Celularity Inc - Quarter Report: 2023 June (Form 10-Q)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission File Number: 001-38914

Celularity Inc.

(Exact name of registrant as specified in its charter)


Delaware	83-1702591
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
170 Park Ave, Florham Park, NJ (Address of principal executive offices)	07932 (Zip Code)

(908) 768-2170

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Common Stock, par value $0.0001 per share	CELU	The Nasdaq Stock Market LLC
Warrants, each exercisable for one share of Class A Common Stock at an exercise price of $11.50 per share	CELUW	The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 10, 2023, the registrant had 190,948,190 shares of Class A common stock, $0.0001 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations and Comprehensive Income (Loss)	2
	Condensed Consolidated Statements of Stockholders’ Equity	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Unaudited Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	34
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46
Item 4.	Controls and Procedures	46
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	48
Item 1A.	Risk Factors	48
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48
Item 3.	Defaults Upon Senior Securities	48
Item 4.	Mine Safety Disclosures	48
Item 5.	Other Information	49
Item 6.	Exhibits	49
Signatures		51

Unless the context indicates otherwise, references in this quarterly report to the “Company,” “Celularity,” “we,” “us,” “our” and similar terms refer to Celularity Inc. and its consolidated subsidiaries.

The Celularity logo, Celularity IMPACT, Biovance, Interfyl, Lifebank, CentaFlex and other trademarks or service marks of Celularity Inc. appearing in this quarterly report are the property of Celularity Inc. This quarterly report on Form 10-Q also contains registered marks, trademarks and trade names of other companies. All other trademarks, registered marks and trade names appearing herein are the property of their respective holders.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of the statements contained in this quarterly report on Form 10-Q, including the section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations", constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, or the Exchange Act. Forward-looking statements relate to expectations, beliefs, projections, future plans and strategies, anticipated events or trends and similar expressions concerning matters that are not historical facts. These statements relate to our future events, including our anticipated operations, research, development and commercialization activities, clinical trials, operating results and financial condition. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Forward-looking statements may include, but are not limited to, statements about:

•

our ability to expand our biomaterials business and leverage our core expertise in cellular therapeutic development and manufacturing to generate revenues by providing contract manufacturing and development services to third parties;

•

the success, cost, timing and potential indications of our cellular therapy candidate development activities and clinical trials, as well as the timing of the initiation, enrollment and completion of planned clinical trials in the United States and foreign countries;

•

our ability to obtain and maintain regulatory approval of our therapeutic candidates in any of the indications for which we plan to develop them, and any related restrictions, limitations, and/or warnings in the label of any approved therapeutic;

•

our ability to obtain funding for our operations, including funding necessary to initiate or complete the clinical trials of any of our therapeutic candidates;

•

our ability and plans to research, develop, manufacture and commercialize our therapeutic candidates, as well as our degenerative disease products;

•

our ability to attract and retain collaborators with development, regulatory and commercialization expertise;

•

the size of the markets for our therapeutic candidates and biomaterials products, and our ability to serve those markets;

•

our ability to successfully commercialize our therapeutic candidates and biomaterials products;

•

our ability to develop and maintain sales and marketing capabilities, whether alone or with potential future collaborators;

•

our expenses, future revenues, capital requirements and needs for additional financing;

•

our use of cash and other resources; and

•

our expectations regarding our ability to obtain and maintain intellectual property protection for our therapeutic candidates, degenerative disease products, and our ability to operate our business without infringing on the intellectual property rights of others.

These forward-looking statements are based on information available as of the date of this quarterly report, and current expectations, forecasts and assumptions, and involve a number of risks and uncertainties that could cause our actual results, performance or achievements to be materially different from any future results, performances or achievements expressed or implied by the forward-looking statements. Some factors that could cause actual results to differ include:

•

We have incurred net losses in every period since our inception, have no cellular therapeutic candidates approved for commercial sale and we anticipate that we will incur substantial net losses in the future. 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 to raise additional capital to support our operations. This additional funding may not be available on acceptable terms or at all. Failure to obtain this necessary capital or address our liquidity needs may force us to delay, limit or terminate our operations, make further reductions in our workforce, discontinue our commercialization efforts for our biomaterials products as well as other clinical trial programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.

