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 74 of this Annual Report. 70 Index Lisata Therapeutics, Inc. and Subsidiaries Table of Contents Report of Independent Registered Public Accounting Firm (PCAOB ID Number 248 ) 72 Financial Statements: Consolidated Balance Sheets at December 31, 202 3 and 20 2 2 73 Consolidated Statements of Operations - Years Ended December 31, 202 3 and 20 2 2 74 Consolidated Statements of Comprehensive Loss - Years Ended December 31, 202 3 and 20 2 2 75 Consolidated Statements of Equity - Years Ended December 31, 202 3 and 202 2 76 Consolidated Statements of Cash Flows - Years Ended December 31, 202 3 and 202 2 77 Notes to Consolidated Financial Statements 79 71 Index REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Board of Directors and Stockholders of Lisata Therapeutics, Inc. Opinion on 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, 2023 and 2022, the related consolidated statements of operations, comprehensive loss, equity, and cash flows for each of the two years in the period ended December 31, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2023, 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 February 29, 2024 72 Index LISATA THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data) December 31, 2023 December 31, 2022 ASSETS Current Assets Cash and cash equivalents $ 22,593 $ 32,154 Marketable securities 27,942 37,072 Prepaid and other current assets 3,389 2,650 Total current assets 53,924 71,876 Property and equipment, net 175 296 Acquired license-intangible, net 263 334 Other assets 332 528 Total assets $ 54,694 $ 73,034 LIABILITIES, NON-CONTROLLING INTERESTS AND STOCKHOLDERS' EQUITY Liabilities Accounts payable $ 2,421 $ 2,655 Accrued liabilities 4,169 3,728 Total current liabilities 6,590 6,383 Other long-term liabilities 210 327 Total liabilities 6,800 6,710 Commitments and Contingencies (Note 14) Stockholders' Equity Common stock, $ 0.001 par value, authorized 33,333,333 shares; issued 8,150,635 and 7,866,799 shares, at December 31, 2023 and December 31, 2022, respectively; and outstanding, 8,149,897 and 7,866,061 shares, at December 31, 2023 and December 31, 2022, respectively 8 8 Additional paid-in capital 576,971 574,548 Treasury stock, at cost; 738 shares at December 31, 2023 and December 31, 2022 respectively ( 708 ) ( 708 ) Accumulated deficit ( 528,081 ) ( 507,241 ) Accumulated other comprehensive loss ( 42 ) ( 29 ) Total Lisata Therapeutics, Inc. stockholders' equity 48,148 66,578 Non-controlling interests ( 254 ) ( 254 ) Total equity 47,894 66,324 Total liabilities, non-controlling interests and stockholders' equity $ 54,694 $ 73,034 See accompanying notes to consolidated financial statements. 73 Index LISATA THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) Year Ended December 31, 2023 2022 Operating Expenses: Research and development $ 12,734 $ 13,067 In-process research and development — 30,393 General and administrative 12,974 14,141 Operating expenses 25,708 57,601 Operating loss ( 25,708 ) ( 57,601 ) Other income (expense): Investment income, net 2,724 1,052 Other expense, net ( 186 ) ( 155 ) Total other income 2,538 897 Net loss before benefit from income taxes and noncontrolling interests ( 23,170 ) ( 56,704 ) Benefit from income taxes ( 2,330 ) ( 2,479 ) Net loss $ ( 20,840 ) $ ( 54,225 ) Less - net income (loss) attributable to noncontrolling interests — — Net loss attributable to Lisata Therapeutics, Inc. common stockholders $ ( 20,840 ) $ ( 54,225 ) Basic and diluted loss per share: Lisata Therapeutics, Inc. common stockholders $ ( 2.58 ) $ ( 10.47 ) Weighted average common shares outstanding: Basic and diluted shares 8,073 5,180 See accompanying notes to consolidated financial statements. 74 Index LISATA THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (In thousands) Year Ended December 31, 2023 2022 Net loss $ ( 20,840 ) $ ( 54,225 ) Other comprehensive income (loss): Available for sale securities - net unrealized gain 12 52 Cumulative translation adjustment arising during the period ( 25 ) ( 11 ) Total other comprehensive income (loss) ( 13 ) 41 Comprehensive loss ( 20,853 ) ( 54,184 ) Comprehensive income (loss) attributable to noncontrolling interests — — Comprehensive loss attributable to Lisata Therapeutics, Inc. common stockholders $ ( 20,853 ) $ ( 54,184 ) See accompanying notes to consolidated financial statements. 75 Index LISATA THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In thousands) Common Stock Additional Paid-in Capital Accumulated Other Comprehensive Loss Accumulated Deficit Treasury Stock Total Lisata Therapeutics, Inc. Stockholders' Equity Non- Controlling Interest in Subsidiary Total Equity Shares Amount 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 ) Share-based compensation 97 — 2,367 — — — 2,367 — 2,367 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 Net loss — — — — ( 20,840 ) — ( 20,840 ) — ( 20,840 ) Share-based compensation 114 — 1,947 — — — 1,947 — 1,947 Net proceeds from issuance of common stock 87 — 321 — — — 321 — 321 Proceeds from option exercises 83 — 155 — — 155 — 155 Unrealized gain on marketable securities — — — 12 — — 12 — 12 Foreign currency translation adjustment — — — ( 25 ) — — ( 25 ) — ( 25 ) Balance at December 31, 2023 8,151 $ 8 $ 576,971 $ ( 42 ) $ ( 528,081 ) $ ( 708 ) $ 48,148 $ ( 254 ) $ 47,894 See accompanying notes to consolidated financial statements. 