LISATA THERAPEUTICS, INC. 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The financial statements and notes thereto required to be filed under this Item are presented commencing on page 51 of this Annual Report on Form 10-K. 47 Index Caladrius Biosciences, Inc. and Subsidiaries Table of Contents Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 49 Financial Statements: Consolidated Balance Sheets at December 31, 2021 and 2020 50 Consolidated Statements of Operations - Years Ended December 31, 2021 and 2020 51 Consolidated Statements of Comprehensive Loss - Years Ended December 31, 2021 and 2020 52 Consolidated Statements of Equity - Years Ended December 31, 2021 and 2020 53 Consolidated Statements of Cash Flows - Years Ended December 31, 2021 and 2020 54 Notes to Consolidated Financial Statements 70 48 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders of Caladrius Biosciences, Inc. Opinion on the financial statements We have audited the accompanying consolidated balance sheets of Caladrius Biosciences, Inc. (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the two years in the period ended December 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Basis for opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical audit matters Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ GRANT THORNTON LLP We have served as the Company’s auditor since 2011. New York, New York March 22, 2022 49 Index CALADRIUS BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2021 December 31, 2020 ASSETS Current Assets Cash and cash equivalents $ 24,647 $ 16,512 Marketable securities 70,323 18,061 Prepaid and other current assets 1,212 758 Total current assets 96,182 35,331 Property and equipment, net 62 57 Other assets 764 614 Total assets $ 97,008 $ 36,002 LIABILITIES, NON-CONTROLLING INTERESTS AND EQUITY Liabilities Accounts payable $ 1,934 $ 1,020 Accrued liabilities 2,589 2,486 Total current liabilities 4,523 3,506 Other long-term liabilities 485 254 Total liabilities 5,008 3,760 Commitments and Contingencies Stockholders' Equity Preferred stock; authorized, 20,000,000 shares Series B convertible redeemable preferred stock liquidation value, 0.001 share of common stock, $ 0.01 par value; 825,000 shares designated; issued and outstanding, 10,000 shares at December 31, 2021 and December 31, 2020, respectively — — Common stock, $ 0.001 par value, authorized 500,000,000 shares; issued 59,800,792 and 19,389,413 shares, at December 31, 2021 and December 31, 2020, respectively; and outstanding, 59,789,712 and 19,378,333 shares, at December 31, 2021 and December 31, 2020, respectively 60 19 Additional paid-in capital 545,988 458,748 Treasury stock, at cost; 11,080 shares at December 31, 2021 and December 31, 2020 respectively ( 708 ) ( 708 ) Accumulated deficit ( 453,016 ) ( 425,550 ) Accumulated other comprehensive loss ( 70 ) ( 13 ) Total Caladrius Biosciences, Inc. stockholders' equity 92,254 32,496 Non-controlling interests ( 254 ) ( 254 ) Total equity 92,000 32,242 Total liabilities, non-controlling interests and equity $ 97,008 $ 36,002 See accompanying notes to consolidated financial statements. 50 Index CALADRIUS BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2021 2020 Operating Expenses: Research and development $ 17,680 $ 9,253 General and administrative 11,370 9,892 Operating expenses 29,050 19,145 Operating loss ( 29,050 ) ( 19,145 ) Other income (expense): Investment income, net 151 132 Other expense, net ( 75 ) — Total other income 76 132 Net loss before benefit from income taxes and noncontrolling interests ( 28,974 ) ( 19,013 ) Benefit from income taxes ( 1,508 ) ( 10,872 ) Net loss $ ( 27,466 ) $ ( 8,141 ) Less - net income attributable to noncontrolling interests — 9 Net loss attributable to Caladrius Biosciences, Inc. common shareholders $ ( 27,466 ) $ ( 8,150 ) Basic and diluted loss per share: Caladrius Biosciences, Inc. common shareholders $ ( 0.50 ) $ ( 0.53 ) Weighted average common shares outstanding: Basic and diluted shares 55,313 15,440 See accompanying notes to consolidated financial statements. 51 Index CALADRIUS BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2021 2020 Net loss $ ( 27,466 ) $ ( 8,141 ) Other comprehensive loss: Available for sale securities - net unrealized loss ( 57 ) ( 15 ) Total other comprehensive loss ( 57 ) ( 15 ) Comprehensive loss ( 27,523 ) ( 8,156 ) Comprehensive income attributable to noncontrolling interests — 9 Comprehensive loss attributable to Caladrius Biosciences, Inc. common stockholders $ ( 27,523 ) $ ( 8,165 ) See accompanying notes to consolidated financial statements. 52 Index CALADRIUS BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In thousands) Series B Convertible Preferred Stock Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Treasury Stock Total Caladrius Biosciences, Inc. Stockholders' Equity Non- Controlling Interest in Subsidiary Total Equity Shares Amount Shares Amount Balance at December 31, 2019 10 $ — 10,529 $ 11 $ 438,911 $ 2 $ ( 417,400 ) $ ( 708 ) $ 20,816 $ ( 263 ) $ 20,553 Net loss — — — — — — ( 8,150 ) — ( 8,150 ) 9 ( 8,141 ) Unrealized loss on marketable securities — — — — — ( 15 ) — — ( 15 ) — ( 15 ) Share-based compensation — — 53 — 1,117 — — — 1,117 — 1,117 Net proceeds from issuance of common stock and warrants — — 8,807 8 18,720 — — — 18,728 — 18,728 Balance at December 31, 2020 10 $ — 19,389 $ 19 $ 458,748 $ ( 13 ) $ ( 425,550 ) $ ( 708 ) $ 32,496 $ ( 254 ) $ 32,242 Net loss — — — — — — ( 27,466 ) — ( 27,466 ) — ( 27,466 ) Unrealized loss on marketable securities — — — — — ( 57 ) — — ( 57 ) — ( 57 ) Share-based compensation — — 517 — 1,757 — — — 1,757 — 1,757 Net proceeds from issuance of common stock and warrants — — 39,888 41 85,459 — — — 85,500 — 85,500 Proceeds from option exercises — — 7 — 24 — — — 24 — 24 Balance at December 31, 2021 10 $ — 59,801 $ 60 $ 545,988 $ ( 70 ) $ ( 453,016 ) $ ( 708 ) $ 92,254 $ ( 254 ) $ 92,000 See accompanying notes to consolidated financial statements. 53 Index CALADRIUS BIOSCIENCES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2021 2020 Cash flows from operating activities: Net loss $ ( 27,466 ) $ ( 8,141 ) Adjustments to reconcile net loss to net cash used in operating activities: Equity-based compensation expense 2,005 1,265 Depreciation and amortization 55 63 Amortization/accretion on marketable securities 2,514 307 Changes in operating assets and liabilities: Prepaid and other current assets ( 453 ) 56 Other assets ( 150 ) 466 Accounts payable, accrued liabilities and other liabilities 1,250 ( 2,839 ) Net cash used in operating activities ( 22,245 ) ( 8,823 ) Cash flows from investing activities: Purchase of marketable securities ( 179,775 ) ( 34,799 ) Sales of marketable securities 124,939 27,542 Purchases of property and equipment ( 60 ) ( 20 ) Net cash used in investing activities ( 54,896 ) ( 7,277 ) Cash flows from financing activities: Proceeds from exercise of options 24 — Tax withholding payments on net share settlement equity awards ( 248 ) ( 148 ) Net proceeds from issuance of capital stock 85,500 18,728 Net cash provided by financing activities 85,276 18,580 Net increase in cash and cash equivalents 8,135 2,480 Cash and cash equivalents at beginning of year 16,512 14,032 Cash and cash equivalents at end of year $ 24,647 $ 16,512 Supplemental Disclosure of Cash Flow Information: Cash paid during the period for: Interest $ — $ — Taxes — — See accompanying notes to consolidated financial statements. 