•

We are currently required to make cash payments under our pre-paid advance agreement with YA II PN, Ltd., or Yorkville, which matures in September 2023, and may not have sufficient cash available when such payments are due. Although stockholders approved a reduced floor price of $0.50 per share, our stock is now trading below such price. Accordingly, Yorkville provided us notice that a “trigger event” occurred on August 1, 2023. As of the issuance date, we owe $6.3 million including interest, which is past due. If we fail to pay Yorkville when any requested cash payments are due, Yorkville could deem such non-payment an event of default under our pre-paid advance agreement and accelerate repayment of amounts

advanced under the agreement, which would impact our liquidity, require us to modify our operations to meet any prepayment obligations and could force us to seek protection under the provisions of the U.S. Bankruptcy Code.

•

We rely on distribution arrangements for the sale of our biomaterials products. We may incur costs to meet demand forecasts that do not materialize or we may be unable to meet demand if our distribution partners do not provide adequate forecasts. We may also incur costs to fulfill purchase orders prior to our distribution partners making agreed payments thereunder.

•

Our placental-derived cellular therapy candidates represent a novel approach to cancer, infectious and degenerative disease treatments that creates significant challenges.

•

Our business is highly dependent on the success of our lead therapeutic candidates. If we are unable to obtain regulatory approval for our lead candidates and effectively commercialize our lead therapeutic candidates for the treatment of patients in approved indications, our business would be significantly harmed.

•

Our commercial biomaterials business may be impacted if regulatory authorities determine that certain of our products that are, or are derived from, human cells or tissues do not qualify for reimbursement. For example, during 2022, the Center for Medicare & Medicaid Services, or CMS, began rejecting claims for Interfyl submitted by one of our distribution partners which has not yet been resolved.

•

We rely on CAR-T viral vectors from Sorrento Therapeutics, Inc., or Sorrento, for our CYCART-19 therapeutic candidate and termination of this license, or any future licenses, could result in the loss of significant rights, which would harm our business. On February 13, 2023, Sorrento announced that it commenced voluntary proceedings under Chapter 11 of the U.S. Bankruptcy Code in the U.S. Bankruptcy Court for the Southern District of Texas. At this time, we cannot predict what impact the bankruptcy will have on Sorrento’s continued ability to perform under the license agreement.

•

We rely and will continue to rely on third parties to conduct our clinical trials. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, we may not be able to obtain regulatory approval of, or commercialize, our therapeutic candidates.

•

The U.S. Food and Drug Administration, or FDA, regulatory approval process is lengthy and time-consuming, and we may experience significant delays in the clinical development and regulatory of our therapeutic candidates.

•

We may not be able to file Investigational New Drug, or IND, applications to commence additional clinical trials on the timelines we expect, and even if we are able to, the FDA may not permit us to proceed without additional information or at all, and if so, we may encounter substantial delays in our clinical trials or may not be able to conduct our trials on the timelines we expect. For example, we submitted an IND for CYCART-19 in the first quarter of 2022 and FDA requested additional information before we could proceed with the clinical trial, and we continue to respond to FDA information requests before being able to proceed.

•

We operate our own manufacturing and storage facility, which requires significant resources; manufacturing or other failures could adversely affect our clinical trials and the commercial viability of our therapeutic candidates and our biobanking and degenerative diseases businesses. We may not be successful in our plan to leverage our core expertise in cellular therapeutic development and manufacturing to generate revenues by providing contract manufacturing and development services to third parties.

•

We rely on donors of healthy human full-term post-partum placentas to manufacture our therapeutic candidates and biomaterials products, and if we do not obtain an adequate supply of such placentas from qualified donors, development of our placental-derived allogeneic cells may be adversely impacted.

•

Our clinical trials may fail to demonstrate the safety and/or efficacy of any of our therapeutic candidates, which would prevent or delay regulatory approval and commercialization.

•

If our effort to protect the proprietary nature of the intellectual property related to our technologies are inadequate, we may not be able to compete effectively in our market.

