ATHERSYS, INC / NEW - Quarter Report: 2023 September (Form 10-Q)

CAUTIONARY NOTE ON FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Quarterly Report”) contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 that involve risks and uncertainties. These forward-looking statements relate to, among other things, the timing of initiation of new clinical sites and patient enrollment in our clinical trials, the expected timetable for development of our product candidates, our growth strategy, and our future financial performance, including our operations, economic performance, financial condition, prospects, and other future events. We have attempted to identify forward-looking statements by using such words as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “should,” “suggest,” “will,” or other similar expressions. These forward-looking statements are only predictions and are largely based on our current expectations. These forward-looking statements appear in a number of places in this Quarterly Report.

In addition, a number of known and unknown risks, uncertainties, and other factors could affect the accuracy of these statements. Some of the more significant known risks that we face are the risks and uncertainties inherent in the process of discovering, developing, and commercializing products that are safe and effective for use as therapeutics, including the uncertainty regarding market acceptance of our product candidates and our ability to generate revenues. The following risks and uncertainties may cause our actual results, levels of activity, performance, or achievements to differ materially from any future results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements:

Any forward-looking statements in this Quarterly Report reflect our current views with respect to future events and is subject to these and other risks, uncertainties and assumptions relating to our operations, operating results, growth strategy and liquidity. Although we currently believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee our future results, levels of activity or performance. You should not place undue reliance on these forward-looking statements because such statements speak only as of the date when made. We undertake no obligation to publicly update forward-looking statements, whether as a result of new information, future events or otherwise, except as otherwise required by law. You are advised, however, to consult any further disclosures we make on related subjects in our reports on Forms 10-Q, 8-K and 10-K filed or furnished to the SEC. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Athersys, Inc.

Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

See accompanying notes to unaudited condensed consolidated financial statements.

Athersys, Inc.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(In thousands, except per share data)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

¹ See Footnote 10 for components of other income, net

Athersys, Inc.

Condensed Consolidated Statements of Stockholders’ Equity

(In thousands, except share amounts)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Athersys, Inc.

Condensed Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

See accompanying notes to unaudited condensed consolidated financial statements.

Athersys, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

Three- and Nine- Month Periods Ended September 30, 2023 and 2022

1. Background and Basis of Presentation

Organization

Athersys, Inc., including its consolidated subsidiaries (collectively, “we,” “us,” “our,” “Athersys,” and the “Company”), is a biotechnology company focused in the field of regenerative medicine and operates in one business segment. Our operations consist of research, clinical development activities, manufacturing and manufacturing process development activities, and our most advanced program is in a pivotal Phase 3 clinical trial for the treatment of ischemic stroke.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on April 3, 2023. The accompanying financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and Regulation S-X. Accordingly, since they are interim statements, the accompanying financial statements do not include all of the information and notes required by GAAP for complete financial statements. The accompanying financial statements reflect all adjustments, consisting of normal recurring adjustments and disclosures that are, in the opinion of management, necessary for a fair presentation of financial position and results of operations for the interim periods presented. Interim results are not necessarily indicative of results for a full year.

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Our critical accounting policies, estimates and assumptions are described in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which is included in this Quarterly Report on Form 10-Q in Part I, Item 2.

Reverse Stock Split

On August 26, 2022, the Company amended its Certificate of Incorporation to implement a 1-for-25 reverse stock split of its common stock. The reverse stock split did not cause an adjustment to the par value or the authorized shares of the common stock. As a result of the reverse stock split, the Company adjusted the share amounts under its employee equity incentive plans, inducement awards and common stock warrant agreements with third parties. All disclosures of common shares and per common share data in the accompanying interim financial statements and related notes reflect the reverse stock split for all periods presented.

2. Going Concern

We have prepared our unaudited condensed consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. However, we have incurred net losses since our inception in 1995 and have negative operating cash flows. These factors, among others, raise substantial doubt about our ability to continue as a going concern within one year after the date that these financial statements are issued.

At September 30, 2023, we had cash and cash equivalents of $1.0 million. We will need substantial additional funding to develop our MultiStem product candidate and to continue our operations. Significant additional capital will be required to continue our research and development programs, including progressing our clinical product candidates to potential commercialization and preparing for commercial-scale manufacturing and sales. We intend to continue exploring available strategic options. However, in the event Athersys is unable in the near-term to enter into a strategic transaction or obtain adequate financing, it expects to have to file for protection under the bankruptcy laws to allow the Company to conduct an orderly wind down of operations. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders. For the foreseeable future, our ability to continue our operations is dependent upon the ability to obtain additional funding through public or private equity offerings, debt financings, collaborations and/or licensing arrangements. However, there can be no assurance that we will be able to obtain such funding on terms acceptable to us, on a timely basis or at all, particularly in light of our current stock price and liquidity. If we are unable to obtain funding, we may be required to further delay, reduce or eliminate our MultiStem product candidate approval and commercialization efforts, which would adversely affect our business prospects, and we likely will be unable to continue operations. Additionally, our ability to make timely payments on obligations to the supplier we have entered into the Forbearance Agreement, discussed in more detail below, is dependent on future capital raise. The supplier has the right to call the full amount of the debt due immediately if we are late on a payment and do not remedy the delinquent payment in the allotted cure period. The accompanying unaudited condensed consolidated financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of the uncertainty concerning our ability to continue as a going concern.

3. Accounting Standards Adopted

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326). This ASU replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. Subsequent to issuing ASU 2016-13, the FASB issued ASU 2019-10, Financial Instruments - Credit Losses (Topic 326): Effective Dates, delaying the effective date for smaller reporting companies until January 2023. The impact of adoption of this standard did not have a material impact on the consolidated financial statements and disclosures.

4. Net Loss per Share

Basic and diluted net loss per share have been computed using the weighted-average number of shares of our common stock outstanding during the period.

As of September 30, 2023, we have outstanding options, restricted stock units and warrants that were not used in the calculation of diluted net loss per share because to do so would be anti-dilutive. As of September 30, 2023, we had warrants outstanding to purchase an aggregate of 400,000 shares of our common stock that were issued to HEALIOS K.K. (“Healios”) in August 2021 and are not yet exercisable according to their terms. Additionally, as of September 30, 2023, we had outstanding warrants to purchase 1,920,000, 2,000,000, 9,109,090, 3,685,000, and 28,600,000 shares of our common stock that were issued in August 2022, September 2022, November 2022,  April 2023, and August 2023, respectively. Additionally, we had shares related to the convertible note that have been excluded from the calculation, as these would be anti-dilutive.

The following instruments were excluded from the calculation of diluted net loss per share because their effect would be anti-dilutive.

5. Property and Equipment, net

Long-lived assets are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the asset or related group of assets may not be recoverable. In June 2022, we announced a restructuring plan (the “Plan”) of our organization with the intention of significantly reducing expenses, conserving cash, improving the focus of the Company’s activities and becoming more attractive to potential financial and strategic partners. The Plan included a significant reduction in our workforce and changes to our management team. The Plan also includes the reduction of our internal research function, the decommissioning of certain equipment and pausing our manufacturing and process development efforts toward commercializing our MultiStem product candidate. As a result of these actions, during 2022, we recorded impairment charges of approximately $7.2 million to adjust the carrying amount of certain equipment assets to the estimated market value of similar assets.

We have disposed of gross assets of approximately $1.0 million with accumulated depreciation of $0.4 million, for $0.3 million in cash, which resulted in a loss of $0.3 million for the nine months ended September 30, 2023. We had no material disposals for the same period ended September 30, 2022. Additionally, we accelerated depreciation for assets no longer expected to be used in operations to their expected salvage values, which resulted in additional depreciation of $0.9 million being record for the three months ending  September 30, 2023. We reduced the useful lives of equipment resulting in additional depreciation of $0.4 million for the nine months ended September 30, 2022. 

On June 9, 2023, our landlord for the property in Stow, Ohio, Seasons Business Center Four, LLC, brought suit against the Company in the Summit County, Ohio Court of Common Pleas asserting claims for Breach of Contract (Lease), Promissory Estoppel, and Unjust Enrichment relating to the subject lease between the parties. As a result of the Company surrendering possession of the property and returning the keys to the landlord the Company recorded an impairment charge related to the right-of-use asset. During the nine months ended September 30, 2023, we recorded $7.9 million of impairment charges to fixed assets. The impairment charge is recorded in research and development costs and expenses. The right-of-use liability has all been reclassified to current.

6. Collaborative Arrangements and Revenue Recognition

Healios Collaboration

We have a licensing agreement with Healios to primarily develop and commercialize our cell therapy technologies for certain disease indications in Japan, pursuant to which we received nonrefundable license fee payments and are entitled to royalties on net sales. We also have the right to receive development and commercial milestone payments from Healios, subject to certain potential credits that have been negotiated from time-to-time and are associated with modifications to the arrangement. Healios is responsible for the development and commercialization of the licensed products in the licensed territory, and we provide certain services to Healios for which we are paid.

In August 2021, the Company and Healios entered into a Comprehensive Framework Agreement for Commercial Manufacturing and Ongoing Support, or the Framework Agreement, which provided for clarification under and modified the existing agreements between the parties. It also provided Healios with deferral of certain milestone payments. Under the Framework Agreement, the Company was entitled to payments for reimbursable services of $0.7 million. The amount, which was included in accounts receivable from Healios has been fully offset by an allowance for doubtful accounts at September 30, 2023 due to the length of time the receivable has been outstanding without collection.

In addition, under the Framework Agreement, the Company was entitled to a $3.0 million milestone payment from Healios and was obligated to pay Healios $1.1 million by December 31, 2022. In September 2022, we received $1.9 million from Healios, which represents the milestone payment net of amounts owed to Healios. Additionally, to assist Healios with the advancement of its ischemic stroke and acute respiratory distress syndrome (“ARDS”) programs in Japan, in September 2022, we granted to Healios, subject to the terms of the licensing agreement, a non-exclusive license to make and have made MultiStem for the treatment of ischemic stroke and ARDS worldwide solely for import for use in Japan. In connection with the execution of the Framework Agreement, the Cooperation Agreement was amended to extend certain customary standstill provisions until the conclusion of our 2023 annual meeting of stockholders.

In August 2021, we also issued two warrants (together, the “2021 Warrants”) to Healios in connection with the Framework Agreement to purchase up to a total of 400,000 shares of our common stock. The 2021 Warrants are being accounted for as consideration paid or payable to a customer according to Topic 606, Revenue from Contracts with Customers, and Topic 718, Compensation Stock Compensation, under which the recognition of such equity instruments is required at the time that the underlying performance conditions become probable or are satisfied. As of September 30, 2023, the 2021 Warrants have not been recorded as the underlying performance conditions have not been satisfied and are not yet considered probable. Refer to Note 8, “Stockholders’ Equity and Warrants”, for further information.

In August 2023, the Company entered into a Memorandum of Understanding (“MOU”) with Healios, which memorializes the terms between the Company and Healios regarding consultation services the Company agreed to provide Healios as it explores its effort to join and participate in the Company’s ongoing MASTERS-2 Study. In exchange, Healios agreed to compensate the Company for consulting services. Healios made a $150,000 deposit which is recorded in Deferred revenue - Healios. 

Healios has alleged that we are in material breach of our Framework Agreement for, among other things, not meeting our supply obligations and cooperation and assistance obligations. We strongly disagree with Healios’ allegations and will continue to work with Healios to try to resolve this dispute. However, there can be no assurance that we will be able to resolve this dispute without legal proceedings.

Healios Revenue Recognition

At the inception of the Healios arrangement and again each time that the arrangement has been modified, all material performance obligations were identified, which include (i) licenses to our technology, (ii) product supply services, and (iii) manufacturing services provided on Healios’ behalf.

