What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2024-03-28 compared with 2023-03-16 · 183 added, 278 removed, 551 unchanged (46% of the section changed)

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Consolidated Statements of Operations for the years ended December 31, 2023 and 2022

Consolidated Statements of Stockholders' Equity for the years ended December 31, 2022 and 2021

Consolidated Statements of Stockholders' (Deficit) Equity for the years ended December 31, 2023 and 2022

Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022

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We have audited the accompanying consolidated balance sheets of SELLAS Life Sciences Group, Inc.

(the “Company”) as of December 31, 2022 and 2021, the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

(the “Company”) as of December 31, 2023 and 2022, the related consolidated statements of operations, stockholders’ (deficit) equity and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2023 and 2022, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

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Total assets $ 6,219 $ 20,943

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY

Current liabilities:

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Warrant liability — 4

Contingent consideration — 296

Total liabilities 14,195 16,092

Commitments and contingencies (Note 7)

Stockholders’ equity:

Stockholders’ (deficit) equity:

Preferred stock, $ 0.0001 par value;

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Accumulated deficit ( 217,244 ) ( 179,904 )

Total stockholders’ equity 4,851 20,347

Total liabilities and stockholders’ equity $ 20,943 $ 26,275

Total stockholders’ (deficit) equity ( 7,976 ) 4,851

Total liabilities and stockholders’ (deficit) equity $ 6,219 $ 20,943

See accompanying notes to these consolidated financial statements.

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Operating expenses:

Cost of revenue 100 200

Cost of licensing revenue — 100

Research and development 24,007 20,268

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Acquired in-process research and development — 10,000

In-process research and development impairment charge — 5,700

Total operating expenses 37,869 42,950

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Total non-operating income 529 649

Loss before income taxes ( 41,301 ) ( 20,936 )

Income tax benefit — 237

Net loss $ ( 37,340 ) $ ( 41,301 )

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SELLAS LIFE SCIENCES GROUP, INC.

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENT OF STOCKHOLDERS' (DEFICIT) EQUITY

(Amounts in thousands, except share amounts)

Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' Equity

Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders' (Deficit) Equity

Shares Amount

Balance at January 1, 2022 15,895,637 $ 2 $ 158,948 $ ( 138,603 ) $ 20,347

Issuance of common stock and common stock warrants, net of issuance costs 4,629,630 — 22,946 — 22,946

Issuance of common stock, net of issuance costs 415,005 1,048 1,048

Issuance of common stock for exercise of warrants 844,061 1 3,068 — 3,069

Issuance of common stock under employee stock purchase plan 25,089 — 85 — 85

Vesting of restricted stock units 40,044 — — — —

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Issuance of common stock, net of issuance costs 92,882 — 289 — 289

Issuance of common stock upon the exercise of pre-funded warrants 552,300 — — — —

Issuance of common stock upon the exercise of warrants 14,000 — 14 — 14

Issuance of common stock under employee stock purchase plan 91,454 — 107 — 107

Vesting of restricted stock units 85,245 — — — —

Tax withholding on vesting of restricted stock units ( 28,613 ) — ( 31 ) — ( 31 )

Stock-based compensation — — 2,094 — 2,094

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Acquired in-process research and development charge — 10,000

Non-cash in-process research and development impairment charge — 5,700

Non-cash stock-based compensation 2,094 1,726

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Change in fair value of common stock warrants ( 4 ) ( 36 )

Deferred income taxes — ( 239 )

Changes in operating assets and liabilities:

Contract asset — 1,128

Prepaid expenses and other assets 113 1,253

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Operating lease liabilities ( 518 ) ( 471 )

Deferred revenue — ( 5,600 )

Net cash used in operating activities ( 31,410 ) ( 23,809 )

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Proceeds from issuance of common stock, net of issuance costs 289 1,048

Proceeds from the exercise of warrants 14 —

Proceeds from employee stock plan purchases 107 85

Proceeds from exercise of warrants — 3,069

Tax withholding on vesting of restricted stock units ( 31 ) —

Net cash provided by financing activities 22,315 24,079

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Increase in operating lease right of use assets and current and non-current operating lease liabilities $ 368 $ 449

Offering costs in accounts payable and accrued expenses $ 103 $ —

See accompanying notes to these consolidated financial statements.

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SELLAS Life Sciences Group, Inc.

(the "Company" or "SELLAS") is a late-stage clinical biopharmaceutical company focused on novel therapeutics for a broad range of cancer indications.

is a late-stage clinical biopharmaceutical company focused on novel therapeutics for a broad range of cancer indications.

SELLAS’ lead product candidate, galinpepimut-S ("GPS"), is a cancer immunotherapeutic agent licensed from Memorial Sloan Kettering Cancer Center ("MSK") and targets the Wilms Tumor 1 ("WT1") protein, which is present in an array of tumor types.

GPS has potential as a monotherapy or in combination with other immunotherapeutic agents to address a broad spectrum of hematologic, or blood, cancers and solid tumor indications.

SELLAS' second product candidate is GFH009, a small molecule, highly selective cyclin-dependent kinase 9 ("CDK9") inhibitor, which is licensed from GenFleet Therapeutics (Shanghai), Inc.

("GenFleet"), for all therapeutic and diagnostic uses in the world outside of Greater China (mainland China, Hong Kong, Macau and Taiwan).

SELLAS' second product candidate is SLS009 (formerly GFH009), a small molecule, highly selective cyclin-dependent kinase 9 ("CDK9") inhibitor, which the Company licensed from GenFleet Therapeutics (Shanghai), Inc.

("GenFleet"), for all therapeutic and diagnostic uses in the world outside of mainland China, Hong Kong, Macau and Taiwan ("SLS009 Territory").

As used in this Annual Report on Form 10-K, the words the "Company," and "SELLAS" refer to SELLAS Life Sciences Group, Inc.

and its consolidated subsidiaries following the completion of the business combination with Galena Biopharma, Inc., a Delaware corporation ("Galena"), and SELLAS Life Sciences Group, Ltd., a privately held Bermuda exempted company ("Private SELLAS") in December 2017.

This business combination is referred to as the Merger.

Upon completion of the Merger, the Company's name changed from "Galena Biopharma, Inc." to "SELLAS Life Sciences Group, Inc." and the Company's financial statements became those of Private SELLAS.

and its consolidated subsidiaries.

Liquidity and Going Concern

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As of December 31, 2023, the Company had cash and cash equivalents of $ 2.5 million.

The Company expects its cash and cash equivalents will not be sufficient to fund its current planned operations for at least the next twelve months from the date of issuance of these financial statements.

The $ 13.0 million of development milestone payments to the Company triggered by 3DMed's participation in the REGAL study are variable in nature and not under the Company's control, and therefore are not included in the Company's going concern assumption.

The Company expects its cash and cash equivalents, together with the net proceeds from a public offering completed on January 8, 2024 (the "January 2024 Offering") and the registered direct offering completed on March 19, 2024 (the "March 2024 Registered Direct Offering"), will not be sufficient to fund its current planned operations for at least the next twelve months from the date of issuance of these financial statements.

These conditions give rise to a substantial doubt over the Company’s ability to continue as a going concern.

These consolidated financial statements do not include any adjustments related to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

On March 19, 2024, the Company consummated the March 2024 Registered Direct Offering, in which we entered into a Securities Purchase Agreement with two institutional investors pursuant to which the Company

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agreed to issue and sell 11,000,000 shares of our common stock and 2,029,316 pre-funded warrants exercisable for shares of common stock.

Each share of common stock was sold together at a purchase price of $ 1.535 and each pre-funded warrant was sold at a purchase price of $ 1.5349 .

