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Item 8. Financial Statements and Supplementary Data

2023-03-30 compared with 2022-03-22 · 336 added, 178 removed, 431 unchanged (54% of the section changed)

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.

Caladrius Biosciences, Inc.

The financial statements and notes thereto required to be filed under this Item are presented commencing on page 72 of this Annual Report.

Lisata Therapeutics, Inc.

and Subsidiaries

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders of Caladrius Biosciences, Inc.

Board of Directors and Stockholders of Lisata Therapeutics, 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”).

We have audited the accompanying consolidated balance sheets of Lisata Therapeutics, Inc., (a Delaware corporation) and subsidiaries (the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the two years in the period ended December 31, 2022, 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, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

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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.

Critical audit matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Determination of accounting acquirer and assessment of the accounting treatment

As described further in note 1 to the financial statements, the Company executed a Merger Agreement and acquired Cend Therapeutics, Inc.

("Cend") on September 15, 2022.

We identified the determination of the accounting acquirer and assessment of the accounting treatment in the merger with Cend as a critical audit matter.

The principal considerations for our determination identified the determination of the accounting acquirer and assessment of the accounting treatment in the merger with Cend is a critical audit matter are that the merger was accounted for as an asset acquisition, with the Company being identified as the accounting acquirer.

Evaluating the Company's accounting treatment of the merger required especially subjective auditor judgment.

Specifically, a high degree of auditor judgment was required to evaluate the Company's determination of the accounting acquirer and assessment of the transaction as an asset acquisition.

Our audit procedures related to the determination of the accounting acquirer and assessment of the accounting treatment included the following, among others.

• review of management's accounting memorandum that documented the factors the Company considered in determining the accounting acquirer, including voting interests held by the former shareholder groups and the composition of the board of directors and senior management of the combined Company.

In addition, we inspected the

Company's Merger Agreement and assessed the terms in the agreement and compared them to the Company's accounting memorandum.

• We tested and consulted with our national office regarding the Company's determination of the accounting acquiror including the assessment of the voting interests of the various shareholder groups held in the Company post transaction and the composition of the board of directors and senior management of the combined entities.

• Additionally, we evaluated the composition and amounts of the assets acquired in the transaction and whether Cend contained processes in place to generate outputs in the assessment of the transaction as an asset acquisition.

/s/ GRANT THORNTON LLP

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March 30, 2023

CALADRIUS BIOSCIENCES, INC.

LISATA THERAPEUTICS, INC.

AND SUBSIDIARIES

8 unchanged sentences

Property and equipment, net 296 62

Acquired license-intangible, net 334 —

Other assets 528 764

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Total liabilities 6,710 5,008

Commitments and Contingencies

Commitments and Contingencies (Note 14)

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;

authorized, 20,000,000 shares Series B convertible redeemable preferred stock liquidation value, 0.000067 share of common stock, $ 0.01 par value;

825,000 shares designated;

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Accumulated other comprehensive loss ( 29 ) ( 70 )

Total Caladrius Biosciences, Inc.

Total Lisata Therapeutics, Inc.

stockholders' equity 66,578 92,254

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See accompanying notes to consolidated financial statements.

CALADRIUS BIOSCIENCES, INC.

LISATA THERAPEUTICS, INC.

AND SUBSIDIARIES

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Research and development $ 13,067 $ 17,576

In-process research and development 30,393 —

General and administrative 14,141 11,474

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Net loss $ ( 54,225 ) $ ( 27,466 )

Less - net income attributable to noncontrolling interests — 9

Net loss attributable to Caladrius Biosciences, Inc.

common shareholders $ ( 27,466 ) $ ( 8,150 )

Less - net income (loss) attributable to noncontrolling interests — —

Net loss attributable to Lisata Therapeutics, Inc.

common stockholders $ ( 54,225 ) $ ( 27,466 )

Basic and diluted loss per share:

Caladrius Biosciences, Inc.

common shareholders

$ ( 0.50 ) $ ( 0.53 )

Lisata Therapeutics, Inc.

common stockholders $ ( 10.47 ) $ ( 7.45 )

Weighted average common shares outstanding:

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See accompanying notes to consolidated financial statements.

CALADRIUS BIOSCIENCES, INC.

LISATA THERAPEUTICS, INC.

AND SUBSIDIARIES

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Net loss $ ( 54,225 ) $ ( 27,466 )

Other comprehensive loss:

Available for sale securities - net unrealized loss ( 57 ) ( 15 )

Total other comprehensive loss ( 57 ) ( 15 )

Other comprehensive income (loss):

Available for sale securities - net unrealized gain (loss) 52 ( 57 )

Cumulative translation adjustment arising during the period ( 11 ) —

Total other comprehensive income (loss) 41 ( 57 )

Comprehensive loss ( 54,184 ) ( 27,523 )

Comprehensive income attributable to noncontrolling interests — 9

Comprehensive loss attributable to Caladrius Biosciences, Inc.

Comprehensive income (loss) attributable to noncontrolling interests — —

Comprehensive loss attributable to Lisata Therapeutics, Inc.

common stockholders $ ( 54,184 ) $ ( 27,523 )

$ ( 27,523 ) $ ( 8,165 )

See accompanying notes to consolidated financial statements.