Under the Framework Agreement, it was determined there was one performance obligation for services necessary for regulatory approvals, manufacturing readiness, and commercial launch in Japan. We determined the transaction price included estimated payments for reimbursable services to be performed by us for Healios and the $3.0 million milestone payment. We allocated the total transaction price to this one performance obligation. We began recognizing revenue in the third quarter of 2021 as the services were being performed. At September 30, 2023, the services related to this performance obligation are largely complete and consist of minimal close-out activities which are immaterial. During the three months ended September 30, 2023, we recognized no revenue associated with this performance obligation, compared to $0.1 million for three months ended September 30, 2022. We recognized no revenue for three months ended September 30, 2023 and  September 30, 2022 from performance obligations satisfied in previous periods.

Accounts receivable from Healios

Accounts receivable from Healios are related to our contracts and are recorded when the right to consideration is unconditional at the amount that management expects to collect. Accounts receivable from Healios do not bear interest if paid when contractually due, and payments are generally due within thirty to forty-five days of invoicing. As of September 30, 2023, we have increased our allowance for doubtful accounts to cover the full amount of balance that we showed as outstanding, due to the length of time the invoices have been outstanding. 

Deferred Revenue - Healios

The amounts included in deferred revenue - Healios are considered a contract liability connected to the funds received as part of the MOU. During the nine months ended September 30, 2023, no revenue was recognized from contract liabilities, compared to $2.8 million of revenue recognized during the nine months ended September 30, 2022.

Advance from Healios

In 2017, we amended the clinical trial supply agreement for the manufacturing of clinical product for TREASURE to clarify a cost-sharing arrangement. The proceeds from Healios that relate specifically to the cost-sharing arrangement may either (i) result in a reduction in the proceeds we receive from Healios upon the achievement of two potential milestones and an increase to a commercial milestone under the license agreement for stroke or (ii) be repaid to Healios at our election, as defined. The cost-sharing proceeds received are recognized in advance from Healios on the unaudited condensed consolidated balance sheets until the earlier of the milestones being achieved or such amounts being repaid to Healios at our election, at which time the culmination of the earnings process or the repayment will be complete.

Disaggregation of Revenues

We recognize product supply revenue at a point in time upon delivery, as defined in the applicable product supply contracts, while service revenue is recognized when earned over time. The following table presents our contract revenues disaggregated by timing of revenue recognition (in thousands):

7. Stock-Based Compensation

Our 2019 Equity and Incentive Compensation Plan (the “EICP”) authorized at inception, an aggregate of approximately 3,700,000 shares of our common stock for awards to employees, directors and consultants. The EICP authorizes the issuance of stock-based compensation in the form of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and units, and other stock-based awards. As of September 30, 2023, a total of 1,185,543 shares (including 11,289 shares related to an expired incentive plan) of common stock have been issued under our equity incentive plans.

On September 27, 2022, the stockholders of the Company approved the amendment and restatement of the Athersys, Inc. 2019 Equity and Incentive Compensation Plan (the “Amended EICP”). The Amended EICP continues to provide stock-based compensation as described above. Subject to adjustment, an additional 2,000,000 shares of Company common stock are available for awards under the Amended EICP.

As of September 30, 2023, a total of 2,095,332 shares were available for issuance under our EICP, and stock-based awards representing 990,898 (including 19,084 shares related to an expired incentive plan) of common stock were outstanding. Additionally, inducement stock options granted outside of our equity incentive plans to purchase 429,500 shares of common stock were outstanding at September 30, 2023. For the three months ended September 30, 2023 and 2022, stock-based compensation expense was approximately $0.7 million and $2.0 million, respectively. At September 30, 2023, total unrecognized estimated compensation cost related to unvested stock-based awards was approximately $3.2 million, which is expected to be recognized by the end of 2026 using the straight-line method.

8. Stockholders’ Equity and Warrants

At  September 30, 2023 and September 30, 2022, we had 600,000,000 shares of common stock and 10,000,000 shares of undesignated preferred stock authorized. No shares of preferred stock have been issued as of September 30, 2023 and 2022.

August 2022 Securities Purchase Agreement

On August 15, 2022, the Company entered into a placement agency agreement with A.G.P./Alliance Global Partners (“A.G.P.”), pursuant to which A.G.P. agreed to serve as exclusive placement agent for the issuance and sale of common stock and warrants. A.G.P. received a placement fee of approximately $0.8 million and approximately $0.1 million for the reimbursement of expenses.

On August 15, 2022, the Company entered into a securities purchase agreement (the “August 2022 Purchase Agreement”) with an investor, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) an aggregate of 1,200,000 shares of the Company’s common stock, (ii) pre-funded warrants (the “August 2022 Pre-Funded Warrants”) exercisable for an aggregate of 720,000 shares of common stock and (iii) warrants (the “August 2022 Common Warrants”) exercisable for an aggregate of 1,920,000 shares of common stock, in combinations of one share of common stock or one August 2022 Pre-Funded Warrant and one August 2022 Common Warrant for a combined purchase price of $6.25 (less $0.0025 for any August 2022 Pre-Funded Warrant). Subject to certain ownership limitations, under the terms of the August 2022 Purchase Agreement, the August 2022 Pre-Funded Warrants were exercisable upon issuance, and the August 2022 Common Warrants were exercisable upon the six-month anniversary of issuance for a five-year period. Under the August 2022 Purchase Agreement, each August 2022 Pre-Funded Warrant was exercisable for one share of common stock at a price per share of $0.0025 and each August 2022 Common Warrant was exercisable for one share of common stock at a price per share of $6.385. The offering closed on August 17, 2022 and the Company received net proceeds of approximately $11.0 million, after giving effect to the payment of placement fees and expenses. On August 29, 2022, the August 2022 Pre-Funded Warrants were exercised in full and re-measured to fair value. Upon remeasurement and exercise, we recorded a gain of $0.8 million to adjust the warrant liability associated with the August 2022 Pre-Funded Warrants to fair value and reclassified the $3.8 million warrant liability to additional paid-in capital. The fair value adjustment is recorded in other income, net on the condensed consolidated statement of operations and comprehensive loss.

Pursuant to the August 2022 Purchase Agreement, in the event the Company proposes a future offering to sell shares of common stock during the twelve months following the closing date, the investor has the right to participate in each offering in an amount up to 30.0%.

On September 22, 2022, the Company entered into an amendment to the August 2022 Purchase Agreement (the “August 2022 Purchase Agreement Amendment”) with the investor to, among other things, (i) amend the August 2022 Common Warrants to be exercisable for a seven-year period after the six-month anniversary of the closing date, (ii) reduce the standstill period, (iii) reduce the term and the amount of the participation right, and (iv) require the investor, subject to certain conditions, to participate in future offerings to sell certain securities to investors primarily for capital raising purposes.

On September 22, 2022, in consideration of the August 2022 Purchase Agreement Amendment, and without receiving any cash proceeds, the Company issued to the investor additional warrants exercisable for 2,000,000 shares of common stock (the “September 2022 Warrants”) at a price of $6.385 for a seven-year period after the six-month anniversary of the date of issuance thereof.

The Company has assessed the August 2022 Pre-Funded Warrants, the August 2022 Common Warrants and the September 2022 Warrants (collectively, the “Warrants”) for appropriate equity or liability classification pursuant to the Company’s accounting policy as described in Note C, in the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022. The Warrants contain a provision pursuant to which the warrant holder has the option to receive cash in the event there is a fundamental transaction (contractually defined to include various merger, acquisition or stock transfer activities). The Warrants met the definition of a derivative pursuant to ASC 815, Derivatives and Hedging and did not meet the derivative scope exception. As a result, the Warrants were initially recorded as liabilities and measured at fair value using the Black-Scholes valuation model. Issuance costs of $0.5 million were allocated to the Pre-Funded Warrants and Common Warrants and recorded in other income, net on the condensed consolidated statement of operations and comprehensive loss in the three ended September 30, 2022. The remaining issuance costs of $0.4 million were allocated to the common stock and recorded in additional paid-in capital.

On April 17, 2023, the Company amended the August 2022 Warrants and the September 2022 Warrants to, among other things, reduce the exercise price to $0.96 per share with respect to 1,920,000 shares of common stock covered by the August 2022 Common Warrants and 1,760,000 shares of common stock covered by the September Warrants. As a result of the amended agreement, the August 2022 Common Warrants and the September 2022 Warrants now meet the guidance for equity classification in accordance with ASC 815, Derivatives and Hedging. Such warrants were adjusted to their fair value on April 17, 2023, inclusive of the change in exercise price and the change in fair value was recorded in other (expense) income, net and then the warrants were reclassified to additional paid-in-capital (APIC).

On August 17, 2023, the Company further amended the August Warrants and the September Warrants to, among other things, reduce the exercise price to $0.32 per share with respect to 1,920,000 shares of Common Stock covered by the August Warrants and 2,000,000 shares of Common Stock covered by the September Warrants.

During the three- and nine months ended September 30, 2023, the Company recognized no other expense and other expense of $2.2 million, respectively, for the fair value adjustment related to the warrant liabilities. During the three and nine months ended September 30, 2022, the Company recognized a net gain of $2.8 million for the fair value adjustment related to the warrant liabilities, which includes a charge of $0.4 million recorded upon issuance of the New Warrants.

November 2022 Securities Purchase Agreement

On November 9, 2022, the Company entered into a placement agency agreement with A.G.P. pursuant to which A.G.P. agreed to serve as exclusive placement agent for the issuance and sale of common stock and warrants. A.G.P received a placement fee of approximately $0.4 million and approximately $0.1 million for the reimbursement of expenses.

On November 9, 2022, the Company entered into a securities purchase agreement (the “November 2022 Purchase Agreement”) with investors, pursuant to which the Company agreed to issue and sell, in a public offering, (i) an aggregate of 3,927,275 shares of the Company’s common stock, (ii) pre-funded warrants (the “November 2022 Pre-Funded Warrants”) exercisable for an aggregate of 1,077,270 shares of common stock and (iii) warrants (the “November 2022 Common Warrants”) exercisable for an aggregate of 10,009,090 shares of common stock, in combinations of one share of common stock or one November 2022 Pre-Funded Warrant and two November 2022 Common Warrants for a combined purchase price of $1.10 (less $0.0001 for any November 2022 Pre-Funded Warrant). Subject to certain ownership limitations, under the terms of the November 2022 Purchase Agreement, the November 2022 Pre-Funded Warrants and November 2022 Common Warrants were exercisable upon issuance. Under the November 2022 Purchase Agreement, each November 2022 Pre-Funded Warrant was exercisable for one share of common stock at a price per share of $0.0001 and each November 2022 Common Warrant is exercisable for one share of common stock at a price per share of $1.10 for a five-year period after the date of issuance. The offering closed on November 10, 2022, and the Company received net proceeds of approximately $5.0 million, after giving effect to the payment of placement fees and expenses. The November 2022 Pre-Funded Warrants were exercised in full at the closing.

The November 2022 Common Warrants meet the requirements to be classified as equity in accordance with ASC 815, Derivatives and Hedging. The November 2022 Common Warrants were recorded at their relative fair value at issuance in the stockholders’ equity section of the balance sheet.

April 2023 Securities Purchase Agreement

On April 18, 2023, the Company entered into a placement agency agreement with A.G.P. pursuant to which A.G.P. agreed to serve as the exclusive placement agent for the issuance and sale of common stock and warrants. A.G.P. received a placement fee of approximately $0.2 million and approximately $0.1 million for the reimbursement of expenses.