The gross proceeds to the Company from the March 2024 Registered Direct Offering were approximately $ 20.0 million, before deducting the placement agent's fees and related offering expenses.

In a concurrent private placement, the Company agreed to issue to the two institutional investors exercisable for up to an aggregate of 13,029,316 shares of common stock warrants at an exercise price of $ 1.41 per share.

Subsequent to the closing of the March 2024 Registered Direct Offering, 1,014,658 pre-funded warrants were exercised for shares of common stock.

On January 8, 2024, the Company consummated the January 2024 Offering on a "reasonable best efforts" basis, issuing 10,130,000 shares of common stock and an aggregate of 1,870,000 pre-funded warrants exercisable for shares of common stock, together with accompanying warrants to purchase an aggregate of 12,000,000 shares of common stock.

Each share of common stock and accompanying common warrant were sold together at a combined offering price of $ 0.75 , and each pre-funded warrant and accompanying common warrant were sold together at a combined offering price of $ 0.7499 .

The aggregate gross proceeds to us from the January 2024 Offering were approximately $ 9.0 million, before deducting placement agents' fees and related offering expenses.

On November 2, 2023, the Company consummated a registered direct offering (the "November 2023 Registered Direct Offering"), pursuant to a Securities Purchase Agreement with a single institutional investor under which the Company agreed to issue and sell, 3,100,000 shares of its common stock and 552,300 pre-funded warrants exercisable for shares of common stock, together with accompanying warrants to purchase an aggregate of 3,652,300 shares of common stock.

Each share of common stock and accompanying warrant were sold together at a combined purchase price of $ 1.0952 and each pre-funded warrant and accompanying warrant were sold together at a combined purchase price of $ 1.0951 .

The net proceeds to the Company from the November 2023 Registered Direct Offering were approximately $ 3.5 million, after deducting placement agents' fees and related offering expenses.

On February 28, 2023, the Company consummated an underwritten public offering (the "February 2023 Offering"), issuing 7,220,217 shares of common stock and accompanying common stock warrants to purchase an aggregate of 7,220,217 shares of common stock.

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(the "Agent").

From time to time during the term of the Sales Agreement, the Company may offer and sell shares of common stock having an aggregate offering price up to a total of $ 50.0 million in gross proceeds.

The Agent will collect a fee equal to 3 % of the gross sales price of all shares of common stock sold.

Shares of common stock sold under the Sales Agreement are offered and sold pursuant to the Company's registration statement on Form S-3, which was filed with the U.S.

From time to time during the term of the Sales Agreement, the Company could offer and sell shares of common stock having an aggregate offering price up to a total of $ 50.0 million in gross proceeds.

The Agent was entitled to collect a fee equal to 3 % of the gross sales price of all shares of common stock sold.

Shares of common stock sold under the Sales Agreement were offered and sold pursuant to the Company's registration statement on Form S-3, which was filed with the U.S.

Securities and Exchange Commission ("SEC") on April 16, 2021 and declared effective on April 29, 2021.

During the year ended December 31, 2023, the Company sold 92,882 shares of common stock pursuant to the Sales Agreement at an average price of $ 3.21 per share for aggregate net proceeds of approximately $ 0.3 million.

Subsequent to December 31, 2022, the Company sol d 76,882 shares of common stock pursuant to the Sales Agreement at an average price of $ 3.59 for aggregate net proceeds of approximately $ 0.3 million.

There remains approximately $ 39.2 million available for future sales of shares of common stock under the Sales Agreement.

Other than the Sales Agreement, the Company currently does not have any commitments to obtain additional funds.

In December 2020, the Company, together with its wholly-owned subsidiary, SLSG Limited, LLC, entered into an Exclusive License Agreement (the “3DMed License Agreement”) with 3D Medicines Inc.

("3DMed"), pursuant to which the Company granted 3DMed a sublicensable, royalty-bearing license, under certain intellectual property owned or controlled by the Company, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS product candidates for all therapeutic and other diagnostic uses in mainland China, Hong Kong, Macau and Taiwan ("3DMed Territory").

To date, the Company has received $ 10.5 million in upfront payments and certain technology transfer and regulatory milestones.

The participation of 3DMed in the Company's REGAL Phase 3 clinical trial in China will trigger two development milestone payments totaling $ 13.0 million to the Company, which the Company expects to receive in the first half of 2023.

A total of $ 191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of December 31, 2022, which milestones are all variable in nature and not under the Company's control.

On January 2, 2024, the Company mutually agreed with the Agent to terminate the Sales Agreement.

In December 2020, the Company, together with its wholly-owned subsidiary, SLSG Limited, LLC, entered into an Exclusive License Agreement (the “3D Medicines Agreement”) with 3D Medicines Inc.

("3D Medicines"), pursuant to which the Company granted 3D Medicines a sublicensable, royalty-bearing license, under certain intellectual property owned or controlled by the Company, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS product candidates for all therapeutic and other diagnostic uses in mainland China, Hong Kong, Macau and Taiwan ("3DMed Territory").

As of December 31, 2023, the Company has received an aggregate of $ 10.5 million in upfront payments and certain technology transfer and regulatory milestones.

There is a total of $ 191.5 million in potential future development, regulatory, and sales milestones, not

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including future royalties, remains under the 3D Medicines Agreement, which milestones are all variable in nature and not under the Company's control.

The Company will require substantial additional financing to commercially develop any current or future product candidates.

If the Company is unable to obtain additional funding on a timely basis, it will be required to scale back its plans and place certain activities on hold.

Other than the Sales Agreement, the Company currently does not have any commitments to obtain additional funds.

The Company currently does not have any commitments to obtain additional funds.

The Company's management continues to evaluate different strategies to obtain the required funding for future operations.

These strategies may include utilizing the Sales Agreement, public and private placements of equity and/or debt securities and payments from potential strategic research and development collaborations.

Additionally, the Company may pursue discussions with global and regional pharmaceutical companies for licensing and/or co-development rights to its product candidates.

The Company has prepared its consolidated financial statements assuming that it will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

These strategies may include public and private placements of equity and/or debt securities, as well as payments from potential strategic research and development collaborations or licensing and/or marketing arrangements with pharmaceutical companies.

Additionally, the Company continues to pursue discussions with global and regional pharmaceutical companies for licensing and/or co-development rights to the Company's product candidates.

There can be no assurance that these future funding efforts will be successful.

Basis of Presentation and Significant Accounting Policies

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GAAP as found in the Accounting Standards Codification ("ASC") and Accounting Standards Updates (“ASU”) of the Financial Accounting Standards Board (“FASB”).

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Principles of Consolidation

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On an ongoing basis, the Company evaluates its estimates using historical experience and other factors, including the current economic environment.

Significant items subject to such estimates are assumptions used for purposes of determining stock-based compensation, carrying value of goodwill, accounting for deferred income taxes, and accounting for research and development activities.

Significant items subject to such estimates are assumptions used for purposes of determining stock-based compensation, carrying value of goodwill, and accounting for research and development activities.

Management believes its estimates to be reasonable under the circumstances.

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Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants.

As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability.

As such, fair value is a market-based measurement that should be

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determined based on assumptions that market participants would use in pricing an asset or a liability.

A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

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As of December 31, 2023 and 2022, the carrying amounts of the Company’s financial instruments, including cash equivalents and accounts payable, approximate fair value due to the short-term nature of those instruments and were categorized as Level 1.

As of December 31, 2022 and 2021, the carrying amounts of the Company’s contingent consideration and liability-classified warrants are each recorded at their estimated fair value.

