreased by approximately $0.4 million and $1.1 million for the three and nine months ended September

30, 2024, respectively, compared to the three months ended September 30, 2023, primarily due to decreased professional fees due

to a reduction in consultant services, payroll-related expenses and stock-based compensation from a reduction in headcount, MSA/license

fees as a result of the new L&C Agreement and other expenses related to closing down a clinical trial we ended in 2022.

and Administrative Expenses

Three months ended June 30,

Three months ended

September 30,

(in thousands)

Professional fees

Occupancy expense

1 unchanged sentence

Payroll-related

Professional fees

Other expenses, net

Total general and administrative expenses

Six months ended June 30,

Nine months ended

September 30,

(in thousands)

1 unchanged sentence

Stock-based compensation

Payroll-related

Professional fees

Payroll-related

Other expenses, net

Total general and administrative expenses

general and administrative expenses increased by approximately $1.3 and $2.0 million for the three and six months ended June 30, 2024,

respectively, when compared to the three and six months ended June 30, 2023 primarily due to increased occupancy expense related to the

Somerville sublease that we began to incur in July 2023.

The increase in occupancy expense was partially offset by decreases in professional fees related

to legal services and consultants, insurance expense due to lower premiums and payroll-related expenses resulting from a decrease severance

expense during the three and six months ended June 20, 2024 compared to the three and six months ended June 30, 2023.

general and administrative expenses decreased by approximately $0.7 million for the three months ended September 30, 2024 compared

to the three months ended September 30, 2023 primarily due to decreases in professional fees related to legal services and consultants,

rent expense due to the termination of our Somverville sublease effective August 31, 2024 and a reduction in insurance premiums.

decreases were offset by increases in payroll-related expense and stock-based compensation due to an increase in headcount as well as

an inducement stock option grant given to our chief executive officer in January 2024 compared to the three months ended September

general and administrative expenses increased by approximately $1.4 million for the nine months ended September 30, 2024 compared

to the nine months ended September 30, 2023 primarily due to increased occupancy expense related to the Somerville sublease that we began

to incur in July 2023 as well as increased stock-based compensation due to the chief executive officer’s inducement stock option

The increase in occupancy expense was partially offset by decreases in professional fees related to legal services and consultants,

insurance expense due to lower premiums and payroll-related expenses resulting from a decrease severance expense during the nine months

ended September 20, 2024 compared to the nine months ended September 30, 2023.

on Lease Termination

August 9, 2024, we and the sublessor of our Somerville sublease entered into a sublease termination agreement effective August 31, 2024.

Pursuant to the sublease termination agreement, we agreed to surrender and vacate the premises, all of our right, title and interest

in all furniture, fixtures and laboratory equipment at the premises will become the property of the sublessor, and both parties will

be released of their obligations under the sublease.

As a result of the sublease termination, we recognized a gain on lease termination

of approximately $1.6 million for the three and nine months ended September 30, 2024 in the accompanying condensed consolidated statement

of operations.

There was no similar transaction during the three or nine months ended September 30, 2023.

of Exacis In-Process Research and Development

April 2023, we acquired from Exacis Biotherapeutics Inc.

(“Exacis”) substantially all of its intellectual property

assets, including all of its right, title and interest in and to an exclusive license agreement by and between Exacis and Factor

Limited (the “Purchased License”).

The Purchased License was determined to be an in-process research and development

(“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, we expensed the fair value of the Purchased License of

approximately $0.5 million during the three and six month ended June 30, 2023.

For additional information, see Note 3 to the

accompanying consolidated financial statements included in this report.

There was no similar transaction during the three or six

months ended June 30, 2024.

April 2023, we acquired from Exacis substantially all of its intellectual property assets, including all of its right, title and interest

in and to the Purchased License.

The Purchased License was determined to be an in-process research and development (“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, we expensed the fair value of the Purchased License of approximately $0.5 million during the

three and nine months ended September 30, 2023.

For additional information, see Note 3 to the accompanying consolidated financial statements

included in this report.

There was no similar transaction during the three or nine months ended September 30, 2024.

on Extinguishment of Debt

recognized a $22.4 million loss on extinguishment of debt for the three and nine months ended September 30, 2024 related to the Exchange

Agreements and common stock private placement entered into on September 24, 2024.

There was no similar transaction during the three or

nine months ended September 30, 2023.

See Note 5 to the accompanying condensed consolidated financial statements for more information

on the Exchange Transaction.

Fair Value Adjustments to Bridge Notes Derivative Liability

recognized expense of $1.6 million related to the initial measurement at September 24, 2024 of the incremental fair value of the

bridge notes derivative liability over the carrying value due to bifurcation of the conversion feature from the bridge notes.