54 Index CALADRIUS BIOSCIENCES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – The Business OVERVIEW Caladrius Biosciences, Inc. (“we,” “us,” “our,” “Caladrius” or the “Company”) is a clinical-stage biopharmaceutical company dedicated to the development of treatments and reversal of severe diseases. The Company is developing what are intended to be first-in-class therapeutics based on the characteristics of naturally occurring CD34+ cells and their ability to stimulate the growth of new microvasculature. Its technology is intended to leverage these cells to enable the body's natural repair mechanisms using formulations unique to each medical indication. The Company's leadership team has decades of collective biopharmaceutical development experience. Its goal is to develop and commercialize products that address important unmet medical needs based on a broad and versatile portfolio of candidates. The Company's current product candidates include: • XOWNA ® (CLBS16), the subject of both a completed positive Phase 2a study (ESCaPE-CMD) and an ongoing follow-on Phase 2b study (FREEDOM Trial) in the United States for the treatment of coronary microvascular dysfunction (“CMD”); • HONEDRA ® (CLBS12), recipient of SAKIGAKE designation pursuant to which early conditional approval in Japan for the treatment of critical limb ischemia (“CLI”) and Buerger’s disease is being sought based on the current results of a clinical trial executed in Japan. HONEDRA ® was the recipient of orphan drug designation in March 2021 from the U.S. Food and Drug Administration (“FDA”) for Buerger's disease; and • CLBS201, designed to assess the safety and efficacy of CD34+ cell therapy as a treatment for patients with chronic kidney disease related to type 2 diabetes (diabetic kidney disease or “DKD”). Ischemic Repair (CD34 Cell Technology) The CD34+ cell was discovered as a result of the deliberate search for a cell capable of stimulating the development and/or repair of blood vessels. All tissues in the body maintain their function by replacing cells over time. In addition to the maintenance function, the body must also be capable of building new blood vessels after injury. A CD34+ cell is an endothelial progenitor cell that has the ability to stimulate new blood vessel formation at the level of the microvasculature. No other native cell discovered to date has demonstrated this same capability. The Company's proprietary cell technology using autologous (a patient’s own naturally occurring) CD34+ cells has led to the development of therapeutic product candidates designed to address diseases and conditions caused by ischemia. Ischemia occurs when the supply of oxygenated blood to healthy tissue is restricted or reduced. Through the administration of CD34+ cells, Caladrius seeks to promote the development and formation of new microvasculature and thereby increase blood flow to the impacted area. The Company believes that a number of conditions caused by underlying ischemic injury can be improved through its CD34+ cell technology including, but not limited to, Buerger's disease, CLI, CMD, and DKD. XOWNA ® for Treatment of Coronary Microvascular Dysfunction In 2017, with the assistance of a $ 1.9 million grant from the National Institutes of Health (Award Number R44HL135889), the Company initiated its program for XOWNA ® for the treatment of CMD, a disease that afflicts as many as 1.6 million patients in the United States alone, with no current targeted treatment options. That study, the ESCaPE-CMD Trial, was a Phase 2a proof-of-concept open label study that enrolled patients at the Mayo Clinic in Rochester, MN and Cedars-Sinai Medical Center in Los Angeles, CA. Those data showed a positive therapeutic effect with a statistically significant improvement in angina frequency, coronary flow reserve, Canadian Cardiovascular Society Angina Class and Seattle Angina Questionnaire scores, as well as an acceptable safety profile. The full data set from that study was presented at the SCAI 2020 Scientific Sessions Virtual Conference on May 14, 2020 by Dr. Timothy Henry, FACC, of the Christ Hospital in Cincinnati, Ohio. In December 2020, the Company commenced enrollment in its Phase 2b FREEDOM Trial of XOWNA ® , a double-blind, randomized and placebo-controlled clinical trial designed to further evaluate the efficacy and safety of intracoronary artery delivery of autologous CD34+ cells in subjects with CMD and without obstructive coronary artery disease. While early enrollment proceeded to plan with the first patient treated in January 2021, the impact of the COVID-19 pandemic contributed to a general slowing of enrollment. Protocol amendments to the initial FREEDOM Trial protocol, as agreed to by the FDA, were implemented with the goal of enhancing breadth and speed of subject enrollment. 55 Index HONEDRA ® for Treatment of Critical Limb Ischemia The Company's randomized, open-label, registration-eligible study of HONEDRA ® in Japan for the treatment of CLI and Buerger's disease has, to date, demonstrated positive trends in both safety and efficacy. The HONEDRA ® study's enrollment, however, has been significantly curtailed by the COVID-19 pandemic's impact in Japan, including the States of Emergency in Japan that have persisted for much of the past 18 months. Due to the significant and continued operational and financial burden incurred as a result of these COVID-19 delays, coupled with the unpredictability of the timing of site enrollment re-initiation, Caladrius suspended further enrollment and is focusing its efforts on consummating a partnership for the product in Japan. Such a partnership may become the basis for the completion of development and registration of HONEDRA ® in Japan and may include the completion of enrollment of the four remaining no-option CLI subjects stipulated in the original protocol, if necessary, and/or exploration of the possibility of submitting the existing data to Japan's Pharmaceuticals and Medical Devices Agency (“PMDA”) under Japan's regenerative medicine regulations, which allow for conditional approval of innovative regenerative medicine products. Despite receipt from FDA in March 2021 of orphan designation in the U.S. for CLBS12 as a potential treatment for Buerger's disease, based on a response from the FDA in October 2021 regarding a development plan for U.S. registration the Company decided not to pursue United States development in Buerger's disease at this time. CLBS201 for Treatment of Diabetic Kidney Disease Progressive kidney failure is associated with attrition of the microcirculation of the kidney. Pre-clinical studies in kidney disease and injury models have demonstrated that