The fair value of the contingent consideration and warrants utilize certain unobservable inputs that fall within Level 3 of the fair value hierarchy.

As of December 31, 2022, the carrying amounts of the Company’s liability-classified warrants were recorded at their estimated fair value.

The fair value of the warrants utilize certain unobservable inputs that fall within Level 3 of the fair value hierarchy.

See Note 5 for additional information on the fair value of certain financial assets and liabilities.

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Concentration of Credit Risk

Financial instruments that potentially expose the Company to concentrations of credit risk consist principally of cash on deposit with financial institutions, the balances of which frequently exceed federally insured limits.

On March 10, 2023, Silicon Valley Bank ("SVB") was closed by the California Department of Financial Protection and Innovation, which appointed the Federal Deposit Insurance Corporation ("FDIC") as receiver.

If any of the financial institutions with whom we do business were to be placed into receivership, we may be unable to access to the cash we have on deposit with such institutions.

Impact of COVID-19

Public health crises such as pandemics or similar outbreaks could adversely impact our business.

Notably, the COVID-19 pandemic continues to evolve.

The extent to which COVID-19 impacts our operations or those of our collaborators, contractors, suppliers, CROs, clinical sites, CMOs and other material business relations and governmental agencies will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the ultimate duration of the outbreak, new information that will emerge concerning the severity of the virus and the actions to contain it or treat its impact, among others.

Previously, our clinical trial operations were directly and indirectly adversely impacted, and could continue to be directly and indirectly adversely impacted, by the COVID-19 pandemic.

While the potential economic impact brought by, and the ultimate duration of, the COVID-19 pandemic, have been, and continue to be, difficult to assess or predict, the spread of COVID-19 has caused a broad impact globally.

The extent to which the COVID-19 pandemic may impact our business continues to be highly uncertain and cannot be predicted with confidence.

Cash and Cash Equivalents

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Total cash, cash equivalents, restricted cash, and restricted cash equivalents $ 2,630 $ 17,225

The Company maintained $ 0.1 million as of December 31, 2022 and 2021, on hand with the Company's financial institutions as collateral for its corporate credit cards.

As of December 31, 2023 and 2022, the Company maintained $ 0.1 million on hand with the Company's financial institutions as collateral for its corporate credit cards.

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Goodwill is the excess of the cost of an acquired entity over the net amounts assigned to tangible and intangible assets acquired and liabilities assumed.

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The Company has a single reporting unit and all goodwill relates to that reporting unit.

The Company performs its annual goodwill impairment test in the fourth quarter of each fiscal year or more frequently if changes in circumstances or the occurrence of events suggest that an impairment exists.

The Company performs its annual goodwill impairment test on October 1 of each fiscal year, or more frequently if changes in circumstances or the occurrence of events suggest that an impairment exists.

The Company continually evaluates financial performance, economic conditions and other relevant developments in assessing if an interim period impairment test is necessary.

The Company's goodwill balance at December 31, 2023 and 2022 was $ 1.9 million.

The Company did no t recognize any impairment of goodwill during the years ended December 31, 2023 and 2022.

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Contingent Consideration

The consideration for Galena's acquisition of Apthera, Inc.

in 2011 includes future payments that are contingent upon the achievement of certain events related to the development and commercialization of nelipepimut-S ("NPS").

Contingent consideration, and the obligations for such contingent consideration payments, is required to be recognized at fair value as of the acquisition date.

The contingent consideration obligations are then evaluated each reporting period and changes in the fair value of contingent consideration, other than changes due to payments, are recognized as a gain or loss and recorded within the change in the fair value of contingent consideration in the Company's consolidated statements of operations .

The fair value of development and regulatory milestones are estimated utilizing a probability adjusted, discounted cash flow approach.

The fair value of net sales milestones is based on probability adjusted sales estimates and estimated discount rates and utilizes an option pricing model with Monte Carlo simulation to simulate a range of possible payment scenarios, and the average of the payments in these scenarios is then discounted to calculate present fair value.

The discount rates used are an estimated measure of credit risk associated with the years of expected payments based on the current development stage of the associated product candidate, the Company's specific development plan for that product candidate adjusted for the probability of completing the stages of development and when the contingent payments would be triggered.

In estimating the probability of success, the Company utilizes data regarding similar milestone events from several sources, including industry studies and the Company's experience.

The fair value of the contingent consideration is classified as a Level 3 liability as the valuation requires substantial judgment and estimation of factors that are not currently observable in the market.

If different assumptions were used for the various inputs to the valuation, including but not limited to, assumptions involving the probability of success, estimated discount rate, and projected years of payment, the estimated fair value could be significantly higher or lower than the fair value determined.

See Note 6 for additional information on the contingent consideration.

As of December 31, 2023 and 2022, there were no accumulated impairment losses related to goodwill.

The Company accounts for its leasing arrangements under ASU No.

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Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term.

The Company primarily uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments.

The Company uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments.

The operating lease ROU asset also includes any lease payments related to initial direct cost and prepayments, and excludes lease incentives.

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The Company’s lease agreements contain lease and non-lease components, which are generally accounted for separately.

See Note 8 for discussion of the Company’s facility lease.

See Note 7 for discussion of the Company’s facility leases.

Revenue Recognition

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(iii) determine the transaction price;

(iv) allocate the transaction price to the performance

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obligations in the contract;

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

and (v) recognize revenue when (or as) the entity satisfies a performance obligation.

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The Company 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.

See Note 11 for further discussion of the Company's revenue recognition associated with the 3DMed License Agreement.

See Note 10 for further discussion of the Company's revenue recognition associated with the 3D Medicines Agreement.

Development, Regulatory and Sales Milestones and Other Payments

At the inception of each arrangement that includes regulatory or development milestone payments, the Company evaluates whether the milestones are considered probable of being achieved and estimates the amount to be included in the transaction price using the most likely amount method.

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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.

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Research and development expenses consist primarily of development research performed by contract research organizations ("CROs"), personnel costs, including salaries, benefits and stock-based compensation, clinical drug supply, investigator grants, materials and supplies, consulting fees, licenses and fees, preclinical studies, and overhead allocations consisting of various support and facility-related costs.

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Stock-based Compensation

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The simplified method is the midpoint between the vesting period and the contractual term of the option.

The stock price volatility assumption is based on the historical volatility of the Company's publicly traded common stock.

The stock price volatility assumption is based on

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the historical volatility of the Company's publicly traded common stock.

The risk-free rate is based on the U.S.

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Restricted Stock Units with Performance and Service Conditions

The Company's Board of Directors has granted restricted stock units ("RSUs") to certain employees that vest based on performance and service conditions.

The Company's Board of Directors has granted restricted stock units ("RSUs") to employees that vest based on performance and service conditions.

The fair values of the performance-based RSUs are measured on the date of grant and are based on the Company's closing stock price on such date.

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Potential interest and penalties associated with unrecognized tax positions are recognized in income tax expense.

No interest or penalties were recognized in either of the years ended December 31, 2022 or 2021.

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No interest or penalties associated with unrecognized tax positions were recognized in either of the years ended December 31, 2023 or 2022.

The Company recognizes liabilities or assets for the deferred tax consequences of temporary differences between the tax basis of assets or liabilities and their reported amounts in the consolidated financial statements in accordance with FASB ASC 740-10, “ Accounting for Income Taxes” (“ASC 740-10”).

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Net Loss Per Share

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Basic loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of shares of common stock outstanding during each period.

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Restricted stock units 338 255

Recent Accounting Pronouncements Adopted

In May 2021, the FASB issued ASU No.

