EXICURE, INC. 10-K

Item 8. Financial Statements and Supplementary Data. EXICURE, INC. INDEX TO FINANCIAL STATEMENTS PAGE Report of Independent Registered Public Accounting Firm ( Marcum LLP , Chicago, IL , PCAOB ID 688 ) 38 Report of Independent Registered Public Accounting Firm ( KPMG LLP , Chicago, IL , PCAOB ID 185 ) 40 Consolidated Balance Sheets as of December 31, 2023 and 2022 41 Consolidated Statements of Operations for the years ended December 31, 2023 and 20 2 2 42 Consolidated Statements of Comprehensive Loss for the years ended December 31, 2023 and 20 2 2 43 Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2023 and 20 2 2 44 Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 20 2 2 45 Notes to Consolidated Financial Statements 47 37 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Exicure, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated balance sheet of Exicure, Inc. (the “Company”) as of December 31, 2023, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity and cash flows for the year ended December 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023, and the results of its operations and its cash flows for the year ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America. Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As more fully described in Note 1 to the consolidated financial statements, the Company has incurred significant expenses and negative cash flows since inception and its current liquidity is not sufficient to fund operations over the next twelve months. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion. 38 Table of Contents Critical Audit Matter Critical audit matters are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ Marcum LLP Marcum LLP We have served as the Company’s auditor since 2023 . New York, New York June 6, 2024 39 Table of Contents Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors Exicure, Inc.: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheet of Exicure, Inc. and subsidiary (the Company) as of December 31, 2022, the related consolidated statements of operations, comprehensive loss, changes in stockholders’ equity, and cash flows for the year ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and the results of its operations and its cash flows for the year ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. Going Concern The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has incurred significant expenses and negative cash flows since inception and its current liquidity is not sufficient to fund operations over the next twelve months, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion. /s/ KPMG LLP We served as the Company’s auditor from 2014 to 2023. Chicago, Illinois March 27, 2023 40 Table of Contents EXICURE, INC. CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share data) December 31, 2023 2022 ASSETS Current assets: Cash and cash equivalents $ 816 $ 8,577 Other receivable 15 — Prepaid expenses and other current assets 1,193 1,474 Total current assets 2,024 10,051 Property and equipment, net 54 2,530 Right-of-use asset 6,517 7,257 Other noncurrent assets 2,985 3,490 Total assets $ 11,580 $ 23,328 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,631 $ 361 Accrued expenses and other current liabilities 879 1,278 Total current liabilities 2,510 1,639 Lease liability, noncurrent 6,039 6,767 Total liabilities $ 8,549 $ 8,406 Commitments and Contingencies (Note 15) Stockholders’ equity: Preferred stock, $ 0.0001 par value per share; 10,000,000 shares authorized, no shares issued and outstanding, December 31, 2023 and December 31, 2022 — — Common stock, $ 0.0001 par value per share; 200,000,000 shares authorized, 8,650,753 issued and outstanding, December 31, 2023; 4,965,901 issued and outstanding, December 31, 2022 1 — Additional paid-in capital 192,593 187,571 Accumulated other comprehensive loss — — Accumulated deficit ( 189,563 ) ( 172,649 ) Total stockholders' equity 3,031 14,922 Total liabilities and stockholders’ equity $ 11,580 $ 23,328 See Accompanying Notes to Consolidated Financial Statements. 41 Table of Contents EXICURE, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except share and per share data) Year Ended December 31, 2023 2022 Revenue: Collaboration revenue $ — $ 28,826 Total revenue — 28,826 Operating expenses: Research and development expense 1,423 19,767 General and administrative expense 12,653 10,890 Loss from sale of property and equipment 920 — Total operating expenses 14,996 30,657 Operating loss ( 14,996 ) ( 1,831 ) Other (expense) income, net: Changes in fair value of investment in convertible notes receivable ( 2,000 ) — Dividend income 52 78 Interest income 32 15 Interest expense — ( 595 ) Other expense, net ( 2 ) ( 40 ) Total other expense, net ( 1,918 ) ( 542 ) Net loss before provision for income taxes ( 16,914 ) ( 2,373 ) Provision for income taxes — 209 Net loss $ ( 16,914 ) $ ( 2,582 ) Basic and diluted loss per common share $ ( 2.11 ) $ ( 0.56 ) Weighted-average basic and diluted common shares outstanding 8,013,840 4,619,471 See Accompanying Notes to Consolidated Financial Statements. 42 Table of Contents EXICURE, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (in thousands, except share and per share data) Year Ended December 31, 2023 2022 Net loss $ ( 16,914 ) $ ( 2,582 ) Other comprehensive (loss) income, net of taxes Unrealized gains on available for sale securities, net of tax — 2 Other comprehensive income — 2 Comprehensive loss $ ( 16,914 ) $ ( 2,580 ) See Accompanying Notes to Consolidated Financial Statements. 43 Table of Contents EXICURE, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (in thousands, except shares) Common Stock Shares $ Additional Paid-in- Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total Stockholders’ Equity Balance at January 1, 2022 3,626,073 $ — $ 181,301 $ ( 170,067 ) $ ( 2 ) $ 11,232 Exercise of options 124 — — — — — Equity-based compensation — — 1,369 — — 1,369 Vesting of restricted stock units and related repurchases 3,818 — ( 4 ) — — ( 4 ) Issuance of common stock-ESPP 1,851 — 5 — — 5 Issuance of common stock and warrants, net 1,334,035 — 4,900 — — 4,900 Other comprehensive loss, net — — — — 2 2 Net loss — — — ( 2,582 ) — ( 2,582 ) Balance at December 31, 2022 4,965,901 $ — $ 187,571 $ ( 172,649 ) $ — $ 14,922 Reclassification of common stock warrants to liability — — ( 800 ) — — ( 800 ) Equity-based compensation — — 1,348 — — 1,348 Vesting of restricted stock units and related repurchases 284,852 1 ( 123 ) — — ( 122 ) Issuance of common stock and warrants, net 3,400,000 — 4,597 — — 4,597 Net loss — — — ( 16,914 ) — ( 16,914 ) Balance at December 31, 2023 8,650,753 $ 1 $ 192,593 $ ( 189,563 ) $ — $ 3,031 See Accompanying Notes to Consolidated Financial Statements. 44 Table of Contents EXICURE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Year Ended December 31, 2023 2022 Cash flows from operating activities: Net loss $ ( 16,914 ) $ ( 2,582 ) Adjustments to reconcile net loss to cash used in operating activities: Depreciation and amortization 634 1,163 Amortization of right-of-use asset 741 693 Equity-based compensation 1,348 1,369 Amortization of long-term debt issuance costs and fees — 477 Amortization of investments — ( 2 ) Changes in fair value of investment in convertible notes receivable 2,000 — Loss from sale of property and equipment 920 — Other — 39 Changes in operating assets and liabilities: Prepaid expenses and other current assets 733 3,051 Other noncurrent assets 38 ( 2,165 ) Accounts payable 1,270 ( 3,052 ) Accrued expenses ( 399 ) ( 5,186 ) Deferred revenue — ( 28,826 ) Other liabilities ( 728 ) ( 637 ) Net cash used in operating activities ( 10,357 ) ( 35,658 ) Cash flows from investing activities: Purchase of available-for-sale securities ( 2,000 ) ( 1,499 ) Proceeds from sale or maturity of available-for-sale securities — 6,000 Capital expenditures — ( 10 ) Proceeds from sale of property and equipment 922 205 Net cash (used in) provided by investing activities ( 1,078 ) 4,696 Cash flows from financing activities: Proceeds from common stock offering 5,440 5,040 Payment of common stock financing costs ( 843 ) ( 154 ) Payment of long-term debt fees and issuance costs — ( 506 ) Repayment of long-term debt — ( 7,500 ) Proceeds from issuance of employee stock purchase plan — 5 Proceeds from exercise of common stock warrants — 14 Payment of exercise of common stock warrants ( 800 ) — Payments for minimum statutory tax withholding related to net share settlement of equity awards ( 123 ) ( 4 ) 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 ) Cash, cash equivalents, and restricted cash - beginning of year 9,777 43,844 Cash, cash equivalents, and restricted cash - end of year $ 2,016 $ 9,777 45 Table of Contents EXICURE, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) The following table provides a reconciliation of cash, cash equivalents, and restricted cash reported within the consolidated balance sheets that sum to the total of the amounts shown in the consolidated statements of cash flows: Year Ended December 31, 2023 2022 Cash and cash equivalents $ 816 $ 8,577 Restricted cash included in other noncurrent assets 1,200 1,200 Total cash, cash equivalents, and restricted cash shown in the consolidated statements of cash flows $ 2,016 $ 9,777 See Accompanying Notes to Consolidated Financial Statements. 46 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 1. Description of Business, Basis of Presentation and Going Concern Description of Business Exicure, Inc. has historically been an early-stage biotechnology company focused on developing nucleic acid therapies targeting ribonucleic acid against validated targets. In September 2022, the Company announced a significant reduction in force, suspension of preclinical activities and halting of all research and development, and that the Company was exploring strategic alternatives to maximize stockholder value. While the foregoing efforts are continuing, with respect to the Company’s historical assets, the Company does not expect they will generate significant value for stockholders. Therefore, the Company is 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. The Company is exploring transactions in industries unrelated to its historical operations. Throughout these consolidated financial statements, the terms the “Company,” and “Exicure” refer to Exicure, Inc. and where appropriate, its wholly owned subsidiary, Exicure Operating Company. Exicure Operating Company holds all material assets and conducts all business activities and operations of Exicure, Inc. Basis of Presentation These consolidated financial statements have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission and accounting principles generally accepted in the United States of America (“US GAAP”) as defined by the Financial Accounting Standards Board (“FASB”) within the FASB Accounting Standards Codification (“ASC”) and are presented in thousands, except number of shares and per share data. Principles of Consolidation The accompanying consolidated financial statements include the accounts of Exicure, Inc. and its wholly owned subsidiary, Exicure Operating Company. All intercompany transactions and accounts are eliminated in consolidation. Reclassification Certain accounts in the prior period consolidated financial statements have been reclassified to conform to the presentation of the current year consolidated financial statements. These reclassifications had no effect on the previously reported operating results. Going Concern At each reporting period, the Company evaluates whether there are conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern for a period of one year after the date that the financial statements are issued. The Company is required to make certain additional disclosures if it concludes substantial doubt exists and it is not alleviated by the Company’s plans or when its plans alleviate substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern for a period of one year after the date that the financial statements are issued. As of December 31, 2023, the Company expects to incur significant expenses and negative cash flows for the foreseeable future. As of December 31, 2023, the Company’s cash and cash equivalents were $ 816 . Management believes that given the Company’s current cash position, operating plans and forecasted negative cash flows from operating activities over the next twelve months, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date these financial statements are issued. The Company has no committed sources of additional capital at this time and substantial additional financing will be needed by the Company to fund its operations. 47 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Management believes that the Company’s existing cash and cash equivalents are insufficient to continue to fund its operating expenses and additional funding is needed in the very near term. The Company has already engaged in significant cost reductions, so our ability to further cut costs and extend the Company’s operating runway is limited. As a result, substantial additional financing will be needed by the Company in the very near term to pay expenses, fund the ongoing exploration of strategic alternatives and pursue any alternatives that may be identified. There can be no assurance that such additional financing will be available and, if available, can be obtained on acceptable terms. The accompanying consolidated financial statements have been prepared as though the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Use of Estimates The preparation of the financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management bases its estimates on certain assumptions which it believes are reasonable in the circumstances and while actual results could differ from those estimates, management does not believe that any change in those assumptions in the near term would have a significant effect on the Company’s financial position, results of operations or cash flows. Actual results in future periods could differ from those estimates. 2. Significant Accounting Policies Cash and cash equivalents The Company considers all highly liquid investments with original maturities of three months or less to be cash equivalents. The Company classifies its marketable debt security investments as available-for-sale (“AFS”) and carries them at fair market value based upon prices on the last day of the fiscal period for identical or similar items. The Company records unrealized gains and losses on marketable debt securities in other comprehensive income (loss) as a component of stockholders’ equity until realized. Any premium or discount arising at purchase is amortized and/or accreted to interest income and/or interest expense over the life of the of the underlying security. Realized gains and losses are included in other income, net. The Company uses the specific identification method to determine the cost of securities sold. Restricted cash The Company secures a standby letter of credit with a restricted certificate of deposit account as part of its Chicago lease agreement. The Company considers the restricted certificate of deposit account in the amount of $ 1,200 to be restricted cash because its use to the Company is contractually limited and presents the balance within other noncurrent assets on the accompanying consolidated balance sheet at December 31, 2023 and 2022. Fair value of financial instruments The Company has estimated the fair value of its financial instruments. The carrying amounts for cash, cash equivalents, and accounts payable approximate their fair value due to the relatively short-term nature of these instruments. The Company records short-term investments at their estimated fair value based on quoted market prices for identical or similar instruments. 48 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Investment in Convertible Notes Receivable Securities are classified as current or noncurrent based on the remaining contractual maturities of the securities. Securities are designated by the Company at the point of investment, as either trading, AFS, or held to maturity. Under ASC 825, Financial Instruments, the Company elected the fair value option for all outstanding convertible notes receivable. Management evaluates the performance of the securities on a fair value basis. Under the fair value option, the notes receivable are measured at each reporting period based upon their exit value in an orderly transaction and unrealized gains or losses from changes in fair value are recorded in the Condensed Consolidated Statements of Operations. Investment in convertible notes receivable at fair value totaled $ 0 as of December 31, 2023. As of December 31, 2023, the aggregate cost of the investment in convertible notes receivable accounted for under the fair value option was $ 0 , which included principal balances of $ 2,000 and the change in fair value of $ 2,000 . Concentrations of credit risk and other risks and uncertainties Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, and accounts receivable. The Company places its cash, cash equivalents, and short-term investments with reputable financial institutions. The Company primarily invests its excess cash in debt instruments of corporations, the U.S. Treasury, financial institutions, and U.S. government agencies with strong credit ratings and an investment grade rating at or above a long-term rating of Aa3/AA- and a short-term rating of P1/A1. The Company has established guidelines relative to diversification and maturities that maintain safety and liquidity. The Company periodically reviews and modifies these guidelines to maximize trends in yields and interest rates without compromising safety and liquidity. The Company has not experienced any credit losses in such accounts. The Company has no financial instruments with off-balance sheet risk of loss. 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 resulting in no revenue for 2023. The Company is currently not profitable and no assurance can be provided that it will ever be profitable. The Company’s research and development activities have required significant investment since inception and operations are expected to continue to require cash investment in excess of its revenues. See also Note 1, Going Concern , for more information. The Company is subject to risks associated with its exploration of strategic alternatives including, but not limited, the inability to identify any transactions that will generate value for stockholders, incurrence of excessive costs in seeking to identify and pursue transactions and the possibility that any transaction the Company does pursue will not provide anticipated benefits. Property and equipment Property and equipment are recorded at cost and depreciated using the straight-line method over the estimated useful lives of the various classes of property and equipment, which range from three to seven years . Leasehold improvements are amortized using the straight-line method over the shorter of the remaining terms of the respective leases or the estimated lives of the assets. Depreciation begins at the time the asset is placed in service. Property and equipment are reviewed for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No impairment losses were recorded recorded for the years ended December 31, 2023 and 2022. Warrants The Company accounts for freestanding warrants within stockholder’s equity or as liabilities based on the characteristics and provisions of each instrument. The Company evaluates outstanding warrants in accordance with ASC 480, Distinguishing Liabilities from Equity , and ASC 815, Derivatives and Hedging . If none of the criteria in 49 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) the evaluation in these standards are met, the warrants are classified as a component of stockholders’ equity and initially recorded at their grant date fair value without subsequent remeasurement. Warrants that meet the criteria are classified as liabilities and remeasured to their fair value, estimated using the Black-Scholes option-pricing model, at the end of each reporting period with changes in the fair value of the liability recorded in other income (expense), net in the consolidated statements of operations. Revenue recognition Under ASC 606, Revenue from Contracts with Customers , the Company recognizes revenue when its customer obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of ASC 606, the Company performs the following five steps: 1. Identify the contract with the customer. A contract with a customer exists when (i) the Company enters into an enforceable contract with a customer that defines each party’s rights and obligations regarding the goods or services to be transferred and identifies the related payment terms, (ii) the contract has commercial substance, and (iii) the Company determines that collection of substantially all consideration for goods and services that are transferred is probable based on the customer’s intent and ability to pay the promised consideration. The Company applies judgment in determining the customer’s intent and ability to pay, which is based on a variety of factors including the customer’s historical payment experience, or in the case of a new customer, published credit and financial information pertaining to the customer. 2. Identify the performance obligations in the contract. Performance obligations promised in a contract are identified based on the goods and services that will be transferred to the customer that are both capable of being distinct, whereby the customer can benefit from the good or service either on its own or together with other available resources, and are distinct in the context of the contract, whereby the transfer of the good or service is separately identifiable from other promises in the contract. To the extent a contract includes multiple promised goods and services, the Company must apply judgment to determine whether promised goods and services are both capable of being distinct and distinct in the context of the contract. If these criteria are not met, the promised goods and services are accounted for as a combined performance obligation. 3. Determine the transaction price. The transaction price is determined based on the consideration to which the Company will be entitled in exchange for transferring goods and services to the customer. To the extent the transaction price includes variable consideration, the Company estimates the amount of variable consideration that should be included in the transaction price utilizing either the expected value method or the most likely amount method, depending on the nature of the variable consideration. Variable consideration is included in the transaction price if, in the Company’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Any estimates, including the effect of the constraint on variable consideration, are evaluated at each reporting period for any changes. Determining the transaction price requires significant judgment. 4. Allocate the transaction price to performance obligations in the contract. If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. However, if a series of distinct services that are substantially the same qualifies as a single performance obligation in a contract with variable consideration, the Company must determine if the variable consideration is attributable to the entire contract or to a specific part of the contract. Contracts that contain multiple performance obligations require an allocation of the transaction price to each performance obligation on a relative standalone selling price basis unless the transaction price is variable and meets the criteria to be allocated entirely to a performance obligation or to a distinct service that forms part of a single performance obligation. The consideration to be received is allocated among the separate performance obligations based on relative standalone selling prices. 5. Recognize revenue when or as the Company satisfies a performance obligation. The Company satisfies performance obligations either over time or at a point in time. Revenue is recognized over time if either (i) 50 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) the customer simultaneously receives and consumes the benefits provided by the entity’s performance, (ii) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or (iii) the entity’s performance does not create an asset with an alternative use to the entity and the entity has an enforceable right to payment for performance completed to date. If the entity does not satisfy a performance obligation over time, the related performance obligation is satisfied at a point in time by transferring the control of a promised good or service to a customer. Examples of control are using the asset to produce goods or services, enhance the value of other assets, or settle liabilities, and holding or selling the asset. 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. Licenses of intellectual property : If the license to the Company’s intellectual property is determined to be distinct from the other performance obligations identified in the arrangement, the Company recognizes revenues from consideration allocated to the license when the license is transferred to the customer and the customer is able to use and benefit from the licenses. For licenses that are combined with other promises, the Company utilize judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress for purposes of recognizing revenue. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. Milestone payments: At the inception of each arrangement that includes development milestone payments, the Company evaluates the probability of reaching the milestones and estimates the amount to be included in the transaction price using the most likely amount method. If it is probable that a significant revenue reversal would not occur in the future, the associated milestone value is included in the transaction price. Milestone payments that are not within the control of the Company or the licensee, such as regulatory approvals, are not considered probable of being achieved until those approvals are received and therefore revenue recognized is constrained as management is unable to assert that a reversal of revenue would not be possible. The transaction price is then allocated to each performance obligation on a relative standalone selling price basis, for which the Company recognizes revenue as or when the performance obligations under the contract are satisfied. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of such development milestones and any related constraint, and if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect collaboration revenues and earnings in the period of adjustment. To date, the Company has not recognized any milestone payment revenue from any of its collaboration agreements. Royalties : For arrangements that include sales-based royalties, including milestone payments based on levels of sales, and the license is deemed to be the predominant item to which the royalties relate, the Company recognizes revenue at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty has been allocated has been satisfied (or partially satisfied). To date, the Company has not recognized any royalty revenue resulting from any of its collaboration agreements. 51 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Equity-based compensation The Company measures the cost of equity-based awards at fair value and records the cost of the awards, net of estimated forfeitures, on a straight-line basis over the requisite service period. The Company measures fair value for all common stock options using the Black-Scholes option-pricing model. The fair value of common stock option awards is affected by the valuation assumptions, including the expected volatility based on comparable market participants, expected term of the common stock option, risk-free interest rate, and expected dividends. For all equity-based awards, the fair value measurement date is the date of grant and the requisite service period is the period over which the recipient is required to provide service in exchange for the equity-based awards, which is generally the vesting period. Segments and geographic information The Company has determined it has one reporting segment. Disaggregating the Company’s operations is impracticable because the Company’s research and development activities and its assets overlap and management reviews its business as a single operating segment. Thus, discrete financial information is not available by more than one operating segment. All long-lived assets of the Company are located in the United States. Leases The Company determines if an arrangement is a lease at contract inception. Operating lease assets represent the Company’s right to use an underlying asset for the lease term and operating lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized on the balance sheet at the commencement date of the lease based upon the present value of lease payments over the lease term. When determining the lease term, the Company includes options to extend or to terminate the lease when it is reasonably certain that the Company will exercise that option. The Company uses the implicit interest rate when readily determinable and uses the Company’s incremental borrowing rate when the implicit rate is not readily determinable based upon the information available at the commencement date in determining the present value of the lease payments. The lease payments used to determine the Company’s operating lease assets may include lease incentives, stated rent increases and escalation clauses linked to rates of inflation when determinable. In addition, the Company’s lease arrangements may contain lease and non-lease components. The Company combines lease and non-lease components, which are accounted for together as a single lease component. Variable lease payments, such as real estate taxes and facility maintenance costs that are allocated by the lessor to the lessee and are not based on an index or a rate, are excluded from the measurement of the lease liability. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term. Short-term leases, defined as leases that have a lease term of twelve months or less at the commencement date, are excluded from this treatment and are recognized on a straight-line basis over the term of the lease. Costs for variable lease payments that are not included in the lease liability are recognized as expense as incurred. Research and development expense Research and development expenses are charged to expense as incurred in performing research and development activities in accordance with ASC 730, Research and Development . The costs include employee‑related expenses including salaries, benefits, and stock‑based compensation expense, costs of funding research performed by third parties that conduct research and development and preclinical and clinical activities on the Company’s behalf, the cost of purchasing lab supplies and non‑capital equipment used in preclinical and clinical activities and in manufacturing preclinical and clinical study materials, consultant fees, facility costs including rent, depreciation and maintenance expenses, fees for acquiring and maintaining licenses under third party licensing agreements, including any sublicensing or success payments made to the Company’s licensors, and overhead and other expenses directly related to research and development operations. In accruing service fees, the Company estimates the time period over which services will be performed and the level of effort to be expended in each 52 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) period. If the actual timing of the performance of services or the level of effort varies from the Company’s estimate, the accrual or prepaid is adjusted accordingly. The Company defers and capitalizes non-refundable advance payments made by the Company for research and development activities until the related goods are received or the related services are performed. In circumstances where amounts have been paid in excess of costs incurred, the Company records a prepaid expense. Income taxes The Company recognizes deferred tax assets and liabilities for temporary differences between the financial reporting basis and the tax basis of its assets and liabilities and the expected benefits of net operating loss carryforwards. The impact of changes in tax rates and laws on deferred taxes, if any, is applied during the years in which temporary differences are expected to be settled and is reflected in the financial statements in the period of enactment. The measurement of deferred tax assets is reduced, if necessary, if, based on weight of the evidence, it is more likely than not that some, or all, of the deferred tax assets will not be realized. At December 31, 2023 and 2022, the Company established a full valuation allowance against its deferred tax assets to an amount that is more likely than not to be realized. Recent Accounting Pronouncements Adopted Financial Instruments - Credit Losses In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326) (“ASU 2016-13”). This ASU changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. The standard replaces the “incurred loss” approach with an “expected loss” model. The new model, referred to as the current expected credit loss (“CECL”) model, will apply to: (1) financial assets subject to credit losses and measured at amortized cost, and (2) certain off-balance sheet credit exposures. ASU 2016-13 also expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for credit losses. ASU No. 2016-13 was effective for the Company beginning on January 1, 2020. The Company adopted this ASU in January 2023. There was no material impact on the consolidated financial statements. 53 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 3. Collaborative Research and License Agreements Ipsen Collaboration Agreement Summary of Agreement On July 30, 2021 (the “Ipsen Effective Date”), the Company entered into a Collaboration, Option and License Agreement with Ipsen (the “Ipsen Collaboration Agreement”). Pursuant to the Ipsen Collaboration Agreement, the Company granted to Ipsen exclusive access and options to license SNA-based therapeutics arising from two collaboration programs related to the treatment of Huntington’s disease and Angelman syndrome (each, an “Ipsen Collaboration Program”), respectively. Each such license (obtained in connection with the exercise of an Ipsen Option, as defined and discussed further below) would grant to Ipsen exclusive, royalty-bearing, sublicensable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics. Upon written notice to the Company, Ipsen may exercise its option during the corresponding collaboration program’s applicable option exercise period, (each, an “Ipsen Option Exercise Period”). 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. As of the Ipsen Effective Date and through the Ipsen Termination Agreement Effective Date, the Company and Ipsen had agreed upon a development plan for each Ipsen Collaboration Program that describes the development activities and timelines required to advance each such Ipsen Collaboration Program through its first IND filing (each, an “Ipsen Development Plan”). The activities described in the Ipsen Development Plans were conducted under the supervision of the Ipsen Joint Steering Committee (the “Ipsen JSC”) consisting of three members from each of the Company and Ipsen. Under the terms of the Ipsen Collaboration Agreement, the Company was to use commercially reasonable efforts to conduct discovery and development in two collaboration programs for Huntington’s disease (the “HD Program”) and Angelman syndrome (the “AS Program”) (the “Ipsen Development Activities”) respectively. The Company was solely responsible for all costs and expenses of conducting each Ipsen Collaboration Program through the selection of SNA therapeutic candidates for further development (“Ipsen Selection”), and Ipsen was responsible for all costs and expenses of all activities that were necessary to enable the first filing of an IND for each proposed product candidate. In the event that Ipsen exercised an option, Ipsen would have been responsible for further development from the license effective date and commercialization of the corresponding licensed product. In the event of completion of all Ipsen Development Activities for the Ipsen Selection (the “Ipsen First R&D Term Activities”), the Company was required to deliver to Ipsen a report that described the results of the Ipsen First R&D Term Activities and identified at least one SNA-based compound that satisfies certain criteria for such Ipsen Collaboration Program as determined by the Ipsen JSC (the “Ipsen First Option Data Package”). Following the delivery of the Ipsen First Option Data Package for an Ipsen Collaboration Program, Ipsen would have had the ability for a defined period of time (the “Ipsen First Option Exercise Period”) to exercise an option (each a “First Ipsen Option”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each an “Ipsen Licensed Product”) that resulted from such Ipsen Collaboration Program during the term of the Ipsen Collaboration Agreement. In the event Ipsen (i) did not exercise the First Ipsen Option with respect to an Ipsen Collaboration Program, (ii) the Ipsen Collaboration Agreement had not expired or been terminated with respect to such Ipsen Collaboration 54 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Program, and (iii) Ipsen agreed to fully fund additional research activities for an Ipsen Collaboration Program through IND filing, the Company would have been responsible for research and development activities for such Ipsen Collaboration Program through IND filing (the “Ipsen Second R&D Term Activities”). In the event of completion of the Ipsen Second R&D Term Activities, the Company would have been required to deliver to Ipsen a report that described the results of the Ipsen Second R&D Term Activities (the “Ipsen Second Option Data Package”). Following the delivery of the Ipsen Second Option Data Package for an Ipsen Collaboration Program, Ipsen would have had the ability for a defined period of time (the “Ipsen Second Option Exercise Period”) to exercise an option (each a “Second Ipsen Option” and together with the First Ipsen Option, the “Ipsen Options”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any Ipsen Licensed Product” that results from such Ipsen Collaboration Program during the term of the Ipsen Collaboration Agreement. In the event of Ipsen’s exercise of an Ipsen Option for an Ipsen Collaboration Program, the Company would have been required to supply to Ipsen the licensed SNAs under current Good Manufacturing Practice, at the Company’s manufacturing cost pursuant to a clinical supply agreement to be negotiated by the Company and Ipsen in good faith following the Ipsen Effective Date and executed within twelve (12) months after the Ipsen Effective Date (the “Ipsen Supply Agreement”). The Ipsen Supply Agreement would have provided for the transfer by the Company to Ipsen of all documents and information, and the provision by the Company of technical assistance and support, for Ipsen to manufacture or have manufactured by a third party contractor engaged by Ipsen the applicable licensed SNA to the extent it is intended to be actually used in the development and manufacture of the applicable licensed products. Under the terms of the Ipsen Collaboration Agreement, the Company received a nonrefundable upfront payment of $ 20,000 (the “Ipsen Upfront Payment”). If Ipsen exercised a First Ipsen Option, Ipsen was required to pay the Company the First Ipsen Option exercise fee of $ 10,000 for each Ipsen Collaboration Program. If Ipsen exercised a Second Ipsen Option, Ipsen was required to pay the Company the Second Ipsen Option exercise fee of $ 25,000 for each Ipsen Collaboration Program. Ipsen would have been required to pay a preclinical milestone payment of $ 5,000 for each Ipsen Collaboration Program upon achievement of such milestone regardless of whether an Ipsen Option was exercised. In addition to the option exercise fees and the preclinical milestones described above, if Ipsen exercised an Ipsen Option for an Ipsen Collaboration Program, development and regulatory milestones would have been payable for that program upon the initiation of certain clinical trials and the filing for processing by the United States Food and Drug Administration (“FDA”) in the United States and by two additional regulators outside the United States of a marketing application for review, per the Ipsen Collaboration Program, with an aggregate total of up to $ 180,000 if both Ipsen Options were exercised. Commercial milestones would have been payable for that Ipsen Collaboration Program upon first commercial sale of a licensed product in certain jurisdictions and the achievement of specified aggregate sales thresholds for all licensed products from that program, with an aggregate total of up to $ 762,000 if both Ipsen Options were exercised. In the event a therapeutic candidate subject to the Ipsen Collaboration Agreement resulted in commercial sales, the Company was eligible to receive tiered royalties at percentages ranging from the mid-single digits to the mid-teens on future net product sales of such commercialized therapeutic candidates. A percentage of the aforementioned payments would have been due to Northwestern University upon receipt, pursuant to the terms of the Company’s existing license agreements with Northwestern University (see Note 15, Commitment and Contingencies, for more information on the Northwestern University License Agreements (as defined below)). In connection with the receipt of the Ipsen Upfront Payment, the Company paid a $ 3,000 license fee to Northwestern University under the terms of the Northwestern License Agreements. The Company’s obligations to conduct activities defined in the Ipsen Development Plan under the Ipsen Collaboration Agreement commenced on July 30, 2021 and continued through the Ipsen Termination Agreement effective date. 55 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Accounting Analysis The Company concluded that Ipsen was a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance. Under the Ipsen Collaboration Agreement, the Company has identified two performance obligations, as follows: (1) the performance obligation related to the HD Program that includes (i) the Ipsen First R&D Term Activities related to the HD Program (the “Ipsen HD Program R&D Services”), (ii) Ipsen JSC services related to the HD Program during the Ipsen First Term (the “Ipsen HD Program JSC Services”), and (iii) activities related to the negotiation of the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date; and (2) the performance obligation related to the AS Program that includes (i) the Ipsen First R&D Term Activities related to the AS Program (the “Ipsen AS Program R&D Services”), (ii) Ipsen JSC services related to the AS Program during the Ipsen First Term (the “Ipsen AS Program JSC Services”), (iii) and activities related to the negotiation of the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date. The Company has concluded that the Ipsen HD Program R&D Services and the Ipsen AS Program R&D Services are not distinct from the Ipsen HD Program JSC Services and the Ipsen AS Program JSC Services, respectively. The Company has also concluded that the Ipsen HD Program JSC Services and the Ipsen AS Program JSC Services are not distinct from the activities related to entering the Ipsen Supply Agreements for each respective program. The Ipsen JSC provided oversight and management of the overall Ipsen Collaboration Agreement, and the members of the Ipsen JSC from the Company have specialized industry knowledge, particularly as it relates to SNA technology. The Ipsen JSC was meant to facilitate the early stage research being performed and coordinate the activities of both the Company and Ipsen. Further, the Ipsen JSC services were critical to the ongoing evaluation of the Ipsen Collaboration Programs and the drafting and evaluation of the Ipsen First Option Data Package. The Ipsen JSC would also have provided oversight and management of the activities to enter into the Ipsen Supply Agreement. Accordingly, the Company’s participation on the Ipsen JSC was essential to Ipsen receiving value from the Ipsen HD Program R&D Services and the Ipsen AS Program R&D Services, and as such, (i) the Ipsen HD Program JSC Services, along with the Ipsen HD Program R&D Services and the activities related to entering the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date for that program are considered a single performance obligation (the “Ipsen HD Program