This was offset by a $0.6 million credit for the change in fair value of

the bridge notes derivative liability due to remeasuring the liability as of September 30, 2024.

was no similar transaction during the three or nine months ended September 30, 2023.

See Note 5 to the accompanying condensed

consolidated financial statements for more information on the bridge notes.

in Fair Value of Warrant Liabilities

recognized credits of approximately $0.1 million in each of the three and six months ended June 30, 2024 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, 2024.

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.

recognized credits of less than $0.8 million and $0.9 million for the three and nine months ended September 30, 2024 for the change in

the fair value of warrant liabilities, which includes certain warrants that were reclassified to a liability

on September 24, 2024.

The credits were due to a decrease in the market price of our common stock as of September 30, 2024.

the three and nine months ended September 30, 2023, we recognized credits of less than $0.1 million and $0.2 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 September

See Note 5 to the accompanying condensed consolidated financial statements for more information on the reclassification of

the warrants.

in Fair Value of Contingent Consideration

the closing date of the acquisition of assets from Exacis in April 2023, 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

As of June 30, 2024, we remeasured the contingent liability and recognized a credit of $0.1 million for both the three

and six months ended June 30, 2024 due to the decrease in the fair value of the contingent consideration liability.

the closing date of the acquisition of assets from Exacis in April 2023, 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 nine months ended September 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 September

30, 2023, we remeasured the contingent liability and recognized a credit of $0.1 million for the nine months ended September 30, 2023

due to the decrease in the fair value of the contingent consideration liability.

As of September 30, 2024, we remeasured the contingent

liability and recognized a credit of $0.1 million for the nine months ended September 30, 2024 due to the decrease in the fair value

of the contingent consideration liability.

There were no amounts recognized for either of the three months ended September 30, 2023 or

on Non-Controlling Investment

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25% of NoveCite’s losses up to our investment carrying amount.

As a result, we did not recognize additional losses related to

NoveCite for the three or six months ended June 30, 2024.

We recognized a de minimus loss related to NoveCite for the three months ended

June 30, 2023 and a loss of approximately $0.1 million for the six months ended June 30, 2023.

(Expense) Income, net

recognized an increase in interest expense for the three and six months ended June 30, 2024 of approximately $0.8 million and $1.6

million, respectively, primarily due to approximately $0.4 million and $0.8 million of interest for the three and six months ended

June 30, 2024, respectively, related to the convertible notes as well as the amortization of the debt discount and debt issuance

costs associated with the convertible note financings of approximately $0.5 million and $0.9 million for the three and six months

ended June 30, 2024, respectively.

This increase in interest expense was partially offset by an increase in interest income of $0.1

million in each of the three and six months ended June 30, 2024 from our cash deposited into interest-bearing accounts.

There were no convertible notes (or similar debt instruments) outstanding during the three or six

months ended June 30, 2023.

the three and six months ended June 30, 2023, we recognized $0.3 million of other expense, all of which related to the value of the

As a result, we did not recognize additional losses related to NoveCite

for the three or nine months ended September 30, 2024 or the three months ended September 30, 2023.

We recognized a loss of approximately

$0.1 million for the nine months ended September 30, 2023.

recognized an increase in interest expense for the three and nine months ended September 30, 2024 of approximately $1.6 million and $3.2

million, respectively, primarily due to interest expense and amortization of debt issuance costs associated with the 2023 convertible

note financings and bridge notes when compared to the three and nine months ended September 30, 2023.

As a result of the closing of the

Exchange Transactions on October 29, 2024, we expect our future interest expense to be significantly decreased.

the nine months ended September 30, 2023, we recognized $0.3 million of other expense, all of which related to the value of the

commitment shares issued to Lincoln Park Capital Fund, LLC (“Lincoln Park”) under a standby equity purchase agreement

(“SEPA”) we entered into in April 2023 as well as other associated fees.

We did not recognize any such expense during

the three or six months ended June 30, 2024.

(the “ELOC”) we entered into in April 2023 as well as other associated fees.

We did not recognize any such expense

during the three or nine months ended September 30, 2024 and a de minimus amount of other expense during the three months ended

September 30, 2023.

for Income Taxes

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and Capital Resources

June 30, 2024, we had cash and cash equivalents of approximately $6.7 million, of which approximately $4.1 million was restricted cash and an accumulated deficit of approximately $199.2 million.

have to date incurred operating losses, and we expect these losses to continue in the future.

For the three and six months ended June

of September 30, 2024, we had cash of approximately $4.3 million, of which approximately $3.9 million was from proceeds from the

bridge notes received on September 24, 2024, and we had an accumulated deficit of approximately $225.8 million.

We have to date

incurred operating losses, and we expect these losses to continue in the future.

For the three and nine months ended September 30,

2024, we incurred a net loss of $26.6 million and $38.8 million, respectively.

For the six months ended June 30, 2024, we used $6.0

million in operating activities.

our sole source of liquidity is through sales of our common stock under 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, including a condition that 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.

Sales under the SEPA may occur from time to time, at our sole discretion, through April 2025.

have issued and sold approximately 214,000 shares of our common stock to Lincoln Park, including the approximately 74,000 commitment

shares, and have received approximately $0.3 million in gross proceeds from such sales.

We sold no shares under the SEPA during the

six months ended June 30, 2024.

For the nine months ended September 30, 2024, we used

$12.3 million of cash in operating activities.

October 29, 2024, we also received approximately $1.1 million upon the closing of the common stock private placement.

Other than the

proceeds raised under the bridge notes and the common stock private placement, our sole source of liquidity is through sales of our common

stock under the ELOC, 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 ELOC, including a condition that we may not direct

Lincoln Park to purchase any shares of common stock under the ELOC if such purchase would result in Lincoln Park beneficially owning

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

Sales under the ELOC may occur from time to time, at our sole discretion,

through April 2025.

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

We sold no shares

under the ELOC during the nine months ended September 30, 2024.

on our current financial condition and forecasts of available cash, we will not have sufficient capital to fund our operations for the

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all or part of their investment in our common stock.

See the risk factor in Item 1A of Part II of our 2023 10-K titled, “We will

require substantial additional capital to fund our operations, and if we fail to obtain the necessary financing, we may not be able to

pursue our business strategy.”

See the risk factor in Item 1A of Part II of our 2023 10-K titled, “We will require substantial additional capital to fund our operations and

execute our business strategy, and we may not be able to raise adequate capital on a timely basis, on favorable terms, or at all.”

Historically,

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flows, are summarized as follows:

For the six months ended

For the nine months ended

September 30,

(in thousands)

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Cash Used in Operating Activities

was a decrease of approximately $3.9 million in cash used in operating activities for the six months ended June 30, 2024 compared to

the same period in 2023.

This change was due to a decrease in cash used in operating assets and liabilities of $4.2 million,

primarily related to increased accounts payable, accrued expenses and operating lease liabilities, partially offset by a $0.3

million increase in net loss, after giving effect to adjustments made for non-cash transactions, for the six months ended June 30,

2024 compared to the same period in 2023.

was a decrease of approximately $3.5 million in cash used in operating activities for the nine months ended September 30, 2024 compared

to the same period in 2023.

This change was due to a decrease in cash used in operating assets and liabilities of $2.0 million primarily

related to a reduction in amounts due for the buildout costs of the Somerville facility and a $1.4 million decrease in net loss, after

giving effect to adjustments made for non-cash transactions, for the nine months ended September 30, 2024 compared to the same period

Cash Used in Investing Activities

used approximately $0.3 million to pay for the purchases of property and equipment during the six months ended June 30, 2024.

no investing activities during the six months ended June 30, 2023.

used approximately $0.3 million to pay for the purchases of property and equipment during the nine months ended September 30, 2024.

were no investing activities during the nine months ended September 30, 2023.

Cash Provided by Financing Activities

cash provided by financing activities for the six months ended June 30, 2024 includes approximately $1.4 million of proceeds received

from the second closing of the December 2023 convertible notes financing that occurred in January 2024 .

Net cash provided by financing

activities for the six months ended June 30, 2023 includes approximately $0.3 million of proceeds received from selling approximately

214,000 shares to Lincoln Park under the SEPA.

The Company did not sell any shares under the SEPA during the six months ended June 30,

Material Cash Requirements

of the filing date of this report, the aggregate amount outstanding under our convertible notes, including accrued interest that has

been paid in-kind, is $19.0 million, of which $9.2 million and $9.8 million relates to the July 2023 convertible notes and the

December 2023 convertible notes, respectively.

Unless earlier called for redemption by the holders thereof, the convertible notes

mature on the five-year anniversary of their date of issuance.

We may not redeem any of the convertible notes prior to maturity.

Note 4 to the accompanying condensed consolidated financial statements for additional information.

cash provided by financing activities for the nine months ended September 30, 2024 includes approximately $5.3 million of gross proceeds

received from the convertible note financings that occurred in January 2024 and September 2024.

Net cash provided by financing activities

for the nine months ended September 30, 2023 includes approximately $8.7 million of gross proceeds from convertible note financings and

$0.3 million of proceeds received from selling approximately 214,000 shares to Lincoln Park under the ELOC.

The Company did not sell

any shares under the ELOC during the nine months ended September 30, 2024.

Accounting Estimates

were no significant changes in our critical accounting estimates during the three months ended June 33, 2024 from those described in

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2023 10-K.

were no significant changes in our critical accounting estimates during the three months ended September 30, 2024 from those described

in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the 2023 10-K.

Accounting Pronouncements

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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 2. Management’s Discussion and Analysis