CALADRIUS BIOSCIENCES, INC.

LISATA THERAPEUTICS, INC.

AND SUBSIDIARIES

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(In thousands)

Series B Convertible

Preferred Stock Common Stock Additional

Common Stock Additional

Capital Accumulated

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Deficit Treasury

Caladrius Biosciences,

Lisata Therapeutics,

Stockholders'

Subsidiary Total

Shares Amount Shares Amount

Shares Amount

Balance at December 31, 2020 1,292 $ 1 $ 458,766 $ ( 13 ) $ ( 425,550 ) $ ( 708 ) $ 32,496 $ ( 254 ) $ 32,242

Net loss — — — — ( 27,466 ) — ( 27,466 ) — ( 27,466 )

Unrealized loss on marketable securities — — — — — ( 15 ) — — ( 15 ) — ( 15 )

Share-based compensation 35 — 1,757 — — — 1,757 — 1,757

Net proceeds from issuance of common stock and warrants 2,659 3 85,497 — — — 85,500 — 85,500

Proceeds from option exercises — — 24 — — — 24 — 24

Unrealized loss on marketable securities — — — ( 57 ) — — ( 57 ) — ( 57 )

Balance at December 31, 2021 3,986 $ 4 $ 546,044 $ ( 70 ) $ ( 453,016 ) $ ( 708 ) $ 92,254 $ ( 254 ) $ 92,000

Net loss — — — — ( 54,225 ) — ( 54,225 ) — ( 54,225 )

Unrealized loss on marketable securities — — — — — ( 57 ) — — ( 57 ) — ( 57 )

Share-based compensation 97 — 2,367 — — — 2,367 — 2,367

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

Net proceeds from issuance of common stock 11 — 43 — — — 43 — 43

Issuance of common stock in connection with Merger 3,773 4 26,094 — — — 26,098 — 26,098

Unrealized gain on marketable securities — — — 52 — — 52 — 52

Foreign currency translation adjustment — — — ( 11 ) — — ( 11 ) — ( 11 )

Balance at December 31, 2022 7,867 $ 8 $ 574,548 $ ( 29 ) $ ( 507,241 ) $ ( 708 ) $ 66,578 $ ( 254 ) $ 66,324

See accompanying notes to consolidated financial statements.

CALADRIUS BIOSCIENCES, INC.

LISATA THERAPEUTICS, INC.

AND SUBSIDIARIES

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Depreciation and amortization 69 55

In process research and development expenses 30,393 —

Amortization/accretion on marketable securities 788 2,514

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Sales of marketable securities 122,203 124,939

Asset acquisition costs, net of cash acquired related to Merger ( 3,320 ) —

Purchases of property and equipment ( 285 ) ( 60 )

Net cash used in investing activities ( 54,896 ) ( 7,277 )

Net cash provided by (used in) investing activities 28,911 ( 54,896 )

Cash flows from financing activities:

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Net proceeds from issuance of capital stock 43 85,500

Net cash provided by financing activities 85,276 18,580

Net cash (used in) provided by financing activities ( 224 ) 85,276

Effect of exchange rate changes on cash ( 10 ) —

Net increase in cash and cash equivalents 7,507 8,135

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Supplemental Disclosure of Cash Flow Information:

Cash paid during the period for:

Interest $ — $ —

Issuance of common stock in connection with Merger $ 23,580 $ —

Incremental fair value of Cend's fully vested stock options assumed $ 2,136 $ —

See accompanying notes to consolidated financial statements.

CALADRIUS BIOSCIENCES, INC.

LISATA THERAPEUTICS, INC.

AND SUBSIDIARIES

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Note 1 – The Business

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.

Lisata Therapeutics, Inc.

(together with its subsidiaries, the “Company”) is a clinical-stage pharmaceutical company dedicated to the discovery, development and commercialization of innovative therapies for the treatment of solid tumors and other major diseases.

The Company's lead investigational product candidate, LSTA1 (formerly known as CEND-1), is designed to activate a novel uptake pathway that allows co-administered or tethered anti-cancer drugs to penetrate solid tumors more effectively.

LSTA1 actuates this active transport system in a tumor-specific manner, resulting in systemically co-administered anti-cancer drugs more efficiently penetrating and accumulating in the tumor, while normal tissues are not affected.

LSTA1 also has the potential to modify the tumor microenvironment (“TME”), with the objective of making tumors more susceptible to immunotherapies.

The Company and its collaborators have amassed significant non-clinical data demonstrating enhanced delivery of a range of emerging anti-cancer therapies, including immunotherapies and RNA-based therapeutics.

To date, LSTA1 has also demonstrated favorable safety, tolerability, and activity in completed and ongoing clinical trials designed to enhance delivery of standard-of-care chemotherapy for pancreatic cancer.

The Company is exploring the potential of LSTA1 to enable a variety of treatment modalities to treat a range of solid tumors more effectively.

In addition, the Company has clinical development programs based on its autologous CD34+ cell therapy technology platform that are advancing toward their next development milestone while incurring no capital outlay.