Services”) and (ii) the Ipsen AS Program JSC Services along with the Ipsen AS Program R&D Services and the activities related to entering the Ipsen Supply Agreement within twelve months of the Ipsen Effective Date for that program are considered a single performance obligation (the “Ipsen AS Program Services”). As of the Ipsen Effective Date, the total transaction price was determined to be $ 20,000 , consisting solely of the Ipsen Upfront Payment. The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received. As of the Ipsen Effective Date, there were no milestones included in the transaction price. The preclinical, development, regulatory, and commercial milestones were fully constrained due to the significant uncertainties surrounding such payments. The Company considered the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or Ipsen. The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore, they have also been excluded from the transaction price. The Company re-evaluated the transaction price at the end of each reporting period and as uncertain events were resolved or other changes in circumstances occurred. As of the Ipsen Termination Agreement Effective Date, the Company determined that the total transaction price was $ 20,000 . The Company allocated the total transaction price to each of the two identified performance obligations under the Ipsen Collaboration Agreement based on an expected cost plus a margin approach, as follows: $ 10,793 of the transaction price allocated to the Ipsen HD Program Services and $ 9,207 of the transaction price allocated to the Ipsen AS Program Services. The Company recognized revenue related to each of Ipsen HD Program Services and the Ipsen AS Program Services as those performance obligations were satisfied using an input method to measure progress for each of those performance obligations. The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the activities for the Ipsen HD Program Services and the Ipsen AS Program Services. In connection with the Ipsen Termination Agreement, the 56 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Company recognized as revenue any remaining deferred revenue associated with the Ipsen Collaboration Agreement in the fourth quarter of 2022. During the year ended December 31, 2022, the Company recognized revenue under the Ipsen Collaboration Agreement of $ 17,691 . AbbVie Collaboration Agreement Summary of Agreement On November 13, 2019 (the “AbbVie Effective Date”), the Company entered into a Collaboration, Option and License Agreement (the “AbbVie Collaboration Agreement”), with a wholly-owned subsidiary of Allergan plc, Allergan. On May 8, 2020, Allergan plc, including Allergan was acquired by AbbVie. Pursuant to the AbbVie Collaboration Agreement, the Company granted to AbbVie exclusive access and options to license SNA-based therapeutics arising from two collaboration programs related to the treatment of hair loss disorders (each, an “AbbVie Collaboration Program”). Under each such license (obtained in connection with the exercise of an AbbVie Option, as defined and discussed further below), the Company would grant to AbbVie exclusive, royalty-bearing, sublicensable, nontransferable, worldwide rights to develop, manufacture, use and commercialize such SNA therapeutics. Under the AbbVie Collaboration Agreement, the Company was to use commercially reasonable efforts to conduct the AbbVie Collaboration Programs, each focused on one or more hair loss disorders to discover one or more SNA products that are directed to, bind to or inhibit one or more specific AbbVie Collaboration Program targets. 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. As of the AbbVie Effective Date and through the AbbVie Termination Agreement Effective Date, the Company and AbbVie had agreed upon a development plan for each AbbVie Collaboration Program that described the development activities and timelines required to advance such AbbVie Collaboration Program through its first IND filing (each, an “AbbVie Development Plan”). The activities described in the AbbVie Development Plan were conducted under the supervision of the AbbVie Joint Development Committee (the “AbbVie JDC”) consisting of three members from each of the Company and AbbVie. The Company was primarily responsible for performing early-stage discovery and preclinical activities (the “AbbVie Collaboration Program Initial Development Activities”) set forth in the AbbVie Development Plan for each AbbVie Collaboration Program and would have been solely responsible for all costs and expenses related to the AbbVie Collaboration Program Initial Development Activities. AbbVie had the right to elect, in its sole discretion and at its sole cost and expense, to conduct formulation assessment and in vivo testing as set forth in an AbbVie Development Plan. In the event of completion of all AbbVie Initial Development Activities, the Company would have been required to deliver to AbbVie a report that described the results of the AbbVie Initial Development Activities and identified at least one SNA-based compound that satisfies certain criteria for such AbbVie Collaboration Program as determined by the AbbVie JDC (the “AbbVie Initial Development Report”). Following the delivery of the AbbVie Initial Development Report for an AbbVie Collaboration Program, AbbVie would have had the ability for a defined period of time (the “AbbVie Initial Option Exercise Period”) to exercise an option (each an “AbbVie Option”) to obtain worldwide rights and license to the Company’s SNA technology and the Company’s interest in joint collaboration technology to make, have made, import, use, sell or offer for sale any product (each an “AbbVie 57 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Licensed Product”) that resulted from such AbbVie Collaboration Program during the term of the AbbVie Collaboration Agreement. At AbbVie’s sole option, AbbVie had the right to extend the AbbVie Initial Option Exercise Period (the “AbbVie Option Extension”) and require the Company to perform IND-enabling activities described in the AbbVie Development Plan (the “AbbVie IND-Enabling Activities”), subject to the payment of additional consideration (“AbbVie Extension Exercise”). If AbbVie exercised the AbbVie Option Extension, the Company would have been responsible for conducting the AbbVie IND-Enabling Activities and would have been solely responsible for all costs and expenses associated with such activities. In the event of completion of the AbbVie IND-Enabling Activities, the Company would have been required to deliver a report that describes the results of the AbbVie IND-Enabling Activities (the “AbbVie IND-Enabling Activities Data Package”) to AbbVie. Following the delivery of AbbVie IND-Enabling Activities Data Package, AbbVie would have had the ability for a defined period of time (the “AbbVie Extended Option Exercise Period”) to exercise an AbbVie Option with respect to such AbbVie Collaboration Program. After the exercise of an AbbVie Option with respect to an AbbVie Collaboration Program, AbbVie would have been responsible for all development, manufacturing and commercialization activities, and costs and expense associated with such activities in connection with AbbVie Licensed Products arising from such AbbVie Collaboration Program. The Company’s obligation to conduct the activities defined in the AbbVie Development Plan under the AbbVie Collaboration Agreement commenced on November 13, 2019 and continued through the AbbVie Termination Agreement Effective Date. Under the terms of the AbbVie Collaboration Agreement, the Company received a $ 25,000 upfront, non-refundable, non-creditable cash payment (the “AbbVie Upfront Payment”) related to the Company’s research and development costs for conducting the AbbVie Development Plan for two AbbVie Collaboration Programs, each focused on one or more targets, and certain options to obtain exclusive, worldwide licenses under certain intellectual property rights owned or controlled by the Company to develop, manufacture and commercialize certain products resulting from each such AbbVie Collaboration Programs. The option exercise fee during the AbbVie Initial Option Exercise Period was $ 10,000 per AbbVie Collaboration Program. If AbbVie elected to extend the AbbVie Initial Option Exercise Period, AbbVie would have been required to pay an additional fee of $ 10,000 . If AbbVie elected to exercise its option during the AbbVie Extended Option Exercise Period, AbbVie would have been required to pay the Company the option exercise fee of $ 15,000 . Following the exercise by AbbVie of an AbbVie Option with respect to an AbbVie Collaboration Program, AbbVie would have been required to make certain milestone payments to the Company upon the achievement of specified development, product approval and launch, and commercial events, on an AbbVie Licensed Product by AbbVie Licensed Product basis. On an AbbVie Licensed Product by AbbVie Licensed Product basis, for the first AbbVie Licensed Product to achieve the associated milestone event, the Company was eligible to receive up to an aggregate of $ 55,000 for development milestone payments and $ 132,500 for product approval and launch milestone payments. The Company was also eligible for up to $ 175,000 in sales milestone payments on an AbbVie Collaboration Program by AbbVie Collaboration Program basis, associated with aggregate worldwide sales. Certain product approval milestones were subject to certain reductions under specified circumstances, including for payments required to be made by AbbVie to obtain certain third-party intellectual property rights. In addition, to the extent there was any AbbVie Licensed Product, the Company would have been entitled to receive tiered royalty payments of mid-single digits to the mid-teens percentage on future net worldwide product sales of such AbbVie Licensed Products, subject to certain reductions under specified circumstances. Royalties were due on a AbbVie Licensed Product by AbbVie Licensed Product and country by country basis from the date of the first commercial sale of each AbbVie Licensed Product in a country until the latest to occur of: (i) the expiration date in such country of the last to expire valid claim within the licensed intellectual property covering the manufacture, use or sale of such AbbVie Licensed Product in such country, (ii) the tenth anniversary of the first commercial sale of such AbbVie Licensed Product in such country, and (iii) the expiration of regulatory exclusivity for such AbbVie Licensed Product in such country. 58 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Accounting Analysis The Company concluded that AbbVie was a customer in this arrangement, and as such the arrangement falls within the scope of the revenue recognition guidance. Under the AbbVie Collaboration Agreement, the Company has identified a single performance obligation that includes (i) the research and development activities during the AbbVie Research Term (the “AbbVie R&D Services”), and (ii) AbbVie Joint Development Committee services during the AbbVie Research Term (the “AbbVie JDC Services”). The Company has concluded that the AbbVie R&D Services is not distinct from the AbbVie JDC Services during the AbbVie Research Term. The AbbVie JDC provided oversight and management of the overall AbbVie Collaboration Agreement, and the members of the AbbVie JDC from the Company have specialized industry knowledge, particularly as it relates to SNA technology. The AbbVie JDC was meant to facilitate the early-stage research being performed and coordinate the activities of both the Company and AbbVie. Further, the AbbVie JDC services were critical to the ongoing evaluation of an AbbVie Collaboration Program and the drafting and evaluation of the AbbVie Initial Development Report and the AbbVie IND-Enabling Data Package. Accordingly, the Company’s participation on the AbbVie JDC was essential to AbbVie receiving value from the AbbVie R&D Services and as such, the AbbVie JDC Services along with the AbbVie R&D Services are considered one performance obligation (the “AbbVie Collaboration Program Services”). In addition, the Company has concluded that the option to purchase two development and commercialization licenses was considered a marketing offer as the options did not provide any discounts or other rights that would be considered a material right in the arrangement, and thus, not a performance obligation at the onset of the agreement. The consideration for these options would have been accounted for when they are exercised. As of the AbbVie Effective Date, the total transaction price was determined to be $ 25,000 , consisting solely of the AbbVie Upfront Payment. The Company also utilized the most likely amount method to estimate any development and regulatory milestone payments to be received. As of the AbbVie Effective Date, there were no milestones included in the transaction price. The milestones were fully constrained due to the significant uncertainties surrounding such payments. The Company considered the stage of development and the risks associated with the remaining development required to achieve the milestone, as well as whether the achievement of the milestone is outside the control of the Company or AbbVie. The Company has determined that any commercial milestones and sales-based royalties will be recognized when the related sales occur and therefore they have also been excluded from the transaction price. The Company re-evaluated the transaction price at the end of each reporting period and as uncertain events were resolved or other changes in circumstances occurred. As of the AbbVie Termination Agreement Effective Date, the Company determined the total transaction price was $ 25,000 . The Company recognized revenue related to the AbbVie Collaboration Program Services as the performance obligation is satisfied using an input method to measure progress. The Company believes the input method that most accurately depicts the measure of progress is the actual hours incurred to date relative to projected hours to complete the research service. During the third quarter of 2021, the AbbVie JDC revised the AbbVie Initial Development Plan for each AbbVie Collaboration Program. As a result, the Company had increased its estimate of total hours to complete the research services, requiring an adjustment to cumulative revenue recognized (considered a change in estimate pursuant to ASC 606), which led to a full year revenue reversal of $( 2,792 ) in the prior year. In connection with the AbbVie Termination Agreement, the Company recognized as revenue any remaining deferred revenue associated with the AbbVie Collaboration Agreement in the fourth quarter of 2022. During the year ended December 31, 2022, the Company recognized revenue under the AbbVie Collaboration Agreement of $ 11,135 . 59 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 4. Supplemental Balance Sheet Information Prepaid expenses and other current assets December 31, 2023 2022 Prepaid clinical, contract research and manufacturing costs $ — $ 213 Prepaid insurance 508 408 Prepaid franchise tax 259 223 Lease costs 235 111 Other 191 519 Prepaid expenses and other current assets $ 1,193 $ 1,474 Other noncurrent assets December 31, 2023 2022 Restricted cash $ 1,200 $ 1,200 Prepaid insurance, noncurrent 1,785 2,252 Other — 38 Other noncurrent assets $ 2,985 $ 3,490 Property and equipment, net December 31, 2023 2022 Scientific equipment $ 246 $ 6,087 Computers and software 3 63 Furniture and fixtures 30 30 Property and equipment, gross 279 6,180 Less: accumulated depreciation ( 225 ) ( 3,650 ) Property and equipment, net $ 54 $ 2,530 Depreciation and amortization expense was $ 634 and $ 1,163 , for the years ended December 31, 2023 and 2022, respectively. During the year ended December 31, 2023, the Company sold scientific equipment with a net book value of $ 1,834 and recognized a loss of $ 920 in the accompanying statement of operations for the year ended December 31, 2023. 60 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Accrued expenses and other current liabilities December 31, 2023 2022 Accrued clinical, contract research and manufacturing costs $ — $ 48 Accrued restructuring costs — 48 Lease liability, current 626 539 Accrued payroll-related expenses 71 32 Accrued other expenses 182 611 Accrued expenses and other current liabilities $ 879 $ 1,278 5. Investment in Convertible Notes Receivable In May 2023, the Company entered into two subscription agreements to purchase non-guaranteed private placement convertible notes receivable (the “Notes Receivable”) for a subscription amount of $ 1 million each. The Notes Receivable mature in May 2026 and the yield to maturity is 4.5 % per annum. The Company has the option to request that the issuer redeem part or the entire principal amount of the Notes Receivable on the first anniversary after the issue date and every three months thereafter before the maturity date. The conversion ratio will be one hundred percent ( 100 %) of the Notes Receivable’s face value. The Company also has the ability to convert the debt into shares based on the number of shares computed by dividing the face value of each security by a calculated conversion price, which is subject to adjustment provisions, determined at the time of issuance. The securities may be converted from May 3, 2024, the first anniversary of the issue date of the first agreement, to April 15, 2026, one month prior to the maturity date to the second agreement. In March 2024, the Company notified the issuer of the Notes Receivable that it was exercising its redemption right with respect to the entire principal amount of the Notes Receivable after the first anniversary of their issue dates (May 3 and May 16, 2024, respectively) for an aggregate redemption price of $ 2.090 million (representing the principal amount plus 4.5 % per annum yield to the redemption date). The issuer has taken the position that the Notes Receivable are not redeemable until August 3, 2024 and August 16, 2024. The Company’s debt securities are classified as AFS pursuant to ASC 320 - Investments - Debt Securities. AFS securities are recorded at fair value. During the year ended December 31, 2023, management does not believe these AFS investments are recoverable and booked a change in fair value to record them at a fair value of $ 0 . The Company held no AFS debt securities as of December 31, 2022. 6. Debt MidCap Credit Agreement On March 15, 2022, pursuant to the terms of the Company’s 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 (as amended, the “MidCap Credit Agreement”), the Company repaid all remaining outstanding obligations under the MidCap Credit Agreement, including the outstanding principal balance of $ 7,500 and an exit fee of $ 506 . The MidCap Credit Agreement provided for a secured term loan facility in an aggregate principal amount of up to $ 25,000 (the “MidCap Credit Facility”). The Company borrowed the first advance of $ 17,500 (“Tranche 1”) on September 25, 2020 (the “Closing Date”). Amendment No. 4 terminated the availability of the second advance of $ 7,500 (“Tranche 2”), effective as of December 9, 2021, that was previously available under the MidCap Credit Agreement subject to certain conditions. Tranche 1 bore interest at a floating rate equal to 6.25 % per annum, plus the greater of (i) 1.50 % or (ii) one-month LIBOR. Interest on each loan advance is due and payable monthly in arrears. Principal on each loan advance was payable in 36 equal monthly installments beginning October 1, 2022 until paid in full on October 1, 2025 (the 61 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) “Maturity Date”). Prepayments of the loans under the MidCap Credit Agreement, in whole or in part, were subject to early termination fees in an amount equal to 3.0 % of principal prepaid if prepayment occurs on or prior to the first anniversary of the Closing Date and 1.0 % of principal prepaid if prepayment occurs after the first anniversary of the Closing Date and prior to the maturity date. Pursuant to Amendment No. 4, the early termination fee associated with the prepayment of $ 10,000 made in December 2021 was waived and, since the remaining principal amount was repaid on or prior to March 31, 2022, the associated early termination fee for that prepayment was also waived. In connection with execution of the MidCap Credit Agreement, the Company paid MidCap a $ 125 origination fee. At the Maturity Date or on any earlier date on which all amounts advanced to the Company become due and payable in full, or are otherwise paid in full, the Company was required to pay an exit fee equal to 3.75 % of the principal amount of all loans advanced to the Company under the MidCap Credit Agreement. Upon the advance of Tranche 1, the Company accrued $ 656 for the related exit fee. Pursuant to Amendment No. 4, since the remaining principal amount was repaid on or prior to March 31, 2022, a portion of the related exit fee that had not been earned by MidCap was waived. The Company’s obligations under the MidCap Credit Agreement were secured by a security interest in substantially all of its assets, excluding intellectual property (which is subject to a negative pledge). Additionally, the Company’s future subsidiaries, if any, may have been required to become co-borrowers or guarantors under the MidCap Credit Agreement. The MidCap Credit Agreement contained customary affirmative covenants and customary negative covenants limiting the Company’s ability and the ability of the Company’s subsidiaries, if any, to, among other things, dispose of assets, undergo a change in control, merge or consolidate, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions. The MidCap Credit Agreement also contained customary events of default relating to, among other things, payment defaults, breaches of covenants, a material adverse change, delisting of the Company’s common stock, bankruptcy and insolvency, cross defaults with certain material indebtedness and certain material contracts, judgments, and inaccuracies of representations and warranties. Upon an event of default, the agent and the lenders may declare all or a portion of the Company’s outstanding obligations to be immediately due and payable and exercise other rights and remedies provided for under the agreement. During the existence of an event of default, interest on the obligations could have been increased by 2.0 %. Total proceeds, net of fees and issuance costs, borrowed under Tranche 1 were $ 16,512 . Fees and issuance costs of $ 332 , as well as fees of $ 656 that were payable to MidCap at maturity of Tranche 1, were recorded as a reduction to the carrying amount of long-term debt on the Company’s balance sheet and, prior to the repayment of all remaining outstanding obligations under the MidCap Credit Agreement on March 15, 2022, were amortized to interest expense through the maturity date of October 1, 2025 using the effective interest method. Fees and issuance costs of $ 73 attributed to the amount available to be borrowed under Tranche 2 were paid and recorded as deferred financing costs (other assets) and were amortized and recorded to interest expense in 2021 when it was determined that amounts under Tranche 2 would not be borrowed. The Company paid interest on the MidCap Credit Agreement of $ 194 during the year ended December 31, 2022. 7. Leases The Company’s lease arrangements at December 31, 2023 consist of (i) a lease for office space at its headquarters in Chicago, Illinois that commenced in July 2020 (the “Chicago Lease”) and (ii) leases for office equipment (the “Office Equipment Leases”). The Chicago Lease and the Office Equipment Leases are classified as operating leases. 62 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Chicago Lease The Company has approximately thirty thousand square feet of office space in Chicago, Illinois (the “Chicago Lease”). The original term (the “Original Term”) of the Chicago Lease is 10 years, commencing on July 1, 2020 (the “Commencement Date”), which is the date the premises were ready for occupancy under the terms of the Chicago Lease. The Company has options to extend the term of the Chicago Lease for two additional successive periods of five years each (the “Extension Periods”) at the then prevailing effective market rental rate. The initial annual base rent during the Original Term is approximately $ 1,113 for the first 12-month period of the Original Term, payable in monthly installments beginning on the Commencement Date. Base rent thereafter is subject to annual increases of 3 %, for an aggregate amount of $ 12,761 over the Original Term. The Company must also pay its proportionate share of certain operating expenses and taxes for each calendar year during the term. During the first 12-month period of the Original Term, the base rent and the Company's proportionate share of operating expenses and taxes are subject to certain abatements. Upon execution of the Chicago Lease, the Company paid to the landlord the first installment of base rent and the estimated monthly amount of its pro rata share of taxes and its pro rata share of operating expenses in the aggregate amount of $ 87 which amount had been adjusted for the abatement as set forth in the lease agreement. The Company also paid the landlord a net amount of $ 697 toward tenant improvements. As part of the agreement for the Chicago Lease, the Company is required to maintain a standby letter of credit during the term of the lease, currently in the amount of $ 1,200 and subject to reduction over time, which is secured by a restricted certificate of deposit account and presented within other noncurrent assets on the Company’s consolidated balance sheet at December 31, 2023. The Company recognized a right of use asset of $ 8,931 and a lease liability of $ 8,147 on the Commencement Date. Because the rate implicit in the Chicago Lease is not readily determinable, the Company used its incremental borrowing rate of 8.3 % on the Commencement Date to determine the present value of the lease payments over the Original Term. The incremental borrowing rate represents an estimate of the interest rate the Company would incur at lease commencement to borrow an amount equal to the lease payments on a collateralized basis over the term of a lease. As of December 31, 2023, the Company determined it is not reasonably certain that the renewal option would not be exercised. Information related to the Company’s operating lease asset and related operating lease liabilities were as follows: December 31, 2023 2022 Weighted-average remaining lease term 6.5 years 7.5 years Weighted-average discount rate 8.3 % 8.3 % 63 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) The following table summarizes lease costs in the Company’s consolidated statement of operations: December 31, 2023 2022 Operating lease costs $ 789 $ 1,305 Variable lease costs 690 1,529 Short term lease costs — 17 Total lease costs $ 1,479 $ 2,851 The Company made cash payments for operating leases of $ 1,808 and $ 3,024 during the years ended December 31, 2023 and 2022, respectively. Currently, the Company is several months past due with its lease payments. Maturities of the Company’s lease liability as of December 31, 2023 were as follows: Years Ending December 31, Operating Leases 2024 $ 1,133 2025 1,271 2026 1,310 2027 1,349 2028 1,390 Thereafter 2,158 Total $ 8,611 Less: imputed interest ( 1,946 ) Total lease liability $ 6,665 Current operating lease liability $ 626 Noncurrent operating lease liability 6,039 Total lease liability $ 6,665 Sublease of Office Space The Company entered into a sublease agreement with Cyclopure, Inc. (the “Subtenant”) to sublease approximately 57 % of its office space pursuant to that certain sublease agreement (the “Sublease Agreement”), dated as of May 4, 2023. The term of the Sublease Agreement began on May 15, 2023 and ends on June 30, 2030, the expiration date of the Chicago Lease. The first three months under the Sublease Agreement are rent free. Beginning August 15, 2023, the Company began charging the Subtenant for 57 % of the base rent under the Chicago Lease, and the subtenant is responsible for its pro rata share of operating expenses and taxes payable. The following table summarizes sublease receipts in the Company’s consolidated statement of operations: December 31, 2023 2022 Sublease receipts $ 550 $ — Total $ 550 $ — 64 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 8. Restructuring September 2022 Restructuring On September 26, 2022, the Company announced its commitment to a plan to wind down the Company’s R&D activities (the “September 2022 Restructuring”). This plan resulted in a reduction in force where the Company reduced approximately 66 % of the Company’s existing workforce in early fourth quarter of 2022. Notified employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance, the majority of which were paid in October 2022 as a lump sum payment. All of the severance costs associated with the September 2022 Restructuring represented cash expenditures and were recorded within research and development expense within the accompanying consolidated statement of operations. December 2021 Restructuring On December 10, 2021, the Company announced its commitment to a plan to wind down the Company’s immuno-oncology program for cavrotolimod (AST-008) and the Company’s XCUR-FXN preclinical program for the treatment of Friedreich’s ataxia. The Company intended at the time to realign its research and development resources to support (i) the development of its preclinical program targeting SCN9A for neuropathic pain, (ii) the continued advancement of its partnered programs with Ipsen Biopharm Limited to develop SNA-based treatments in neuroscience targeting Huntington’s disease and Angelman syndrome, (iii) its continued advancement of its partnered program with AbbVie to develop SNA-based treatments for hair loss disorders, as well as (iv) the continued research and development of other undisclosed therapeutic product candidates. This plan resulted in a reduction in force where the Company eliminated approximately 50 % of the Company’s existing workforce on a staggered basis through January 2022 as well as other cost-cutting measures. Notified employees were offered separation benefits, including severance payments and temporary healthcare coverage assistance. In most cases, the separation benefits were paid as a lump sum in January 2022. Certain of the notified employees had employment agreements which provided for separation benefits in the form of salary continuation; these benefits were paid between February 2022 and January 2023. All of the severance costs represent cash expenditures. The following table presents changes in the accrued restructuring liability balance for the periods presented (in thousands): December 2021 Restructuring September 2022 Restructuring Total Balance at December 31, 2021 $ 1,191 $ — $ 1,191 Payments ( 1,154 ) ( 489 ) ( 1,643 ) Additions — 488 488 Adjustments (non-cash) 11 1 12 Balance at December 31, 2022 $ 48 $ — $ 48 Payments ( 48 ) — ( 48 ) Balance at December 31, 2023 $ — $ — $ — 65 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 9. Stockholders’ Equity Preferred Stock The Company has 10,000,000 shares of preferred stock, par value $ 0.0001 authorized and no shares issued and outstanding. Common Stock The Company has 200,000,000 shares of common stock, par value $ 0.0001 , authorized. As of December 31, 2023 and December 31, 2022, the Company had 8,650,753 and 4,965,901 shares issued and outstanding, respectively. The holders of shares of the Company’s common stock are entitled to one vote per share on all matters to be voted upon by the Company’s stockholders and there are no cumulative rights. Subject to preferences that may be applicable to any outstanding preferred stock, the holders of shares of the Company’s common stock are entitled to receive ratably any dividends that may be declared from time to time by the Board out of funds legally available for that purpose. In the event of the Company’s liquidation, dissolution or winding up, the holders of shares of the Company’s common stock are entitled to share ratably in all assets remaining after payment of liabilities, subject to prior distribution rights of preferred stock then outstanding. The Company’s common stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to the Company’s common stock. The outstanding shares of the Company’s common stock are fully paid and non-assessable. September 2022 PIPE Securities Purchase Agreement On September 26, 2022, the Company entered into a securities purchase agreement (the “September 2022 Securities Purchase Agreement”) with 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”). The Company received gross proceeds of $ 5,440 from the September 2022 PIPE (or net proceeds of $ 4,597 after transaction expenses). CBI USA funded the acquisition pursuant to the Securities Purchase Agreement through a loan from its affiliate, DGP Co., Ltd. (“DGP”). 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. September 2022 Registration Rights Agreement In connection with the Securities Purchase Agreement, the Company entered into a registration rights agreement with CBI USA (the “Registration Rights Agreement’). CBI USA assigned its rights under the Registration Rights Agreement to DGP when DGP acquired the 3,400,000 shares of Common Stock initially sold to CBI USA. Pursuant to the Registration Rights Agreement, the Company agreed to file a registration statement covering the resale of the shares of Common Stock sold pursuant to the Securities Purchase Agreement, to use reasonable best efforts to cause 66 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) such registration statement to become effective as promptly as practicable, and to keep such registration statement continuously effective until the earlier of (i) the date the shares covered by such registration statement have been sold or may be resold pursuant to Rule 144 without restriction, or (ii) the date that is two (2) years following the Closing Date. In the event the registration statement was not filed within 90 days following the Closing Date, subject to certain limited exceptions, the Company agreed to make payments as liquidated damages in an amount equal to 0.5 % of the aggregate amount invested in the shares of Common Stock pursuant to the Securities Purchase Agreement per 30-day period or pro rata for any portion thereof for each such month during which such event continues, subject to certain caps set forth in the Registration Rights Agreement. We have paid $ 27 to CBI USA and accrued $ 191 to DGP pursuant to this provision. May 2022 PIPE Securities Purchase Agreement On May 9, 2022, the Company entered into a securities purchase agreement (the “May 2022 Securities Purchase Agreement”) with certain accredited investors (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors in a private placement an aggregate of 867,369 shares (the “May 2022 PIPE Shares”) of the Company’s Common Stock, par value $ 0.0001 per share, at a purchase price of $ 5.81 per share (the “May 2022 PIPE”). The May 2022 PIPE closed on May 18, 2022 (the “May 2022 PIPE Closing Date”). The Company received aggregate net proceeds from the May 2022 PIPE of approximately $ 4,886 after deducting transaction-related expenses. Registration Rights Agreement Also, on May 9, 2022, the Company entered into a registration rights agreement (the “May 2022 Registration Rights Agreement”) with the Investors, pursuant to which the Company agreed to register the resale of the May 2022 PIPE Shares. Under the May 2022 Registration Rights Agreement, the Company agreed to file a registration statement covering the resale of the Shares no later than July 18, 2022. On July 11, 2022, the Company filed a registration statement on Form S-3 with the SEC for the resale of the Shares and caused the registration statement to become effective on July 20, 2022. The Company has granted the Investors customary indemnification rights in connection with the registration statement. The Investors have also granted the Company customary indemnification rights in connection with the registration statement. 67 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Registered Direct Offering On December 16, 2021, the Company completed a securities purchase agreement (the “Purchase Agreement”) with certain institutional purchasers (the “Purchasers”) entered into on December 14, 2021, pursuant to which the Company offered to the Purchasers, in a registered direct offering priced at-the-market consistent with the rules of the Nasdaq Stock Market (the “Registered Direct Offering”), (i) an aggregate of 433,553 shares (the “Shares”) of the Company’s common stock, $ 0.0001 par value per share, (ii) pre-funded warrants to purchase up to an aggregate of 718,981 shares of Common Stock (the “Pre-Funded Warrants”), and (iii) warrants to purchase up to 576,261 shares of Common Stock (the “Warrants”). The combined purchase price of each share of Common Stock and accompanying Warrant is $ 9.9780 per share. The combined purchase price of each Pre-Funded Warrant and accompanying Warrant is $ 9.9480 (equal to the combined purchase price per share of Common Stock and accompanying Warrant, minus $ 0.03 ). The per share exercise price for the Warrants is $ 8.1031 , the closing bid price of the Company’s Common Stock on December 13, 2021 (and as adjusted for the reverse stock split referenced in Note 1). The Warrants will be exercisable immediately from the closing December 16, 2021, and will expire on the five-year anniversary of the date of issuance, or December 16, 2026. The Pre-Funded Warrants and Warrants, which met equity classification, were recognized as a component of permanent stockholders’ equity within additional paid-in-capital together with the net proceeds from the Registered Direct Offering. The gross proceeds to the Company from the Registered Direct Offering (excluding effect of subsequent exercises of pre-funded warrants) were $ 11,478 and net proceeds after deducting the placement agent’s fees and other offering expenses paid or payable by the Company were $ 10,226 . The securities were offered by the Company pursuant to an effective shelf registration statement on Form S-3 (File No. 333-251555) previously filed with the Securities and Exchange Commission (the “SEC”) on December 21, 2020, and which was declared effective by the SEC on January 7, 2021 (the “Registration Statement”). Each Warrant is exercisable for one share of Common Stock at an exercise price of $ 8.1031 per share. The Warrants are immediately exercisable as of the date of issuance of December 16, 2021 and will expire on the five-year anniversary of the date of issuance, or December 16, 2026. The Pre-Funded Warrants were offered in lieu of shares of Common Stock to one of the Purchasers whose purchase of shares of Common Stock in the Registered Direct Offering would otherwise result in said Purchaser, together with its affiliates and certain related parties, beneficially owning more than 4.99 % (or, at the election of the Purchaser, 9.99 %) of the Company’s outstanding Common Stock immediately following the consummation of the Registered Direct Offering. Each Pre-Funded Warrant is exercisable for one share of Common Stock at an exercise price of $ 0.030 per share. The Pre-Funded Warrants are immediately exercisable and may be exercised at any time until all of the Pre-Funded Warrants are exercised in full. A holder (together with its affiliates) of the Warrant or Pre-Funded Warrant may not exercise any portion of the Warrant or Pre-Funded Warrant, as applicable, to the extent that the holder would own more than 4.99 % (or, at the holder’s option upon issuance, 9.99 %) of the Company’s outstanding Common Stock immediately after exercise, as such percentage ownership is determined in accordance with the terms of the Warrant or Pre-Funded Warrant, as applicable. In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in the Warrants, provided that such cashless exercise shall only be permitted if the Registration Statement is not effective at the time of such exercise or if the prospectus to which the Registration Statement is a part is not available for the issuance of shares of Common Stock to the Warrant holder. In lieu of making the cash payment otherwise contemplated to be made to the Company upon exercise of a Pre-Funded Warrant in payment of the aggregate exercise price, the holder may elect instead to receive upon such exercise (either in whole or in part) the net number of shares of Common Stock determined according to a formula set forth in the Pre-Funded Warrants. 68 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Common Stock Warrants In January 2022, Pre-Funded Warrants were exercised for a total exercise price of $ 14 , resulting in the issuance of 466,666 shares of common stock. As of December 31, 2023, there are no unexercised pre-funded warrants that are outstanding. Warrants to purchase 576,261 shares of common stock at a price of $ 8.1031 per share that were acquired in the December 2021 registered-direct offering transaction remained outstanding. The warrants are classified as equity. As a result of the closing of the September 2022 PIPE, a warrant holder elected to exercise their option within 30 days of the closing of the September 2022 PIPE (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. The Company paid $ 800 to this warrant holder on June 23, 2023 and 526,151 warrants were settled as a result. As of December 31, 2023, warrants to purchase 50,110 shares of common stock at a price of $ 8.031 per share that were acquired in the December 2021 registered-direct offering transaction remain outstanding. 10. Equity-Based Compensation 2017 Equity Incentive Plan On September 22, 2017, the Company’s stockholders approved the Exicure, Inc. 2017 Equity Incentive Plan (the “2017 Plan”), which became effective on November 15, 2017. The 2017 Plan provides for the issuance of incentive awards of up to 194,750 shares of Exicure common stock, which includes 72,330 shares of Exicure common stock to be issued to officers, employees, consultants and directors, plus a number of shares not to exceed 122,793 that are subject to issued and outstanding awards under the Exicure OpCo 2015 Equity Incentive Plan (the “2015 Plan”) and were assumed in the merger transaction on September 26, 2017. Awards that may be awarded under the 2017 Equity Incentive Plan include non-qualified and incentive stock options, stock appreciation rights, bonus shares, restricted stock, restricted stock units, performance units and cash-based awards. The number of shares of common stock reserved for issuance under the 2017 Equity Incentive Plan automatically increases on January 1 of each year, beginning on January 1, 2020, by the lesser of (i) 153,333 shares, (ii) 5 % of the total number of shares of its capital stock outstanding on December 31 of the preceding calendar year, or (iii) a lesser number of shares determined by the Compensation Committee of the Board (the “Compensation Committee”). No future awards will be made under the 2015 Plan upon the effectiveness of the 2017 Plan. On January 1, 2024, pursuant to the terms of the 2017 Plan, the number of awards that are reserved and may be awarded under the 2017 Plan was automatically increased by 153,333 awards. As of December 31, 2023, the aggregate number of awards available for grant under the 2017 Plan was 454,636 . Awards granted under the 2017 Plan are contingent on the participants’ continued employment or provision of non-employee services and are subject to forfeiture if employment or continued service terminates for any reason. The initial award granted to an employee or consultant generally vests 25 % on the first 12-month anniversary of the grant date and vests 1/48th monthly thereafter until fully vested at the end of 48 months. Subsequent awards granted to employees or consultants generally vest 1/48th monthly until fully vested at the end of 48 months. The initial stock option grant to a non-employee director vests 1/36th monthly until fully vested at the end of 36 months. Subsequent stock option grants to a non-employee director vests 1/12th monthly until fully vested at the end of 12 months. The term of common stock option grants is 10 years unless terminated earlier as described above. 69 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Employee Stock Purchase Plan The 2017 Employee Stock Purchase Plan (the “ESPP”) was adopted by the Board in September 2017 and approved by the Company’s stockholders in September 2017. Through the ESPP, eligible employees may authorize payroll deductions of up to 15 % of their compensation to purchase common stock. The maximum number of shares that an employee may purchase on any exercise date in an offer period will be the smaller of (i) 250 shares or (ii) such number of shares as has a fair market value (determined as of the offering date for such offer period) equal to $ 25,000 within one calendar year minus the fair market value of any other shares of common stock that are attributed to such calendar year. The purchase price per share at each purchase date is equal to 85 % of the lower of (i) the closing market price per share of Exicure common stock on the employee’s offering date or (ii) the closing market price per share of Exicure common stock on the exercise date. Each offering period is approximately six-months in duration and the first offering period began on November 16, 2020 and ended on May 14, 2021. During 2022, the Company issued 1,851 shares of common stock that were purchased under the ESPP. No shares were issued during 2023. The ESPP provides that the number of shares reserved and available for issuance will automatically increase each January 1, beginning on January 1, 2018 and each January 1 thereafter through January 1, 2027, by the least of (i) 10,000 shares; (ii) 0.3 % of the outstanding shares of common stock on the last day of the immediately preceding calendar year; or (iii) a lesser number of shares determined by the Board. As of December 31, 2023, there were 51,971 shares available for issuance under the ESPP. On January 1, 2024, the number of shares of common stock available for issuance under the ESPP increased by 10,000 shares. Equity-based compensation expense is classified in the statements of operations as follows: Year Ended December 31, 2023 2022 Research and development expense $ 154 $ 507 General and administrative expense 1,194 862 $ 1,348 $ 1,369 Unamortized equity-based compensation expense at December 31, 2023 was $ 619 , which is expected to be amortized over a weighted-average period of 1.9 years. The Company utilizes the Black-Scholes option-pricing model to determine the fair value of common stock option grants. The Black-Scholes option-pricing model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. The model also requires the input of highly subjective assumptions. In addition to an assumption on the expected term of the option grants as discussed below, application of the Black-Scholes model requires additional inputs for which we have assumed the values described in the table below: Year Ended December 31, 2023 2022 Expected term 5.8 to 5.8 years 5.3 to 6.1 years Risk-free interest rate 3.83 % to 3.83 %; weighted avg. 3.83 % 2.86 % to 3.56 %; weighted avg. 2.90 % Expected volatility 100.9 % to 100.9 %; weighted avg. 100.9 % 95.2 % to 95.8 %; weighted avg. 95.2 % Forfeiture rate 5 % 5 % Expected dividend yield — % — % 70 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) The expected term is based upon the “simplified method” as described in Staff Accounting Bulletin Topic 14.D.2. Currently, the Company does not have sufficient experience to provide a reasonable estimate of an expected term of its common stock options. The Company will continue to use the “simplified method” until there is sufficient experience to provide a more reasonable estimate in conformance with ASC 718-10-30-25 through 30-26. The risk-free interest rate assumptions were based on the U.S. Treasury bond rate appropriate for the expected term in effect at the time of grant. For stock options granted after December 31, 2021, the expected volatility is based on the volatility of shares of the Company. For stock options granted prior to January 1, 2022, the expected volatility is based on calculated enterprise value volatilities for publicly traded companies in the same industry and general stage of development. The estimated forfeiture rates were based on historical experience for similar classes of employees. The dividend yield was based on expected dividends at the time of grant. The fair value of the underlying common stock and the exercise price for the common stock options granted during the years ended December 31, 2023 and 2022 are summarized in the table below: Common Stock Options Granted During Period Ended: Fair Value of Underlying Common Stock Exercise Price of Common Stock Option Year ended December 31, 2023 $ 1.58 ; weighted avg. $ 1.58 $ 1.58 ; weighted avg. $ 1.58 Year ended December 31, 2022 $ 3.46 to $ 5.51 ; weighted avg. $ 4.56 $ 3.46 to $ 5.51 ; weighted avg. $ 4.56 The weighted-average grant date fair value of common stock options granted in the years ended December 31, 2023 and 2022 was $ 1.26 and $ 2.52 per common stock option, respectively. A summary of common stock option activity as of the periods indicated is as follows: Options Weighted-Average Exercise Price (1) Weighted-Average Remaining Contractual Term (years) Aggregate Intrinsic Value (thousands) Outstanding - December 31, 2021 331,420 $ 61.82 7.0 $ — Granted 232,028 4.56 Settled ( 124 ) 5.51 Forfeited ( 340,491 ) 60.18 Outstanding - December 31, 2022 222,833 $ 4.74 7.5 $ — Granted 10,000 1.58 Settled — — Forfeited ( 220,718 ) 5.40 Outstanding - December 31, 2023 12,115 $ 4.28 5.4 $ — Exercisable - December 31, 2023 12,115 $ 4.26 5.4 $ — Vested and Expected to Vest - December 31, 2023 12,115 $ 4.28 5.4 $ — (1) On March 24, 2022, the Company’s Board of Directors unanimously approved the repricing of all outstanding and unexercised stock options granted under our 2015 Equity Incentive Plan and 2017 Equity Incentive Plan and held by its current employees, executive officers, and directors. Effective April 1, 2022, the exercise price of the eligible stock options was reduced to $ 5.51 , the closing price of our common stock on April 1, 2022. See below section titled “Repricing of Outstanding and Unexercised Options” for more information. 71 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) A summary of restricted stock unit activity of the periods indicated is as follows: Restricted Stock Units Weighted-Average Grant Date Fair Value Unvested balance - December 31, 2021 10,109 $ 50.04 Granted 51,536 3.42 Vested ( 5,535 ) 22.04 Forfeited ( 35,225 ) 4.75 Unvested balance - December 31, 2022 20,885 $ 12.65 Granted 295,992 1.02 Vested ( 309,026 ) 1.91 Forfeited ( 4,808 ) 14.58 Unvested balance - December 31, 2023 3,043 $ 10.41 The grant date fair value of restricted stock units is based on the Company’s closing stock price at the date of grant. At vesting, each outstanding restricted stock unit will be exchanged for one share of the Company’s common stock. The restricted stock units granted in the past generally vest evenly on a quarterly basis over a period of 4 years in exchange for continued service provided by the restricted stock unit recipient during that vesting period. A summary of performance-based restricted stock unit activity of the periods indicated is as follows: Restricted Stock Units Weighted-Average Grant Date Fair Value Unvested balance - December 31, 2021 — $ — Granted 97,643 3.45 Unvested balance - December 31, 2022 97,643 $ 3.45 Granted — — Settled ( 97,643 ) 1.91 Unvested balance - December 31, 2023 — $ — The grant date fair value of performance-based restricted stock units is based on the Company’s closing stock price at the date of grant. At vesting, each outstanding restricted stock unit will be exchanged for one share of the Company’s common stock. Certain performance metrics must be met by the performance measurement date in 2023 in order for the performance-based restricted stock units granted during 2022 to vest as follows: one-third on May 16, 2023, one-third on May 16, 2024, and one-third on May 16, 2025, in exchange for continued service provided by the performance-based restricted stock unit recipient during that vesting period. Repricing of Outstanding and Unexercised Options On March 24, 2022, the Board unanimously approved the repricing of all outstanding and unexercised stock options granted under the 2015 Plan and 2017 Plan (the “Plans”) and held by current employees, executive officers, and directors of the Company (the “Eligible Stock Options”). Effective April 1, 2022, the exercise price of the eligible stock options was reduced to $ 5.51 , the closing price of its common stock on April 1, 2022. Except for the modification to the exercise price of the Eligible Stock Options, all other terms and conditions of each of the Eligible Stock Options will remain in full force and effect. Pursuant to the Plans, the Board, as the administrator of the Plans, has discretionary authority, exercisable on such terms and conditions that it deems appropriate under the circumstances, to reduce the exercise price in effect for outstanding options under the Plans. In approving the repricing, the Board considered the impact of the current 72 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) exercise prices of outstanding stock options on the incentives provided to employees and directors, the lack of retention value provided by the outstanding stock options to employees and directors, and the impact of such options on the capital structure of the Company. As of March 24, 2022, there were 233,224 stock options outstanding under the Plans, and all of the Company’s outstanding stock options had exercise prices in excess of the current fair market value of the Company’s common stock as of March 24, 2022, which is why the Board made the determination to deem all outstanding and unexercised stock options held by current employees, executive officers, and directors as Eligible Stock Options. The option repricing resulted in incremental stock-based compensation of $ 213 recorded as expense in the year ended December 31, 2022. Most of the individuals holding stock options left the Company in early 2023 resulting in minimal expense recognition in 2023 as their options were forfeited upon departure. 11. Income Taxes Pre-tax loss before income taxes was $ 16,914 and $ 2,373 for the years ended December 31, 2023 and 2022, respectively, which consists entirely of losses in the U.S. and resulted in $ 0 and $ 209 provision for income tax expense during the years then ended, respectively. Components for the provision for income taxes consist of the following: Year Ended December 31, 2023 2022 Current Federal $ — $ 115 State and local — 94 Total current tax expense $ — $ 209 Deferred Federal $ — $ — State and local — — Total deferred tax expense $ — $ — Provision for income tax expense $ — $ 209 73 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) The differences between income taxes computed using the U.S. federal income tax rate and the provision for income taxes are as follows: Year Ended December 31, 2023 2022 Federal income tax expense at statutory rate $ ( 3,552 ) 21.0 % $ ( 498 ) 21.0 % State income tax expense at statutory rate ( 1,167 ) 6.9 ( 87 ) 3.7 Permanent differences 285 ( 1.7 ) 108 ( 4.6 ) Research and development credit — — ( 31 ) 1.3 Federal and state rate differential 72 ( 0.5 ) ( 16 ) 0.7 Change in valuation allowance ( 39,891 ) 236.9 733 ( 30.9 ) Reduction of worthless attributes 44,253 ( 262.6 ) — — $ — — % $ 209 ( 8.8 ) % The effective tax rate for the year ended December 31, 2023 is attributable to the fact that the Company is subject to the IRC Sec. 174 regulations requiring companies to capitalize certain research and experimental expenditures and IRC Sec. 382 loss limitation rules on the Company's ability to utilize net operating losses to offset the capitalization requirement. The effective income tax rate for the year ended December 31, 2023 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. 74 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) The significant components of the Company’s net deferred tax assets are as follows: December 31, 2023 2022 Deferred Tax Assets Net operating losses $ 3,145 $ 36,331 Tax credits — 472 Capitalized R&D expenses 741 5,795 Intangibles — 117 Accrued expenses 41 40 Operating lease liability 1,900 2,097 Equity-based compensation — 1,874 Investment Loss Adjustment 570 — Other — 56 Less: Valuation allowance ( 4,250 ) ( 44,145 ) Total deferred tax assets 2,147 2,637 Deferred Tax Liabilities Prepaid expenses ( 217 ) ( 262 ) Fixed assets and other ( 15 ) ( 292 ) Deferred Rent ( 57 ) — Right-of-use asset ( 1,858 ) ( 2,083 ) Total deferred tax liabilities ( 2,147 ) ( 2,637 ) Deferred taxes, net $ — $ — The Company’s effective income tax rate for the year ended December 31, 2023 is $ 0 . The Company has recorded a full valuation allowance against its deferred tax assets. This determination is based on significant negative evidence, including: • Cumulative losses: The Company has been in a significant cumulative loss position since its inception in 2011. • Projected realization of net operating loss carry forward amounts: Projections of future pre-tax book loss and taxable losses based on the Company's recent actual performance and current industry data indicate it is more likely than not that the benefits will not be recognized. At December 31, 2023, the Company had a federal net operating loss carryforward of $ 11,034 , which are indefinitely lived. At December 31, 2023, the Company had $ 11,033 of state net operating loss carryforwards, which will begin to expire in 2043. We experienced an “ownership change” within the meaning of Section 382(g) (“Section 382”) of the Internal Revenue Code of 1986, as amended, during the fourth quarter of 2022. 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. We determined that at the date of the 2022 ownership change, we had a net unrealized built-in loss (“NUBIL”). The NUBIL was determined based on the difference between the fair market value of our assets and their tax basis as the ownership change date. Because of the NUBIL, certain deductions recognized during the five-year period beginning on the date of the IRC Section 382 ownership change (the “recognition period”) are subject to the same limitation as the net operating loss carryforwards or certain other deductions. As of 2023, the business model has 75 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) substantially changed which fully limits our ability to recognize these deductions. As the Company disposed of the majority of their operating business, they are subject to a zero limitation under Section 382 of the Internal Revenue Code which makes the net operating losses unusable. Accordingly, the Company has not recorded federal and state net operating losses from prior to ownership change. At December 31, 2023 and 2022, the Company had no unrecognized tax benefits. The Company's estimate of the potential outcome of any uncertain tax positions is subject to management's assessment of relevant risks, facts and circumstances existing at that time. The Company evaluates uncertain tax positions to determine if it is more-likely-than-not that they would be sustained upon examination. The Company recognizes interest and penalties related to unrecognized tax benefits in the provision for income taxes. The Company is subject to taxation in the U.S. and various state jurisdictions. The Company remains subject to examination by U.S. federal and state tax authorities for the years 2019 through 2023. There are no pending examinations in any jurisdiction. 12. Loss Per Common Share Basic loss per common share is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during the period. Diluted loss per common share is calculated using the treasury share method by giving effect to all potentially dilutive securities that were outstanding. Potentially dilutive options, restricted stock units and warrants to purchase common stock that were outstanding during the periods presented were excluded from the diluted loss per share calculation for the periods presented because such shares had an anti-dilutive effect due to the net loss reported in those periods. Therefore, basic and diluted loss per common share is the same for each of the years ended December 31, 2023 and 2022. The following is the computation of loss per common share for the years ended December 31, 2023 and 2022: Year Ended December 31, 2023 2022 Net loss $ ( 16,914 ) $ ( 2,582 ) Weighted-average basic and diluted common shares outstanding 8,013,840 4,619,471 Loss per share - basic and diluted $ ( 2.11 ) $ ( 0.56 ) The outstanding securities presented below were excluded from the calculation of loss per common share, for the periods presented, because such securities would have been anti-dilutive due to the Company’s loss per share during that period: December 31, 2023 2022 Options to purchase common stock 12,115 222,833 Restricted stock units 3,043 20,885 Performance stock units — 97,643 Warrants to purchase common stock 50,110 576,261 76 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) 13. Fair Value Measurements ASC Topic 820, Fair Value Measurement , establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value, as follows: Level 1 Inputs - unadjusted quoted prices in active markets for identical assets or liabilities accessible to the reporting entity at the measurement date; Level 2 Inputs - other than quoted prices included in Level 1 inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3 Inputs - unobservable inputs for the asset or liability used to measure fair value to the extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity for the asset or liability at measurement date. Assets measured at fair value on a recurring basis as of December 31, 2023 are as follows: Total Level 1 Level 2 Level 3 Assets Cash equivalents: Money market funds $ 418 $ 418 $ — $ — Short-term investments: Investment in convertible notes receivable — — — Total financial assets $ 418 $ 418 $ — $ — Assets measured at fair value on a recurring basis as of December 31, 2022 are as follows: Total Level 1 Level 2 Level 3 Assets Cash equivalents: Money market funds $ 1,612 $ 1,612 $ — $ — Total financial assets $ 1,612 $ 1,612 $ — $ — The Company uses the market approach and Level 1 and Level 2 inputs to value its cash equivalents and Level 2 inputs to value its short-term investments. The Company uses the market approach and Level 3 inputs to value its liabilities. There were no liabilities measured at fair value on a recurring basis as of December 31, 2022. Warrant Liability A summary of the warrant liability activity for the year ended December 31, 2023 is as follows: Warrants Outstanding Fair Value Per Share Fair Value (in thousands, except per share data) Balance at December 31, 2022 — $ — $ — Option to exercise 526 $ 1.52 $ 800 Payment to warrant holder ( 526 ) $ 1.52 $ ( 800 ) Balance at December 31, 2023 — 0 $ — — 77 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) Investment in convertible notes receivable A summary of the AFS securities activity for the year ended December 31, 2023 is as follows: Fair Value Balance at December 31, 2022 $ — Investment in available for sale securities 2,000 Change in fair value of investment in convertible notes receivable ( 2,000 ) Balance at December 31, 2023 $ — As of December 31, 2023, management does not believe these AFS investments are recoverable and recorded a change in fair value of $ 2,000 . There were no transfers between Level 1, 2, or 3, during the years ended December 31, 2023, and 2022. Both observable and unobservable in puts were used to determine fair value of the positions that the Company classified within the Level 3 category. Unrealized gains and losses associated with the liabilities within the Level 3 category include changes in fair value that were attributable to both observable and unobservable inputs. 14. Defined Contribution Plan Exicure maintains a defined contribution savings plan for the benefit of its employees. Company contributions are determined under various formulas. The expense recognized for this plan was $ 119 and $ 276 for the years ended December 31, 2023 and 2022, respectively. 15. Commitments and Contingencies Legal Proceedings On December 13, 2021, Mark Colwell filed a putative securities class action lawsuit against the Company, David A. Giljohann and Brian C. Bock in the United States District Court for the Northern District of Illinois, captioned Colwell v. Exicure, Inc. et al., Case No. 1:21-cv-0663. On February 4, 2021, plaintiff filed an amended putative securities class action complaint. On March 20, 2023, the court entered an order appointing James Mathew as lead plaintiff and Bleichmar Fonti & Auld LLP as lead counsel in the action pursuant to the Private Securities Litigation Reform Act of 1995. On May 26, 2023, lead plaintiff filed a second amended complaint against the Company, Dr. Giljohann, Mr. Bock, and Grant Corbett. The second amended complaint alleges that Dr. Giljohann, Mr. Bock, and Dr. Corbett made materially false and/or misleading statements related to the Company’s clinical programs purportedly causing losses to investors who acquired Company securities between January 7, 2021 and December 10, 2021. The second amended complaint does not quantify any alleged damages but, in addition to attorneys’ fees and costs, lead plaintiff seeks to recover damages on behalf of himself and others who acquired the Company’s stock during the putative class period at allegedly inflated prices and purportedly suffered financial harm as a result. The parties filed a joint status report noting the mediation efforts taken by the parties. The report also proposes a litigation schedule going forward, which the Court adopted: plaintiff’s third amended complaint is due on or before June 28, 2024, and any motion to dismiss is due on or before August 27, 2024, with response due on or before October 8, 2024 and any reply due on or before November 5, 2024. Accordingly, the status hearing set for May 22, 2024 is reset to July 23, 2024. On March 1, 2022, Kapil Puri filed a shareholder derivative lawsuit on behalf of the Company in the United States District Court for the Northern District of Illinois, against Dr. Giljohann and Mr. Bock, Jeffrey L. Cleland, Elizabeth Garofalo, Bosun Hau, Bali Muralidhar, Andrew Sassine, Matthias Schroff, James Sulat and Timothy Walbert, captioned Puri v. Giljohann, et al., Case No. 1:22-cv-01083. On March 8, 2022, Yixin Sim filed a similar shareholder derivative lawsuit in the same court against the same individuals, captioned Sim v. Giljohann, et al., Case No. 1:22-cv-01217. On April 25, 2022, Stourbridge Investments LLC filed a similar shareholder derivative lawsuit against the same individuals in the United States District Court for the District of Delaware, captioned Stourbridge Investments LLC v. Exicure, Inc. et al., Case No. 1:22-cv-00526. Based on similar factual allegations presented in the Colwell complaint, described above, the Puri, Sim, and Stourbridge complaints (collectively, the 78 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) “Derivative Complaints”) allege that the defendants caused the Company to issue false and/or misleading statements in the proxy statement for its 2021 Annual Meeting of Stockholders regarding risk oversight, code of conduct, clinical program and compensation matters, among other things, in violation of federal securities law, and committed breaches of fiduciary duties. The Derivative Complaints also assert that Dr. Giljohann and Mr. Bock are liable for contribution under the federal securities laws. The Puri and Stourbridge complaints further assert state law claims for unjust enrichment, and the Puri complaint additionally asserts state law claims for abuse of control, gross mismanagement and corporate waste. The plaintiffs do not quantify any alleged damages in the Derivative Complaints, but seek restitution for damages to the Company, attorneys’ fees, costs, and expenses, as well as an order directing that certain proposals for strengthening board oversight be put to a vote of the Company’s shareholders. On March 18, 2022, James McNabb, through counsel, sent a written demand to the Company (the “Demand Letter”) demanding that the Board of Directors investigate certain allegations and commence proceedings on the Company’s behalf against certain of the Company’s officers and directors for alleged breaches of fiduciary duties and corporate waste. All of the Derivative Cases have been stayed pending a decision on any motion to dismiss that may be filed in the Colwell case. In addition, the Stourbridge case has been administratively closed pending the decision on motion to dismiss that may be filed in the Colwell case. Further, pursuant to agreement, the Demand Letter is being held in abeyance and any related statute of limitations tolled pending such motion and decision. On October 3, 2023, a former employee filed a complaint against the Company and its executives related to the former employee’s separation from the Company. The parties will proceed with paper discovery and an in-person settlement conference is scheduled for June 26, 2024. Leases Refer to Note 7, Leases , for a discussion of the commitments associated with the Company’s lease agreements. Northwestern University License Agreements On December 12, 2011, (1) AuraSense, LLC, the Company’s former parent, assigned to the Company all of its worldwide rights and interests under AuraSense, LLC’s 2009 license agreement with Northwestern University (“NU”) in the field of the use of nanoparticles, nanotechnology, microtechnology or nanomaterial-based constructs as therapeutics or accompanying therapeutics as a means of delivery, but expressly excluding diagnostics (the “assigned field”); (2) in accordance with the terms and conditions of this assignment, the Company assumed all liabilities and obligations of AuraSense, LLC as set forth in its license agreement in the assigned field; and (3) in order to secure this assignment and the patent rights from NU, the Company agreed (i) to pay NU an annual license fee, which may be credited against any royalties due to NU in the same year, (ii) to reimburse NU for expenses associated with the prosecution and maintenance of the license patent rights, (iii) to pay NU royalties based on any net revenue generated by the Company’s sale or transfer of any licensed product, (iv) to pay NU, in the event the Company grants a sublicense under the licensed patent rights, the greater of a percentage of all sublicensee royalties or a percentage of any net revenue generated by a sublicensee’s sale or transfer of any licensed product, and (v) to pay NU a percentage of all other sublicense payments received by the Company. In August 2015, the Company entered into a restated license agreement with NU (the “Restated License Agreement”). In February 2016, the Company obtained exclusive license as to NU’s rights in certain SNA technology it jointly owns with NU (the “Co-owned Technology License”). The Company’s license to NU’s rights is limited to the assigned field, however the Company has no such limitation as to its own rights in this jointly owned technology. The Company’s rights and obligations in the Co-owned Technology License agreement is substantially the same as in the Restated License Agreement from August 2015 (collectively referred to as “the Northwestern University License Agreements”). As of December 31, 2023, the Company has paid to NU an aggregate of $ 11,567 in consideration of each of the obligations described above. 79 Table of Contents EXICURE, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands, except share and per share data) On August 3, 2023, the company received a notice letter (the “Letter”) from counsel for NU alleging the Company breached the Northwestern University License Agreements. The Letter alleges that a lack of development required under the Northwestern University License Agreements is a breach. The Northwestern University License Agreements were subsequently terminated on September 10, 2023 and October 3, 2023, respectively. 16. Related-Party Transactions Pursuant to a Consulting Agreement, effective as of September 25, 2022, between the Company and Alta Companies LTD (“Alta”), the Company paid Alta $ 218 on February 27, 2023 for a consulting fee earned as a result of the September 2022 PIPE closing. Paul Kang, a director of the Company since February 2023 and the CEO of the Company since August 2023, is the President of Alta. 17. Subsequent Events On February 5, 2024, the Company entered into a patent license agreement to develop cavrotolimod for potential treatment for hepatitis with a private clinical stage biopharmaceutical company. Under the terms of the agreement, this biopharmaceutical company will receive an exclusive license in the field of hepatitis to all of Exicure’s relevant patents. An initial payment of $ 500 was paid to Exicure after the execution of this agreement that was recorded as other income. Exicure will also be entitled to modest royalties on future net sales on all licensed technology during the term of the licensed patents. Exicure will be responsible for, and make all decisions concerning, the preparation, filing, prosecution, and maintenance for each patent and patent application included within the licensed patents. On May 3, 2024, the Company executed a promissory note (“Note”) and subsequently received a loan in the amount of $ 300 from an individual investor. All principal and accrued interest will be due and payable on the earlier of (i) the 1st anniversary of the date of this Note or (ii) upon an event of default, at that time, such amounts declared by the investor will become due and payable by Company. Interest will accrue on this Note at 6.0 % and is payable at maturity. On June 3, 2024, the Company executed another promissory note (“DGP Note”) and subsequently received a loan in the amount of $ 700 from DGP, a related party. All principal and accrued interest will be due and payable on the earlier of (i) ten months from the date of this DGP Note or (ii) upon an event of default, at that time, such amounts declared by the investor will become due and payable by Company. Interest will accrue on this DGP Note at 6.0 % and is payable at maturity. 80 Table of Contents Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None.