protection or replenishment of the microcirculation results in improved kidney function. Based on these observations, the Company has elected to move forward with a Phase 1, open-label, proof-of-concept trial evaluating CLBS201 dosed via intra-renal artery injections in subjects with DKD. This protocol, as approved by an Institutional Review Board (the “IRB”), is expected to include six subjects in total with the first two subjects sequentially dosed and followed for a two-week safety observation period. Clearance by the independent Data Safety Monitoring Board (“DSMB”) overseeing the study will then permit the treatment of the next four patients, with all patients being followed for safety and therapeutic effect. A read-out of data will occur after at the six-month follow-up visit for all patients. A key criterion for continued development of CLBS201 will be its ability to demonstrate a therapeutic effect that will make it competitive in the field of DKD treatment, i.e., kidney function regeneration, as indicated by increased glomerular filtration rate. Additional Out-licensing Opportunities and Pipeline Diversification The Company's broad intellectual property portfolio of cell therapy assets includes notable programs available for out-licensing in order to continue their clinical development. The Company's current long-term strategy focuses on advancing its therapies through development with the ultimate objective of obtaining market authorizations and entering commercialization, either alone or with partners, to provide treatment options to patients suffering from life-threatening medical conditions. The Company believes that it is well-positioned to realize potentially meaningful value increases within its own proprietary pipeline if it is successful in advancing its product candidates to their next significant development milestones. In addition, the Company further desires to diversify its pipeline of development products candidates and is exploring a range of strategic transactions in furtherance of that goal. The Company has taken, and intends to continue to take, active steps to identify assets and/or companies for acquisition and/or partnership that would complement its current development programs and de-risk its overall development portfolio. Such assets potentially could target indications beyond cardiovascular disease as well as product categories outside of cell therapy. The range of possible transactions includes an acquisition, merger, business combination, in-license or other strategic transaction, any of which could result in the issuance of securities that could significantly dilute the shares of its existing stockholders. There can be no assurance that this exploration of strategic alternatives will result in Caladrius entering into or completing any transaction or that such transaction, if completed, will add to shareholder value. Coronavirus Considerations In December 2019, a novel strain of coronavirus (SARS-CoV-2), which causes COVID-19, was reported to have surfaced in China. In March 2020, the World Health Organization declared the outbreak of COVID-19 to be a pandemic, and the world's economies began to experience pronounced effects. Despite the FDA approval of multiple COVID-19 vaccines in late 2020, there remains uncertainty around the extent and duration of disruption and any future related financial impact cannot reasonably be estimated at this time. In response to the COVID-19 pandemic, the Company implemented a universal work from home policy as well as stringent social distancing and other hygiene policies for employees when they must be in the office. The Company's clinical study of HONEDRA ® in Japan has experienced significant delays in enrollment due to the States of Emergency in effect in Japan for most of 2020 and re-implemented from January 7, 2021 through March 21, 2021 covering Tokyo and other regions in response to an increased number of COVID-19 infections. Due to reported increases in COVID-19 cases and a low rate of vaccination in Japan, States of Emergency were renewed on April 25, 2021 through May 11, 2021 and then re-implemented in Tokyo from July 12, 2021 through September 30, 2021. With the Company's expectation that 56 Index COVID-19 in Japan would continue to impact negatively enrollment of patients in the HONEDRA ® clinical trial, it elected to suspend trial enrollment, seek a development partner and consult with the Japanese regulatory authorities regarding the submission of patient data already accrued. Caladrius' phase 2b trial of XOWNA ® in the U.S. has also experienced delays in enrolling patients as a result of COVID-19. Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements. Estimates also affect the reported amounts of expenses during the reporting period. The Company bases its estimates on historical experience and other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company makes critical estimate and assumptions in determining stock-based awards values. Accordingly, actual results could differ from those estimates and assumptions. Principles of Consolidation The Consolidated Financial Statements include the accounts of Caladrius Biosciences, Inc. and its wholly owned and majority owned subsidiaries and affiliates. All intercompany activities have been eliminated in consolidation. Note 2 – Summary of Significant Accounting Policies Cash and Cash Equivalents Cash and cash equivalents include short-term, highly liquid, investments with maturities of ninety days or less when purchased. Concentration of Risks The Company is subject to credit risk from its portfolio of cash, cash equivalents and marketable securities. Under its investment policy, the Company limits amounts invested in such securities by credit rating, maturity, industry group, investment type and issuer, except for securities issued by the U.S. government. Cash is held at major banks in the United States. Therefore, the Company is not exposed to any significant concentrations of credit risk from these financial instruments. The goals of the Company's investment policy, in order of priority, are as follows: safety and preservation of principal and diversification of risk, liquidity of investments sufficient to meet cash flow requirements, and a competitive after-tax rate of return. Marketable Securities The Company determines the appropriate classification of its marketable securities at the time of purchase and reevaluates such designation at each balance sheet date. All of the Company's marketable securities are considered as available-for-sale and carried at estimated fair values and reported in cash equivalents and marketable securities. Unrealized gains and losses on available-for-sale securities are excluded from net income and reported in accumulated other comprehensive income (loss) as a separate component of stockholders' equity. Other income (expense), net, includes interest, dividends, amortization of purchase premiums and discounts, realized gains and losses on sales of securities and other-than-temporary declines in the fair value of securities, if any. The cost of securities sold is based on the specific identification method. The Company regularly reviews all of its investments for other-than-temporary declines in fair value. The Company's review includes the consideration of the cause of the impairment, including the creditworthiness of the security issuers, the number of securities in an unrealized loss position, the severity and duration of the unrealized losses, whether the Company has the intent to sell the securities and whether it is more likely than not that it will be required to sell the securities before the recovery of their amortized cost basis. When the Company determines that the decline in fair value of an investment is below its accounting basis and this decline is other-than-temporary, it reduces the carrying value of the security it holds and records a loss for the amount of such decline. 