The Company's leadership team has decades of collective biopharmaceutical and pharmaceutical product development experience across a variety of therapeutic categories and at all stages of development from preclinical through to product registration and launch.

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.

The Company’s current development pipeline includes:

• LSTA1, the subject of Phase 1b/2a and 2b clinical studies being conducted globally in a variety of solid tumor types, including metastatic pancreatic ductal adenocarcinoma (mPDAC), in combination with a variety of anti-cancer regimens;

• HONEDRA ® (LSTA12, formerly 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;

• 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.

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.

• LSTA201 (formerly, CLBS201), the subject of a recently completed study designed to assess the safety and efficacy of CD34+ cell therapy as a regenerative treatment for patients with chronic kidney disease related to type 2 diabetes (diabetic kidney disease or “DKD”).

Merger with Cend Therapeutics, Inc.

and Name Change

On September 15, 2022, the Company, then operating as Caladrius Biosciences, Inc.

(“Caladrius"), completed its acquisition of Cend Therapeutics, Inc.

(“Cend”), a Delaware corporation (the “Merger”), in accordance with the terms of the Agreement and Plan of Merger and Reorganization (the “Merger Agreement”), dated as of April 26, 2022, by and among Caladrius, Cend and CS Cedar Merger Sub, Inc.

(“Merger Sub”).

Pursuant to the terms set forth in the Merger Agreement and effective September 15, 2022 (the “Effective Time”):

(i) Merger Sub merged with and into Cend, with Cend surviving as a wholly owned subsidiary of Caladrius, (ii) Caladrius changed its name to Lisata Therapeutics, Inc., and (iii) Caladrius effected a 1:

15 reverse stock split of its common stock (“Reverse Stock Split”) prior to the Effective Time.

At the Effective Time, each share of Cend's common stock outstanding immediately prior to the Effective Time was converted into the right to receive shares of Lisata’s common stock based on an exchange ratio of 0.5338 , after taking into account the Reverse Stock Split (the “Exchange Ratio”).

In connection with the Merger close, the Company issued an aggregate of 3,772,768 shares of common stock, based on the Exchange Ratio, to holders of Cend, in exchange for all of the Cend capital stock outstanding immediately prior to the closing of the Merger.

Pursuant to the Merger Agreement, Lisata assumed all of the outstanding and unexercised options to purchase shares of Cend capital stock under the 2016 Equity Incentive Plan (the “Cend Plan”), and, in connection with the Merger, such options were converted into options to purchase shares of Lisata’s common stock based on the Exchange Ratio.

At the closing of the Merger at the Effective Time, the Company assumed Cend's stock options to purchase an aggregate of 1,227,776 shares of the Company's common stock.

Caladrius was considered to be the accounting acquirer based on the terms of the Merger Agreement and certain factors including:

(i) Caladrius owned approximately 52 % of the Company's outstanding shares of common stock immediately following the close of the Merger;

(ii) although both entities contributed to the new management team of Lisata, the Caladrius team had more individuals on the management team and holds the chief executive officer (“CEO”), chief medical officer (“CMO”) and other senior management roles;

(iii) Caladrius paid a premium to acquire Cend’s assets;

and (iv) Caladrius was significantly larger than Cend regarding total assets, operations, and research and development activities.

The Merger was accounted for as an asset acquisition as substantially all of the fair value is concentrated in in-process research and development (“IPR&D”).

Cend’s assets (except for cash and working capital) were measured and recognized as an allocation of the transaction price based on their relative fair values as of the transaction date with any value associated with IPR&D with no alternative future use being expensed as reported in the consolidated statement of operations.

Operating results presented in the consolidated statements of operations and comprehensive loss prior to the Merger are solely related to Caladrius Biosciences, Inc.

and subsidiaries.

Coronavirus Considerations

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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

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.

The Company's clinical study of HONEDRA ® in Japan experienced significant delays in enrollment due to the States of Emergency in effect in Japan for most of 2020, 2021 and 2022 covering Tokyo and other regions in response to an increased number of COVID-19 infections.

With the Company's expectation that COVID-19 in Japan would continue to negatively impact clinical site operations and 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.

Lisata's Phase 2b FREEDOM Trial of XOWNA ® in the U.S.

also experienced delays in enrolling patients as a result of COVID-19.

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, including supply chain disruptions affecting the availability of qualified catheters used in the diagnosis of CMD and/or administration of XOWNA ® as well as with a contrast agent typically used in many catheter laboratories.

In May 2022, the Company announced that enrollment in the FREEDOM Trial was suspended and that it intended to conduct an interim analysis of the data from not less than the first 20 patients enrolled using the 6-month follow-up data to evaluate the efficacy and safety of XOWNA ® in subjects with CMD.

Following this analysis along with Key Opinion Leaders’ input, the Company determined that execution of a redesigned FREEDOM-like trial would be the appropriate next step, but the cost of such a trial would be prohibitively expensive to undergo without a strategic partner.

Accordingly, the Company’s board of directors concluded that XOWNA ® development will only be continued if a strategic partner that can contribute the necessary capital for a redesigned trial is identified and secured.

There can be no assurance that we will be able to identify such a partner and enter into an agreement with such partner on acceptable terms or at all.