76 Index LISATA THERAPEUTICS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 20,840 ) $ ( 54,225 ) Adjustments to reconcile net loss to net cash used in operating activities: Equity-based compensation expense 2,038 2,636 Depreciation and amortization 189 69 Loss on disposal of fixed assets 3 — In-process research and development expenses — 30,393 Amortization/accretion on marketable securities ( 960 ) 788 Changes in operating assets and liabilities: Prepaid and other current assets ( 824 ) ( 845 ) Other assets 274 237 Accounts payable, accrued liabilities and other liabilities 88 ( 223 ) Net cash used in operating activities ( 20,032 ) ( 21,170 ) Cash flows from investing activities: Purchase of marketable securities ( 98,479 ) ( 89,687 ) Sales of marketable securities 108,581 122,203 Asset acquisition costs, net of cash acquired related to Merger — ( 3,320 ) Purchases of property and equipment — ( 285 ) Net cash provided by investing activities 10,102 28,911 Cash flows from financing activities: Proceeds from exercise of options 155 — Tax withholding payments on net share settlement equity awards ( 91 ) ( 267 ) Net proceeds from issuance of capital stock 321 43 Net cash provided by (used in) financing activities 385 ( 224 ) Effect of exchange rate changes on cash ( 16 ) ( 10 ) Net (decrease) increase in cash and cash equivalents ( 9,561 ) 7,507 Cash and cash equivalents at beginning of year 32,154 24,647 Cash and cash equivalents at end of year $ 22,593 $ 32,154 Supplemental Disclosure of Cash Flow Information: 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. 77 Index LISATA THERAPEUTICS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1 – The Business Overview 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, is designed to activate a novel uptake pathway that allows co-administered or tethered (i.e., molecularly bound) anti-cancer drugs to target and 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 unlikely to be affected. LSTA1 also has the potential to modify the tumor microenvironment (“TME”), thereby making tumors more susceptible to immunotherapies and inhibiting the metastasis cascade (i.e., the spread of cancer to other parts of the body). The Company and its collaborators have amassed significant non-clinical data demonstrating enhanced delivery of a range of existing and emerging anti-cancer therapies, including chemotherapeutics, 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. Currently, LSTA1, is the subject of Phase 2a and 2b clinical studies being conducted globally in a variety of solid tumor types, including metastatic pancreatic ductal adenocarcinoma (mPDAC), cholangiocarcinoma, head and neck cancer, appendiceal cancer, colon cancer and glioblastoma multiforme in combination with a variety of anti-cancer regimens. The Company's legacy CD34+ cell therapy technology was the subject of several clinical trials targeting an array of diseases, among them, critical limb ischemia, coronary microvascular dysfunction, and diabetic kidney disease. Further development of such programs would require significantly larger studies and capital investment and thus, development by Lisata would only be continued if a strategic partner that can contribute the necessary capital for future development is identified. 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. The Company's goal is to develop and commercialize products that address important unmet medical needs. 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 provided a vast majority of the individuals on the management team and holds the chief executive officer (“CEO”), chief 78 Index 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. 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 the Company's 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 and accompanying notes have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Use of Estimates 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 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 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. Dollar. 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. 79 Index 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 and may exceed federally insured limits. 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. 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 80 Index 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 product candidate 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. 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 $ 71 thousand and $ 21 thousand for the years ended December 31, 2023 and December 31, 2022, respectively. 