57 Index Property and Equipment The cost of property and equipment is depreciated over the estimated useful lives of the related assets. Depreciation is computed on the straight-line method. Repairs and maintenance expenditures that do not extend original asset lives are charged to expense as incurred. The estimated useful lives of property and equipment are as follows: Furniture and fixtures 10 years Computer equipment 3 years Software 3 years Leasehold improvements Life of lease Long-lived Assets Long-lived assets consist of property and equipment. The assets are amortized on a straight line basis over their respective useful lives. The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds the fair value of the asset. If other events or changes in circumstances indicate that the carrying amount of an asset that the Company expects to hold and use may not be recoverable, the Company will estimate the undiscounted future cash flows expected to result from the use of the asset and/or its eventual disposition, and recognize an impairment loss, if any. The impairment loss, if determined to be necessary, would be measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. Share-Based Compensation The Company expenses all share-based payment awards to employees, directors, and consultants, including grants of stock options, warrants, and restricted stock, over the requisite service period based on the grant date fair value of the awards. Consultant awards are remeasured each reporting period through vesting. For awards with performance-based vesting criteria, the Company estimates the probability of achievement of the performance criteria and recognizes compensation expense related to those awards expected to vest. The Company determines the fair value of option awards using the Black-Scholes option-pricing model which uses both historical and current market data to estimate the fair value. This method incorporates various assumptions such as the risk-free interest rate, expected volatility, expected dividend yield and expected life of the options or warrants. Stock based compensation expense also includes an estimate, which is made at the time of the grant, of the number of awards that are expected to be forfeited. The fair value of the Company’s restricted stock and restricted stock units is based on the closing market price of the Company’s common stock on the date of grant. Loss Per Share Basic loss per share is based on the weighted effect of all common shares issued and outstanding and is calculated by dividing net loss attributable to common stockholders by the weighted average shares outstanding during the period. Diluted loss per share is calculated by dividing net loss attributable to common stockholders by the weighted average number of common shares used in the basic loss per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding. Diluted loss per share is not presented as such potentially dilutive securities are anti-dilutive to losses incurred in all periods presented. Treasury Stock Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains or losses on the subsequent reissuance of shares are credited or charged to additional paid in capital. Research and Development Costs Research and development (“R&D”) expenses include salaries, benefits, and other headcount related costs, clinical trial and related clinical manufacturing costs, contract and other outside service fees including sponsored research agreements, and facilities and overhead costs. The Company expenses the costs associated with research and development activities when incurred. To further drive the Company’s cell therapy initiatives, the Company will continue targeting key governmental agencies, congressional committees and not-for-profit organizations to contribute funds for the Company’s research and development programs. The Company accounts for such grants as a deduction to the related expense in research and development operating expenses when earned. 58 Index New Accounting Pronouncements In October 2019, the FASB issued ASU 2019-12, which affects general principles within Topic 740, Income Taxes. The amendments of ASU 2019-12 are meant to simplify and reduce the cost of accounting for income taxes. For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. The Company believes that the adoption of this new accounting guidance has not had a material impact on its financial statements and footnote disclosures. Note 3 – Available-for-Sale-Securities The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or debt marketable securities in the Company's Consolidated Balance Sheets (in thousands): December 31, 2021 December 31, 2020 Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Corporate debt securities $ 53,135 $ — $ ( 65 ) $ 53,070 $ 8,406 $ — $ ( 7 ) $ 8,399 Money market funds 18,124 — — 18,124 7,591 — — 7,591 Municipal debt securities 20,263 — ( 5 ) 20,258 14,753 — ( 6 ) 14,747 Total $ 91,522 $ — $ ( 70 ) $ 91,452 $ 30,750 $ — $ ( 13 ) $ 30,737 Estimated fair values of available-for-sale securities are generally based on prices obtained from commercial pricing services. The following table summarizes the classification of the available-for-sale debt securities on the Company's Consolidated Balance Sheets (in thousands): December 31, 2021 December 31, 2020 Cash and cash equivalents $ 21,129 $ 12,676 Marketable securities 70,323 18,061 Total $ 91,452 $ 30,737 The following table summarizes the Company's portfolio of available-for-sale securities by contractual maturity (in thousands): December 31, 2021 December 31, 2020 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Less than one year $ 91,522 $ 91,452 $ 30,750 $ 30,737 Greater than one year — — — — Total $ 91,522 $ 91,452 $ 30,750 $ 30,737 Note 4 – Property and Equipment Property and equipment consisted of the following (in thousands): December 31, 2021 2020 Furniture and fixtures $ 26 $ 26 Computer equipment 314 254 Leasehold improvements 90 90 Property and equipment, gross 430 370 Accumulated depreciation ( 368 ) ( 313 ) Property and equipment, net $ 62 $ 57 59 Index The Company’s results included depreciation expense of approximately $ 0.1 million and $ 0.1 million