2021-04, Issuer’s Accounting for Certain Modifications of Exchanges of Freestanding Equity-Classified Written Call Options, to clarify the accounting for modifications or exchanges of freestanding equity-classified written call options, such as warrants, that remain equity classified after modification or exchange.

This ASU became effective for the Company on January 1, 2022 and did not have a material impact on the Company's consolidated financial statements.

Recent Accounting Standards Not Yet Adopted

In August 2020, the FASB issued ASU No.

2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which, among other things, simplifies the accounting models for the allocation of proceeds attributable to the issuance of a convertible debt instrument.

As a result, after adopting the ASU’s guidance, entities will not separately present in equity an embedded conversion feature in such debt.

Instead, they will account for a convertible debt instrument wholly as debt, and for convertible preferred stock wholly as preferred stock (i.e., as a single unit of account), unless (i) a convertible instrument contains features that require bifurcation as a derivative under ASC 815 or (ii) a convertible debt instrument was issued at a substantial premium.

The standard becomes effective for the Company in the first quarter of 2024 and

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Recent Accounting Pronouncements Not Yet Adopted

In November 2023, the FASB issued ASU No.

2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures , which provides updates to qualitative and quantitative reportable segment disclosure requirements, including enhanced disclosures about significant segment expenses and increased interim disclosure requirements, among others.

2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024.

Early adoption is permitted, and the amendments should be applied retrospectively.

The Company is currently evaluating the impact of the ASU on the consolidated financial statement disclosures but does not expect a material impact upon adoption.

In December 2023, the FASB issued ASU No.

2023-09, Improvements to Income Tax Disclosures , which amends the guidance in ASC 740, Income Taxes.

The ASU is intended to improve the transparency of income tax disclosures by prescribing standard categories and greater disaggregation of information in the effective tax rate reconciliation, disclosure of income taxes paid disaggregated by jurisdiction, and modifies other income tax-related disclosures.

2023-09 is effective for fiscal years beginning after December 15, 2024 and allows for adoption either prospectively or retrospectively.

Early adoption is permitted.

The Company is currently evaluating the potential impact of the adoption of this standard on its consolidated financial statements.

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Goodwill and Intangible Assets

A reconciliation of the change in goodwill and intangible assets for the years ended December 31, 2022 and 2021 is as follows (in thousands):

In-Process Research and Development Goodwill

December 31, 2020 $ 5,700 $ 1,914

Impairment charge ( 5,700 ) —

December 31, 2021 — 1,914

Impairment charge — —

December 31, 2022 $ — $ 1,914

The Company completes its annual impairment test on October 1 each year, or more frequently if triggering events indicate a possible impairment.

The Company continually evaluates financial performance, economic conditions and other relevant developments in assessing if an interim period impairment test is necessary.

The Company's goodwill balance at December 31, 2022 and 2021 was $ 1.9 million.

As of December 31, 2022 and 2021, there were no accumulated impairment losses related to goodwill.

During the year ended December 31, 2021, the Company recognized an impairment charge of $ 5.7 million on its in process research and development ("IPR&D") asset associated with the NPS product candidate, which had been acquired in connection with the Merger, reducing the fair value of the intangible asset to zero as of December 31, 2021.

The Company is currently evaluating the impact of the ASU on the income tax disclosures within the consolidated financial statements but does not expect a material impact upon adoption.

Collaboration and In-License Agreements

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Exclusive License Agreement with GenFleet Therapeutics (Shanghai) Inc.

On March 31, 2022, the Company entered into an exclusive license agreement with GenFleet pursuant to which GenFleet granted to the Company a sublicensable, royalty-bearing license, under certain of its intellectual property, to develop, manufacture, and commercialize GFH009 for the treatment, diagnosis or prevention of disease in humans and animals in all countries and territories of the world other than mainland China, Hong Kong, Macau and Taiwan (the "GFH009 Territory").

GFH009 is currently in a Phase 1 clinical trial in the United States and China.

In consideration for the exclusive license, the Company has agreed to pay to GenFleet (i) an upfront and technology transfer fee of $ 10.0 million, $ 4.5 million of which was payable within 30 days of the effective date of the license agreement which was March 31, 2022, and $ 5.5 million of which is due upon the first day of the 15th calendar month following the effective date of the license agreement, (ii) development and regulatory milestone payments for up to three indications totaling up to $ 48.0 million in the aggregate, and (iii) sales milestone payments totaling up to $ 92.0 million in the aggregate upon the achievement of certain net sales thresholds in a given calendar year.

The Company has also agreed to pay GenFleet single-digit tiered royalties based upon a percentage of annual net sales of GFH009 in the GFH009 Territory, with the royalty rate escalating based on the level of annual net sales and ranging from the low to high single digits.

On March 31, 2022, the Company entered into an exclusive license agreement with GenFleet pursuant to which GenFleet granted to the Company a sublicensable royalty-bearing license under certain of its intellectual property, to develop, manufacture, and commercialize SLS009 for the treatment, diagnosis or prevention of disease in humans and animals in the SLS009 Territory.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

During the year ended December 31, 2022, the Company expensed $ 10.0 million related to the acquired technology as in-process research and development based on the assessment that the technology has no alternative future use as the technology and know-how acquired are not currently commercially viable, $ 4.5 million of which was paid in April 2022 and the remaining $ 5.5 million expected to be paid by the end of the second quarter of 2023 for which the Company has recorded an acquired in-process research and development payable as of December 31, 2022.

In consideration for the exclusive license, the Company agreed to pay to GenFleet (i) an upfront and technology transfer fee of $ 10.0 million, all of which has been paid as of December 31, 2023, (ii) development and regulatory milestone payments for up to three indications totaling up to $ 48.0 million in the aggregate, and (iii) sales milestone payments totaling up to $ 92.0 million in the aggregate upon the achievement of certain net sales thresholds in a given calendar year.

The Company also agreed to pay GenFleet single-digit tiered royalties based upon a percentage of annual net sales, with the royalty rate escalating based on the level of annual net sales of SLS009 in the SLS009 Territory ranging from the low to high single digits.

During the years ended December 31, 2023 and 2022, the Company made cash payments of $ 5.5 million and $ 4.5 million, respectively, pursuant to the exclusive license agreement.

Exclusive License Agreement with Memorial Sloan Kettering Cancer Center ("MSK")

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Such expenses have been included in research and development costs.

The Compan y incurred $ 0.1 million and $ 0.2 million of sublicensing fees payable under the Second MSK A&R License Agreement in connection with the 3DMed Agreement during the years ended December 31, 2022 and 2021, respectively, included in cost of revenue.

Merck & Co., Inc.

Clinical Trial Collaboration and Supply Agreement

On September 21, 2017, the Company entered into a clinical trial collaboration and supply agreement (the "Merck Agreement") through a Merck & Co., Inc.

subsidiary, Merck Sharp & Dohme B.V.

(“Merck subsidiary”), whereby the Company agreed with the Merck subsidiary to collaborate in a research program to evaluate GPS as it is administered in combination with Merck’s PD1 blocker pembrolizumab in a Phase 1/2 clinical trial enrolling patients in up to five cancer indications, including both hematologic malignancies and solid tumors assessing the efficacy and safety of the combination, comparing overall response rates and immune response markers achieved with the combination compared to prespecified rates based on those seen with pembrolizumab alone in comparable patient populations.

In the fourth quarter of 2018, pursuant to the Merck Agreement, the Company initiated a Phase 1/2 multi-arm ("basket" type) clinical study of GPS in combination with Merck & Co., Inc.’s anti-PD-1 therapy, pembrolizumab (Keytruda) in patients with WT1+ relapsed or refractory tumors.

In July 2019, the Company dosed the first patient in this trial.

In 2020, the Company, together with Merck determined to focus on ovarian cancer (second or third line).

In November 2022, the Company reported topline clinical and initial immune response data from the clinical trial which showed that treatment with the combination of GPS and pembrolizumab compared favorably to treatment with anti-PD-1 therapy alone in a similar patient population.

The Company plans to present final data from this study at a medical conference in the first half of 2023.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The University of Texas M.

Anderson Cancer Center and The Henry M.

Jackson Foundation for the Advancement of Military Medicine, Inc.

On September 11, 2006, the Company acquired rights and assumed obligations under a license agreement among Apthera and The University of Texas M.

Anderson Cancer Center (“MDACC”) and The Henry M.

Jackson Foundation for the Advancement of Military Medicine, Inc.

(“HJF”) which grants exclusive worldwide rights to a U.S.

patent covering NPS and several U.S.

and foreign patents and patent applications covering methods of using the peptide as a vaccine.

Under the terms of this license, the Company is required to pay an annual maintenance fee of $ 0.2 million, up to $ 3.8 million for clinical milestone payments, and to pay a tiered royalty in the mid-single digits based on sales of NPS or other therapeutic products developed from the licensed technologies.

The Company incurred the annual maintenance fee during the years ended December 31, 2022 and 2021 and the expenses have been included in research and development costs.

The Compan y incurred $ 0.1 million of sublicensing fees payable included in cost of licensing revenue under the Second MSK A&R License Agreement in connection with the 3D Medicines Agreement during the year ended December 31, 2022.

There were no sublicensing fees incurred during the year ended December 31, 2023.

Fair Value Measurements

The following tables present information about the Company's assets and liabilities measured at fair value on a recurring basis in the consolidated balance sheets (in thousands):

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Description December 31, 2023 Quoted Prices In

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Total assets measured and recorded at fair value $ 2,414 $ 2,414 $ — $ —

Warrants potentially settleable in cash $ 4 $ — $ — $ 4

Contingent consideration — — — —

Warrant liability $ — $ — $ — $ —

Total liabilities measured and recorded at fair value $ — $ — $ — $ —

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Total assets measured and recorded at fair value $ 16,709 $ 16,709 $ — $ —

Warrants potentially settleable in cash $ 40 $ — $ — $ 40

Contingent consideration 296 — — 296

Warrant liability $ 4 $ — $ — $ 4

Total liabilities measured and recorded at fair value $ 4 $ — $ — $ 4

The Company did not transfer any financial instruments into or out of Level 3 classification during the years ended December 31, 2023 and 2022.

See Note 10 for a reconciliation of the changes in the fair value of the warrant liability for the year ended December 31, 2022.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company presents the contingent consideration liability at fair value and it is measured at the end of each reporting period using Level 3 inputs.

The contingent consideration relates to Galena’s acquisition of Apthera, Inc.

in 2011 and the future contingent payments based on the achievement of certain regulatory and net sales milestones relating to NPS.

The contingent consideration is payable at the election of the Company in either cash or shares of common stock, provided that the Company may not issue any shares in satisfaction of any contingent consideration unless it has first obtained approval of its stockholders in accordance with Rule 5635(a) of the Nasdaq Marketplace Rules.

A reconciliation of the change in the fair value of the contingent consideration liability for the year ended December 31, 2022 and 2021 is as follows (in thousands):

Using Significant

Contingent consideration, December 31, 2020 $ 4,633

Change in the estimated fair value of the contingent consideration ( 4,337 )

Contingent consideration, December 31, 2021 296

Change in the estimated fair value of the contingent consideration ( 296 )

Contingent consideration, December 31, 2022 $ —

During the year ended December 31, 2022, the significant unobservable inputs were adjusted in connection with ceasing all development activities of NPS and concluding the Company's extensive out-licensing efforts.

See Note 2 for further discussion on how the Company determines the fair value of its contingent consideration.

The following significant unobservable inputs were used in the valuation of the contingent consideration liability:

Unobservable input As of December 31, 2022 As of December 31, 2021

Potential milestone payments $ 0 - $ 30 million

$ 0 - $ 30 million

Discount rate n/a 15.5 %

Cumulative probability of success — % 5.3 %

Projected years of payments n/a 2028 - 2031

See Note 9 for a reconciliation of the changes in the fair value of the warrant liability for the years ended December 31, 2023 and 2022.

SELLAS LIFE SCIENCES GROUP, INC.

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The Company discloses a contingent liability even if the liability is not probable or the amount is not estimable, or both, if there is a reasonable possibility that a material loss may have been incurred.

As of December 31, 2022, there was no pending or threatened litigation.

Contingent Consideration related to Development, Regulatory and Commercial Milestone Payments and Business Combinations

On December 20, 2023, the Company commenced a binding arbitration proceeding against 3D Medicines, administered by the Hong Kong International Arbitration Centre and governed by New York State law in accordance with the dispute resolution provisions in the 3D Medicines Agreement.

The arbitration proceeding involves, among other things, the trigger and payment of the relevant milestone payments due to the Company as well as 3D Medicines’ failure to use commercially reasonable best efforts to develop GPS in the 3DMed Territory, and particularly in mainland China.

Legal Proceedings.

Except for this arbitration proceeding, a s of December 31, 2023, there was no other pending or threatened litigation.

Contingent Consideration related to Development, Regulatory and Commercial Milestone Payments

The Company acquires assets still in development and enters into research and development arrangements with third parties that often require milestone and royalty payments based on the progress of the asset through development stages.

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In certain agreements, the Company is required to make royalty payments based upon a percentage of the sales.

These arrangements may be material individually, and in the unlikely event that milestones for multiple products covered by these arrangements were reached in the same period, the aggregate charge to expense could be material to the results of operations.

In addition, these arrangements often give the Company the discretion to unilaterally terminate development of the product, which would allow the Company to avoid making the contingent payments;

however, the Company is unlikely to cease development if the compound successfully achieves clinical

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

testing objectives.

See Note 5 for additional information on the Company’s commitments under collaboration and license agreements and commitments of contingent consideration.

The Company has a non-cancelable operating lease for certain executive, administrative, and general business office space for its headquarters in New York, New York, which began June 5, 2020, was amended in February 2022 to add additional space, and has a term through December 31, 2024.

In addition, these arrangements often give the Company the discretion to unilaterally terminate development of the product, which would allow the Company to avoid making the contingent payments;

however, the Company is unlikely to cease development if the compound successfully achieves clinical testing objectives.

See Note 4 for additional information on the Company’s commitments under collaboration and license agreements.

The Company has a non-cancelable operating lease for certain executive, administrative, and general business office space for its headquarters in New York, New York, which commenced on June 5, 2020, was amended in February 2022 to add additional space, and had an initial lease term through December 30, 2024.

The Company assessed the lease amendment for the additional space and determined it should be accounted for as a separate contract.

The weighted average discount rate used to account for the Company's operating lease under ASC 842, Leases, is approximately 13.95 %.

On December 11, 2023, the Company agreed to extend the expiration date for its office space through September 30, 2025.

The Company assessed the amendment for the lease extension and determined it should be accounted for as a modification.

Accordingly, on the effective modification date, the Company remeasured its operating lease liabilities and corresponding operating lease right-of-use assets at the present value of the remaining lease payments.

The weighted average discount rate used to account for the Company's operating lease under ASC 842, Leases, as of December 31, 2023 is approximately 13.0 %.

As of December 31, 2023, the leases have a remaining term of 1.75 years.

Rent expense related to the Company's operating lease was approximately $ 0.5 million and $ 0.3 million for the years ended December 31, 2022 and 2021, respectively.

The Company made cash payments related to operating leases of approximately $ 0.5 million and $ 0.3 million during the years ended December 31, 2022 and 2021, respectively.

Rent expense related to the Company's operating lease was approximately $ 0.5 million for each of the years ended December 31, 2023 and 2022.

The Company made cash payments related to operating leases of approximately $ 0.5 million during each of the years ended December 31, 2023 and 2022.

Future minimum rental payments under the Company's non-cancelable operating lease are as follows as of December 31, 2023 (in thousands):

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Operating lease liabilities $ 906

Stockholders’ Equity

Stockholders’ (Deficit) Equity

Preferred Stock

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The Company has authorized up to 350,000,000 shares of common stock, $ 0.0001 par value per share, for issuance.

On April 5, 2022, the Company consummated an underwritten public offering (the "April 2022 Offering"), issuing 4,629,630 shares of common stock and accompanying common stock warrants to purchase an aggregate of 4,629,630 shares of common stock.

The shares of common stock and accompanying common stock warrants were sold at a combined price of $ 5.40 per share and accompanying common stock warrant.

Each common stock warrant sold with the shares of common stock represents the right to purchase one share of the Company’s common stock at an exercise price of $ 5.40 per share.

The common stock warrants are exercisable immediately and will expire on April 5, 2027, five years from the date of issuance.

The net proceeds to the Company from the April 2022 Offering, after deducting the underwriting discounts and commissions and other offering expenses, and excluding the exercise of any warrants, were approximately $ 23.0 million.

On April 16, 2021, the Company entered into the Sales Agreement with Cantor Fitzgerald & Co.

(the "Agent").

From time to time during the term of the Sales Agreement, the Company may offer and sell shares of common stock having an aggregate offering price up to a total of $ 50.0 million in gross proceeds.

The Agent will collect a fee equal to 3 % of the gross sales price of all shares of common stock sold.

During the year ended

Shares of common stock reserved for future issuance are as follows (in thousands):

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

December 31, 2022, the Company sold 415,005 shares of common stock pursuant to the Sales Agreement at an average price of $ 2.60 per share for aggregate net proceeds of approximately $ 1.0 million.

Subsequent to December 31, 2022, the Company sold 76,882 shares of common stock pursuant to the Sales Agreement at an average price of $ 3.59 for aggregate net proceeds of approximately $ 0.3 million.

There remains approximately $ 39.2 million available for future sales of shares of common stock under the Sales Agreement.

Other than the Sales Agreement, the Company currently does not have any commitments to obtain additional funds.

Shares of common stock reserved for future issuance are as follows (in thousands):

December 31, 2023

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Restricted stock units outstanding 338

Options reserved for future issuance under the Company’s 2019 Equity Incentive Plan 641

Shares reserved for future issuance under the 2023 Amended and Restated Equity Incentive Plan 3,951

Shares reserved for future issuance under the Employee Stock Purchase Plans 183

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The following is a summary of the Company's warrants to acquire shares of common stock activity for the year ended December 31, 2023 (in thousands, except per share data):

Warrant Issuance Outstanding, December 31, 2021 Granted Canceled/Expired Outstanding, December 31, 2022 Exercise Price Per Share Expiration

Warrant Issuance Outstanding, December 31, 2022 Granted Exercised Canceled/Expired Outstanding, December 31, 2023 Exercise Price Per Share Expiration

Warrants classified as equity:

April 2022 Offering — 4,630 — 4,630 $ 5.40 April 2027

November 2023 Registered Direct — 3,652 — — 3,652 $ 0.9702 November 2028

November 2023 Registered Direct Pre-Funded Warrants — 552 ( 552 ) — — $ 0.0001 November 2028

February 2023 Offering — 7,220 ( 14 ) — 7,206 $ 0.9702 February 2028

April 2022 Offering 4,630 — — — 4,630 $ 3.2291 April 2027 - November 2028

January 2020 Offering 309 — — — 309 $ 3.9300 July 2025

July 2020 PIPE Offering 25 — — — 25 $ 3.3000 August 2025

July 2018 Offering 132 — — 132 $ 7.50 July 2023

March 2019 Exercise Agreement 30 — — 30 $ 7.50 March 2024

Other 9 — ( 7 ) 2 $ 7.50 June 2024

Other 164 — — ( 132 ) 32 $ 7.5000 March 2024 - June 2024

5,128 11,424 ( 566 ) ( 132 ) 15,854

Warrants classified as liability:

14 — ( 1 ) 13 $ 7.50 September 2023 - November 2023

13 — — ( 13 ) — $ 7.5000

On February 28, 2023, in connection with closing of the February 2023 Offering, the Company entered into amendments to an aggregate of 3,438,851 warrants issued by the Company in the April 2022 Offering to reduce the exercise price of such warrants to $ 3.62 , the average closing price of the Company’s common stock, as reported on the Nasdaq Capital Market, for the five trading days immediately preceding the pricing of the February 2023 Offering.

5,141 11,424 ( 566 ) ( 145 ) 15,854

In connection with the closing of the January 2024 Offering at a combined offering price of $ 0.75 , the Company agreed to (i) reduce the exercise price of an aggregate of 3,863,851 warrants that were issued to certain purchasers in an underwritten public offering that closed on April 5, 2022 (the "April 2022 Offering") to $ 0.75 , (ii) reduce the exercise price of an aggregate of 3,652,300 warrants that were issued in the November 2023 Registered Direct Offering to $ 0.75 , and (iii) extend the termination date of the April 2022 Offering warrants and the November 2023 Registered Direct Offering warrants to January 8, 2029.

Concurrent with the closing of the January 2024 Offering, the exercise price of an aggregate of 7,220,217 warrants were also reduced to an exercise price of $ 0.75 per share.

Warrants to acquire shares of common stock primarily consist of equity-classified warrants.

In addition, warrants to acquire shares of common stock that may require the Company to settle in cash are liability-classified warrants.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Warrants Classified as Equity

Equity-classified warrants consist of warrants to acquire common stock issued in connection with previous equity financings.

During its evaluation of equity classification for warrants to acquire shares of common stock, the Company considered the conditions as prescribed within ASC 815-40, Derivatives and Hedging, Contracts in an Entity’s own Equity (“ASC 815-40”).

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Entity’s own Equity (“ASC 815-40”).

The conditions within ASC 815-40 are not subject to a probability assessment.

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The warrants to acquire shares of common stock do meet the definition of a derivative instrument under ASC 815, but are eligible for the scope exception as they are indexed to the Company’s own stock and would be classified in permanent equity if freestanding.

On February 28, 2023, in connection with closing of the February 2023 Offering, the Company entered into amendments to an aggregate of 3,438,851 warrants, which had been previously issued by the Company in the April 2022 Offering, to reduce the exercise price of such warrants from $ 5.40 to $ 3.62 , the average closing price of the Company’s common stock, as reported on the Nasdaq Capital Market, for the five trading days immediately preceding the pricing of the February 2023 Offering.

The Company accounted for the amendment as a cost to issue equity with the incremental fair value of approximately $ 0.3 million recognized as an offset to the proceeds received.

However, there was no net impact to the consolidated statements of stockholders' (deficit) equity because the warrants are equity classified.

On November 2, 2023, in connection with the closing of the November 2023 Registered Direct Offering, the Company entered into an amendment to reduce the exercise price of warrants to purchase up to 887,000 shares of the Company’s common stock which were issued in the April 2022 Offering and held by the purchaser in the November 2023 Registered Direct Offering to $ 0.9702 , and amended the termination date of such warrants to November 2, 2028.

Concurrent with the closing of the November 2023 Registered Direct Offering, an aggregate of 7,220,217 warrants issued in the February 2023 Offering were reduced to $ 0.9702 per share.

The Company accounted for the change in exercise price as a cost to issue equity with the incremental fair value of approximately $ 0.4 million recognized as an offset to the proceeds received.

However, there was no net impact to the consolidated statements of stockholders' (deficit) equity because the warrants are equity classified.

Warrants Classified as Liabilities

Liability-classified warrants consist of warrants to acquire common stock issued in connection with previous equity financings.

The liability-classified warrants consist of warrants to acquire common stock issued in connection with previous equity financings.

These warrants may be settled in cash and were determined to not be indexed to the Company’s common stock.

The liability-classified warrants are grouped within other warrants outstanding in the table above.

The estimated fair value of outstanding warrants accounted for as liabilities is determined at each balance sheet date.

Any decrease or increase in the estimated fair value of the warrant liability since the most recent balance sheet date is recorded in the consolidated statement of operations as a change in fair value of warrant liability.

The Company's outstanding liability-classified warrants expired during the year ended December 31, 2023.

The estimated fair value of outstanding warrants accounted for as liabilities was determined at each balance sheet date through expiration.

Any decrease or increase in the estimated fair value of the warrant liability as of each balance sheet date was recorded in the consolidated statement of operations as a change in fair value of warrant liability.

The fair value of the warrants accounted for as liabilities is estimated using a Black-Scholes pricing model with the following inputs:

As of December 31,

Risk free interest rate 4.75 % 0.65 %

Volatility 120.60 % 131.04 %

Expected term (years) 0.75 1.75

Expected dividend yield — % — %

Strike price $ 7.50 $ 7.50

Risk free interest rate n/a 4.75 %

Volatility n/a 120.60 %

Expected term (years) n/a 0.75

Expected dividend yield n/a — %

Strike price n/a $ 7.50

The changes in fair value of the warrant liability for the year ended December 31, 2023 and 2022 were as follows (in thousands):

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Warrant Liability

Warrant liability, December 31, 2020 $ 55

Warrant liability, January 1, 2022 $ 40

Change in fair value of warrants ( 36 )

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Warrant liability, December 31, 2023 $ —

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

License Revenue with 3D Medicines, Inc.

Exclusive License Agreement with 3D Medicines, Inc.

In December 2020, the Company, together with its wholly-owned subsidiary, SLSG Limited, LLC, entered into the 3DMed License Agreement with 3DMed, pursuant to which the Company granted 3DMed a sublicensable, royalty-bearing license, under certain intellectual property owned or controlled by the Company, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS (referred to as GPS Plus) product candidates ("GPS Licensed Products") for all therapeutic and other diagnostic uses in the 3DMed Territory.

The license is exclusive except with respect to certain know-how that has been non-exclusively licensed to the Company and is sublicensed to 3DMed on a non-exclusive basis.

The Company has retained development, manufacturing and commercialization rights with respect to the GPS Licensed Products in the rest of the world.

In partial consideration for the rights granted by the Company, 3DMed agreed to pay the Company (i) a one-time upfront cash payment of $ 7.5 million, and (ii) milestone payments totaling up to $ 194.5 million in the aggregate upon the achievement of certain technology transfer, development and regulatory milestones, as well as sales milestones based on certain net sales thresholds of GPS Licensed Products in the 3DMed Territory in a given calendar year.

3DMed also agreed to pay tiered royalties based upon a percentage of annual net sales of GPS Licensed Products in the 3DMed Territory ranging from the high single digits to the low double digits.

In December 2020, the Company entered into the 3D Medicines Agreement pursuant to which the Company granted 3D Medicines a sublicensable royalty-bearing license under certain intellectual property owned or controlled by the Company, to develop, manufacture and have manufactured, and commercialize GPS and heptavalent GPS (referred to as GPS Plus) product candidates ("GPS Licensed Products") for all therapeutic and other diagnostic uses in the 3DMed Territory.

In partial consideration for the rights granted by the Company, 3D Medicines agreed to pay the Company (i) a one-time upfront cash payment of $ 7.5 million, and (ii) milestone payments totaling up to $ 194.5 million in the aggregate upon the achievement of certain technology transfer, development and regulatory milestones, as well as sales milestones based on certain net sales thresholds of GPS Licensed Products in the 3DMed Territory in a given calendar year.

3D Medicines also agreed to pay tiered royalties based upon a percentage of annual net sales of GPS Licensed Products in the 3DMed Territory ranging from the high single digits to the low double digits.

Revenue Recognition

The Company evaluated the 3DMed License Agreement and concluded that 3DMed was a customer and the contract should be evaluated under ASC 606.

In determining the appropriate amount of revenue to be recognized under ASC 606 as the Company fulfills its obligations under the Agreement, the Company performs the following steps:

(i) identifies the promised goods or services in the contract;

(ii) determines whether the promised goods or services are performance obligations including whether they are distinct in the context of the contract;

(iii) measures the transaction price, including any constraints on variable consideration;

(iv) allocates the transaction price to the performance obligations;

and (v) recognizes revenue when (or as) the Company satisfies each performance obligation.

The Company determined the initial transaction price of the single performance obligation to be $ 9.5 million, which includes the $ 7.5 million upfront fee as well as $ 2.0 million in development milestones that were assessed to be probable of being achieved at the inception of the 3DMed License Agreement and therefore were not constrained.

During the year ended December 31, 2021, the Company recognized the remaining $ 7.6 million of the initial transaction price as license revenue.

As of December 31, 2021, the full $ 9.5 million initial transaction price was fully recognized as licensing revenue.

The Company determined that the remaining $ 192.5 million in certain future development, regulatory, and sales milestones is variable consideration subject to constraint at inception.

At inception, the Company evaluated the 3D Medicines Agreement under ASC 606 and recognized an initial transaction price of $ 9.5 million, which included the $ 7.5 million upfront fee as well as $ 2.0 million in development milestones that were assessed to be probable of being achieved, while the remaining milestones were variable consideration subject to constraint at inception.

In the first quarter of 2022, an additional $ 1.0 million in licensing revenue was recognized upon approval by China’s National Medical Products Administration (“NMPA”) for a small Phase 1 clinical trial investigating safety of GPS in China.

There is $ 191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remaining under the 3D Medicines Agreement as of December 31, 2023, which milestones are variable in nature and not under the Company's control.

At the end of each reporting period, the Company reevaluates the probability of achievement of the future development, regulatory, and sales milestones subject to constraint and, if necessary, will adjust its estimate of the overall transaction price.

Any such adjustments will be recorded on a cumulative catch-up basis, which would affect revenues and earnings in the period of adjustment.

On March 31, 2022, the Company announced that an IND application filed by 3DMed for a small Phase 1 clinical trial investigating safety of GPS in China was approved by China's NMPA.

The IND approval by the NMPA triggered a $ 1.0 million milestone payment to the Company which was recognized as licensing revenue in the first quarter of 2022 and payment was received in May 2022.

An additional $ 191.5 million in potential future development, regulatory, and sales milestones, not including future royalties, remains under the 3DMed License Agreement as of December 31, 2022, which milestones are variable in nature and not under the Company's control.

For the sales-based royalties, the Company will recognize revenue when the related sales occur.

To date, the Company has not recognized any royalty revenue resulting from any of its licensing arrangements.

There was no licensing revenue recognized during the year ended December 31, 2023.

Licensing revenue of $ 1.0 million recognized during the year ended December 31, 2022 related to the IND approval by the NMPA.

There was no cost of licensing revenue recognized during the year ended December 31, 2023.

Cost of licensing revenue of $ 0.1 million was recognized during the year ended December 31, 2022 for sublicensing fees incurred under the Second MSK A&R License Agreement in connection with the 3D Medicines Agreement.

Stock-Based Compensation

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Cost of Contract Acquisition

The Company incurred contract acquisition costs (commissions) recorded as a contract asset amounting to approximately $ 1.4 million at inception of the 3DMed License Agreement which were capitalized under ASC 340-40 as incremental costs of obtaining the 3DMed License Agreement.

These costs were amortized through general and administrative expense over the technology transfer period, commensurate with when the license revenue was recognized.

The Company recognized $ 1.1 million in expense associated with these costs during the year ended December 31, 2021.

There were no such costs during the year ended December 31, 2022.

Cost of License Revenue

The Company incurred $ 0.1 million and $ 0.2 million of sublicensing fees payable under the Second MSK A&R License Agreement in connection with the 3DMed License during the year ended December 31, 2022 and 2021, respectively.

Stock-Based Compensation

2017 Equity Incentive Plan

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The 2017 Equity Incentive Plan was terminated upon the approval of the 2019 Incentive Plan subject to outstanding stock options granted under the 2017 Equity Incentive Plan that remain exercisable through maturity for the Company's employees and directors.

2019 Equity Incentive Plan

On September 10, 2019, the 2019 Equity Incentive Plan was approved by the stockholders of the Company, which currently allows for issuance of up to approximately 1,964,000 shares of common stock in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate.

The number of shares reserved for issuance under the 2019 Equity Incentive Plan automatically increased on January 1 of each year up to and including January 1, 2023, by an amount equal to the lesser of (i) 5 % of the total number of shares of common stock outstanding at the end of the prior fiscal year;

2023 Amended and Restated Equity Incentive Plan

On September 10, 2019, the 2019 Equity Incentive Plan ("2019 Equity Plan") was approved by the stockholders of the Company, which currently allows for issuance of up to approximately 6,036,000 shares of common stock in connection with the grant of stock-based awards, including stock options, restricted stock, restricted stock units, stock appreciation rights and other types of awards as deemed appropriate.

The number of shares reserved for issuance under the 2019 Equity Plan automatically increased on January 1 of each year, for a period of four years , which commenced on January 1, 2020 and ended on (and including) January 1, 2023, by an amount equal to the lesser of (i) 5 % of the total number of shares of common stock outstanding at the end of the prior fiscal year;

and (ii) an amount determined by the Board of Directors or authorized committee.

On June 20, 2023, an amendment to the 2019 Equity Plan was approved by the stockholders of the Company, which amended and restated the 2019 Equity Plan (as amended and restated, the "2023 Amended and Restated Equity Incentive Plan") to increase the number of shares of common stock authorized for issuance under the 2019 Equity Plan by 3,000,000 shares.

As of December 31, 2023, approximately 3,951,000 shares of common stock were reserved for future grants under the 2019 Equity Incentive Plan.

The number of shares reserved for issuance under the 2019 Equity Incentive Plan was automatically increased to approximately 1,691,000 on January 1, 2023.

The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations for the years ended December 31, 2023 and 2022, respectively (in thousands):

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Total stock-based compensation $ 2,094 $ 1,726

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Options to Purchase Shares of Common Stock

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The weighted-average grant date fair value of options granted during the years ended December 31, 2023 and 2022 was $ 2.88 and $ 4.52 , respectively.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The Company’s expected common stock price volatility assumption is based upon the Company's own implied volatility in combination with the implied volatility of a basket of comparable companies.

The expected life assumptions for employee grants were based upon the simplified method, which averages the contractual term of the Company’s options of ten years with the average vesting term of four years for an average of six years .

The expected life assumptions for employee grants were based upon the simplified method, which averages the contractual term of the Company’s options of 10 years with the average vesting term of four years for an average of six years .

The expected life assumptions for non-employees were based upon the contractual term of the option.

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Granted 546 5.01

Canceled ( 40 ) 6.17

Outstanding at December 31, 2022 1,040 7.57

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The aggregate intrinsic value equals the positive difference between the closing fair market value of the Company’s common stock and the exercise price of the underlying stock options.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Time-Vested RSUs and RSUs with Performance Conditions

The Company granted RSUs pursuant to the Company's 2019 Equity Incentive Plan that will settle in shares of common stock.

The Company granted RSUs pursuant to the Company's 2023 Amended and Restated Equity Incentive Plan that will settle in shares of common stock.

As of December 31, 2023, there was $ 1.0 million of unrecognized compensation cost related to outstanding RSUs that is expected to be recognized as a component of the Company’s operating expenses over a weighted-average period of 2.09 years.

The following table summarizes RSU activity of the Company for the years ended December 31, 2023 and 2022, respectively:

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

Total Number of Shares

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Vested ( 40 ) $ 6.01

Canceled ( 2 ) $ 5.34

Unvested at December 31, 2022 255 $ 3.25

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The 2021 ESPP allows eligible employees to purchase shares of common stock at a price per share equal to 85 % of the lower of the fair market value of the common stock at the beginning or end of each six-month offering period during the term of the 2021 ESPP.

During the year ended December 31, 2022, approximately 25,000 shares of common stock were purchased by employees under the 2021 ESPP for proceeds of approximately $ 0.1 million.

During the years ended December 31, 2023 and 2022, 91,454 and 25,089 shares of common stock, respectively, were purchased by employees under the 2021 ESPP for proceeds of approximately $ 0.1 million.

There are approximately 183,000 shares of common stock reserved for issuance under the 2021 ESPP as of December 31, 2023.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The components of federal and state income tax benefit are as follows (in thousands):

As of December 31,

Federal $ — $ —

Total current — 2

Deferred expense

Federal — ( 239 )

Total deferred — ( 239 )

Total income tax benefit $ — $ ( 237 )

The components of net deferred tax assets are as follows (in thousands):

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Licensing deduction deferral 3,911 4,503

Contingent consideration — 62

Lease liability 194 198

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Net deferred tax liability $ — $ —

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

The provision for income taxes differs from the provision computed by applying the federal statutory rate to net loss before income taxes as follows:

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Effective income tax rate — % — %

There was no income tax benefit or expense for the year ended December 31, 2022.

The income tax benefit for the year ended December 31, 2021 primarily related to indefinite lived deferred tax liabilities.

There was no income tax benefit or expense for the years ended December 31, 2023 and 2022.

In assessing the realizability of deferred tax assets, management considers whether it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized in the near term.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

The valuation allowance increased by approximately $ 3.6 million for the year ended December 31, 2022, which was primarily driven by the acquired in-process research and development and NOL carryforwards.

The valuation allowance increased by approximately $ 2.5 million for the

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

year ended December 31, 2023, which was primarily driven by net operating loss ("NOL") carryforwards, capitalized research and development and stock-based compensation, which were partially offset by a decrease related to licensing deduction deferrals.

At December 31, 2023, the Company had domestic federal and state net operating loss carryforwards of approximately $ 57.1 million and $ 3.6 million, respectively, available to reduce future taxable income, which expire beginning in 2027.

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In assessing its unrecognized tax benefits, the Company has analyzed its tax return filing positions in all of the federal, state and foreign filing jurisdictions where it is required to file income tax returns, as well as all open years in those jurisdictions.

SELLAS LIFE SCIENCES GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued

As of December 31, 2023, the Company has no unrecognized tax benefits or accrued interest or penalties associated with uncertain tax positions.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data