On April 18, 2023, the Company entered into a securities purchase agreement (the “April 2023 Purchase Agreement”) with investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) an aggregate of 2,315,000 shares of the Company’s common stock and (ii) pre-funded warrants (the “April 2023 Pre-Funded Warrants”) exercisable for an aggregate of 1,370,000 shares of common stock, together with warrants (the “April 2023 Common Warrants”) exercisable for an aggregate of 3,685,000 shares of the Company’s common stock in a private placement, in combinations of one share or one April 2023 Pre-Funded Warrant and one April 2023 Common Warrant for a combined purchase price of $1.00. Subject to certain ownership limitations, the April 2023 Pre-Funded Warrants are exercisable upon issuance, and the April 2023 Common Warrants are exercisable upon the six-month anniversary of issuance. Each April 2023 Pre-Funded Warrant is exercisable for one share of common stock at a price per share of $0.0001 (as adjusted from time to time in accordance with the terms thereof) and does not expire. Each April 2023 Common Warrant is exercisable into one share of common stock at a price per share of $0.96 (as adjusted from time to time in accordance with the terms thereof) for a seven-year period after the six-month anniversary of the date of issuance. The offering closed on April 19, 2023, and the Company received net proceeds of approximately $3.4 million, after giving effect to the payment of placement fees and expenses.

The April 2023 Common Warrants meet the requirements to be classified as equity in accordance with ASC 815, Derivatives and Hedging. The April 2023 Common Warrants were recorded at their relative fair value at issuance in the stockholders’ equity section of the balance sheet.

August 2023 Securities Purchase Agreement

On August 17, 2023, the Company entered into a placement agency agreement with A.G.P. pursuant to which A.G.P. agreed to serve as the exclusive placement agent for the issuance and sale of common stock and warrants. A.G.P. received a placement fee of approximately $0.2 million and approximately $0.2 million for the reimbursement of expenses.

On August 17, 2023, the Company entered into a securities purchase agreement (the “August 2023 Purchase Agreement”) with investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) an aggregate of 4,212,500 shares of the Company’s common stock, (ii) pre-funded warrants (the “August 2023 Pre-Funded Warrants”) exercisable for an aggregate of 6,725,000 shares of common stock, (iii) Series A common stock purchase warrants (the “Series A Common Warrants”) exercisable for an aggregate of 10,937,500 shares of the Company’s common stock, and (iv) Series B common stock purchase warrants (the “Series B Common Warrants” and together with the Series A Common Warrants, the “August 2023 Common Warrants”) exercisable for an aggregate of 10,937,500 shares of the Company’s common stock, in combinations of one share or one August 2023 Pre-Funded Warrant and one of each Series A Common Warrant and Series B Common Warrant for a combined purchase price of $0.32. Subject to certain ownership limitations, the August 2023 Pre-Funded Warrants and the August 2023 Common Warrants are exercisable upon issuance. Each August 2023 Pre-Funded Warrant is exercisable for one share of common stock at a price per share of $0.0001 (as adjusted from time to time in accordance with the terms thereof) and does not expire. Each Series A Common Warrant is exercisable into one share of common stock at a price per share of $0.32 (as adjusted from time to time in accordance with the terms thereof) for a five-year period, and each Series B Common Warrant is exercisable into one share of common stock at a price per share of $0.32 (as adjusted from time to time in accordance with the terms thereof) for a one and a half year period. The offering closed on August 21, 2023, and the Company received net proceeds of approximately $3.0 million, after giving effect to the payment of placement fees and expenses.

The August 2023 Common Warrants and 6,725,000 of the August 2023 Pre-Funded Warrants, which remain outstanding, meet the requirements to be classified as equity in accordance with ASC 815, Derivatives and Hedging. The August Common Warrants were recorded at their relative fair value at issuance in the stockholders’ equity section of the balance sheet.

On October 11, 2023, the Company entered into a warrant exercise inducement offer letter with a holder of certain existing warrants to receive new warrants to purchase up to a number of shares of common stock equal to 200% (the “Inducement Warrants”) of the number of warrant shares issued pursuant to the exercise of such certain existing warrants to purchase shares of common stock (the "Existing Warrants") pursuant to which the Holder agreed to exercise for cash their Existing Warrants to purchase up to 28,124,540 shares of the Company’s common stock, at a reduced exercise price of $0.1395 per share in exchange for the Company’s agreement to issue the Inducement Warrants to purchase up to 56,249,080 shares of the Company’s common stock (the “Inducement Warrant Shares”). The Existing Warrants consist of the Company’s common warrants issued on August 17, 2022, September 22, 2022, November 10, 2022, and August 21, 2023. We received aggregate gross proceeds of approximately $3.9 million from the exercise of the Existing Warrants before deducting financial advisory fees and other expenses payable by us.

On October 30, 2023, the Company entered into an offer letter with a holder of the Company's common stock Existing Warrants issued on October 16, 2023 to (1) reduce the exercise price of the Existing Warrants from $0.1395 to $0.01 per share (the “Reduced Exercise Price”), (2) issue to the Holder new common stock purchase warrants (the “New Warrants”) to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share; and (3) make the Existing Warrants immediately exercisable.

Healios 2021 Warrants

In August 2021, we issued the 2021 Warrants to Healios to purchase up to an aggregate of 400,000 shares of our common stock. One of the 2021 Warrants is for the purchase of up to 120,000 shares at an exercise price of $45.00 per share, subject to specified increases, and generally is only exercisable within 60 days of receipt of either conditional or full marketing approval from the Pharmaceuticals and Medical Devices Agency in Japan (the “PMDA”) for the intravenous administration of MultiStem to treat patients who are suffering from acute respiratory distress syndrome. The other 2021 Warrant is for the purchase of up to 280,000 shares at an exercise price of $60.00 per share, subject to specified increases, and generally is only exercisable within 60 days of receipt of either conditional or full marketing approval from the PMDA for the intravenous administration of MultiStem to treat patients who are suffering from ischemic stroke. The 2021 Warrants may be terminated by us under certain conditions and have an exercise cap triggered at Healios’ ownership of 19.9% of our common stock.

Equity Purchase Agreement

We previously had equity purchase agreements in place since 2011 with Aspire Capital Fund, LLC (“Aspire Capital”) that provided us with the ability to sell shares to Aspire Capital from time to time. On May 12, 2022, we entered into an agreement (the “2022 Equity Facility”) that included Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million of shares of our common stock over a defined timeframe. The terms of the 2022 Equity Facility were similar to the previous equity facilities with Aspire Capital. Our prior equity facility was entered into on June 24, 2021 (the "2021 Equity Facility") and included Aspire Capital’s commitment to purchase up to an aggregate of $100.0 million of shares of our common stock over a defined timeframe. The terms of the 2021 Equity Facility were similar to the previous equity facilities with Aspire Capital. The 2021 Equity Facility was fully utilized and automatically terminated during the second quarter of 2022.

On July 6, 2022, Aspire Capital terminated the 2022 Equity Facility. Aspire Capital had the right to terminate the 2022 Equity Facility at the time or any time after any of the Company’s then current executive officers ceased to be an executive officer or full-time employee of the Company, which right was triggered in connection with the departures of William Lehmann, former president and Chief Operating Officer, John Harrington, Former Executive Vice President and Chief Scientific Officer, and Ivor MacLeod, former Chief Financial Officer.

During quarter ended September 30, 2022, we sold no shares to Aspire Capital. 

9. Fair Value Measurements

The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued expenses approximate their respective fair values due to the short-term nature of such instruments.

Liabilities Measured at Fair Value on a Recurring Basis

The Company evaluates its financial assets and liabilities subject to fair value measurements on a recurring basis to determine the appropriate level in which to classify them for each reporting period. The requirement requires judgements to be made. Our Level 3 financial liabilities consist of  warrant liabilities prior to their reclassification to equity and a convertible note payable for which there is no current market such that the determination of fair value requires judgement or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate. The Company uses the Black-Scholes option valuation model to value the Level 3 warrant liabilities at inception and on subsequent valuation dates. This model incorporates transaction detail such as the Company’s stock price, contractual terms, maturing, risk free rates as well as volatility. The unobservable input for the Level 3 warrant liabilities includes volatility, which is not significant to the fair value measurement of the warrant liabilities.

A reconciliation of the beginning and ending balances for the warrant liabilities which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

The Company uses the Lattice Model to value the Level 3 note payable liabilities at inception and for subsequent valuation dates. This model incorporates transaction detail such as the term of the note, the nominal value of the note at inception, the coupon rate of the note, the conversion price of the note, the Company’s stock price, risk-free rate and implied bond yield as well as volatility. The unobservable input for the Level 3 note payable includes volatility and implied bond yield, which are significant to the fair value measurement of the note payable. The Company’s stock is publicly traded and is readily determinable. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the Note. We determine volatility by using our historical stock volatility. The implied bond yield is based on the required rate of return for mezzanine financing for similar companies.

The following weighted-average input assumptions were used in determining the fair value of the note at inception, as of June 30, 2023, and as of September 30, 2023. Volatility was 49.5% on May 17, 2023, 50.6% on June 30, 2023, and 77.9% on September 30, 2023, and the implied bond yield was 18.9% on May 17, 2023, 19.6% on June 30, 2023, and 30.7% on September 30, 2023

A reconciliation of the beginning and ending balances for the note payable which are measured at fair value on a recurring basis using significant unobservable inputs (Level 3) is as follows (in thousands):

10. Other Income and Expense

Other (expense) income consists of loss from extinguishment of debt, interest expense, foreign exchange gain/(loss), fair value change from warrants, gain/(loss) on disposal of assets and other.

11. Forbearance Agreement and Convertible Note

On May 17, 2023, the Company entered into a Forbearance, Restructuring and Settlement Agreement (the “Forbearance Agreement”) with a supplier, which amends certain supply agreements between the Company and the supplier.

The Forbearance Agreement provides that the supplier agrees to forbear from exercising rights and remedies available as a result of existing overdue amounts under existing agreements, so long as the Company pays to the supplier an aggregate of $11.8 million in deferred accounts payable, in monthly payments of $0.25 million, commencing in October 2023. Pursuant to the terms of the Forbearance Agreement, the Company also issued a convertible promissory note to the supplier in the principal amount of $15.0 million (the “Note”).

The Company accounted for the restructuring as an extinguishment and recorded the new liabilities at fair value of $7.9 million for the deferred accounts payable and $15.0 million for the Note. The Company recorded a gain on extinguishment of $2.6 million as a result of the restructuring.

The Note bears interest at a rate of 10.0% per annum, which shall be capitalized and added to the principal amount semi-annually on January 1 and July 1, commencing on July 1, 2023, and must be repaid in full, including accrued and unpaid interest thereunder, on (or before, subject to certain conditions) May 17, 2026. The Note provides for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the Note, certain events of bankruptcy and an adverse judgment for payment of $3.0 million or more (each, an “Event of Default”). Upon and during the continuance of any Event of Default, the rate of interest shall increase to 14%. The obligations under the Note are guaranteed by certain of the Company’s existing subsidiaries. Subject to a beneficial ownership limitation of 19.99% of the Company’s outstanding common stock and any shareholder approval requirements, the supplier may elect, at its sole discretion, to convert any outstanding principal and interest on the Note into shares of common stock of the Company at a conversion price of $1.30 per share (subject to adjustment as provided under the Note), which amounts to 11,538,461 convertible shares, at any time after the 18-month anniversary of the date of issuance of the Note (or upon an Event of Default) until the total outstanding balance of the Note is paid.