for the years ended December 31, 2021 and 2020, respectively. Note 5 – Loss Per Share For the years ended December 31, 2021 and 2020, the Company incurred net losses and therefore no common stock equivalents were utilized in the calculation of loss per share a s they are anti-dilutive in the periods presented. At December 31, 2021 and 2020, the Company excluded the following potentially dilutive securities (in thousands): December 31, 2021 2020 Stock Options 2,132 964 Warrants 21,357 2,638 Restricted Stock Units 604 340 Note 6 – Fair Value Measurements Fair value of financial assets and liabilities that are being measured and reported are defined as the exchange price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market at the measurement date (exit price). The Company is required to classify fair value measurements in one of the following categories: Level 1 inputs are defined as quoted prices (unadjusted) in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 2 inputs are defined as inputs other than quoted prices included within Level 1 that are observable for the assets or liabilities, either directly or indirectly. Level 3 inputs are defined as unobservable inputs for the assets or liabilities. Financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. The Company's financial assets and liabilities that were accounted for at fair value on a recurring basis as of December 31, 2021 and December 31, 2020 were as follows (in thousands): December 31, 2021 December 31, 2020 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Marketable securities - available for sale $ — $ 70,323 $ — $ 70,323 $ — $ 18,061 $ — $ 18,061 $ — $ 70,323 $ — $ 70,323 $ — $ 18,061 $ — $ 18,061 The carrying values of cash, cash equivalents, accounts payable and accrued expenses approximate fair value at December 31, 2021 and December 31, 2020, due to the short maturity nature of these items. 60 Index Note 7 – Accrued Liabilities Accrued liabilities were as follow (in thousands): December 31, 2021 2020 Salaries, employee benefits and related taxes $ 2,034 $ 1,716 Operating lease liabilities - current 229 370 Other 326 400 $ 2,589 $ 2,486 Note 8 – Operating Leases The Company adopted ASU No. 2016-02, Leases (Topic 842) on January 1, 2019 and recognized leases with duration greater than 12 months on the balance sheet using the modified retrospective approach. The Company has operating leases for two o ffices with terms that expire in 2023 and 2025, respectively. The Company estimates its incremental borrowing rate at lease commencement to determine the present value of lease payments as most of the Company's leases do not provide an implicit rate of return. The Company recognizes lease expense on a straight-line basis over the lease term. For lease agreements entered into or reassessed after the adoption of Topic 842, the Company elected to account for non-lease components associated with its leases and lease components as a single lease component. Each of the Company's leases includes options for the Company to extend the lease term and/or sub-lease space in whole or in part. Operating lease liabilities and right-of-use assets were recorded in the following captions of our balance sheet as follows (in thousands): December 31, 2021 December 31, 2020 Right-of Use Assets: Other assets $ 724 $ 574 Total Right-of-Use Asset $ 724 $ 574 Operating Lease Liabilities: Accrued liabilities $ 229 $ 370 Other long-term liabilities 485 254 Total Operating Lease Liabilities $ 714 $ 624 As of December 31, 2021, the weighted average remaining lease term for our operating leases was 2.50 years, and the weighted average discount rate for our operating leases was 9.625 %. Future minimum lease payments under the lease agreements as of December 31, 2021 were as follows (in thousands): Years ended Operating Leases 2022 $ 286 2023 217 2024 190 2025 143 Total lease payments 836 Less: Amounts representing interest ( 122 ) Present value of lease liabilities $ 714 Note 9 – Stockholders' Equity Equity Plans The Company has used long-term incentive plans for the purpose of granting equity awards to employees of the Company, including officers, and nonemployees, including consultants and nonemployee members of the Company's board of directors 61 Index (collectively, the “Participants”). The Participants may receive awards as determined by a committee of independent members of the Company's board of directors or, to the extent authorized by such committee with respect to certain Participants, a duly authorized employee (collectively, the “Committee”). The incentive plan currently used by the Company is the 2018 Equity Incentive Compensation Plan (the “2018 Plan”), as adopted by the stockholders of the Company in June 2018, and subsequently increased by the stockholders of the Company in June 2021 with 6,000,000 shares authorized for issuance thereunder and in June of 2020 with 2,500,000 shares authorized for issuance thereunder, plus any shares awarded under the 2015 Equity Compensation Plan (the “2015 Plan”) or the Amended and Restated 2009 Equity Compensation Plan (the “2009 Plan”) that are not issued due to their subsequent forfeiture, cancellation, or other settlement thereof. Concurrent with the adoption of the 2018 Plan, no future awards will occur under the 2015 Plan or the 2009 Plan. The awards that may be made under the 2018 Plan include: (a) incentive stock options and nonqualified stock options, (b) shares of restricted stock, (c) restricted stock units, and (d) other kinds of equity-based compensation awards. All stock options under the 2015 Plan and 2009 Plan were granted and the 2018 Plan are granted at the fair market value of the common stock at the grant date. Stock options vest either on the date of grant, ratably over a period determined at time of grant, or upon the accomplishment of specified business milestones, and generally expire 2 , 3 , or 10 years from the grant date depending on the status of the recipient as a nonemployee, employee or director of the Company. As of December 31, 2021, there were 5,585,661 shares available for future grants under the 2018 Plan. No additional awards may be made under the 2015 Plan or the 2009 Plan. The Company adopted an employee stock purchase plan effective January 1, 2013 and authorized 50,000 shares under the plan (the “2012 ESPP”). The plan has two six-month offering periods per year under which eligible employees may contribute up to 15 % of their compensation toward the purchase of the Company's common stock per offering period (with a $ 25,000 cap per calendar year). The employee's purchase price is equal to (i) 85 % of the closing price of a share of the Company's common stock on the enrollment date of such offering period or (ii) 85 % of the closing price of a share of the Company's common stock on the Exercise Date of such Offering Period, whichever is lower. In May 2017, the Company's stockholders approved an amendment and restatement to the 2012 ESPP (the “2017 ESPP”) in order to effect an increase of authorized shares from 50,000 to 100,000 . In June 2018, the