Reverse Stock Split

On September 14, 2022, in connection with the Merger, the Company implemented the Reverse Stock Split, as authorized at the annual meeting of stockholders on September 13, 2022.

The Reverse Stock Split became effective on September 14, 2022 at 5:00 pm and the Company's common stock began trading on The Nasdaq Capital Market on a post-split basis at the open of business on September 15, 2022.

As of September 14, 2022, every fifteen shares of the Company’s issued and outstanding common stock (and such shares held in treasury) were automatically converted into one share of common stock, without any change in the par value per share.

In addition, proportionate adjustments were made to the per share exercise price and the number of shares issuable upon the exercise of all outstanding stock options, stock appreciation rights, convertible notes and warrants to purchase shares of common stock, the number of shares issuable upon the vesting of all restricted stock awards, and the number of shares of common stock reserved for issuance pursuant to the Company’s equity incentive compensation plans.

Any stockholder who would otherwise be entitled to a fractional share of common stock created as a result of the Reverse Stock Split received a cash payment equal to the product of such resulting fractional interest in one share of common stock multiplied by the closing trading price of the common stock on September 15, 2022.

The Reverse Stock Split was effectuated in order to increase the per share trading price of our common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The Nasdaq Capital Market.

All share and per share amounts of common stock, options and warrants in the accompanying financial statements have been restated for all periods presented to give retroactive effect to the Reverse Stock Split.

Accordingly, the consolidated

statements of equity reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.

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”).

The accompanying consolidated financial statements and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

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.

The preparation of financial statements in conformity with U.S.

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.

The Company makes critical estimates and assumptions in determining stock-based awards values and the valuation of the Merger, which was accounted for as an asset acquisition as substantially all of the fair value is concentrated in in-process research and development (“IPR&D”).

Accordingly, actual results could differ from those estimates and assumptions.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of Caladrius Biosciences, Inc.

The Consolidated Financial Statements include the accounts of Lisata Therapeutics, Inc.

and its wholly owned and majority owned subsidiaries and affiliates.

All intercompany activities have been eliminated in consolidation.

Foreign Currency Remeasurement

The Company’s reporting currency is the U.S.

The functional currency of Lisata Therapeutics Australia Pty Ltd.

which is a foreign subsidiary of the Company is the Australian Dollar.

The assets and liabilities of Lisata Therapeutics Australia Pty Ltd.

are translated into U.S.

Dollars at the exchange rates in effect at each balance sheet date, and the results of operations are translated using the average exchange rates prevailing throughout the reporting period.

Adjustments resulting from translating foreign functional currency financial statements into U.S.

Dollars are included in the foreign currency translation adjustment, a component of accumulated other comprehensive income (loss) in stockholders' equity.

Note 2 – Summary of Significant Accounting Policies

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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.

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.

Cash is held at major banks in the United States and may exceed federally insured limits.

The goals of the Company's investment policy, in order of priority, are as follows:

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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.

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.

Property and Equipment

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The Company accounts for such grants as a deduction to the related expense in research and development operating expenses when earned.

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.

In-process Research and Development Expense

Upfront payments that relate to the acquisition of a new drug compound, as well as pre-commercial milestone payments, are immediately expensed as IPR&D in the period in which they are incurred, provided that the new drug compound did not also include processes or activities that would constitute a “business” as defined under U.S.

GAAP, the drug has not achieved regulatory approval for marketing and, absent obtaining such approval, has no established alternative future use.

The Company accounts for contingent consideration payable upon achievement of certain regulatory, development or sales milestones in such asset acquisitions when the underlying contingency is probable and estimable.

Milestone payments made to third parties subsequent to regulatory approval will be capitalized as intangible assets and amortized over the estimated remaining useful life of the related product.

Intangible Asset

The Company’s intangible asset consists of a single asset, Cend’s license agreement with Qilu Pharmaceutical, Co., Ltd.

(“Qilu”) acquired in the Merger, with a value of $ 0.4 million.

The intangible asset is stated at fair value and is amortized using the straight-line method over its estimated useful life of 5 years.

Amortization expense was $ 18 thousand and $ 21 thousand for the three and twelve months ended December 31, 2022.

The intangible asset is reviewed for potential impairment when events or circumstances indicate that carrying amounts may not be recoverable.

The projected amortization expense is $ 71 thousand per year for the next five years.

Revenue Recognition

The Company evaluates license and collaboration arrangements to determine whether units of account within the arrangement exhibit the characteristics of a vendor and customer relationship.

For arrangements and units of account where a customer relationship exists, the Company applies the revenue recognition guidance.

The Company recognizes revenue upon the transfer of promised goods or services to customers in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services.

To determine revenue recognition for contracts with customers the Company performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the Company satisfies the performance obligations.

At contract inception, the Company assesses the goods or services promised within each contract and assesses whether each promised good or service is distinct and determines those that are performance obligations.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

Taxes imposed by governmental authorities on the Company's revenue, such as sales taxes and withholding taxes, are excluded from net revenue.

If a license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from non-refundable, upfront fees allocated to the license when the license is transferred to the licensee and the licensee is able to use and benefit from the license.