The Company has elected the fair value option under ASC 825-10-25 to measure the Note at fair value at inception and in subsequent periods, with changes in fair value reported in earnings, except for changes in fair value caused by instrument-specific credit risk which is reported in other comprehensive income. The Note is eligible for the fair value option as it is a permissible instrument within the scope of ASC 825-10-15. The Company incurred debt issuance costs (legal fees) of $16,679 which were expensed at issuance. The fair value of the Note on June 30, 2023 was $15.8 million and the change in fair value of $0.8 million was reported in other (expense) income, net, with $0.2 million being recorded as Paid-in-Kind interest and the remaining $0.6 million being the fair value adjustment, increasing the interest expense and note payable balance. As of  September 30, 2023, the value of the Note was $10.8 million and the change in fair value for the nine months ended September 30, 2023 of $3.8 million was reported in other (expense) income, net, with the changes in fair value caused by instrument-specific credit risk of $1.2 million (net of tax) was reported in other comprehensive income, and with $0.4 million being recorded as Paid-in-Kind interest. See a reconciliation of the change in fair value of the Note in Note 9, “Fair Value Measurements”.

The Note is an unsecured obligation. The Note is unconditionally and irrevocably guaranteed by certain guarantors.

If an Event of Default occurs under points (1) through (6) below, the holder of the Note may request for acceleration of maturity of 100% of the Note principal. Upon the request for acceleration of maturity, the Note principal will be due immediately. If an Event of Default occurs under clause (4) and (5) below, 100% of the principal amount of the Note will be automatically and immediately due and payable to the holder of the note.

An Event of Default is defined in the Agreement as any of the following:

The deferred accounts payable does not accrue interest as long as all monthly payments are made on or before the last day of each calendar month, starting in October 2023 and running for 48 months or until the full $11.8 million balance has been repaid. Any cash payment not paid when due shall be subject to interest at the rate of 10% per annum running from the date of the last cash payment made by or on behalf of the Company. If any cash payment remains unpaid for more than 60 days following the date such cash payment was due, the supplier has the right to declare the entire remaining balance due immediately and payable without further notice. Cash payments automatically become immediately due and payable upon the commercial readiness by the Company. The Company made the first payment before the end of October 2023. 

12. Restructuring Charges

In June 2022, we announced the Plan, including an approximate 70% reduction in our workforce. As part of the Plan, we also announced changes to our executive team. Mr. Lehmann left the Company on May 31, 2022. Dr. Harrington and Mr. Macleod left the Company on June 30, 2022.

The Company’s restructuring efforts are intended to preserve cash and reduce operating expenses going forward. In addition to the workforce reductions, the Company’s restructuring efforts include the reduction of our internal research function, the decommissioning of certain equipment and pausing our manufacturing and process development efforts toward commercializing our MultiStem product candidate.

The following table sets forth certain details associated with the restructuring charges incurred in the three and nine months ended September 30, 2023 and the obligations recorded for the expenses associated with the Plan (in thousands). It is anticipated the Plan will be completed by the end of 2023.

The current portion of our restructuring accrual is included in accrued compensation and related benefits and accounts payable and there is no long-term portion of our restructuring accrual.

Restructuring charges are recorded general and administrative costs and expenses for the three months ended September 30, 2023.

13. Income Taxes

We have United States (“U.S.”) federal net operating loss and research and development tax credit carryforwards, as well as state and city net operating loss carryforwards, which may be used to reduce future taxable income and tax liabilities. We also have foreign net operating loss and tax credit carryforwards, and the foreign net operating loss carryforwards do not expire. Substantially all of our deferred tax assets have been fully offset by a valuation allowance due to our cumulative losses. The carrying value of our deferred tax assets and liabilities is determined by the enacted U.S. corporate income tax rate. Consequently, any changes in the U.S. corporate income tax rate impacts the carrying value of our deferred tax assets and liabilities. Also, there are significant limitations on our ability to utilize our net operating loss and tax credit carryforwards generated prior to October 2012 under Section 382 of the Internal Revenue Code of 1986, as amended. Utilization of some of the federal and state net operating loss and tax credit carryforwards generated after October 2012 may be subject to additional annual limitations due to the “change in ownership” provisions of the IRC and similar state provisions. The annual limitations may result in the expiration of net operating losses and credits before utilization. The Company has not performed a Section 382 study subsequent to October 2012 as of September 30, 2023. We will update our analysis under Section 382 prior to using these attributes.

14. Subsequent Events

Animal Health Transaction

On October 3, 2023, the Company announced the signing of a licensing agreement with Ardent Animal Health ("Ardent"). Ardent is a privately held veterinary biotechnology company developing regenerative medicine and cancer therapies for animals. Under the terms of the agreement, Athersys will receive an initial fee of $0.1 million from Ardent in exchange for an exclusive license to Athersys’ Multipotent Adult Progenitor Cell (MAPC®) technology for non-human mammal applications in the United States and equipment fees. The agreement includes pre- and post-regulatory approval milestone payments to Athersys, including payments on conditional and full product approval for each species/indication combination. Athersys will also receive tiered, double-digit royalties on commercial sales. Athersys has also granted Ardent rights of first refusal to be the exclusive distributor for Athersys’ novel cryogenic storage system, the Secure Integrated Freezer Unit (SIFU) in the United States animal health space.

Healios Update

On October 10, 2023, ABT Holding Company ("ABT Holding") and Healios entered into a binding memorandum of understanding (the “October MOU”), pursuant to which, among other things, ABT Holding entered into (i) an amendment (the “Fifth Amendment to License Agreement”) to that certain license agreement, dated as of January 8, 2016, as amended (the “Existing License Agreement”), and (ii) an assignment agreement for ARDS (as defined below) clinical doses (the “Assignment Agreement”), each with Healios and dated of even date with the October MOU.

Under the Fifth Amendment to License Agreement, the Company agreed to grant Healios a non-exclusive worldwide license to develop and commercialize MultiStem with respect to treating acute respiratory distress syndrome (“ARDS”) in exchange for potential development and sales milestone payments and additional royalties totaling up to $150 million in the aggregate. The Assignment Agreement provides for ABT Holding’s assignment of certain MultiStem doses manufactured by using a 3D bioreactor process to Healios. On  October 12, 2023, ABT Holding received the first milestone payment of $1.5 million, and then on November 9, 2023, the Company received the second milestone payment of $1.5 million. The Company  may receive another $1.5 million which is contingent on Healios closing on financing.

Nasdaq Notices

On October 14, 2022, we received a written notice (the “October 2022 Notice”) from the Listing Qualifications Department of The Nasdaq Stock Market LLC (“Nasdaq”) that we were not in compliance with the requirement to maintain a minimum market value of listed securities of $35 million, as set forth in Nasdaq Listing Rule 5550(b)(2) (the “Market Value Standard”) because the market value of the common stock was below $35 million for 30 consecutive business days. The Company had been granted by the Nasdaq Hearings Panel (the “Panel”) until October 10, 2023, to regain compliance with the Market Value Standard, which represents the full extent of the Panel’s discretion to grant continued listing while the Company is non-compliant. On October 12, 2023, Nasdaq requested an update from the Company and, in response, the Company submitted an update to Nasdaq on October 13, 2023, and requested additional time to regain compliance.

On October 16, 2023, the Company received a delisting determination letter from Nasdaq advising the Company that the Panel had determined that the Company was unable to demonstrate compliance with the Market Value Standard. As a result, trading of the Company’s common stock was suspended at the opening of business on October 18, 2023. The Company anticipates that a Form 25-NSE will be filed with the U.S. Securities and Exchange Commission, removing the Company’s securities from listing and registration on Nasdaq.

The Company’s common stock is currently quoted on the Pink Open Market tier operated by OTC Markets Group, Inc. under the symbol “ATHX.” 

Warrant Inducement Offer, Warrant Restructure Transaction, and Related Agreements

On October 11, 2023, the Company entered into a warrant exercise inducement offer letter (the “Inducement Letter”) with a holder of certain existing warrants (“Warrant Holder”) to receive new warrants to purchase up to a number of shares of common stock equal to 200% (the “Inducement Warrants”) of the number of warrant shares issued pursuant to the exercise of such certain existing warrants to purchase shares of common stock (the “Existing Warrants”) pursuant to which the Warrant Holder agreed to exercise for cash their Existing Warrants to purchase up to 28,124,540 shares of the Company’s common stock, at a reduced exercise price in exchange for the Company’s agreement to issue the Inducement Warrants to purchase up to 56,249,080 shares of the Company’s common stock (the “Inducement Warrant Shares”). The Existing Warrants consist of the Company’s common warrants issued on August 17, 2022, September 22, 2022, November 10, 2022, and August 21, 2023. Pursuant to the Inducement Letter, upon the exercise of any Existing Warrants, the reduced exercise price of $0.1395 per share. We received aggregate gross proceeds of approximately $3.9 million from the exercise of the Existing Warrants before deducting financial advisory fees and other expenses payable by us.

On October 30, 2023, the Company entered into an offer letter (the “Letter Agreement”) with the Warrant Holder, to (1) reduce the exercise price of the Inducement Warrants from $0.1395 to $0.01 per share, (2) issue to the Warrant Holder new common stock purchase warrants (the “New Warrants”) to purchase up to 20,000,000 shares of the Company’s common stock at an exercise price of $0.01 per share; and (3) make the Inducement Warrants immediately exercisable.
 
Pursuant to the Letter Agreement, the Holder agreed to (A) reduce the period of the subsequent equity sale restrictions contained in Section h)(i) of Annex A to the Inducement Letter from 60 days to 30 days; (B) reduce the applicable period in each and all of the provisions relating to restrictions on the Company (or any of its subsidiaries) involving a “Variable Rate Transaction” (as such term, or a term of similar meaning, is defined in the applicable document) so that each such period terminates on March 1, 2024 in all stock purchase agreements, related letter agreements, and all other related agreements with the Holder; and (C) vote as set forth below in connection with a Fundamental Transaction.
 
The Warrant Holder agreed that upon the occurrence of a Fundamental Transaction (as defined in the New Warrants), if the Holder holds any shares of the Company’s common stock and a stockholder vote is required for such Fundamental Transaction, then the Warrant Holder agreed to vote all shares of its common stock that it holds as of any such record date that may be taken the vote of stockholders that are entitled to vote on such Fundamental Transaction in accordance with the recommendations of the Company’s board of directors.
 
In addition, on October 30, 2023, the Company and the Warrant Holder entered into an Amendment to Series A Common Stock Purchase Warrants (the “Warrant Amendment”) which amended the Inducement Warrants to reflect (i) the reduced exercise price of $0.01 per share, (ii) that the Inducement Warrants are now immediately exercisable, and (iii) that the Inducement Warrants will terminate on October 30, 2028.

Biomedical Advanced Research and Development (BARDA)

As previously disclosed, the Company responded to a request for proposal by the Biomedical Advanced Research and Development Authority, an agency within the U.S. Department of Health and Human Services (“BARDA”), with a view to include MultiStem in a BARDA-sponsored phase 2 platform clinical trial (“BARDA-Sponsored Clinical Trial”) for acute respiratory distress syndrome (“ARDS”).

On October 13, 2023, BARDA notified the Company that MultiStem has not been selected for inclusion in the BARDA-Sponsored Clinical Trial.

Item 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.

This discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q (this “Quarterly Report”) and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2022. Operating results are not necessarily indicative of results that may occur in future periods. See also “Cautionary Note on Forward-Looking Statements” preceding Part I.