Company's stockholders approved an amendment to the 2017 ESPP (the “Amended 2017 ESPP”) in order to effect an increase of authorized shares from 100,000 to 500,000 . During the year ended December 31, 2021, 47,132 shares were issued under the Amended 2017 ESPP. At December 31, 2021, the Company had 300,577 shares of the Company's common stock available for future grant in connection with this plan. Equity Issuances Purchase Agreement In March 2019, the Company and Lincoln Park Capital Fund, LLC (“Lincoln Park”) entered into a purchase agreement (the “Purchase Agreement”) and a registration rights agreement (the “Registration Rights Agreement”), pursuant to which the Company has the right to sell to Lincoln Park shares of the Company’s common stock having an aggregate value of up to $ 26.0 million, subject to certain limitations and conditions set forth in the Purchase Agreement (the “Offering”). As consideration for entering into the Purchase Agreement, the Company issued to Lincoln Park an additional 181,510 shares of common stock as commitment shares. Pursuant to the Purchase Agreement, upon commencement Lincoln Park purchased 250,000 shares of common stock, at a price of $ 4.00 per share for a total gross purchase price of $ 1,000,000 (the “Initial Purchase”) upon commencement. Thereafter, as often as every business day from and after one business day following the date of the Initial Purchase and over the 36 -month term of the Purchase Agreement, the Company has the right, from time to time, at its sole discretion and subject to certain conditions, to direct Lincoln Park to purchase up to 100,000 shares of common stock, with such amount increasing as the closing sale price of the common stock increases; provided Lincoln Park’s obligation under any single such purchase will not exceed $ 2,500,000 , unless the Company and Lincoln Park mutually agree to increase the maximum amount of such single purchase (each, a “Regular Purchase”). If the Company directs Lincoln Park to purchase the maximum number of shares of common stock it then may sell in a Regular Purchase, then in addition to such Regular Purchase, and subject to certain conditions and limitations in the Purchase Agreement, the Company may direct Lincoln Park in an “accelerated purchase” to purchase an additional amount of common stock that may not exceed the lesser of (i) 300 % the number of shares purchased pursuant to the corresponding Regular Purchase or (ii) 30 % of the total number of shares of the Company’s common stock traded during a specified period on the applicable purchase date as set forth in the Purchase Agreement (each, an "Accelerated Purchase"). Under certain circumstances and in accordance with the Purchase Agreement, the Company may direct Lincoln Park to purchase shares in multiple accelerated purchases on the same trading day. The Company controls the timing and amount of any sales of its common stock to Lincoln Park. There is no upper limit on the price per share that Lincoln Park must pay for its common stock under the Purchase Agreement, but in no event will shares be sold to Lincoln Park on a day the closing price is less than the floor price specified in the Purchase Agreement. In all instances, the Company may not sell shares of its common stock to Lincoln Park under the purchase agreement if it would result in Lincoln Park beneficially owning more than 9.99 % of its common stock. 62 Index The Purchase Agreement does not limit the Company’s ability to raise capital from other sources at the Company’s sole discretion, except that (subject to certain exceptions) the Company may not enter into any Variable Rate Transaction (as defined in the Purchase Agreement, including the issuance of any floating conversion rate or variable priced equity-like securities) during the 36 months after the date of the Purchase Agreement. The Company has the right to terminate the Purchase Agreement at any time, at no cost to the Company. As of December 31, 2021, the Company had not made any sales of common stock to Lincoln Park under the Purchase Agreement other than the Initial Purchase. In addition, the Company may not direct Lincoln Park to make Accelerated Purchases under the Purchase Agreement if the stock is below the specified floor price of $ 1.00 . Common Stock Sales Agreement In February 2018, the Company entered into a common stock sales agreement with H.C. Wainwright & Co., LLC (“HCW”) as sales agent, which was subsequently amended in August 2018 (the “Sales Agreement”), in connection with an “at the market offering” under which the Company from time to time may offer and sell shares of its common stock, having an aggregate offering price of not more than $ 25.0 million. The Company provided HCW with customary indemnification rights, and HCW was entitled to a commission at a fixed commission rate equal to 3.0 % of the gross proceeds per share sold. On February 12, 2021, the Company suspended the use of the at-the-market transactions facility and terminated the continuous offering pursuant to the Sales Agreement. As of the termination of the Sales Agreement on February 12, 2021, the Company had sold an aggregate 3,784,912 shares of its common stock pursuant to the Sales Agreement for net proceeds of $ 9.5 million since inception. For the year ended December 31, 2021, the Company had no t issued any shares under the Sales Agreement. At The Market Offering Agreement On June 4, 2021, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with HCW, as sales agent, in connection with an “at the market offering” under which the Company from time to time may offer and sell shares of its common stock, having an aggregate offering price of up to $ 50.0 million. During the twelve months ended December 31, 2021, the Company had no t issued any shares under the ATM Agreement. Having received a listing deficiency notice from Nasdaq on February 18, 2022 after the Company’s shares traded below $1.00 for 30 consecutive trading days, the Company will not be permitted to sell additional shares under the ATM Agreement until it re-establishes timely compliance. Compliance may be reestablished by various mechanisms, including stock price appreciation at or above $1.00 for a requisite period of time and reverse stock split. Registered Direct Offerings In February 2021, the Company entered into a Securities Purchase Agreement (the “Institutional Purchase Agreement”) with certain institutional investors (the “Institutional Purchasers”). Pursuant to the terms of the Institutional Purchase Agreement, the Company sold to the Institutional Purchasers in a registered direct offering an aggregate of 24,906,134 shares of its common stock and warrants to purchase an aggregate of 12,453,067 shares of its common stock at a combined purchase price equal to $ 2.45 per share and associated warrant. Each warrant features an exercise price equal to $ 2.90 per share, is exercisable immediately upon issuance and will expire five years from the issuance date. Additionally, in a concurrent non-brokered registered direct offering, the Company entered