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 four 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 81 Index 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, 2023 and 2022. Milestones 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, 2023 and 2022 the Company has not recognized revenue related to milestones. Royalties 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. 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 being expensed. 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): 82 Index Cash and cash equivalents $ 7,062 Net working capital (excluding cash) ( 1,690 ) Other liabilities ( 22 ) Acquired in-process research and development 30,393 License 355 Net assets acquired $ 36,098 Note 4 – Available-for-Sale-Securities The following table is a summary of available-for-sale securities recorded in cash and cash equivalents or marketable securities in the Company's Consolidated Balance Sheets (in thousands): December 31, 2023 December 31, 2022 Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Cost Gross Unrealized Gains Gross Unrealized Losses Estimated Fair Value Corporate debt securities $ 37,791 $ 3 $ ( 8 ) $ 37,786 $ 44,308 $ — $ ( 17 ) $ 44,291 Commercial Paper 1,981 — — 1,981 7,953 — — 7,953 Money market funds 4,268 — — 4,268 4,871 — — 4,871 Municipal debt securities 622 — — 622 7,626 — ( 1 ) 7,625 Total $ 44,662 $ 3 $ ( 8 ) $ 44,657 $ 64,758 $ — $ ( 18 ) $ 64,740 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, 2023 December 31, 2022 Cash and cash equivalents $ 16,715 $ 27,668 Marketable securities 27,942 37,072 Total $ 44,657 $ 64,740 The following table summarizes the Company's portfolio of available-for-sale securities by contractual maturity (in thousands): December 31, 2023 December 31, 2022 Amortized Cost Estimated Fair Value Amortized Cost Estimated Fair Value Less than one year $ 44,662 $ 44,657 $ 64,758 $ 64,740 Greater than one year — — — — Total $ 44,662 $ 44,657 $ 64,758 $ 64,740 83 Index Note 5 – Property and Equipment Property and equipment consisted of the following (in thousands): December 31, 2023 2022 Furniture and fixtures $ — $ 25 Computer equipment 589 589 Leasehold improvements 72 99 Property and equipment, gross 661 713 Accumulated depreciation ( 486 ) ( 417 ) Property and equipment, net $ 175 $ 296 The Company’s results included depreciation expense of approximately $ 0.1 million and $ 0.1 million for the years ended December 31, 2023 and 2022, respectively. Note 6 – Income (Loss) Per Share For the years ended December 31, 2023 and 2022, 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, 2023 and 2022, the Company excluded the following potentially dilutive securities (in thousands): December 31, 2023 2022 Stock Options 1,323 1,391 Warrants 1,422 1,424 Restricted Stock Units 148 48 Note 7 – 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, 2023 and December 31, 2022 were as follows (in thousands): 84 Index December 31, 2023 December 31, 2022 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Cash equivalents $ 16,715 $ — $ — $ 16,715 $ 27,668 $ — $ — $ 27,668 Marketable securities - available for sale — 27,942 — 27,942 — 37,072 — 37,072 $ 16,715 $ 27,942 $ — $ 44,657 $ 27,668 $ 37,072 $ — $ 64,740 The carrying values of cash, cash equivalents, accounts payable and accrued expenses approximate fair value at December 31, 2023 and December 31, 2022, due to the short maturity nature of these items. Note 8 – Accrued Liabilities Accrued liabilities were as follow (in thousands): December 31, 2023 2022 Salaries, employee benefits and related taxes $ 2,665 $ 2,586 Operating lease liabilities - current 168 180 Clinical and R&D related liabilities 1,046 785 Accounting and consulting 57 66 Other 233 111 $ 4,169 $ 3,728 Note 9 – 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 an operating lease for one office which expires in 2025. 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 85 Index components as a single lease component. The Company's lease includes an option 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 the Company's balance sheet as follows (in thousands): December 31, 2023 December 31, 2022 Right-of-Use Assets: Other assets $ 308 $ 487 Total Right-of-Use Asset $ 308 $ 487 Operating Lease Liabilities: Accrued liabilities $ 168 $ 180 Other long-term liabilities 137 305 Total Operating Lease Liabilities $ 305 $ 485 As of December 31, 2023, the weighted average remaining lease term for the Company's operating leases was 1.75 years, and the weighted average discount rate for its operating leases was 9.625 %. Future minimum lease payments under the lease agreements as of December 31, 2023 were as follows (in thousands): Years ended Operating Leases 2024 190 2025 143 Total lease payments 333 Less: Amounts representing interest ( 28 ) Present value of lease liabilities $ 305 Note 10 – Stockholders' Equity 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. 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 (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 2023 with 400,000 shares authorized for issuance thereunder and 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. 