If licenses are bundled with other performance obligations, the Company would utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue.

There was no revenue recognized for the years ended December 31, 2022 and 2021.

At the inception of each arrangement that includes milestone payments (variable consideration), the Company evaluates whether the milestones are considered probable of being reached and estimates the amount to be included in the transaction price using the most likely amount method.

If it is probable that a significant revenue reversal would not occur, the associated milestone value is included in the transaction price.

Milestone payments that are not within the Company or the Company’s collaboration partner’s control, such as regulatory approvals, are generally not considered probable of being achieved until those approvals are received.

The transaction price is then allocated to each performance obligation on a relative stand-alone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such milestones and any related constraint, and if necessary, adjusts the Company’s estimate of the overall transaction price.

Any such adjustments are allocated on a cumulative catch-up basis to satisfied and partially satisfied performance obligations, with the consideration allocated to an ongoing performance obligation being recognized over the period of performance.

For the years ended December 31, 2022 and 2021 the Company has not recognized revenue related to milestones.

For arrangements that include sales-based royalties, including milestone payments based on the level of sales, and for which the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied).

To date, the Company has not recognized any royalty revenue from any collaborative arrangement.

Note 3 – Merger

The Merger was accounted for as an asset acquisition as substantially all of the fair value was concentrated in IPR&D.

The fair value of total consideration was $ 36.1 million.

The following table is a summary of the purchase price calculation (in thousands except per share data).

Number of common shares of the combined company owned by Cend stockholders 3,772,768

Multiplied by the fair value per share of Lisata common stock on September 15, 2022 $ 6.25

Total $ 23,580

Carrying value of Lisata's cost method investment in Cend 10,000

Incremental fair value of Cend's fully vested stock options 2,136

Lisata transaction costs 382

Total purchase price $ 36,098

The allocation of the purchase price was as follows (amounts in thousands):

Cash and cash equivalents $ 7,062

Net working capital (excluding cash) ( 1,690 )

Other liabilities ( 22 )

Acquired in-process research and development 30,393

Net assets acquired $ 36,098

Note 4 – Available-for-Sale-Securities

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Corporate debt securities $ 44,308 $ — $ ( 17 ) $ 44,291 $ 53,135 $ — $ ( 65 ) $ 53,070

Commercial Paper 7,953 — — 7,953 — — — —

Money market funds 4,871 — — 4,871 18,124 — — 18,124

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The Company’s results included depreciation expense of approximately $ 0.1 million and $ 0.1 million for the years ended December 31, 2022 and 2021, respectively.

Note 5 – Loss Per Share

Note 6 – Income ( Loss) Per Share

For the years ended December 31, 2022 and 2021, 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.

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Operating lease liabilities - current 180 229

Clinical and R&D related liabilities 785 —

Other 177 326

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Note 10 – Stockholders' Equity

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

(collectively, the “Participants”).

Reverse Stock Split

On September 14, 2022, in connection with the Merger, the Company implemented the Reverse Stock Split, as described in Note 1.

All share and per share amounts of common stock, options and warrants in the accompanying financial statements have

been restated for all periods presented to give retroactive effect to the Reverse Stock Split.

Accordingly, the consolidated statements of equity reflect the impact of the Reverse Stock Split by reclassifying from “common stock” to “additional paid-in capital” in an amount equal to the par value of the decreased shares resulting from the Reverse Stock Split.

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.

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 September 2022 with 333,333 shares authorized for issuance thereunder and in June 2021 with 400,000 shares authorized for issuance thereunder and in June of 2020 with 166,667 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.

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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.

As of December 31, 2022 and 2021 there were 578,097 shares and 372,377 shares, respectively 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 3,333 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.

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During the year ended December 31, 2022, 10,695 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.

At December 31, 2022 and 2021, the Company had 9,352 shares and 20,038 shares, respectively of the Company's common stock available for future grant in connection with this plan.

Equity Issuances

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As consideration for entering into the Purchase Agreement, the Company issued to Lincoln Park an additional 12,101 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.

Pursuant to the Purchase Agreement, upon commencement Lincoln Park purchased 16,667 shares of common stock, at a price of $ 60.00 per share for a total gross purchase price of $ 1.0 million (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 6,667 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").

provided Lincoln Park’s obligation under any single such purchase will not exceed $ 2.5 million, unless the Company and Lincoln Park mutually agree to increase the maximum amount of such single purchase (each, a “Regular Purchase”).

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.

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As of December 31, 2022, 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.

The agreement expired on April 1, 2022.

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

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.

On June 4, 2021, the Company entered into an At The Market Offering Agreement (the “ATM Agreement”) with H.C.

Wainwright & Co., LLC 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.

Subsequent to the filing of our Form 10-K on March 22, 2022, the aggregate market value of our outstanding common stock held by non-affiliates was approximately $ 43.6 million.

Pursuant to General Instruction I.B.6 of Form S-3, since the aggregate market value of our outstanding common stock held by non-affiliates was below $75.0 million at the time of such Form 10-K filing, the aggregate amount of securities that we are permitted to offer and sell was reduced to $ 17,698,943 , which was equal to one-third of the aggregate market value of our common stock held by non-affiliates as of September 21, 2022.

During the years ended December 31, 2022 and 2021, the Company had no t issued any shares under the ATM Agreement.

Stock Options and Warrants

In connection with the Merger and after giving effect to the Reverse Stock Split, the Company assumed 1,227,776 options outstanding from Cend.

The options granted from the Cend Plan are exercisable at various dates as determined upon grant and will expire no more than ten years from their original date of grant.

The Cend Plan stock options generally vest over a four-year term.

The following table summarizes the activity for stock options and warrants for the year ended December 31, 2022:

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Granted 37,458 $ 13.49 — —

Assumed through merger 1,227,776 $ 3.77 — —

Exercised — $ — — —

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The weighted average estimated fair value of restricted stock units issued for services in the years ended December 31, 2022 and 2021 was $ 12.46 and $ 23.85 per share, respectively.

The fair value of the restricted stock units was determined using the

Company’s closing stock price on the date of issuance.

The fair value of the restricted stock units was determined using the 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.

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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:

The range of assumptions made in calculating the fair values of stock options was as follows:

Stock Options

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Risk-free interest rate - maximum 2.90 % 1.16 %

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

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United States $ ( 56,175 ) $ ( 28,974 )

$ ( 28,974 ) $ ( 19,013 )

Australia ( 529 ) —

Total $ ( 56,704 ) $ ( 28,974 )

The provision (benefit) from income taxes was as follows ($ in thousands):

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Permanent non deductible expenses for U.S.

taxes 7,238 320

Change in state deferred 8,604 622

Return to actual 2,277 —

Tax Return to Provision ( 1 ) 2,277

Expired options 162 —

Other true ups ( 25 ) 1,407

AUS Foreign Rate Differential ( 21 ) —

Section 382 NOL Limitation

18,553 35,438

Sale of New Jersey State NOLs ( 2,479 ) ( 1,508 )

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Intangibles 944 97

Capitalized Research and Development 5,018 —

Accumulated depreciation 14 26

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Right of use asset $ ( 137 ) $ ( 204 )

Cash to Accrual ( 99 ) —

Deferred tax liabilities ( 236 ) ( 204 )

40,189 74,169

Net deferred tax asset 22,732 40,189

Valuation allowance ( 22,732 ) ( 40,189 )

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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.

As of December 31, 2021, the Company had approximately $ 281 million 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, $ 168.8 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 Company wrote off that portion of the deferred tax asset and reduced the corresponding valuation allowance resulting in $ 112.3 million of remaining Federal NOLs.

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.

Losses incurred before the ownership change on January 25, 2021 will be subject to an annual limitation of $173 thousand under Internal Revenue Code Section 382.

As of December 31, 2022, the Company had approximately $ 34 million 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% on September 15, 2022.

As a result of the ownership change, $ 88.2 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 $ 34 million of remaining Federal NOLs.

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 September 15, 2022 will be subject to an annual limitation of zero while losses incurred after September 15, 2022 will not be subject to limitations.

As of December 31, 2022, Cend Therapeutics had approximately $ 10.9 million of Federal NOLs available to offset future taxable income.

The Company performed an analysis and determined that there was an ownership change of greater than 50% on September 15, 2022.

As of September 15, 2022 Cend has approximately $ 10.7 million of Federal and $ 15 million of state NOLs.

The state NOLs will expire from the 2036 through 2042 tax years.

Using a fair market value of $ 36.1 million and applying an applicable federal rate of 2.54 % Cend will have an annual limitation of approximately $917 thousand each year.

The Federal NOL of $ 106 thousand incurred in the post-acquisition period September 15, 2022 to December 31, 2022 is not subject to limitation, and does not expire.

Cend’s wholly owned Australian subsidiary has $ 1.8 million of NOLs which will be carried forward and do not expire.

There is a full valuation allowance against the NOLs.

As of December 31, 2022 and 2021, the Company had State NOLs available in New Jersey of $ 35.5 million and $ 97.0 million, respectively, California of $ 10.0 million and $ 69.5 million, respectively, and New York City of $ 1.9 million and $ 13.0 million, respectively, to offset future taxable income expiring from 2032 through 2042.

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.

In accordance with Section 382 of the Internal Revenue code, the usage of the Company’s NOLs is 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.

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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.

As of December 31, 2022 and 2021, the Company’s uncertain tax positions were $ 344 thousand and $ 0 , respectively.

Due to the acquisition of Cend, the Company’s uncertain tax positions increased by $ 344 thousand related to Federal and state credits and certain state NOLs.

The Company will continue to evaluate its uncertain tax positions in future periods.

The Company does not believe there will be any material changes in its unrecognized tax positions over the next year.

A reconciliation of the beginning and ending amounts of unrecognized tax benefits is as follows:

Years Ended December 31,

Gross unrecognized tax benefit, beginning of period $ — $ —

Additions based on tax positions related to the current year — —

Additions based on tax positions related to the prior years 344 —

Reductions due to lapse in statute of limitations and settlements — —

Gross Unrecognized tax benefit, end of period $ 344 $ —

For years prior to 2019 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 Company’s state tax returns remain open to examination for a period of three to four years from the date of the tax return filing.

In December 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.

On February 22, 2022, the Company received final approval from NJEDA to sell $ 27.5 million of its NJ NOLs, which were subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $ 2.3 million.

The gross proceeds from the sale of the $ 2.5 million NJ NOLs related tax benefits (“NJ NOL Tax Benefits”), have been recorded as a benefit from income taxes and the loss on sale of the NJ NOL Tax Benefits” of $ 0.1 million recorded in other income (expense) in the consolidated financial statements.

On August 16, 2022, the Inflation Reduction Act was signed into law.

The Inflation Reduction Act includes various tax provisions, which are effective for tax years beginning on or after January 1, 2023.

For tax years beginning after December 31, 2021, the Tax Cuts & Jobs Act of 2017 eliminated the option to deduct research and development expenditures as incurred and instead required taxpayers to capitalize and amortize them over five or 15 years beginning in 2022.

Since the Company is in a net operating loss position, the capitalization of research and development costs did not have a material impact on the Company’s results of operations for the year ended December 31, 2022.

The Company will continue to monitor possible future impact of changes in tax legislation.

Note 13 – Australia Research and Development Tax Incentive

The Company’s Australian subsidiary, which conducts core research and development activities, is eligible to receive a 48.5 % refundable tax incentive for qualified research and development activities.

As of December 31, 2022, $ 0.7 million was recorded as an income tax incentive receivable in the consolidated balance sheets, as the Company determined that the expenses met the eligibility criteria and the amounts claimed are expected to be received shortly after the related tax returns are filed.

Note 14 – Contingencies

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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.

In May 2021, Cend received a written threat of litigation on behalf of a Chinese entity called Lingmed Limited (“Lingmed”) claiming Lingmed was entitled to a success fee based on Cend’s Collaboration and License Agreement with Qilu Pharmaceuticals.

Cend responded by denying that Lingmed is entitled to a success fee under the terms of their agreement.

In May 2022, Cend was served with a complaint filed by Lingmed in the San Diego County Superior Court, alleging claims for breach of contract, fraud and declaratory relief.

Cend’s response to the complaint was filed on June 6, 2022.

Lingmed filed an answer to Cend’s response on July 11, 2022.

The court held a case management conference on October 7, 2022, which resulted in a continuance until December 16, 2022.

On December 16, 2022, the court continued the Case Management Conference until April 7, 2023.

The Company denies these allegations and intends to vigorously defend against this claim.

Note 15 – License Agreements

Sanford Burnham Prebys

In December 2015, Cend entered into a license agreement with Sanford Burnham Prebys (“SBP”) under which Cend was granted an exclusive, worldwide, royalty-bearing license to certain patent rights and know-how controlled by SBP related to the development of LSTA1.

At the time the license agreement was entered into, Cend’s founding shareholder, now a Lisata board member, was an executive at SBP.

The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights.

As consideration for the license, Cend issued a total of 382,030 shares of common stock, as adjusted for the Reverse Stock Split and Exchange Ratio.

The Company is required to pay an annual license maintenance fee of $ 10,000 increasing to $ 20,000 on year seven of the agreement.

The Company could also be required to make milestone payments to SBP upon completion of certain regulatory and commercial milestones.

The aggregate potential milestone payments are approximately $ 10.6 million.

The Company has also agreed to pay SBP royalties of 4 % of net sales of products sold by the Company, or through a sublicense, subject to certain reductions.

Additionally, the Company is obligated to pay SBP 25 % of any sublicensing income.

In October 2021, Cend entered into a license agreement with SBP under which Cend was granted an exclusive, royalty-bearing license to certain patent rights and know-how controlled by SBP.

The agreement provides Cend with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights.

The Company is required to pay an annual license maintenance fee of $ 20,000 , increasing to $ 30,000 on year four of the agreement.

Further, the Company could be required to make milestone payments to SBP upon completion of certain regulatory and commercial milestones.

The aggregate potential milestone payments are approximately $ 23.2 million.

The Company is obligated to pay SBP royalties of 4 % of net sales of products sold by the Company or through a sublicense, subject to certain reductions.

Additionally, the Company is obligated to pay SBP varying sublicense fees, ranging from 10 % to 25 %, dependent on when the related milestones are reached.

The agreements will expire upon the later of (i) the final abandonment of all pending patent applications within the licensed patents or (ii) the expiration of the last to expire patent within the licensed patents.

The agreements may be terminated in their entirety by the Company at any time by giving SBP sixty days’ prior written notice.

The agreements may be terminated in their entirety by SBP if the Company, at any time, defaults in the payment of any sum when due and fails to make such payment within thirty days after receipt of written notice.

The agreements may be terminated in their entirety by SBP or the Company (i) in the event of an uncured material breach by the other party, or (ii) in the event the other party (a) files for, or is involuntarily petitioned with, bankruptcy (other than dissolution or winding up for the purposes of reconstruction or amalgamation), (b) makes an assignment of all or substantially all of its assets for the benefit of creditors, or (c) has a receiver or trustee is appointed and is unable to secure a dismissal, stay or other suspension of such proceedings within thirty days.