Overview and Recent Developments

We are a biotechnology company that is focused primarily in the field of regenerative medicine. Our MultiStem® (invimestrocel) cell therapy, a patented and proprietary allogeneic stem cell product candidate, is our lead platform product and is currently in clinical development. Our most advanced program is an ongoing Phase 3 clinical trial for the treatment of ischemic stroke. Our clinical development programs are focused on treating neurological conditions, inflammatory and immune disorders, certain pulmonary conditions and other conditions where the current standard of care is limited or inadequate for many patients, particularly in the critical care segment. On October 10, 2023, the Company announced the interim analysis for its ongoing Phase 3 trial, which concluded that the current sample size of 300 patients is insufficiently powered to achieve the primary endpoint of mRS Shift analysis at Day 365. The Company has paused enrollment of new patients while evaluating strategic options. 

Restructuring and Financial

In June 2022, we announced a restructuring of our organization, including an approximate 70% reduction in workforce. As part of the restructuring plan, we also announced changes to our executive team. William (B.J.) Lehmann, former President and Chief Operating Officer, left the Company on May 31, 2022. John Harrington, former Executive Vice President and Chief Scientific Officer, and Ivor Macleod, former Chief Financial Officer, left the Company on June 30, 2022.

In addition to the workforce reductions, in an effort to conserve cash and maintain adequate liquidity, we suspended operations in a number of areas including the reduction of our internal research function, plans for decommissioning certain equipment and suspending our manufacturing and process development efforts toward commercializing our MultiStem product candidate, if approved, as discussed below. We are currently unable to predict the duration of the suspension, and we plan to continue limited operations until we obtain additional funding. Our current development activities are limited to progressing our pivotal Phase 3 clinical trial of MultiStem cell therapy for the treatment of ischemic stroke, referred to as MASTERS-2 and supporting the Phase 2 clinical trial evaluating MultiStem cell therapy for the early treatment of traumatic injuries and the subsequent complications that result following severe trauma being conducted by UTHealth, at the Memorial Hermann-Texas Medical Center, or UTHealth, in Houston, Texas one of the busiest Level 1 trauma centers in the United States.

As of November 10, 2023, we had $5.7 million of cash and cash equivalents and current liabilities of $27.1 million, which consists of  accounts payable of $16.9 million, of which $8.5 million is related to deferred accounts payable to supplier, accrued liabilities of  $1.5 million, lease liabilities of  $7.8 million, and accrued payroll and benefits of $0.9 million. To conserve cash, we have been managing our disbursements and working with our suppliers and service providers to address the outstanding accounts payable. To preserve liquidity in the Company, named executive officers, including severance to former executives, have agreed to defer compensation. The accumulated amount of compensation as of October 31, 2023, owed to these executives was approximately $0.3 million. In the near term, we will need to obtain significant capital through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to continue to fund our operations. However, there can be no assurance that we will be able to obtain such funding on terms acceptable to us, on a timely basis or at all, particularly in light of our current stock price and liquidity. If we are unable to obtain adequate financing, we likely would have to file for protection under the bankruptcy laws to continue to pursue potential transactions and conduct a wind down of our Company. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

Current Programs

Our MultiStem cell therapy product development programs in the clinical development stage include the following:

•    Ischemic Stroke: Our MASTERS-2 clinical trial is a randomized, double-blind, placebo-controlled clinical trial that was designed to enroll 300 patients in the United States and certain other international locations. The interim analysis completed in October 2023, concluded that the current sample size of 300 patients was insufficiently powered to achieve the primary endpoint of mRS Shift analysis at Day 365. There were no safety issues identified. Because the sample size required to achieve statistical significance is considerably larger, Athersys intends to conduct additional data analysis with independent statisticians. The Company plans to pause enrollment of new patients while this analysis is being conducted.

The MASTERS-2 study has received several regulatory designations and regulatory agreements including Special Protocol Assessment agreement, or SPA, Fast Track designation, Regenerative Medicine Advanced Therapy, or RMAT, designation and initial pediatric study plan, or iPSP agreement, from the U.S. Food and Drug Administration, or FDA, as well as a Final Scientific Advice positive opinion, Advanced Therapy Medicinal Product, or ATMP, quality certification and pediatric investigation plan, or PIP, agreement from the European Medicines Agency, or EMA.

On March 21, 2023, we held a Type B meeting with the FDA to address proposed modifications to our primary and secondary endpoints for our MASTERS-2 clinical trial protocol. We proposed four modifications, all of which were accepted.

The fact that we were previously granted RMAT, Fast Track Designation and SPA agreement for the use of MultiStem enabled sponsors to work closely with the FDA and receive guidance on expediting the advancement of the designation program. We believe the proposed changes allow us to thoroughly evaluate the mechanisms through which MutliStem treatment can provide benefit to patients suffering an acute ischemic stroke. We believe this outcome more accurately reflects our belief that MultiStem’s treatment effects extend beyond Day 90 and is better reflected with a Day 365 assessment of recovery.

In addition, Healios, our collaborator in Japan, conducted a clinical trial, TREASURE, evaluating the safety and efficacy of administration of MultiStem cell therapy for the treatment of ischemic stroke. In May 2022, Healios reported topline results for the TREASURE study. While the TREASURE trial did not reach statistical significance on its primary endpoint, Excellent Outcome at 90 days, it did demonstrate improvement in pre-specified measures of functional “independence” and good outcomes, such as mRS < 2, Barthel Index > 95 and Global Recovery.

The proposed adjustments to our MASTERS-2 trial, based on our Type B meeting with the FDA, will impact the timing of enrollment completion. In addition, given our liquidity issues, we have postponed initiating new clinical sites. To complete enrollment of our MASTERS-2 trial, we are dependent on our primary contract manufacturer to release clinical product. Due to these uncertainties, at this time, we are unable to predict when we will complete enrollment in our MASTERS-2 study, if at all. We will need to raise additional funding in order to complete our MASTERS-2 trial.

As previously announced in March 2023, the Company held a Type B Meeting with the U.S. Food & Drug Administration (the “FDA”) and received approval on recommended protocol changes to the MASTERS-2 trial, including changing the Primary Endpoint to mRS Shift Analysis at Day 365 and adding an unblinded interim analysis for the purpose of study size adjustment. On October 10, 2023, the Company announced the interim analysis for its ongoing Phase 3 trial, which concluded that the current sample size of 300 patients is insufficiently powered to achieve the primary endpoint of mRS Shift analysis at Day 365.

•    ARDS: In January 2019 and January 2020, we announced summary results and one-year follow up results, respectively, from our exploratory clinical study of the intravenous administration of MultiStem cell therapy to treat patients who are suffering from acute respiratory distress syndrome, or ARDS, which is referred to as the MUST-ARDS study. The study results demonstrated a predictable and favorable tolerability profile. Importantly, there were lower mortality and greater ventilator-free days. or VFD, and ICU-free days in the MultiStem-treated patient group compared to the placebo group. Average quality-of-life outcomes were higher in the MultiStem group compared to placebo through one year. In April 2019, the MultiStem cell therapy received Fast Track designation for the treatment of ARDS, and in September 2020, RMAT designation was received for the same program. In April 2020, in response to the COVID-19 pandemic, the FDA authorized the initiation of a Phase 2/3 pivotal study to assess the safety and efficacy of MultiStem therapy in subjects with moderate to severe ARDS, or the MACOVIA study. The MACOVIA study features an open-label lead-in dose escalation portion of the study, followed by double-blinded, randomized, placebo-controlled study cohorts, and the study is designed to enroll up to approximately 400 patients at leading pulmonary critical care centers throughout the United States. During 2021, we amended the protocol with the FDA to adjust the scope of the MACOVIA study to include subjects with ARDS induced by pathogens other than COVID-19. We received approval from the FDA to use MultiStem product manufactured with our bioreactor-based technology in the study, an important product development milestone. We have suspended initiating new sites and enrolling patients in the Phase 2 part of the MACOVIA trial prior to enrolling patients using our bioreactor-based technology. We now have data evaluating two different dosing levels of MultiStem. Analysis of this data will help inform the design of the next phase of the trial once we are ready to restart utilizing bioreactor manufactured MultiStem product. However, we are currently focusing resources on our MASTERS-2 study. Until we receive additional financing or establish a partnership to move forward with the next phase of the study, the MACOVIA trial has been suspended.

Further, in 2019, Healios initiated the ONE-BRIDGE study in Japan for patients with pneumonia-induced and COVID-induced ARDS and, in August 2021, Healios reported top-line data from the ONE-BRIDGE study. We and Healios have conducted thorough analyses of the data from the MUST-ARDS and ONE-BRIDGE studies. The studies had comparable patient populations receiving the same MultiStem dose amount shortly following an ARDS diagnosis. Between the studies, excluding the COVID-ARDS cohort in the ONE-BRIDGE study, 60 ARDS subjects were enrolled in the studies with 40 receiving MultiStem treatment and the remaining 20 receiving placebo or standard of care. On a pooled basis, strong trends were observed in VFD, survival, improved quality-of-life and reduction of key inflammatory biomarkers. For example, MultiStem-treated subjects had, on average, 5.5 more VFD in the first 28 days following diagnosis than non-treated subjects (p=0.07) and, on a median basis, 10.5 more VFD. In April 2022, Healios announced that, while the PMDA did not disagree with the efficacy and safety conclusions of the ONE-BRIDGE study, the PMDA advised Healios that additional supporting data is necessary for application for approval of MultiStem treatment for the ARDS indication in Japan. As a result of the guidance from the PMDA, Healios disclosed that it will continue discussions with PMDA.

•    Trauma: In April 2020, the FDA authorized the initiation of a Phase 2 clinical trial evaluating MultiStem cell therapy for the early treatment of traumatic injuries and the subsequent complications that result following severe trauma. The trial is being conducted by UTHealth, at the Memorial Hermann-Texas Medical Center in Houston, Texas, one of the busiest Level 1 trauma centers in the United States. This study is being supported under a grant awarded to the McGovern Medical School at UTHealth from the Medical Technology Enterprise Consortium, and the Memorial Hermann Foundation is providing additional funding. We are providing the investigational clinical product manufactured with our bioreactor-based technology for the trial as well as regulatory and operational support.

Although some of our collaborators continue to engage in preclinical development and evaluation of MultiStem cell therapy in other indications for human health, we have suspended all of our own internal research efforts at this time to conserve cash and decrease expenses.

Recent Developments

In connection with our restructuring plan, in the second quarter of 2022, we paused work performed at our Belgian subsidiary, ReGenesys, which was evaluating our cell therapy for use in treating disease and conditions in the animal health segment. We are exploring opportunities to out-license this program. The restructuring also resulted in the closing of Athersys’ ReGenesys facility in Belgium at the end of 2022, although we are still actively exploring potential business development partners for the animal health program.

On April 21, 2023, we made the decision to and notified our landlord for the facility in Stow, Ohio that we surrendered possession of the property and returned the keys to the landlord. As a result of this decision, we note there will be an impact on operating results and cash flows, the Company has determined impairment indicators exist. In the current period, we have expensed the amount that we had previously been carrying as a Right of Use Asset as a general and administrative expense in the Statements of Operations and Comprehensive Loss. Additionally, we have reclassified the full liability to be all current in the Balance Sheet. On June 9, 2023, our landlord for the property in Stow, Ohio, Seasons Business Center Four, LLC, brought suit against the Company, see further discussion in Item 1. Legal Proceedings.

We have agreements with our primary contract manufacturing organization for the manufacture of our MultiStem product candidate to supply our planned and ongoing clinical trials. In June 2022, we suspended these agreements and attempted to negotiate payment terms. On May 17, 2023, we entered into a Forbearance, Restructuring and Settlement Agreement (the “Forbearance Agreement”) with a supplier, which amends certain supply agreements between the Company and the supplier.

The Forbearance Agreement, among other things, restructures the Company’s matured and unmatured liabilities owed to the supplier under the Agreements, comprised of past due and current due obligations in the approximate amount of $20.9 million and future obligations in the approximate amount of $9.8 million, less (i) approximately $3.9 million in credits applied by the strategic supplier based upon prior agreements. The Forbearance Agreement provides that the supplier agrees to forbear from exercising rights and remedies available as a result of existing overdue amounts under the Agreements, so long as the Company pays to the supplier an aggregate of $11.8 million, in monthly payments of $0.25 million, commencing in October 2023. The first payment was made before the end of October 2023. The Forbearance Agreement also grants the supplier a right of first refusal in the form of an exclusive option to supply 50% of all material required for the manufacture of MultiStem® (invimestrocel) and any derivative products for five years after the date that MultiStem receives regulatory approval for commercial sale. Finally, under the Forbearance Agreement, the Company is granting a limited release and exculpation of the supplier for accrued or unaccrued claims arising out of the Agreements, except that the limited release does not release: (i) any claims arising out of the supplier’s contractual warranty relating to product delivered or services performed by the supplier pursuant to the Agreements or (ii) any claims that may arise out of the performance by the supplier of its obligations under the Agreements following the effective date of the Forbearance Agreement.

Pursuant to the terms of the Forbearance Agreement, on May 17, 2023, the Company issued a convertible promissory note to the supplier in the principal amount of $15.0 million (the “Note”). The Note bears interest at a rate of 10.0% per annum, which shall be capitalized and added to the principal amount semi-annually on January 1 and July 1, commencing on July 1, 2023, and must be repaid in full, including accrued and unpaid interest thereunder, on (or before, subject to certain conditions) May 17, 2026 (the “Maturity Date”). The Note provides for customary events of default, including nonpayment, failure to comply with covenants or other agreements in the Note, certain events of bankruptcy and an adverse judgment for payment of $3.0 million or more (each, an “Event of Default”). If an Event of Default occurs, then (i) the interest on the Note shall accrue at a rate of 14.0% per annum (or, if less, the maximum rate permitted by applicable law) and (ii) the Maturity Date may be accelerated. The obligations under the Note are guaranteed by certain of the Company’s existing subsidiaries. Subject to a beneficial ownership limitation of 19.99% of the Company’s outstanding common stock and any shareholder approval requirements, the supplier may elect, at its sole discretion, to convert any outstanding principal and interest on the Note into shares of common stock of the Company at a conversion price of $1.30 per share at any time after the 18-month anniversary of the date of issuance of the Note (or upon an Event of Default) until the total outstanding balance of the Note is paid.

Financial

On August 15, 2022, the Company entered into a placement agency agreement with A.G.P./Alliance Global Partners, or A.G.P., pursuant to which A.G.P. agreed to serve as exclusive placement agent for the issuance and sale of common stock and warrants. A.G.P received a placement fee of approximately $0.8 million and approximately $0.1 million for the reimbursement of expenses.

On August 15, 2022, the Company entered into a securities purchase agreement, or the August 2022 Purchase Agreement, with an investor, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) an aggregate of 1,200,000 shares of the Company’s common stock, (ii) pre-funded warrants, or the August 2022 Pre-Funded Warrants, exercisable for an aggregate of 720,000 shares of common stock and (iii) warrants, or the August 2022 Common Warrants, exercisable for an aggregate of 1,920,000 shares of common stock, in combinations of one share of common stock or one August 2022 Pre-Funded Warrant and one August 2022 Common Warrant for a combined purchase price of $6.25 (less $0.0025 for any August 2022 Pre-Funded Warrant). Subject to certain ownership limitations, under the terms of the August 2022 Purchase Agreement, the August 2022 Pre-Funded Warrants were exercisable upon issuance, and the August 2022 Common Warrants were exercisable upon the six-month anniversary of issuance for a five-year period. Under the August 2022 Purchase Agreement, each August 2022 Pre-Funded Warrant was exercisable for one share of common stock at a price per share of $0.0025 and each August 2022 Common Warrant is exercisable for one share of common stock at a price per share of $6.385. The offering closed on August 17, 2022, and the Company received net proceeds of approximately $11.0 million, after giving effect to the payment of placement fees and reimbursed expenses. On August 29, 2022, the August 2022 Pre-Funded Warrants were exercised in full.

On September 22, 2022, the Company entered into an amendment to the August 2022 Purchase Agreement, or the August 2022 Purchase Agreement Amendment, with the investor to, among other things, (i) amend the August 2022 Common Warrants to be exercisable for a seven-year period after the six-month anniversary of the closing date, (ii) reduce the standstill period, (iii) reduce the term and the amount of the participation right, and (iv) require the investor, subject to certain conditions, to participate in future offerings to sell certain securities to investors primarily for capital raising purposes.

On September 22, 2022, in consideration of the August 2022 Purchase Agreement Amendment, and without receiving any cash proceeds, the Company issued to the investor additional warrants exercisable for 2,000,000 shares of common stock, or the September 2022 Common Warrants, at a price of $6.385 for a seven-year period after the six-month anniversary of the date of issuance thereof.

On April 17, 2023, the Company amended the August 2022 Common Warrants and the September 2022 Common Warrants to, among other things, reduce the exercise price to $0.96 per share with respect to 1,920,000 shares of common stock covered by the August 2022 Common Warrants and 1,760,000 shares of common stock covered by the September 2022 Common Warrants.

On November 9, 2022, the Company entered into a placement agency agreement with A.G.P. pursuant to which A.G.P. agreed to serve as exclusive placement agent for the issuance and sale of common stock and warrants. A.G.P. received a placement fee of approximately $0.4 million and approximately $0.1 million for the reimbursement of expenses.

On November 9, 2022, the Company entered into a securities purchase agreement, or the November 2022 Purchase Agreement, with investors, pursuant to which the Company agreed to issue and sell, in a public offering, (i) an aggregate of 3,927,275 shares of the Company’s common stock, (ii) pre-funded warrants, or the November 2022 Pre-Funded Warrants, exercisable for an aggregate of 1,077,270 shares of common stock and (iii) warrants, or the November 2022 Common Warrants, exercisable for an aggregate of 10,009,090 shares of common stock, in combinations of one share of common stock or one November Pre-Funded 2022 Warrant and two November 2022 Common Warrants for a combined purchase price of $1.10 (less $0.0001 for any November 2022 Pre-Funded Warrant). Subject to certain ownership limitations, under the terms of the November 2022 Purchase Agreement, the November 2022 Pre-Funded Warrants and the November 2022 Common Warrants were exercisable upon issuance. Under the November 2022 Purchase Agreement, each November 2022 Pre-Funded Warrant was exercisable for one share of common stock at a price per share of $0.0001 and each November 2022 Common Warrant is exercisable for one share of common stock at a price per share of $1.10 for a five-year period after the date of issuance. The offering closed on November 10, 2022, and the Company received net proceeds of approximately $5.0 million, after giving effect to the payment of placement fees and reimbursed expenses. The November 2022 Pre-Funded Warrants were exercised in full at the closing.

On April 18, 2023, the Company entered into a securities purchase agreement, or the April 2023 Purchase Agreement, with investors, pursuant to which the Company agreed to issue and sell, in a public offering, (i) an aggregate of 2,315,000 shares of the Company’s common stock and (ii) pre-funded warrants, or the April 2023 Pre-Funded Warrants, exercisable for an aggregate of 1,370,000 shares of common stock, together with warrants, or the April 2023 Common Warrants, exercisable for an aggregate of 3,685,000 shares of common stock in a private placement, in combinations of one share or one April 2023 Pre-Funded Warrant and one April 2023 Common Warrant for a combined purchase price of $1.00, in a private placement. Subject to certain ownership limitations, the April 2023 Pre-Funded Warrants are exercisable upon issuance, and the April 2023 Common Warrants are exercisable upon the six-month anniversary of issuance. Each April 2023 Pre-Funded Warrant is exercisable for one share of common stock at a price per share of $0.0001 (as adjusted from time to time in accordance with the terms thereof) and does not expire. Each April 2023 Common Warrant is exercisable into one share of common stock at a price per share of $0.96 (as adjusted from time to time in accordance with the terms thereof) for a seven-year period after the six-month anniversary of the date of issuance. The offering closed on April 19, 2023, and the Company received net proceeds of approximately $3.4 million, after giving effect to the payment of placement fees and expenses.

On August 17, 2023, the Company entered into a securities purchase agreement, or the August 2023 Purchase Agreement, with investors, pursuant to which the Company agreed to issue and sell, in a registered direct offering, (i) an aggregate of 4,212,500 shares of the Company’s common stock, (ii) pre-funded warrants, or the August 2023 Pre-Funded Warrants, exercisable for an aggregate of 6,725,000 shares of common stock, (iii) Series A common stock purchase warrants, or the Series A Common Warrants, exercisable for an aggregate of 10,937,500 shares of the Company’s common stock, and (iv) Series B common stock purchase warrants, or the Series B Common Warrants, exercisable for an aggregate of 10,937,500 shares of the Company’s common stock, in combinations of one share or one August 2023 Pre-Funded Warrant and one of each Series A Common Warrant and Series B Common Warrant for a combined purchase price of $0.32. Subject to certain ownership limitations, the August 2023 Pre-Funded Warrants, the Series A Common Warrants, and the Series B Common Warrants are exercisable upon issuance. Each August 2023 Pre-Funded Warrant is exercisable for one share of common stock at a price per share of $0.0001 (as adjusted from time to time in accordance with the terms thereof) and does not expire. Each Series A Common Warrant is exercisable into one share of common stock at a price per share of $0.32 (as adjusted from time to time in accordance with the terms thereof) for a five-year period, and each Series B Common Warrant is exercisable into one share of common stock at a price per share of $0.32 (as adjusted from time to time in accordance with the terms thereof) for a one and a half year period. The offering closed on August 21, 2023, and the Company received net proceeds of approximately $2.9 million, after giving effect to the payment of placement fees and expenses.

We have entered into a series of agreements with Healios, our collaborator in Japan. Under the collaboration that began in 2016, Healios is responsible for the development and commercialization of the MultiStem product for the licensed fields in the licensed territories, and we provide services to Healios for which we are compensated. Each license agreement with Healios has defined economic terms, and we may receive success-based milestone payments, some of which may be subject to credits. In August 2021, we entered into a Comprehensive Framework Agreement for Commercial Manufacturing and Ongoing Support, or the Framework Agreement, with Healios, which provides for resolution of certain issues under the existing agreements between the parties and reframes our collaboration to set the stage for productive efforts as Healios and our collaboration move towards commercialization of MultiStem in Japan. It also provides Healios with deferral of certain milestone payments during the expensive initial commercial launch period. Under the Framework Agreement, we were entitled to a milestone payment in the amount of $3.0 million. Additionally, under the terms of the Framework Agreement, we were obligated to pay Healios $1.1 million by December 31, 2022. In September 2022, we received $1.9 million from Healios, which represents the milestone payment net of amounts owed to Healios. Additionally, to assist Healios with the advancement of its ischemic stroke and ARDS programs in Japan, in September 2022, we granted to Healios, subject to the terms of the licensing agreement, a non-exclusive license to make and have made MultiStem for the treatment of ischemic stroke and ARDS worldwide solely for import into Japan for use in Japan.

Healios has alleged that we are in material breach of our Framework Agreement for, among other things, not meeting our supply obligations and cooperation and assistance obligations. We strongly disagree with Healios’ allegations and will continue to work with Healios to try to resolve this dispute. However, there can be no assurance that we will be able to resolve this dispute without legal proceedings.

Results of Operations

Since our inception, our revenues have consisted of license fees, contract revenues, royalties and milestone payments from our collaborators, and grant proceeds. We have not derived revenue from our commercial sale of therapeutic products to date since we are in clinical development. In prior periods, research and development expenses consisted primarily of external clinical and preclinical study fees, manufacturing and process development costs, salaries and related personnel costs, legal expenses resulting from intellectual property prosecution processes, facility costs, restructuring charges and laboratory supply and reagent costs. We expense research and development costs as they are incurred. General and administrative expenses consist primarily of salaries and related personnel costs, professional fees, restructuring charges and other corporate expenses. We expect to continue to incur substantial losses through at least the next several years.

Three Months Ended September 30, 2023 and 2022

Revenues. Revenues for the three months ended September 30, 2023  no revenue was recognized compared to $0.1 million for the three months ended September 30, 2022. The revenue related to 2022 was primarily associated with services provided to Healios under the Framework Agreement. At September 30, 2022, the services under the Framework Agreement are largely complete, and are limited to minimal close-out activities. Our collaboration revenues will fluctuate from period-to-period based on the services provided under our arrangement with Healios.

Research and Development Expenses. Research and development expenses decreased to $4.0 million for the three months ended September 30, 2023 from $12.4 million for the comparable period in 2022. The $8.4 million decrease is due to our restructuring plan which resulted in reduced manufacturing cost of $5.9 million, preclinical costs of $1.1 million, salaries and benefits of $1.3 million, and other research and development costs of $0.1 million. Our clinical development, clinical manufacturing, and manufacturing process development expenses vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns for clinical trials and manufacturing process development projects. These variations in activity level may also impact our accounts payable, accrued expenses, prepaid expenses and deposits balances from period to period. Other than external expenses for our clinical and preclinical programs, we generally do not track our research expenses by project; rather, we track such expenses by the type of cost incurred.

General and Administrative Expenses. General and administrative expenses decreased to $2.8 million for the three months ended September 30, 2023, from $3.7 million for the comparable period in 2022. The $0.9 million decrease is due to our restructuring plan which resulted in reduced salaries and benefits of $0.6 million, outside services of  $0.3 million, and other general and administrative costs costs of $0.1 million. We expect our annual 2023 general and administrative expenses to decrease compared to 2022 in connection with our restructuring plan.

Depreciation. Depreciation expense was $1.0 million for the three months ended September 30, 2023 and $0.6 million for the comparable period in 2022.The increase is due to taking additional accelerated depreciation for assets no longer expected to be used in operations to their expected salvage values, compared to the same period in 2022, as a result of our restructuring plan.

Other Income, net. Other income, net, was $4.0 million for the three months ended September 30, 2023, compared to $3.0 million for the same period in 2022. The balance in 2023 is primarily made up of the change in fair value of note payable of $3.8 million. 

Nine Months Ended September 30, 2023 and 2022

Revenues. Revenues for the nine months ended September 30, 2023 were $48.8 thousand compared to $5.3 million for the nine months ended September 30, 2022. The revenue for the nine months ended September 30, 2022, was primarily associated with services provided to Healios under the Framework Agreement. At September 30, 2022, the services under the Framework Agreement are largely complete, and are limited to minimal close-out activities. Our collaboration revenues will fluctuate from period-to-period based on the services provided under our arrangement with Healios.

Research and Development Expenses. Research and development expenses decreased to $19.1 million for the nine months ended September 30, 2023 from $54.2 million in the comparable period in 2022. The $35.1 million decrease is due to our restructuring plan which resulted in reduced manufacturing cost of $25.4 million, salaries and benefits of $9.2 million, legal and professional costs of $0.6 million, and other research and development costs of $0.2 million. Our clinical development, clinical manufacturing, and manufacturing process development expenses vary over time based on the timing and stage of clinical trials underway, manufacturing campaigns for clinical trials and manufacturing process development projects. These variations in activity level may also impact our accounts payable, accrued expenses, prepaid expenses and deposits balances from period to period. Other than external expenses for our clinical and preclinical programs, we generally do not track our research expenses by project; rather, we track such expenses by the type of cost incurred.

General and Administrative Expenses. General and administrative expenses decreased to $8.0 million for the nine months ended September 30, 2023 from $13.0 million in the comparable period in 2022. The $5.0 million decrease is due to our restructuring plan which resulted in reduced salaries and benefits of $4.4 million, outside services of $0.4 million, and other general and administrative costs costs of $0.2 million. We expect our annual 2023 general and administrative expenses to decrease compared to 2022 in connection with our restructuring plan.

Depreciation. Depreciation expense of $1.1 million for the nine months ended September 30, 2023 compared to $1.5 million for the comparable period in 2022. The decrease is due to both the sale of equipment associated with the decommissioning of certain equipment resulting in fewer depreciating assets in 2023 as well as recording accelerated depreciation on certain assets in 2022, as a result of our restructuring plan that exceeded accelerated depreciation of additional assets in the current period.

Other Income, net. Other income, net. was $3.6 million for the nine-month period ended September 30, 2023 and $3.8 million for the comparable 2022 period. The balance in 2023 is primarily made up of gain from extinguishment of $2.6 million and change in fair value of note payable of $3.2 million, offset by loss of $2.2 million due to change in Warrant fair value.

Liquidity and Capital Resources

Our primary source of liquidity is our cash balance. At September 30, 2023, we had $1.0 million in cash and cash equivalents. We have primarily financed our operations through business collaborations, grant funding and equity financing. We conduct all of our operations through our subsidiary, ABT Holding Company. Consequently, our ability to fund our operations depends on ABT Holding Company’s financial condition and its ability to make dividend payments or other cash distributions to us. There are no restrictions such as government regulations or material contractual arrangements that restrict the ability of ABT Holding Company to make dividend and other payments to us.

Our current capital requirements depend on a number of factors, including progress in our MASTERS-2 trial, additional external costs, such as payments to contract research organizations and contract manufacturing organizations, personnel costs and the costs of filing and prosecuting patent applications and enforcing patent claims. Furthermore, continued delays in product supply caused by nonpayment to our primary contract manufacturer for our clinical trials may impact the timing and cost of such studies.

We are entitled to receive potential milestones payments, subject to certain credits, and royalties from Healios under our licensed programs. Under the Framework Agreement, in September 2022, we received $1.9 million from Healios which represents a milestone payment in the amount of $3.0 million, net of amounts payable to Healios. We invoice Healios for certain manufacturing support services. Payments from Healios may be used by Healios to offset milestone payments that may become due in the future.

As of November 10, 2023, we had $5.7 million of cash and cash equivalents and current liabilities of $27.1 million, which consists of  accounts payable of $16.9 million, of which $8.5 million is related to deferred accounts payable to supplier, accrued liabilities of  $1.5 million, lease liabilities of  $7.8 million, and accrued payroll and benefits of $0.9 million. To conserve cash, we have been managing our disbursements and working with our suppliers and service providers to address the outstanding accounts payable. To preserve liquidity in the Company, named executive officers, including severance to former executives, have agreed to defer compensation. The accumulated amount of compensation as of October 31, 2023, owed to these executives was approximately $0.3 million. In the near term, we will need to obtain significant capital through public or private equity offerings, debt financings, collaborations and licensing arrangements or other sources to continue to fund our operations. However, there can be no assurance that we will be able to obtain such funding on terms acceptable to us, on a timely basis or at all, particularly in light of our current stock price and liquidity. If we are unable to obtain adequate financing, we likely would have to file for protection under the bankruptcy laws to continue to pursue potential transactions and conduct a wind down of our Company. If we decide to dissolve and liquidate our assets or to seek protection under the bankruptcy laws, it is unclear to what extent we will be able to pay our obligations, and, accordingly, it is further unclear whether and to what extent any resources will be available for distributions to stockholders.

We have prepared our unaudited condensed consolidated financial statements on a going concern basis, which assumes that we will realize our assets and satisfy our liabilities in the normal course of business. However, we have incurred losses since inception of our operations in 1995, have negative operating cash flows, including in each of the last three years, and had an accumulated deficit of $682.6 million at September 30, 2023. Our losses have resulted principally from costs incurred in research and development, clinical and preclinical product development, manufacturing and process development, acquisition and licensing costs, and general and administrative costs associated with our operations. These circumstances raise substantial doubt about our ability to continue as a going concern. The accompanying unaudited condensed financial statements do not include any adjustments to reflect the possible future effect on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the outcome of the uncertainty concerning our ability to continue as a going concern.

While we believe our restructuring plan will reduce costs and alleviate to some extent the conditions that raise substantial doubt, these plans are not entirely within our control and cannot be assessed as being probable of occurring. For the foreseeable future, our ability to continue our operations is dependent upon our ability to obtain additional capital, which may not be available to us on acceptable terms, on a timely basis or at all.

We expect to continue to incur substantial losses through at least the next several years and may incur losses in subsequent periods. The amount and timing of our future losses are highly uncertain. Our ability to achieve and thereafter sustain profitability will be dependent upon, among other things, successfully developing, commercializing and obtaining regulatory approval or clearances for our technologies and products resulting from these technologies.

Cash Flow Analysis

Net cash used in operating activities was $14.4 million for the nine months ended September 30, 2023 compared to $47.0 million for the nine months ended September 30, 2022. Net cash used in operating activities may fluctuate significantly on a quarter-to-quarter basis, as it has over the past several years, primarily due to the receipt of fees from our collaborators and payment of clinical trial costs, such as clinical manufacturing campaigns, contract research organization costs and manufacturing process development projects. These variations in activity level may also impact our accounts receivable, accounts payable, accrued expenses, prepaid expenses and deposits balances from period to period.

Net cash provided in investing activities was $0.0 million for the nine months ended September 30, 2023 compared to cash used of $2.0 million for the nine months ended September 30, 2022. The fluctuations over the periods were due to the timing of disposal to property and equipment primarily due our restructuring efforts.

Financing activities provided cash of $6.2 million and $25.4 million for the nine months ended September 30, 2023 and 2022, respectively. The decrease from the comparable period is primarily related to the termination of our equity purchase agreement with Aspire Capital in July 2022. Also included in financing activities for the nine months ended September 30, 2023 and September 30, 2022 are shares retained for withholding tax payments on stock-based awards.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Critical Accounting Policies and Management Estimates

The SEC defines critical accounting policies as those that are in management’s view, important to the portrayal of our financial condition and results of operation and demanding of management’s judgement. Our discussion and analysis of financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates on experience and on various assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. The following accounting estimates are deemed to be critical to us.

Stock-Based Compensation

We determine the estimated fair value of each stock option on the date of grant using the Black-Scholes option-pricing model. The expected term of stock options granted represent the period of time that stock option grants are expected to be outstanding and subsequent to June 2020, is determined based on our historical experience and patterns. Prior to June 2020, we used the “simplified” method to calculate the expected term of option grants. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the stock option at the time of the grant. We determine volatility by using our historical stock volatility. We account for forfeitures as they occur. We have never paid or declared dividends or paid dividends on our common stock and have no plans to do so in the foreseeable future. Changes in these assumptions may lead to variability with respect to the amount of stock compensation expense we recognize related to stock options.

Additionally, stock-based compensation for an award with a performance condition requires the judgement of management. For such awards, stock-based compensation is recognized when the achievement of such performance condition is determined to be probable. If the outcome of such performance condition is not determined to be probable or is not met, no compensation expense is recognized.

Fair Value of Warrant Liabilities

In August 2022, we entered into the August 2022 Purchase Agreement, which resulted in the issuance of common stock, the August 2022 Pre-Funded Warrants, and the August 2022 Common Warrants, exercisable for a specified price, starting after a specified period of time, and for a specified period of time after the deal had closed. The August 2022 Common Warrants meet the definition of a derivative pursuant to ASC 815, Derivatives and Hedging, and do not meet the derivative scope exception. As a result, the August 2022 Common Warrants were initially recorded as liabilities and measured at fair value using the Black-Scholes valuation model. The warrants are adjusted to fair value at the end of each quarter. The adjustment to fair value is recorded in Other Income in the Statement of Operations and Comprehensive Loss

We use a valuation expert to help us determine the fair value of the August 2022 Common Warrants, using the Black-Scholes model to estimate the fair value of the August 2022 Common Warrants. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the common warrants at the time of the issuance. We determine volatility by using our historical stock volatility. We have never paid or declared dividends or paid dividends on our common stock and have no plans to do so in the foreseeable future. Changes in these assumptions may lead to variability with respect to the amount of gain or loss in fair value of the August 2022 Common Warrants.

The issuance of the November 2022 Common Warrants was deemed to be equity accounting and no estimates are required for this transaction.

Fair Value of Note Payable

On May 17, 2023, we entered into a Forbearance, Restructuring and Settlement Agreement (the “Forbearance Agreement”) with a supplier, which amends certain supply agreements between the Company and the supplier. Pursuant to the terms of the Forbearance Agreement, on May 17, 2023, the Company issued a convertible promissory note to the supplier in the principal amount of $15.0 million (the “Note”).The Company has elected the fair value option under ASC 825-10-25 to measure the Note at fair value at inception and in subsequent periods, with changes in fair value reported in earnings. The Note is eligible for fair value option as it is a permissible instrument within the scope of ASC 825-10-15. As a result, the Note is recorded as a liability and measured at fair value using the Lattice Model valuation model. The Note is adjusted to fair value at the end of each quarter. The adjustment to fair value is recorded in Other Income in the Statement of Operations and Comprehensive Loss, except for changes in fair value caused by instrument-specific credit risk which is reported in other comprehensive income.

We use a valuation expert to assist us in determine the fair value of the Note using the Lattice Model valuation model to estimate the fair value of the Note. This model incorporates transaction detail such as the term of the Note, the nominal value of the Note at inception, the coupon rate of the Note, the conversion price of the Note, the Company’s stock price, risk-free rate and implied bond yield as well as volatility. The Company’s stock is a publicly traded stock and is readily determinable. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the Note. We determine volatility by using our historical stock volatility. The implied bond yield is based on the required rate of return for mezzanine financing of similar companies. Changes in these assumptions may lead to variability with respect to the amount of gain or loss in fair value of the Note.

Refer to Note C, Accounting Policies, in the notes to consolidated financial statements in our Annual Report on Form 10-K for the year ended December 31, 2022, for a discussion of our accounting policies and recently issued accounting standards.

Item 3.         Quantitative and Qualitative Disclosures About Market Risk.

There were no material changes in our exposure to market risk since the disclosure included in Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2022.

Item 4.         Controls and Procedures.

Disclosure Controls and Procedures

Our management, under the supervision of and with the participation of our Chief Executive Officer and our interim Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based upon this evaluation, our Chief Executive Officer and interim Chief Financial Officer have concluded that, as of the end of the period covered by this Quarterly Report on Form 10-Q, certain of our disclosure controls and procedures were not effective due to material weaknesses in internal control over financial reporting, as a result of insufficient resources with appropriate knowledge and expertise to design, implement, document and operate effective internal controls over financial reporting relating to complex transactions, including accounting for the issuance of convertible notes.

Remediation Efforts to Address Disclosed Material Weakness

Our management, with oversight from our audit committee, is in the process of implementing steps to use third party specialists to assist with accounting and finance technical issues as needed.

Changes in Internal Control Over Financial Reporting

During the last fiscal quarter covered by this Quarterly Report on Form 10-Q, there has been a change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

As of September 30, 2023, management has concluded that there was a material weakness as described above in “Disclosure Controls and Procedures”.

Inherent Limitations

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting.

However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, the Company is involved in various disputes and litigation matters that arise in the ordinary course of business. On June 9, 2023, our landlord for the property in Stow, Ohio, Seasons Business Center Four, LLC, brought suit against the Company in the Summit County, Ohio Court of Common Pleas asserting claims for Breach of Contract (Lease), Promissory Estoppel, and Unjust Enrichment relating to the subject Lease between the parties. The amount sought is undetermined but in excess of $25,000. The Company filed its Answer and Affirmative Defenses by the August 15, 2023 deadline and intends to defend against the claims asserted.

Item 1A. Risk Factors.

In addition to the other information set forth elsewhere in this Quarterly Report on Form 10-Q, you should carefully consider the risk factors set forth below and the other risk factors discussed in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2022. Those factors, if they were to occur, could cause our actual results to differ materially from those expressed in our forward-looking statements in this report, and materially adversely affect our financial condition or future results. Although we are not aware of any other factors that we currently anticipate will cause our forward-looking statements to differ materially from our future actual results, or materially affect the Company’s financial condition or future results, additional risks and uncertainties not currently known to us or that we currently deem to be immaterial might materially adversely affect our actual business, financial condition and/or operating results.

There is substantial doubt about our ability to continue as a going concern, which may affect our ability to obtain future financing and may require us to curtail our operations. We will need substantial additional funding to develop our products and for our future operations. If we are unable to obtain the funds necessary to do so, we may be required to further delay, scale back or eliminate our product development activities or may be unable to continue our business.

The audited financial statements and accompanying notes presented in our Annual Report on Form 10-K for the year ended December 31, 2022 include disclosures and an opinion from our independent registered public accounting firm stating that our recurring losses and negative cash flows from operations raise substantial doubt about our ability to continue as a going concern. Our financial statements as of December 31, 2022 and 2021 were prepared under the assumption that we will continue as a going concern and do not include any adjustments that might result from the outcome of this uncertainty.

The development of our product candidates will require a commitment of substantial funds to conduct the research, which may include preclinical and clinical testing, necessary to obtain regulatory approvals and bring our products to market. Net cash used in our operations was $59.0 million in 2022, $76.2 million in 2021 and $61.8 million in 2020.

At December 31, 2022, we had $9.0 million of cash and cash equivalents. As of September 30, 2023, we had accounts payable of $9.3 million and we only had cash and cash equivalents of $1.0 million. Accordingly, we will need substantially more funding to advance our product candidates through development and into commercialization, including to put in place manufacturing capacity to support such commercial activity. Our future capital requirements will depend on many factors, including:

We have secured capital historically from grant revenues, collaboration proceeds and debt and equity offerings. We will need to secure substantial additional capital to fund our future operations. We cannot be certain that additional capital will be available on acceptable terms or at all. To the extent we raise additional capital through the sale of equity securities, the ownership position of our existing stockholders could be substantially diluted. If additional funds are raised through the issuance of preferred stock or debt securities, these securities are likely to have rights, preferences and privileges senior to our common stock. Fluctuating interest rates could also increase the costs of any debt financing we may obtain.

Importantly, we expect that the results of our MASTERS-2 clinical trial, will have a significant impact, favorable or unfavorable, on our ability to access capital from potential third-party commercial partners or the equity capital markets. Depending on the nature of these results, we may accelerate or may delay certain programs. In the longer term, we will have to continue to generate additional capital to meet our needs until we would become cash flow positive as a result of the sales of our clinical products, if they are approved for marketing.

Failure to successfully address ongoing liquidity requirements will have a material adverse effect on our business. If we are unable to obtain additional capital on acceptable terms when needed, we may be required to take actions that harm our business and our ability to achieve cash flow in the future, including possibly the surrender of our rights to some technologies or product opportunities, delaying our clinical trials or curtailing or ceasing operations.

Risks Related to Our Common Stock

Currently there is a limited public market for our common stock, and we cannot predict the future prices or the amount of liquidity of our common stock.

Currently, there is a limited public market for our common stock. Our common stock is quoted on the OTC Pink under the symbol “ATHX.” However, the OTC Pink is not a liquid market in contrast to the major stock exchanges. Prices for securities traded solely on the OTC Pink may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. We cannot assure you as to the liquidity or the future market prices of our common stock if a market does develop. If an active market for our common stock does not develop, the fair market value of our common stock could be materially adversely affected. We cannot predict the future prices of our common stock.

Trading in our common stock on the OTC Pink has been subject to wide fluctuations.

Our common stock is currently quoted for public trading on the OTC Pink. The trading price of our common stock has been subject to wide fluctuations. Trading prices of our common stock may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with limited business operation. There can be no assurance that trading prices and price earnings ratios previously experienced by our common stock will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common stock, regardless of our operating performance. In the past, following periods of volatility in the market price of a company’s securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management’s attention and resources.

Our common stock is currently quoted only on the OTC Pink, which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTC Pink, which is a significantly more limited market than the New York Stock Exchange, the NYSE American, or The Nasdaq Stock Market. The quotation of our shares of common stock on the OTC Pink may result in a less liquid market available for existing and potential stockholders to trade shares of our common stock, could depress the trading price of our common stock and could have a long-term adverse impact on our ability to raise capital in the future.

There can be no assurance that there will be an active market for our shares of common stock either now or in the future. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment in our shares of common stock or liquidate at a price that reflects the value of the business. As a result, holders of our shares of common stock may not find purchasers for such shares should they desire to sell them. Consequently, our shares of common stock should be purchased only by investors having no need for liquidity in their investment and who can hold such shares for an indefinite period of time.

The Company’s common stock is considered a “penny stock” and may be difficult to sell.

The Company’s common stock is considered to be a “penny stock” under rules promulgated pursuant to the Exchange Act. Reasons for categorization as a penny stock include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is not traded on a “recognized” national exchange; (iii) it is not quoted on The Nasdaq Stock Market, or even if so, has a price less than $5.00 per share; or (iv) it is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a “penny stock” is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.

Additionally, Section 15(g) of the Exchange Act and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor’s account.

Holders in the Company’s common stock are urged to obtain and read such disclosure carefully before purchasing any shares that are deemed to be “penny stock.” Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to: (i) obtain from the investor information concerning its financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of the Company’s common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

The Financial Industry Regulatory Authority (“FINRA”), has adopted sales practice requirements that may also limit a stockholder’s ability to buy and sell our stock.

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that, in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

On October 10, 2023, our subsidiary, ABT Holding Company (“ABT Holding”), and HEALIOS K.K. (“Healios”) entered into a binding memorandum of understanding (the “October MOU”), pursuant to which, among other things, ABT Holding entered into (i) an amendment (the “Fifth Amendment to License Agreement”) to that certain license agreement, dated as of January 8, 2016, as amended (the “Existing License Agreement”), and (ii) an assignment agreement for ARDS (as defined below) clinical doses (the “Assignment Agreement”), each with Healios and dated of even date with the October MOU.

Under the Fifth Amendment to License Agreement, the Company agreed to grant Healios a non-exclusive worldwide license to develop and commercialize MultiStem with respect to treating acute respiratory distress syndrome (“ARDS”) in exchange for potential development and sales milestone payments and additional royalties totaling up to $150 million in the aggregate. The Assignment Agreement provides for ABT Holding’s assignment of certain MultiStem doses manufactured by using a 3D bioreactor process to Healios. On October 12, 2023, ABT Holding received the first milestone payment of $1.5 million, and then on November 9, 2023, the Company received the second milestone payment of $1.5 million. The Company may receive another $1.5 million which is contingent on Healios closing on financing.

Copies of the October MOU, the Fifth Amendment to License Agreement, and the Assignment Agreement are filed as exhibits to this Quarterly Report, and the description of such documents is qualified in its entirety by reference to such exhibits.

Item 6. Exhibits.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.