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 (typically over 3 years) or upon the accomplishment of specified business milestones, and generally expire 2 , 3 , or 10 years from the grant date depending on the 86 Index status of the recipient as a nonemployee, employee or director of the Company. As of December 31, 2023 and 2022 there were 593,141 shares and 578,097 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 fair market value 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 3,333 to 6,667 . 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 6,667 to 33,333 . In June 2023, the Company's stockholders approved an amendment to the Amended 2017 ESPP in order to effect an increase of authorized shares from 33,333 to 68,333 . During the year ended December 31, 2023, 22,441 shares were issued under the Amended 2017 ESPP. At December 31, 2023 and 2022, the Company had 21,911 shares and 9,352 shares, respectively of the Company's common stock available for future grant in connection with this plan. Equity Issuances At The Market Offering 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 the Company's Form 10-K on March 22, 2022, the aggregate market value of its 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 the Company's 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 the Company is permitted to offer and sell was reduced to $ 17,698,943 , which was equal to one-third of the aggregate market value of the Company's common stock held by non-affiliates as of September 21, 2022. During the twelve months ended December 31, 2023, the Company issued 64,394 shares of common stock under the ATM Agreement for net proceeds of $ 270,774 . Since inception, the Company has issued 64,394 shares of common stock under the ATM Agreement for net proceeds of $ 270,774 . 87 Index Common Stock In connection with the Merger closing on September 15, 2022, 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. Stock Options and Warrants In connection with the Merger and after giving effect to the Reverse Stock Split, the Company assumed 1,227,776 of Cend's outstanding options. The options granted under 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, 2023: 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, 2022 1,391,352 $ 10.83 7.03 $ 187.6 1,423,774 $ 42.57 3.37 $ — Changes during the Year: Granted 182,846 $ 3.45 — — Exercised ( 82,500 ) $ 1.88 — — Forfeited ( 144,594 ) $ 3.63 — — Expired ( 24,603 ) $ 29.60 ( 2,000 ) 88.35 Outstanding at December 31, 2023 1,322,501 $ 10.81 6.06 $ 164.1 1,421,744 $ 42.51 2.42 $ — Vested at December 31, 2023 or expected to vest in the future 1,319,053 $ 10.83 6.05 $ 164.1 1,421,744 $ 42.51 2.42 $ — Exercisable at December 31, 2023 1,229,103 $ 11.25 5.84 $ 159.9 1,421,744 $ 42.51 2.42 $ — Restricted Stock During the years ended December 31, 2023 and 2022, the Company issued restricted stock for services as follows ($ in thousands, except share data): 2023 2022 Number of Restricted Stock Issued 159,950 70,740 Value of Restricted Stock Issued $ 479.9 $ 973.4 The weighted average estimated fair value of restricted stock issued for services in the years ended December 31, 2023 and 2022 was $ 3.00 and $ 13.76 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 . 88 Index The following is a summary of the changes in non-vested restricted stock for the year ended December 31, 2023: Restricted Stock Shares Weighted Average Grant-Date Fair Value Non-vested at December 31, 2022 56,209 $ 16.55 Changes during the Year: Granted 159,950 $ 3.00 Vested ( 65,511 ) $ 9.03 Forfeited ( 24,873 ) $ 3.28 Non-vested at December 31, 2023 125,775 $ 5.86 Restricted Stock Units During the years ended December 31, 2023 and 2022, the Company issued restricted stock units for services as follows ($ in thousands, except share data): 2023 2022 Number of Restricted Stock Units Issued 188,850 111,170 Value of Restricted Stock Units Issued $ 566.6 $ 1,385.5 The weighted average estimated fair value of restricted stock units issued for services in the years ended December 31, 2023 and 2022 was $ 3.00 and $ 12.46 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 vesting terms of restricted stock unit issuances are generally one year , or upon the achievement of performance-based milestones. The following is a summary of the changes in non-vested restricted stock units for the year ended December 31, 2023: Restricted Stock Units Weighted Average Grant-Date Fair Value Non-vested at December 31, 2022 32,286 $ 9.29 Changes during the Year: Granted 188,850 $ 3.00 Vested ( 29,486 ) $ 8.48 Forfeited ( 78,850 ) $ 3.00 Non-vested at December 31, 2023 112,800 $ 3.37 89 Index Note 11 – 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, 2023 and 2022 ($ in thousands): Year Ended December 31, 2023 2022 Research and development $ 540 $ 776 General and administrative 1,498 1,860 Total share-based compensation expense $ 2,038 $ 2,636 The Company modified the exercise period of approximately 186,600 shares of one terminated employee's vested stock options and immediately recognized approximately $ 258 thousand incremental stock-based compensation during the year ended December 31, 2023. 