into a Securities Purchase Agreement (the “Additional Purchase Agreement”) with certain accredited investors (the “Additional Purchasers”). Pursuant to the terms of the Additional Purchase Agreement, the Company sold to the Additional Purchasers an aggregate of 1,632,652 shares of its common stock and warrants to purchase an aggregate of 816,326 shares of its common stock at a combined purchase price equal to $ 2.45 per share and associated warrant. Each warrant features an exercise price equal to $ 2.90 per share, is exercisable immediately upon issuance and will expire five years from the issuance date. In connection with the registered direct offerings, the Company received gross proceeds of approximately $ 65.0 million. Private Placement In January 2021, the Company entered into a securities purchase agreement (the “January Private Placement”) with certain investors (the “January Purchasers”). Pursuant to the terms of the January Private Placement, the Company agreed to sell to the January Purchasers an aggregate of 12,500,000 shares of its common stock at a purchase price equal to $ 2.00 per share, along with warrants to purchase an aggregate of 6,250,000 shares of its common stock. In connection with the January Private Placement, the Company received gross proceeds of $ 25.0 million. Each warrant is exercisable for one share of common stock 63 Index and features an exercise price equal to $ 2.90 per share. The warrants are exercisable immediately upon issuance and will expire five and one-half years from the issuance date. Warrant Exercises In January 2021, the Company issued 801,148 shares of common stock for net proceeds of $ 1.8 million in connection with warrant exercises associated with the April 23, 2020 securities purchase agreement and the May 25, 2020 securities purchase agreement. Stock Options and Warrants The following table summarizes the activity for stock options and warrants for the year ended December 31, 2021: Stock Options Warrants Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In Thousands) Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Term (Years) Aggregate Intrinsic Value (In Thousands) Outstanding at December 31, 2020 963,700 $ 14.64 5.86 $ — 2,638,355 $ 2.18 4.98 $ — Changes during the Year: Granted 1,314,790 $ 1.32 19,519,393 $ 2.90 Exercised ( 7,250 ) $ 3.28 ( 3 ) ( 801,148 ) $ 2.19 Forfeited ( 29,842 ) $ 2.18 — $ — Expired ( 109,549 ) $ 34.12 — $ — Outstanding at December 31, 2021 2,131,849 $ 5.64 7.97 $ — 21,356,600 $ 2.84 4.37 $ — Vested at December 31, 2021 or expected to vest in the future 2,120,643 $ 5.66 7.96 $ — 21,356,600 $ 2.84 4.37 $ — Exercisable at December 31, 2021 1,122,783 $ 9.26 6.70 $ — 21,356,600 $ 2.84 4.37 $ — Restricted Stock During the years ended December 31, 2021 and 2020, the Company issued restricted stock for services as follows ($ in thousands, except share data): 2021 2020 Number of Restricted Stock Issued 612,950 156,184 Value of Restricted Stock Issued $ 877.7 $ 512.3 The weighted average estimated fair value of restricted stock issued for services in the years ended December 31, 2021 and 2020 was $ 1.43 and $ 3.28 per share, respectively. The fair value of the restricted stock was determined using the Company’s closing stock price on the date of issuance. The vesting terms of restricted stock issuances are generally between one to four years . Restricted Stock Units During the years ended December 31, 2021 and 2020, the Company issued restricted stock units for services as follows ($ in thousands, except share data): 2021 2020 Number of Restricted Stock Units Issued 458,245 325,853 Value of Restricted Stock Units Issued $ 728.6 $ 863.0 The weighted average estimated fair value of restricted stock units issued for services in the years ended December 31, 2021 and 2020 was $ 1.59 and $ 2.65 per share, respectively. The fair value of the restricted stock units was determined using the 64 Index Company’s closing stock price on the date of issuance. The vesting terms of restricted stock unit issuances are generally one year , or upon the achievement of performance-based milestones. Note 10 – Share-Based Compensation Share-based Compensation The Company utilizes share-based compensation in the form of stock options, restricted stock, and restricted stock units. The following table summarizes the components of share-based compensation expense for the years ended December 31, 2021 and 2020 ($ in thousands): Year Ended December 31, 2021 2020 Research and development $ 760 $ 179 General and administrative 1,245 1,086 Total share-based compensation expense $ 2,005 $ 1,265 Total compensation cost related to unvested awards not yet recognized and the weighted-average periods over which the awards are expected to be recognized at December 31, 2021 were as follows ($ in thousands): Stock Options Restricted Stock Units Restricted Stock Unrecognized compensation cost $ 757 $ 149 $ 546 Expected weighted-average period in years of compensation cost to be recognized 1.64 1.57 1.70 Total fair value of shares vested and the weighted average estimated fair values of shares granted for the years ended December 31, 2021 and 2020 were as follows ($ in thousands): Stock Options Year Ended December 31, 2021 2020 Total fair value of shares vested $ 757 $ 536 Weighted average estimated fair value of shares granted 0.91 2.11 Valuation Assumptions The fair value of stock options at the date of grant was estimated using the Black-Scholes option pricing model. The expected volatility is based upon historical volatility of the Company’s stock. The expected term for the options is based upon observation of actual time elapsed between date of grant and exercise of options for all employees. The range of assumptions made in calculating the fair values of stock options was as follow: Stock Options Year Ended December 31, 2021 2020 Expected term - minimum (in years) 6 6 Expected term - maximum (in years) 6 6 Expected volatility - minimum 79 % 75 % Expected volatility - maximum 84 % 79 % Weighted Average volatility 81 % 75 % Expected dividend yield — — Risk-free interest rate - minimum 0.63 % 0.40 % Risk-free interest rate - maximum 1.16 % 1.71 % 65 Index Note 11 – Research Funding California Institute of Regenerative Medicine Grant Award In February 2017, the California Institute for Regenerative Medicine (“CIRM”) awarded the Company funds of up to $ 12.2 million to support The Sanford Project: T-Rex Study, a prospective, randomized, placebo-controlled, double-blind Phase 2 clinical trial to evaluate the safety and efficacy of CLBS03 as a treatment for recent-onset type 1 diabetes. The funding is based upon the achievement of certain milestones related to the proportion of subjects enrolled in California, as well as manufacturing and development costs incurred in California. Based on the actual number of subjects enrolled in California, the total amount of funding was revised to $ 8.6 million, of which $ 8.2 million has been received through the grant project period completion. The Company received $ 5.7 million in initial funding in May 