Upon termination of the agreements for any reason, all rights and obligations of the Company with respect to the patents and patent applications shall terminate and revert to SBP.

SBP owned 382,030 shares of the Company’s common stock as of December 31, 2022 and is a related party.

University of California at San Diego

In March 2021, Cend entered into a license agreement with the University of California at San Diego (“UCSD”) under which Cend was granted an exclusive, royalty-bearing license to certain patent rights related to the development of nano-particles to modulate immune response.

The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell and otherwise exploit the patent rights.

The Company could be required to make milestone payments to UCSD upon completion of certain regulatory and commercial milestones.

The aggregate potential milestone payments are approximately

$ 1.2 million.

The Company has also agreed to pay UCSD royalties of 1.5 % of net sales of products sold by the Company or through a sublicense, subject to certain reductions.

Additionally, the Company agreed to pay UCSD varying sublicense fees, ranging from 10 % to 20 %, dependent on when the related milestones are reached.

The agreement will expire upon the expiration of the longest-lived patent rights.

The agreement may be terminated in its entirety by the Company at any time by giving UCSD ninety days’ prior written notice.

The agreement may be terminated in its entirety by UCSD if the Company, at any time, (i) fails to perform or violates any term of the agreement and fails to cure the default within sixty days.

Upon termination of the agreement for any reason, UCSD may terminate a sublicensee but will allow the Company to assign any sublicenses to UCSD provided a) that the sublicensee is in good standing upon termination of the agreement with the Company;

and b) the sublicensee is not currently involved in litigation as an adverse party to UCSD.

Massachusetts Institute of Technology

In October 2021, Cend entered into a license agreement with the Massachusetts Institute of Technology ("MIT") under which Cend was granted an exclusive, royalty-bearing license to certain patent rights related to the development of tissue specific delivery of interfering RNA.

The agreement provides the Company with the rights to grant and authorize sublicenses to use, sell, and otherwise exploit the patent rights.

As consideration for the license, Cend issued a total of 43,236 shares of common stock, as adjusted for the Reverse Stock Split and Exchange Ratio.

The Company is required to pay an annual license maintenance fee of $ 20,000 , increasing to $ 25,000 for year two and three of the agreement, increasing to $ 50,000 on year four of the agreement and thereafter until the first commercial sale, and increasing to $ 150,000 each year of the agreement after the first commercial sale.

Further, the Company could be required to make milestone payments to MIT upon completion of certain regulatory and commercial milestones.

The aggregate potential milestone payments are approximately $ 5.0 million.

The Company has also agreed to pay MIT royalties of 2 % of net sales of products sold by the Company or through a sublicense, subject to certain reductions.

Additionally, the Company is obligated to pay MIT varying sublicense fees, ranging from 3 % to 20 %, dependent on when the related milestones are reached.

In connection with the close of the Merger, the Company was required to pay MIT a change of control fee of $ 0.3 million.

The agreement will expire upon the expiration or abandonment of all valid claims.

The agreement may be terminated in its entirety by the Company at any time by giving MIT six months prior written notice.

The agreement may be terminated in its entirety by MIT if the Company, at any time, (i) defaults in the payment of any sum when due and fails to make such payment within thirty days after receipt of written notice, or (ii) commits a material breach of its obligations under the agreement (aside from item (i)) and fails to cure that breach within sixty days after receipt of written notice.

Upon termination of the agreement for any reason, the rights and licenses granted to the Company shall terminate and revert to MIT.

Upon termination of the agreement for any reason, MIT may terminate a sublicensee but will allow the Company to assign any sublicenses to MIT provided that the sublicensee is in good standing upon termination of the agreement with the Company.

MIT owned 43,236 shares of the Company’s common stock as of December 31, 2022.

Note 16 – Research Collaboration and License Agreement

Exclusive License and Collaboration Agreement

In February 2021, Cend entered into an Exclusive License and Collaboration Agreement (the “Qilu Agreement”) in which Cend granted an exclusive license to Qilu for the development and commercialization of LSTA1 in the Territory (defined as the Greater Area of China including China, Macau, Hong Kong, and Taiwan).

Under the terms of the agreement, Qilu is solely responsible for the development of LSTA1 in its Territory.

In consideration for the license, Qilu made an upfront payment of $ 10 million to Cend, which was recognized as revenue by Cend prior to the Merger.

In addition, Cend received and recognized as revenue a $ 5 million development milestone prior to the Merger.

We are eligible to receive additional developmental and commercial milestone payments up to $95 million and $ 125 million, respectively, tiered royalties on net sales ranging from 10 % to 15 %, and tiered sublicensing revenues ranging from 12 % to 35 %.

Unless terminated early, the Qilu Agreement will continue in effect until the expiration of all Qilu payment obligations.

Either party may terminate the Qilu Agreement if an undisputed material breach by the other party is not cured within a defined period of time, or upon notice for insolvency-related events of the other party that are not discharged within a defined time period.

Qilu may terminate the Qilu Agreement in its entirety, at any time with at least sixty days written notice.

All right and obligations of Qilu with respect to such licensed patents and patent applications would terminate.

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What changed 10-K

Item 8. Financial Statements and Supplementary Data