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, 2023 were as follows ($ in thousands): Stock Options Restricted Stock Units Restricted Stock Unrecognized compensation cost $ 186 $ 76 $ 391 Expected weighted-average period in years of compensation cost to be recognized 1.70 1.55 1.53 Total fair value of shares vested and the weighted average estimated fair values of shares granted for the years ended December 31, 2023 and 2022 were as follows ($ in thousands): Stock Options Year Ended December 31, 2023 2022 Total fair value of shares vested $ 1,033 $ 1,045 Weighted average estimated fair value of shares granted 2.09 1.23 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 follows: Stock Options Year Ended December 31, 2023 2022 Expected term - minimum (in years) 3 6 Expected term - maximum (in years) 6 6 Expected volatility - minimum 74 % 76 % Expected volatility - maximum 77 % 78 % Weighted Average volatility 75 % 76 % Expected dividend yield — — Risk-free interest rate - minimum 3.63 % 1.62 % Risk-free interest rate - maximum 4.68 % 2.90 % 90 Index 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 2023 2022 United States $ ( 21,477 ) $ ( 56,175 ) Australia ( 1,693 ) ( 529 ) Total $ ( 23,170 ) $ ( 56,704 ) The provision (benefit) from income taxes was as follows ($ in thousands): Years Ended December 31, 2023 2022 Current U.S. Federal $ — $ — State and local — — $ — $ — Deferred U.S. Federal $ — $ — State and local ( 2,330 ) ( 2,479 ) $ ( 2,330 ) $ ( 2,479 ) Total U.S. Federal $ — $ — State and local ( 2,330 ) ( 2,479 ) $ ( 2,330 ) $ ( 2,479 ) 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, 2023 2022 U.S. Federal benefit at statutory rate $ ( 4,865 ) $ ( 11,908 ) Permanent nondeductible expenses for U.S. taxes 875 7,238 Change in state deferred 809 8,604 Tax Return to Provision ( 58 ) ( 1 ) Expired options 569 162 Other true ups 166 ( 25 ) AUS Foreign Rate Differential ( 22 ) ( 21 ) Section 382 NOL Limitation — 18,553 Sale of New Jersey State NOLs ( 2,330 ) ( 2,479 ) Valuation allowance for deferred tax assets 2,526 ( 22,602 ) Tax benefit $ ( 2,330 ) $ ( 2,479 ) Deferred income taxes at December 31, 2023 and 2022 consist of the following ($ in thousands): 91 Index December 31, 2023 2022 Deferred Tax Assets: Accumulated net operating losses (tax effected) $ 12,736 $ 13,132 Lease liability 86 136 Share-based compensation 2,370 3,027 Intangibles 889 944 Capitalized research and development 6,662 5,018 Accumulated depreciation 10 14 Accrued payroll 218 118 Other 638 579 Deferred tax assets 23,609 22,968 Deferred Tax Liabilities: Right-of-use asset $ ( 87 ) $ ( 137 ) Cash to accrual — ( 99 ) Deferred tax liabilities ( 87 ) ( 236 ) Net deferred tax asset 23,522 22,732 Valuation allowance ( 23,522 ) ( 22,732 ) 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, 2023 and 2022, the Company had approximately $ 43.7 million and $ 33.7 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% 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 $ 34.0 million of remaining Federal NOLs as of December 31, 2022. The write-off of the deferred tax asset and the corresponding reduction in valuation allowance has no impact to the consolidated 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 $ 3.6 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 $ 3.1 million of Federal and $ 4.3 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 $ 459 thousand incurred in the post-acquisition period September 15, 2022 to December 31, 2022 is not subject to limitation, and does not expire. As of December 31, 2023 and 2022, Cend’s wholly owned Australian subsidiary had approximately $ 2.4 million and $ 1.8 million, respectively, of NOLs which will be carried forward and do not expire. There is a full valuation allowance against the NOLs. As of December 31, 2023, the Company had federal research and development credit carryforwards of $ 0.5 million expiring from 2027 through 2034 if unutilized, and state research and development credit carryforwards of $ 0.1 million, which carryforward indefinitely. Utilization of these credits may be subject to an annual limitation based on changes in ownership. As of December 31, 2023 and 2022, the Company had State NOLs available in New Jersey of $ 19.4 million and $ 35.5 million, respectively, California of $ 9.2 million and $ 9.2 million, respectively, and New York City of $ 1.9 million and $ 1.9 million, respectively, to offset future taxable income expiring from 2032 through 2043. The usage of the Company’s NOLs is limited given the change in ownership. 92 Index 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, 2023 and 2022, the Company’s uncertain tax positions were $ 344 thousand and $ 344 thousand, respectively. The uncertain tax positions are due to the acquisition of Cend 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, 2023 2022 Gross unrecognized tax benefit, beginning of period $ 344 $ — 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 $ 344 For years prior to 2020 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 the date of the tax return filing. In September 2022, 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 5, 2023, the Company received final approval from NJEDA to sell $ 25.9 million of its NJ NOLs, which were subsequently sold to a qualifying and approved buyer pursuant to the Program for net proceeds of $ 2.2 million. The gross proceeds from the sale of the $ 2.3 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, 2023. The Company will continue to monitor the 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 refundable tax incentive between 43.5 % to 48.5 % (depending upon the income tax rate) for qualified research and development activities. As of December 31, 2023 and 2022, the Company had $ 1.0 million and $ 0.7 million, respectively, recorded as an income tax incentive receivable in prepaid and other current assets 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. On September 4, 2023 the Company's Australian subsidiary received a $ 0.6 million tax refund from the Australian Taxation Office related to the 2022 tax year. Note 14 – 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 93 Index believe that the outcome of any pending claims will have a material adverse effect on the Company's financial condition or operating results. The Company has elected to recognize expense for legal fees as incurred when the legal services are provided. 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. At a Case Management Conference held on August 4, 2023, the Court set a trial date in the matter for August 2, 2024. The Company denies these allegations made by Lingmed and intends to vigorously defend itself. Note 15 – Technology Transfer Agreement Impilo Therapeutics In July 2023, the Company entered into a technology transfer agreement with Impilo Therapeutics, Inc. (“Impilo”) under which the Company transferred its rights to its tumor penetrating nanocomplex (TPN) platform to Impilo. As consideration for the technology transfer, Impilo issued a total of 766,000 shares of its pre-seed preferred stock to the Company. On October 3, 2023 in connection with the Sanford Burnham Prebys license agreement (Note 16), Impilo cancelled the original stock certificate for 766,000 shares and reissued 574,500 shares of its pre-seed preferred stock to the Company. Note 16 – 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 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, which, pursuant to the technology transfer agreement with Impilo, resulted in SBP receiving 191,500 apportioned shares of the Company’s pre-seed preferred stock in Impilo on October 3, 2023. The agreement 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 agreement may be terminated in its entirety by the Company at any time by giving SBP sixty days ’ prior written notice. The agreement may be terminated in its 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 agreement may be terminated in its entirety by either 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 agreement for any reason, all rights and obligations of the Company with respect to the patents and patent applications shall terminate and revert to SBP. 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 94 Index pay SBP varying sublicense fees, ranging from 10 % to 25 %, dependent on when the related milestones are reached. On September 14, 2023, pursuant to the technology transfer agreement with Impilo, the license was assigned in full to Impilo. SBP did not own shares of the Company’s common stock as of December 31, 2023. 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. On August 2, 2023, pursuant to the technology transfer agreement with Impilo, the license was assigned in full to Impilo. 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 %, depending 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 expires upon the expiration or abandonment of all valid claims. The agreement may be earlier terminated in its entirety by the Company at any time by giving MIT six months prior written notice. The agreement may also 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. On June 30, 2023, in accordance with the provisions of the license agreement, the Company provided notice to MIT that the license agreement would terminate effective December 30, 2023. MIT owned 43,236 shares of the Company’s common stock as of December 31, 2023. Note 17 – 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 95 Index responsible for the development of LSTA1 in its Territory. In consideration for the license, Qilu made an upfront payment of $ 10.0 million to Cend, which was recognized as revenue by Cend prior to the Merger. In addition, Cend received and recognized as revenue a $ 5.0 million development milestone prior to the Merger. The Company is eligible to receive additional developmental and commercial milestone payments up to $ 96.0 million and $ 125.0 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 rights and obligations of Qilu with respect to such licensed patents and patent applications would terminate simultaneously. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not applicable.