2017, a $ 1.9 million milestone payment in December 2017, a $ 0.3 million progress payment in March 2018, and a $ 0.2 million progress payment in May 2019, of which the total was amortized over the estimated award period through July 2020 as a reduction to the related research and development expenses, with the final true up payment of $ 46 thousand received in September 2020 and recorded as a reduction to the related research and development expenses. During the year ended December 31, 2021 and December 31, 2020 the Company amortized and recognized $ 0.0 million and $ 1.6 million in credits, respectively, to research and development related to CIRM funds received. Note 12 – Income Taxes The provision (benefit) for income taxes is based on loss from operations before provision for income taxes and noncontrolling interests as follows ($ in thousands): Years Ended December 31, Pre-tax book income 2021 2020 United States $ ( 28,974 ) $ ( 19,013 ) $ ( 28,974 ) $ ( 19,013 ) The provision (benefit) from income taxes was as follows ($ in thousands): Years Ended December 31, 2021 2020 Current U.S. Federal $ — $ — State and local — — $ — $ — Deferred U.S. Federal $ — $ — State and local ( 1,508 ) ( 10,872 ) $ ( 1,508 ) $ ( 10,872 ) Total U.S. Federal $ — $ — State and local ( 1,508 ) ( 10,872 ) $ ( 1,508 ) $ ( 10,872 ) 66 Index The provision (benefit) for income taxes is determined by applying the U.S. Federal statutory rate of 21 % to income before income taxes, and the components are set forth below ($ in thousands): Years Ended December 31, 2021 2020 U.S. Federal benefit at statutory rate $ ( 6,085 ) $ ( 3,993 ) Permanent non deductible expenses for U.S. taxes 320 5 Change in state deferred 622 5,122 Return to actual 2,277 — Other true ups 1,407 387 Section 382 NOL Limitation 35,438 — Sale of New Jersey State NOLs ( 1,508 ) ( 10,872 ) Valuation allowance for deferred tax assets ( 33,979 ) ( 1,521 ) Tax provision (benefit) $ ( 1,508 ) $ ( 10,872 ) Deferred income taxes at December 31, 2021 and 2020 consist of the following ($ in thousands): December 31, 2021 2020 Deferred Tax Assets: Accumulated net operating losses (tax effected) $ 36,281 $ 68,286 Right of use liability 201 176 Share-based compensation 3,086 5,025 Intangibles 97 131 Accumulated depreciation 26 19 Accrued payroll 176 167 Other 526 526 Deferred tax assets 40,393 74,330 Deferred Tax Liabilities: Right of use asset $ ( 204 ) $ ( 161 ) Deferred tax liabilities ( 204 ) ( 161 ) 40,189 74,169 Valuation allowance ( 40,189 ) ( 74,169 ) Net deferred tax asset $ — $ — In assessing the realizability of deferred tax assets, including the net operating loss carryforwards (NOLs), the Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to utilize its existing deferred tax assets. Based on its assessment, the Company has provided a full valuation allowance against its net deferred tax assets as their future utilization remains uncertain at this time. As of December 31, 2021, and 2020, the Company had approximately $ 281 million and $ 264 million, respectively, of Federal NOLs available to offset future taxable income expiring from 2030 through 2036. The Company performed an analysis and determined that they had an ownership change of greater than 50% over a 3-year testing period on January 25, 2021. As a result, $ 169 million of the $ 281 million of Federal NOLs will expire unutilized. The Company wrote off that portion of the deferred tax asset and reduced the corresponding valuation allowance resulting in $ 112 million of remaining Federal NOL. The write off of the deferred tax asset and the corresponding reduction in valuation allowance has no impact to the balance sheet or income statement. Losses incurred before the ownership change on January 25, 2021 will be subject to an annual limitation of $173k under Internal Revenue Code Section 382, while losses incurred after January 25, 2021 will not be subject to limitations. The Company may be able to utilize additional NOLs of approximately $ 1.1 million per year for the first five years after this ownership change as a result of the application of the Net Unrealized Built-in Gain rules. 67 Index As of December 31, 2021 and 2020, the Company had State NOLs available in New Jersey of $ 97 million and $ 99 million, respectively, California of $ 70 million and $ 70 million, respectively, and New York City of $ 13 million and $ 13 million, respectively, to offset future taxable income expiring from 2031 through 2041. In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s state NOLs would be limited given the change in ownership. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the period when those temporary differences become deductible. The Company applies the FASB’s provisions for uncertain tax positions. The Company utilizes the two-step process to determine the amount of recognized tax benefit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the consolidated financial statements is the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant taxing authority. The Company recognizes interest and penalties associated with certain tax positions as a component of income tax expense. As of December 31, 2021, management does not believe the Company has any material uncertain tax positions that would require it to measure and reflect the potential lack of sustainability of a position on audit in its financial statements. The Company will continue to evaluate its uncertain tax positions in future periods to determine if measurement and recognition in its financial statements is necessary. The Company does not believe there will be any material changes in its unrecognized tax positions over the next year. For years prior to 2018 the federal statute of limitations is closed for assessing tax. The Company’s state tax returns remain open to examination for a period of three to four years from date of filing. In February 2021, the Company received preliminary approval from the New Jersey Economic Development Authority (“NJEDA”) to participate in the Technology Business Tax Certificate Transfer Program (the “Program”). The Program permits qualified companies to sell a percentage of their New Jersey net operating losses (“NJ NOLs”) to unrelated profitable corporations. On April 12, 2021, the Company received final approval from NJEDA to sell a portion of our NJ NOLs, which were subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $ 1.4 million. The $ 1.5 million of our NJ NOL related tax benefits (“NJ NOL Tax Benefits”) have been recorded as a benefit from income taxes and the loss on sale of $ 0.1 million recorded in other income (expense) in the consolidated financial statements. Note 13 – Contingencies From time to time, the Company is subject to legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. While the outcome of pending claims cannot be predicted with certainty, the Company does not believe that the outcome of any pending claims will have a material adverse effect on the Company's financial condition or operating results. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable.