What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2024-06-06 compared with 2023-03-27 · 131 added, 119 removed, 118 unchanged (68% of the section changed)

3 unchanged sentences

You should review the disclosure under the heading “Risk Factors” in this Annual Report on Form 10-K for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.

In addition, this section discusses 2022 and 2021 items and year-to-year comparisons between 2022 and 2021.

Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 are not included in this Annual Report and can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on March 25, 2022.

Historically, we have been an early-stage biotechnology company focused on developing nucleic acid therapies targeting ribonucleic acid against validated targets.

In September 2022, we announced a significant reduction in force, suspension of preclinical activities and halting of all research and development, and that we were exploring strategic alternatives to maximize stockholder value.

With respect to our historical assets, this includes continuing to explore out-licensing opportunities for cavrotolimod, our clinical-stage asset in immuno-oncology, as well as for our preclinical candidate associated with the SCN9A program for neuropathic pain.

While the foregoing efforts are continuing, we do not expect they will generate significant value for stockholders, at least in the near term.

While the foregoing efforts are continuing, with respect to our historical assets, we do not expect they will generate significant value for stockholders.

For example, in February 2024, we announced a licensing deal for patents related to one of our historical drug candidates, and received a small, one-time payment and an entitlement to only modest royalties on future sales of the licensed technology that we do not believe will be material.

Therefore, we are engaging in a broader exploration of strategic alternatives.

This effort involves exploring growth through transactions with potential partners that see opportunity in joining an existing, publicly-traded organization.

We are exploring transactions both within our historical biotechnology and life science industry and in other industries unrelated to our historical operations.

Because we currently have no source of revenue or committed financing, we will require substantial additional funding within the next few months in order to continue our exploration of strategic alternatives and consummate any transactions that we may identify.

We are exploring transactions in industries unrelated to our historical operations.

Because we currently have no source of revenue or committed financing, we will require substantial additional funding in the very near term in order to satisfy our existing obligations, continue to operate and continue our exploration of strategic alternatives and consummate any transactions that we may identify.

Operating, financing, and cash flow considerations

Since our inception in 2011, we have primarily funded our operations through sales of our securities, loans and collaborations.

As of December 31, 2022, our cash, cash equivalents, and restricted cash were $9.8 million.

Subsequent to December 31, 2022, we raised gross proceeds of $5.4 million on the closing of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expect to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.

Our current liquidity is not sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying consolidated financial statements.

On February 24, 2023, we raised gross proceeds of $5.4 million on the closing of the Private Placement (as defined below) (or net proceeds of approximately $4.6 million after transaction expenses).

However, we have used these net proceeds for our 2023 operation expenses (i.e.

severance payments, warrant put payments, investment in convertible notes receivable, and general working capital purposes as we pursue strategic alternatives).

As of December 31, 2023, our cash and cash equivalents cash were $0.8 million.

We had approximately $1.6 million in accounts payable as of December 31, 2023, as we deferred payments due to our deteriorating financial condition late in 2023.

Subsequent to December 31, 2023, our cash and cash equivalents have decreased to approximately $0.2 million as of May 31, 2024.

Although we are attempting to redeem the $2.0 million aggregate principal amount of our convertible notes receivable, there can be no assurance that we will be able to do so, in the near term or at all.

See “Risk Factors – We may not be able to redeem the investment in convertible notes receivable.”

Our current liquidity is not sufficient to fund operations.

As a result, there is substantial doubt about our ability to continue as a going concern.

Substantial additional financing will be needed by us within the next few months to fund our operations and ongoing exploration of strategic alternatives and pursue any alternatives that we identify.

If we are unable to raise capital, the Company could seek bankruptcy protection in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.

We expect to seek financing through a combination of equity offerings, and debt financings.

Substantial additional financing will be needed in the very near term to fund our existing obligation, operations and exploration of strategic alternatives and pursue any alternatives that we identify.

If we are unable to raise capital, the Company could seek bankruptcy protection and/or cease operations in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.

We expect to seek financing through equity offerings.

However, it may be difficult to obtain financing given the Company’s current condition and uncertainty over its future direction.

Therefore, we may be unable to raise capital when needed or on favorable terms.

Therefore, we may be unable to raise capital

at all or on favorable terms.

Our failure to raise capital or enter into such other arrangements as and when needed would have a negative impact on our financial condition and our ability to continue operations.

4 unchanged sentences

Change of Control

On February 24, 2023, following the satisfaction of closing conditions, including the approval by our stockholders at a Special Meeting of Stockholders held on December 15, 2022, we closed our private placement (the “Private Placement”) to CBI USA.

Exicure received gross proceeds of approximately $5.4 million in connection with the close of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expects to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.

Following the closing of the Private Placement, CBI USA is the beneficial owner of approximately 50.4% of the Company’s outstanding shares, resulting in a "change of control" of Exicure under the applicable rules of Nasdaq.

At closing, CBI USA designated three members to the Company’s board of directors effective as of February 24, 2023.

Additional directors were subsequently appointed by the board, and our board of directors currently includes 6 members, only one of which (Matthias Schroff, our Chief Executive Officer) was a director prior to the closing of the Private Placement.

We are currently relying on Nasdaq’s “controlled company” exception to the requirements that a majority of our board be independent and that we have an independent compensation committee and independent nominating committee or function.

Termination of Collaboration Agreements

On December 12, 2022 (the “Ipsen Termination Agreement Effective Date”), the Company and Ipsen entered into a Mutual Termination Agreement (the “Ipsen Termination Agreement”), pursuant to which the parties mutually agreed to terminate the Ipsen Collaboration Agreement.

Following such termination, the parties will jointly own R&D Term IP (as defined in the Ipsen Collaboration Agreement) and Patents Covering the R&D Term IP (as defined in the Ipsen Collaboration Agreement), with each party owning an equal, undivided interest in and to such R&D Term IP and patents.

As a result of the termination of the Ipsen Collaboration Agreement, the Company regained the ability to independently develop medicines targeting Angelman syndrome and Huntington’s disease while Ipsen retains the right to re-enter into the collaboration with the Company in Huntington’s Disease and Angelman’s Syndrome.

On December 13, 2022 (the “AbbVie Termination Agreement Effective Date”), the Company and Allergan entered into a letter agreement (the “AbbVie Termination Agreement”), pursuant to which the parties mutually agreed to terminate the AbbVie Collaboration Agreement.

Following such termination, the Company transferred to Allergan all data, information, and reports made or generated by the Company in the course of performing activities under the Development Plan (as defined in the AbbVie Collaboration Agreement), and granted to Allergan all rights to transfer, publish, present, or otherwise publicly disclose any Collaboration Technology (as defined in the AbbVie Collaboration Agreement) and data made or generated by the Company in the course of performing activities under the Development Plan.

As a result of the termination of the AbbVie Collaboration Agreement, the Company regained the ability to independently develop medicines targeting hair loss disorders.

On September 26, 2022, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with CBI USA, Inc.

(“CBI USA”), pursuant to which the Company agreed to issue and sell to CBI USA in a private placement an aggregate of 3,400,000 shares of Common Stock, at a purchase price of $1.60 per share.

The private placement closed on February 24, 2023 (the “Closing Date”).

CBI USA funded the acquisition pursuant to the Securities Purchase Agreement through a loan from its affiliate, DGP Co., Ltd.

On June 23, 2023, DGP exercised its the option pursuant to the loan and acquired the 3,400,000 shares of Common Stock initially acquired by CBI USA pursuant to the Securities Purchase Agreement.

DGP subsequently agreed to sell its shares to a third party, with the closing of 10% (340,000 shares) occurring in February 2024 and the remainder to close by or on June 30, 2024.

The Securities Purchase Agreement, as confirmed and clarified by that certain letter agreement, dated October 31, 2022, between the Company and CBI USA, provided CBI USA together with its affiliates and any “group” of which it or they are a member with the right to designate directors to the Company’s board of directors in proportion to the ownership of CBI USA and its affiliates and any such group.

CBI USA and DGP have announced they expect to exercise such rights as a group.

Together, they beneficially own 45% of the outstanding shares of Common Stock based on their most recent Schedule 13D amendment.

As noted above, DGP has entered into an agreement to sell its remaining shares to a third party by or on June 30, 2024.

Nasdaq Listing Requirements Deficiency Notices

3 unchanged sentences

The Company effected a one-for-thirty reverse stock split on June 29, 2022 in order to attempt to raise the stock price.

As of March 23, 2023, the Company’s stock price closed at $0.9761.

• Compliance with Nasdaq’s rule requiring stockholders’ equity of at least $2,500,000 based on the Company’s balance sheet as of June 30, 2022.

The Company believes it is in compliance with this requirement based on its December 31, 2022 balance sheet, but there can be no assurance it will remain in compliance.

• Compliance with Nasdaq’s corporate governance requirements with respect to board and committee composition due to (i) the lack of a majority independent board, (ii) the lack of an audit committee comprised of three independent directors and (iii) the lack of a compensation committee comprised of at least two independent directors.

With respect to the majority independence and the audit committee requirements, Nasdaq informed the Company that it was not entitled to a cure period and must submit a plan to regain compliance no later than April 10, 2023.

Following the closing of the Private Placement, the Company qualifies for Nasdaq’s controlled company exemptions from the requirements to have a majority independent board and independent compensation committee.

The Company still must have an audit committee comprised of three independent directors, which it believes it currently does following the additional board appointments after the closing of the Private Placement, and intends to reply to Nasdaq promptly.

On September 13, 2023, the Company received a delinquency notification that the closing bid price of the Company’s stock traded below $1.00 for the previous 30 consecutive business days.

The Company’s stock price has remained below $1.00 since receipt of the notification, which must be cured by September 9, 2024, per the March 12, 2024 extension letter received from Nasdaq.

• Compliance with Nasdaq’s rule requiring stockholders’ equity of at least $2,500,000 based on the Company’s balance sheet as of September 30, 2023.

The Company believes it is in compliance with this requirement based on its December 31, 2023 balance sheet, but we do not expect to be in compliance as of March 31, 2024.

• Compliance with Nasdaq’s corporate governance requirements with respect to board and committee composition .

The Company has received numerous deficiency notifications with respect to these requirements in the past year.

Although the Company is currently in compliance, there can be no assurance it will remain in compliance.

• Compliance with Nasdaq’s requirement to hold an annual meeting.

On January 11, 2024, Nasdaq notified the Company that it did not comply with listing requirements by not holding an annual meeting in 2023.

The Company received an extension letter on March 12, 2024 from Nasdaq noting it must hold its annual meeting by June 28, 2024.

• On November 22, 2023, the Company received a delinquency notification as it had not filed its third quarter Form 10-Q at the deadline, which was cured by filing of such Form 10-Q on May 16, 2024.

• On April 17, 2024, the Company received a delinquency notification as it had not filed its Annual Report Form 10-K for the year ended December 31, 2023.

The extended deadline for compliance was established by Nasdaq at May 20, 2024, the same deadline for our Form 10-Q for the quarter ended September 30, 2023, which had yet to be filed at the time.

• Although the Company filed its Form 10-Q for the quarter ended September 30, 2023 prior to the extended deadline of May 20, 2024, on May 21, 2024, the Company received a delisting determination from the Nasdaq staff as a result of not filing its Annual Report Form 10-K by the May 20, 2024 deadline and failure to timely file its Form 10-Q for the period ended March 31, 2024.

The staff’s delisting determination also noted the failure to hold its 2023 annual meeting as another basis of the delisting determination.

• On May 28, 2024, the Company requested an appeal of the delisting determination to Nasdaq’s hearings panel.

A hearing has been scheduled for July 9, 2024.

In connection with its request for an appeal, the Company also requested an extended stay on the suspension of trading in the Company’s common stock through the decision of the hearings panel.

If the extended stay is not granted, the automatic stay would only be in place for 15 calendar days from the May 28 appeal request.

Even if the Company regains compliance with Nasdaq’s listing requirements and addresses the outstanding deficiency notices to Nasdaq’s satisfaction, there can be no assurance that the Company will remain in compliance with Nasdaq’s requirements and will not be delisted.

3 unchanged sentences

Segment Reporting

We view our operations and manage our business as one segment, which for the periods presented was the discovery, research and development of treatments based on our SNA technology.

Critical Accounting Policies and Estimates

Our management’s discussion and analysis of financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the revenue and expenses incurred during the reported periods.

We base our estimates on historical experience and on various other factors that we believe are 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 apparent from other sources.

Changes in estimates are reflected in reported results for the period in which they become known.

Actual results may differ from these estimates under different assumptions or conditions.

Our significant judgments and estimates are detailed below, and our significant accounting policies are more fully described in Note 2 of the accompanying consolidated financial statements.

Revenue recognition

Revenue allocated to performance obligations relating to provision of research and development activities is recognized as the performance obligations are satisfied using an input method to measure progress, based on an estimate of the percentage of completion of the project based on the actual hours incurred on the project as a percentage of the total expected project hours.

The determination of the percentage of completion requires management to estimate the total expected project hours.

A detailed estimate of the total expected project hours is re-assessed every reporting period based on the latest project plan and discussions with project teams.

If a change in facts or circumstances occurs, the estimate will be adjusted and the revenue will be recognized based on the revised estimate.

The difference between the cumulative revenue recognized based on the previous estimate and the revenue recognized based on the revised estimate would be recognized as an adjustment to revenue in the period in which the change in estimate occurs.

Determining the estimate of total project hours requires significant judgment and may have a significant impact on the amount and timing of revenue recognition.

For example, revenue recognized under the AbbVie Collaboration Agreement for the year ended December 31, 2021 was $(2.8) million due primarily to the cumulative catchup adjustment (reduction) of revenue recorded in connection with a change in estimate that occurred during the third quarter of 2021 (see Note 3 to the accompanying consolidated financial statements).

We view our operations and manage our business as one segment.

Critical Accounting Estimates

We prepare our condensed consolidated financial statements in accordance with accounting principles generally accepted in the United States of America, which require our management to make estimates that affect the reported amounts of assets, liabilities and disclosures of contingent assets and liabilities at the balance sheet dates, as well as the reported amounts of revenues and expenses during the reporting periods.

To the extent that there are material differences between these estimates and actual results, our financial condition or results of operations would be affected.

We base our estimates on our own historical experience and other assumptions that we believe are reasonable after taking account of our circumstances and expectations for the future based on available information.

We evaluate these estimates on an ongoing basis.

We consider an accounting estimate to be critical if:

(1) the accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the accounting estimate was made, and (2) changes in the estimate that are reasonably likely to occur from period to period, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors.

In addition, there are other items within our financial statements that require estimation, but are not deemed critical as defined above.

Changes in estimates used in these and other items could have a material impact on our financial statements.

This includes estimates where the nature of the estimate is material due to the levels of subjectivity and judgment necessary to account for highly uncertain matters or the susceptibility of such matters to change, and the impact of the estimate on financial condition or operating performance is material.

Recent adopted accounting pronouncements

Refer to Note 2, Significant Accounting Policies , of the accompanying unaudited condensed consolidated financial statements for a description of recent accounting pronouncements ASU 2016-13 adopted during the first quarter of 2023.

There has been no impact on the financial statements from the adoption of this ASU.

Recent accounting pronouncements not yet adopted

Refer to Note 2 of the accompanying consolidated financial statements for a description of recent accounting pronouncements not yet adopted.

There are no recent accounting pronouncements that the Company has not yet adopted.

Components of Statements of Operations

For the year ended December 31, 2022, the Company’s revenue was generated from its collaborations with Ipsen and AbbVie, which were terminated in the fourth quarter.

Following the termination of the AbbVie and Ipsen agreements in the fourth quarter of 2022, as discussed above, we have no current source of revenue.

For the year ended December 31, 2022, the Company’s revenue was generated from its collaborations with Ipsen and AbbVie, which were terminated in the fourth quarter of 2022.

Following the termination of the AbbVie and Ipsen agreements, as discussed above, we have no current source of revenue.

We have never generated any commercial product revenue and do not expect to generate any product revenue.

Research and development expense

Research and development expense consists of costs associated with our research activities, including basic research on our SNA platform, discovery and development of novel SNAs as prospective therapeutic candidates, preclinical and clinical development activities for SNAs we have nominated for clinical development as well as maintaining and protecting our intellectual property.

Research and development expense consisted of costs associated with our research activities, including basic research on our SNA platform, discovery and development of novel SNAs as prospective therapeutic candidates, preclinical and clinical development activities for SNAs we have nominated for clinical development as well as maintaining and protecting our intellectual property.

Our research and development expenses in the periods presented include:

5 unchanged sentences

• facilities, depreciation and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation of leasehold improvements and equipment and laboratory and other supplies.

We expense research and development costs as they are incurred.

We expensed research and development costs as they were incurred.

A significant portion of our research and development costs were not tracked by project as they benefit multiple projects or our technology.

As previously announced, we halted all research and development activities in 2022.

As previously announced, we halted all research and development activities in 2022 and no longer incurred research and development expenses after the first quarter of 2023.

General and administrative expense

1 unchanged sentence

Other general and administrative expenses include travel expenses, professional fees for auditing, tax and legal services and allocated facility-related costs not otherwise included in research and development expenses.

Loss from sale of property and equipment

The Company sold the majority of its scientific equipment through a third party auctioneer and incurred a loss on the sale of these assets in the third quarter.

Changes in fair value of investment in convertible notes receivable

Changes in fair value became known and the Company impaired the entire $2 million amount of these convertible notes receivable.

Dividend income

16 unchanged sentences

General and administrative expense 12,653 10,890 1,763 16 %

Loss from sale of property and equipment 920 — 920 100 %

Total operating expenses 14,996 30,657 (15,661) (51) %

1 unchanged sentence

Other (expense) income, net:

Changes in fair value of investment in convertible notes receivable (2,000) — (2,000) 100 %

Dividend income 52 78 (26) (33) %

14 unchanged sentences

Total revenue $ — $ 28,826 $ (28,826) (100) %

Collaboration revenue was $28.8 million during the year ended December 31, 2022, reflecting an increase of $29.3 million, or 6,068%, from collaboration revenue of $(0.5) million for the year ended December 31, 2021.

The increase in collaboration revenue of $29.3 million is due to the recognition of the remaining deferred revenue related to the AbbVie Collaboration Agreement of $13.9 million and the Ipsen Collaboration Agreement of $15.4 million in connection with the terminations of those collaboration agreements in December 2022.

Collaboration revenue was $0.0 million during the year ended December 31, 2023, reflecting an decrease of $28.8 million, or 100%, from collaboration revenue of $28.8 million for the year ended December 31, 2022.

The decrease in collaboration revenue of $28.8 million is due to the recognition of the remaining deferred revenue related to the AbbVie Collaboration Agreement of $11.1 million and the Ipsen Collaboration Agreement of $17.7 million in connection with the terminations of those collaboration agreements in December 2022.

This revenue resulted from an accounting adjustment, did not reflect any new cash proceeds to the Company and will not recur.

13 unchanged sentences

Research and development expense was $1.4 million for the year ended December 31, 2023, reflecting a decrease of $18.3 million, or 93%, from research and development expense of $19.8 million for the year ended December 31, 2022.

The decrease in research and development expense for the year ended December 31, 2022 of $29.2 million reflects fewer clinical, preclinical, and discovery program activities and a reduction in headcount resulting from the restructuring activities that were announced in December 2021 and September 2022.

More specifically, the decrease in research and development expense for the year ended December 31, 2022 of $29.2 million was due to a decrease in costs related to our clinical development programs of $16.1 million, lower platform and discovery-related expense of $7.5 million, and lower employee-related expenses of $5.7 million.

The decrease in clinical development programs expense for the year ended December 31, 2022 of $16.1 million was primarily due to lower manufacturing and toxicology study costs in connection with IND-enabling and Phase 1 clinical trial preparation activities for the XCUR-FXN program, which we indefinitely suspended in December 2021.

In addition, lower clinical trial costs in connection with our Phase 1b/2 clinical trial for cavrotolimod (AST-008), which we began to wind down in December 2021, contributed to the decrease in clinical development program expense as compared to the prior-year period.

The decrease in platform and discovery-related expense for the year ended December 31, 2022 of $7.5 million was mostly due to lower costs for materials, reagents, and supplies in connection with a reduction in headcount and fewer discovery and preclinical program activities, the absence of the license fee paid to Northwestern University of $3.0 million in the prior year period in connection with the receipt of the upfront payment of $20.0 million from Ipsen, and lower intellectual property costs, as compared to the prior-year period.

The decrease in employee-related expense for the year ended December 31, 2022 of $5.7 million was due to lower compensation and related costs in connection with a lower headcount during the period resulting from the restructuring activities that were announced in December 2021 and September 2022, partially offset by retention award expense.

The decrease in research and development expense for the year ended December 31, 2023 of $18.3 million reflects the suspension of clinical, preclinical and discovery program activities and the reduction in headcount resulting from the restructuring activities that were announced in December 2021 and September 2022.

We continued to incur certain expenses that were classified as research and development expenses in the first quarter of 2023.

Thereafter, we determined it was no longer appropriate to record any research and development expenses, as the Company began exploring strategic alternatives in April 2023.

General and administrative expense

2 unchanged sentences

Full time employees 6 8 (2)

General and administrative expense was $10.9 million for the year ended December 31, 2022, representing a decrease of $2.2 million, or 17%, from $13.1 million for the year ended December 31, 2021.

The decrease for the year ended December 31, 2022 is mostly due to lower compensation and related costs in connection with a lower headcount during the period resulting from the restructuring activities that were announced in December 2021, as well as lower costs for accounting, director fees, and investor relations.

These lower costs in the current year period were partially offset by higher retention award expense, as well as higher consultant and advisory costs.

General and administrative expense was $12.7 million for the year ended December 31, 2023, representing an increase of $1.8 million, or 16%, from $10.9 million for the year ended December 31, 2022.

The increase for the year ended December 31, 2023 was mostly due to $1.5 million of certain expenses that previously had been recorded as research and development expenses, such as office facilities, legal, and payroll related costs, that no longer met the criteria to be classified as research and development expenses due to the shift in our historical business operations discontinuing all research and development activities as discussed above.

The increase was also due to higher costs from the separation pay of former executives and related stock based compensation expense, and increased franchise taxes;

partially offset by lower professional fees as a result of reduced operations.

Loss from sale of property and equipment

In the third quarter, the Company sold the majority of its scientific equipment through a third party auctioneer and incurred a loss on the sale of these assets as a result.

Changes in fair value of investment in convertible notes receivable

Changes in fair value became known and the Company impaired the entire $2 million amount of these convertible notes receivable.

As a result, the convertible notes receivable are recognized at a fair value of $0 as of December 31, 2023.

Interest expense

1 unchanged sentence

Provision for income taxes

The effective tax rate for the year ended December 31, 2022 of (8.8)% is attributable to the fact that the Company is subject to the IRC Section 174 regulations requiring companies to capitalize certain research and experimental expenditures and IRC Section 382 loss limitation rules on our ability to utilize net operating losses to offset the capitalization requirement.

The effective income tax rate for the year ended December 31, 2021 was 0% because the Company generated tax losses and provided a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized.

We completed a review of our changes in ownership through December 31, 2022 and determined that we experienced an "ownership change" within the meaning of Section 382(g) during the fourth quarter of 2022.

This ownership change has and will continue to subject our net operating loss carryforwards to an annual limitation, which will significantly restrict our ability to use them to offset our taxable income in periods following the ownership change.

In general, the annual use limitation equals the aggregate value of our stock at the time of the ownership change multiplied by a specified tax-exempt interest rate.

The effective tax rate for the year ended December 31, 2023 of 0% because the Company generated tax losses and provided a full valuation allowance against its deferred tax assets as the balance is not likely to be realized.

The effective tax rate for the year ended December 31, 2022 of (8.8)% was attributable to the fact the Company was subject to the IRC Section 174 regulations requiring companies to capitalize certain research and experimental expenditures and IRC Section 382 loss limitation rules on our ability to utilize net operating losses to offset the capitalization requirement, with the most recent ownership change being in the fourth quarter of 2022.

This resulted in current income tax expense in 2022.

As of December 31, 2023, the Company has “discontinued the original business” of Exicure within the meaning of Section 382(c).

This change has and will continue to subject our net operating loss carryforwards as of the fourth quarter of 2022 to an annual zero limitation, which will fully restrict our ability to use loss carryforwards and deductions from built in loss assets generated before the ownership change date to offset our taxable income in periods following the ownership change.

Liquidity and Capital Resources

As of December 31, 2022, our cash, cash equivalents, and restricted cash were $9.8 million.

We have no current source of revenues or committed financing.

Subsequent to December 31, 2022, we received gross proceeds of approximately $5.4 million in connection with the close of the Private Placement (or net proceeds of approximately $4.6 million after transaction expenses) and expect to use the net proceeds for general working capital purposes as we pursue strategic alternatives as well as for the payout for warrant put rights that were exercised as a result of the change of control.

Our current liquidity is not sufficient to fund operations over the next twelve months from the date of the issuance of the accompanying consolidated financial statements.

Since our inception, we have incurred significant operating losses.

We generated limited revenue from our collaboration agreements, which have since been terminated.

We have funded our operations to date with proceeds received from equity financings and payments received in connection with collaboration agreements, which have since been terminated.

Currently we are exploring strategic alternatives and generating no revenue.

As of December 31, 2023, our cash and cash equivalents cash were $0.8 million.

We had approximately $1.6 million in accounts payable as of December 31, 2023, as we deferred payments due to our deteriorating financial condition late in 2023.

Subsequent to December 31, 2023, our cash and cash equivalents have decreased to approximately $0.2 million as of May 31, 2024.

See “Risk Factors – We may not be able to redeem the investment in convertible notes receivable.”

We incurred net losses of approximately $16.9 million and $2.6 million for the years ended December 31, 2023 and 2022, respectively.

As of December 31, 2023, we have generated an accumulated deficit of $208.4 million, including $18,837 of additional paid-in capital reclassed to accumulated deficit upon C-corporation conversion, since inception and expect to incur significant expenses and negative cash flows for the foreseeable future.

Our current liquidity is not sufficient to continue to fund existing obligations and operations.

As a result, there is substantial doubt about our ability to continue as a going concern.

We believe that our existing cash and cash equivalents (including the proceeds received in February 2023 in connection with the closing of the Private Placement) could enable us to fund our operating expenses into the beginning of the fourth quarter of 2023.

However, this estimate is based on assumptions about how we can limit spending that may prove to be wrong and it is very difficult to project our current cash burn rate given the transitional status of the Company as we explore strategic alternatives and this estimate may prove inaccurate and we may expend our limited resources sooner.

Depending on the direction of our review of strategic alternatives, we

may use our available resources sooner than we currently expect.

The Company has already engaged in significant cost reductions, so our ability to further cut costs and extend our operating runway is limited.

As a result, substantial additional financing will be needed by us within the next few months to pay our expenses, fund our ongoing exploration of strategic alternatives and pursue any alternatives that we identify.

If we are unable to raise sufficient capital, the Company could seek bankruptcy protection in the near term, which may result in the Company’s stockholders receiving no or very little value in respect of their shares of the Company’s common stock.

We expect to seek financing through a combination of equity offerings and debt financings.

However, it may be difficult to obtain financing given the Company’s current financial condition and lack of sources of revenues and uncertainty over its future direction.

Traditional capital markets sources of funding may not be available to us in these circumstances.

Therefore, we may be unable to raise capital at all, when needed or on favorable terms.

To the extent that we do raise additional capital, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions that otherwise might be in our best interests.

Further, the global financial markets have experienced significant disruptions over the past couple years due to the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, worsening global macroeconomic conditions, including actions taken by central banks to counter inflation, volatility in the capital markets, instability in the banking industry and related market uncertainty, may impact our ability to obtain additional financing when needed on favorable terms or at all.

Private Placements

In May 2022, we entered into a securities purchase agreement with certain accredited investors, pursuant to which we issued and sold 867,369 shares of common stock, par value $0.0001 per share, at a purchase price of $5.81 per share for net proceeds of approximately $4.9 million.

In September 2022, we entered into a securities purchase agreement with CBI USA with respect to the Private Placement, which subsequently closed in February 2023.

MidCap Facility

On March 15, 2022, we repaid in full all outstanding indebtedness and other obligations under our Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021, September 30, 2021, and December 10, 2021, with MidCap Financial Trust, as agent, and the lenders party thereto from time to time, or the MidCap Credit Agreement, and the other Financing Documents (as defined in the MidCap Credit Agreement), including but not limited to the outstanding principal balance of $7.5 million and an exit fee of approximately $0.5 million, and terminated all obligations thereunder (other than with respect to any obligations that are expressly specified to survive the termination).

Substantial additional financing will be needed in the very near term to fund our existing obligations and operations and there is no certainty we will obtain such financing.

If we are unable to raise capital, we will be unable to continue operations.

We may need to seek bankruptcy protection and/or cease operations in the near term, which may result in our stockholders receiving no or very little value in respect of their shares of our common stock.

See “Funding Requirements” below for additional information on our future capital needs.

The following table shows a summary of our cash flows for the years ended December 31, 2023 and 2022:

1 unchanged sentence

Net cash used in operating activities $ (10,357) $ (35,658)

Net cash provided by investing activities 4,696 43,085

Net cash (used in) provided by financing activities (3,105) 1,116

Net (decrease) increase in cash, cash equivalents, and restricted cash $ (34,067) $ 9,382

Net cash (used in) provided by investing activities (1,078) 4,696

Net cash provided by (used in) financing activities 3,674 (3,105)

Net (decrease) in cash, cash equivalents, and restricted cash $ (7,761) $ (34,067)

Operating activities

Net cash used in operating activities was $10.4 million and $35.7 million for the years ended December 31, 2023 and 2022, respectively.

The slight increase in cash used in operating activities for the year ended December 31, 2022 of $0.8 million was primarily due to the absence of the prior-year period receipt of the upfront payment of $20.0 million from Ipsen in connection with the Ipsen Collaboration Agreement (net of $3.0 million license fee paid to Northwestern as a result) and the prepayment of the premium for directors and officers run-off insurance policy coverage in the fourth quarter of 2022 in anticipation of the Private Placement closing, mostly offset by lower cash used for working capital.

The decrease in cash used in operating activities for the year ended December 31, 2023 of $25.3 million was due to the suspension of R&D activities and lower headcount from the September 2022 and December 2021 restructurings.

Investing activities

Net cash provided by investing activities was $4.7 million and $43.1 million for the years ended December 31, 2022 and 2021, respectively.

Net cash used in investing activities was $1.1 million and provided by investing activities was $4.7 million for the years ended December 31, 2023 and 2022, respectively.

The decrease in cash provided by investing activities of $5.8 million was primarily due to a decrease in proceeds from the maturity, net of purchases, of available-for-sale securities.

Financing activities

Net cash used in financing activities of $3.1 million for year ended December 31, 2022 is primarily due to the repayment in full of all outstanding indebtedness and other obligations under the MidCap Credit Agreement, partially offset by net proceeds of approximately $4.9 million received in connection with the May 2022 private placement transaction.

Net cash provided by financing activities of $1.1 million for the year ended December 31, 2021 is primarily due to the net proceeds we received of $10.4 million in connection with the sale of common stock and warrants in a registered direct offering in December 2021, as well as proceeds received from the exercise of stock options and the issuance of common stock in connection with our employee stock purchase plan, mostly offset by the prepayment of $10 million of the outstanding principal balance associated with our MidCap Credit Agreement in December 2021.

Net cash provided by financing activities of $3.7 million for year ended December 31, 2023 is primarily due to the Private Placement closed in February 2023.

Net cash used in financing activities of $3.1 million for the year ended December 31, 2022 is primarily due to the repayment in full of all outstanding indebtedness and other obligations under the Credit and Security Agreement, dated as of September 25, 2020, as amended on October 21, 2020, July 30, 2021, September 30, 2021, and December 10, 2021, with MidCap Financial Trust, as agent, and the lenders party thereto from time to time, or the MidCap Credit Agreement, partially offset by net proceeds of approximately $4.9 million received in connection with the May 2022 private placement transaction.

Funding Requirements

We will need to obtain substantial additional funding in the very near term to satisfy existing obligations and continue operations.

If we are unable to raise capital at all or on acceptable terms, we would be unable to continue operations.

Our existing cash and cash equivalents are not sufficient to enable us to fund our existing obligations and ongoing operating expenses.

Our future capital requirements are difficult to forecast and will depend on many factors, including:

• the results of our exploration of strategic alternatives, including any potential transactions;

• the results of any future or pending litigation against the Company;

• the extent to which we encounter increased costs as a result of global and macroeconomic conditions, including rising inflation and interest rates, supply chain disruptions, fluctuating exchange rates, and increases in commodity, energy and fuel prices;

• unknown legal, administrative, regulatory, accounting, and information technology costs as well as additional costs associated with operating as a public company.

Until such time, if ever, as we can generate substantial revenue, we expect to finance our cash needs primarily through equity offerings.

To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders may be materially diluted, and the terms of such securities could include liquidation or other preferences that adversely affect the rights of our stockholders.

Debt financing and preferred equity financing, if available, may involve agreements that include restrictive covenants that limit our ability to take specified actions, such as incurring additional debt, making capital expenditures or declaring dividends.

Further, the global financial markets have experienced significant disruptions over the past couple of years due to the COVID-19 pandemic, the ongoing conflict between Russia and Ukraine, and worsening global macroeconomic conditions, including actions taken by central banks to counter inflation, volatility in the capital markets and related market uncertainty, may impact our ability to obtain additional financing when needed on favorable terms or at all.

Any further disruption or slowdown in the global financial markets and economy may negatively affect our ability to raise funding through equity or debt financings on attractive terms or at all, which could in the future negatively affect our operations.

Going Concern

4 unchanged sentences

Chicago Lease

In February 2020, we entered into a new lease signed in February 2020 to secure approximately 30,000 square feet of office and laboratory space at 2430 N.

Halsted St., Chicago, Illinois, or the Chicago Lease.

The Chicago Lease commenced on July 1, 2020, which is when the premises leased thereunder were ready for occupancy, and expires 10 years from July 1, 2020 with an option to renew for two additional successive periods of five years each.

The initial annual base rent during the original term of the Chicago Lease is approximately $1.1 million for the first 12-month period of the original term, payable in monthly installments beginning on the lease commencement.

Base rent thereafter is subject to annual increases of 3%, for an aggregate amount of $12.8 million over the initial term.

We must also pay our proportionate share of certain operating expenses and taxes for each calendar year during the term.

During the first 12 months, the base rent and our proportionate share of operating expenses and taxes are subject to certain abatements.

In connection with the Chicago Lease, we will maintain a letter of credit for the benefit of the landlord in an initial amount of $1.2 million, which amount is subject to reduction over time, which is secured by a restricted certificate of deposit account and presented within other noncurrent assets on our consolidated balance sheet at

December 31, 2022.

Following the closing of the Private Placement, a holder of warrants to purchase 526,151 shares of common stock at a price of $8.1031 per share that were acquired in the December 2021 registered-direct offering transaction exercised their put option within 30 days of the closing of the Private Placement (February 24, 2023), to receive a cash payout for the outstanding warrants in the amount of the Black-Scholes value of each warrant as prescribed in the warrant agreement (or $0.8 million in the aggregate).

This obligation remains outstanding as of the date of the filing of this Annual Report of Form 10-K.

We also have obligations to make future payments to Northwestern that become due and payable on the achievement of certain commercial milestones.

Based on the terminations of our collaborations with Ipsen and AbbVie, we currently do not anticipate any such milestone payments becoming due.

We are an emerging growth company, as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act.

Under the JOBS Act, an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards.

Thus, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.

We have irrevocably elected not to avail ourselves of this extended transition period and, as a result, we will adopt new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies.

In addition, as an emerging growth company, we will not be required to provide an auditor’s attestation report on our internal control over financial reporting in future annual reports on Form 10-K as otherwise required by Section 404(b) of the Sarbanes-Oxley Act.

Refer to Note 7 - Leases to the Notes to our Consolidated Financial Statements included herein.

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 7. Management’s Discussion and Analysis