•

We are, and in the future may be, party to agreements with third parties. Disputes may arise with such third parties regarding the terms of such agreements, including terms governing payment obligations, contractual interpretation, or related intellectual property ownership or use rights, which could materially adversely impact us, including by requiring the payment of additional amounts, or requiring us to invest time and money in litigation or arbitration.

•

Our therapeutic candidates may cause undesirable side effects or have other properties that could halt their clinical development, prevent their regulatory approval, limit their commercial potential or result in significant negative consequences.

iii

•

We face significant competition from other biotechnology and pharmaceutical companies, and our operating results will suffer if we fail to compete effectively.

•

Our relationship with customers, physicians, and third-party payors are subject to numerous laws and regulations. If we or our employees, independent contractors, consultants, commercial partners and vendors violate these laws, we could face substantial penalties.

•

Our business could be materially adversely affected by the effects of health pandemics or epidemics, as well as geopolitical conflicts, inflation, bank failures and recessions, in regions where we or third parties on which we rely have concentrations of clinical trial sites or other business operations.

•

We will continue to incur significant costs as a result of operating as a public company, and our management will be required to devote substantial time to various compliance initiatives.

For a further discussion of these and other factors that could cause our future results, performance or transactions to differ significantly from those expressed in any forward-looking statement, please see the section titled “Risk Factors” in our annual report on Form 10-K filed with the Securities and Exchange Commission on March 31, 2023, or the 2022 Form 10-K. Given these risks, you should not place undue reliance on any forward-looking statements, which are based only on information currently available to us (or to third parties making the forward-looking statements). While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. Except to the extent required by applicable law, we are under no obligation (and expressly disclaim any such obligation) to update or revise their forward-looking statements whether as a result of new information, future events, or otherwise.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

Celularity Inc.

Condensed Consolidated Balance Sheets (Unaudited)

(in thousands, except share and per share data)


	June 30, 2023			December 31, 2022

Assets
Current assets:
Cash and cash equivalents	$	3,084		$	13,966
Accounts receivable, net of allowance of $2,115 and $1,789 as of June 30, 2023 and December 31, 2022, respectively		2,812			4,452
Notes receivable		2,072			2,514
Inventory		5,738			5,308
Prepaid expenses and other current assets		4,331			7,262
Total current assets		18,037			33,502
Property and equipment, net		72,624			75,655
Goodwill		90,061			119,694
Intangible assets, net		12,107			120,994
Right-of-use assets - operating leases		13,100			13,060
Restricted cash		14,825			14,836
Inventory, net of current portion		25,339			22,949
Other long-term assets		326			376
Total assets	$	246,419		$	401,066
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	12,448		$	5,810
Accrued expenses and other current liabilities		9,401			9,069
Accrued R&D software		24,000			7,333
Short-term debt ($16,816 at fair value and $16,982 unpaid principal balance at June 30, 2023)		16,816			37,603
Deferred revenue		2,311			2,273
Total current liabilities		64,976			62,088
Deferred revenue, net of current portion		2,356			2,219
Acquisition-related contingent consideration		1,606			105,945
Noncurrent lease liabilities - operating		28,102			27,985
Noncurrent accrued R&D software		7,250			-
Long-term debt		17,027			-
Warrant liabilities		6,277			3,598
Deferred income tax liabilities		9			9
Other liabilities		315			321
Total liabilities		127,918			202,165
Commitments and Contingencies (Note 9)
Stockholders’ equity
Preferred stock, $0.0001 par value, 10,000,000 shares authorized, none issued and outstanding at June 30, 2023 and December 31, 2022		-			-
Common Stock, $0.0001 par value, 730,000,000 shares authorized, 180,817,245 issued and outstanding as of June 30, 2023; 730,000,000 shares authorized, 148,921,187 issued and outstanding as of December 31, 2022		18			15
Additional paid-in capital		873,557			844,373
Accumulated other comprehensive income		2,388			9
Accumulated deficit		(757,462	)		(645,496	)
Total stockholders’ equity		118,501			198,901
Total liabilities and stockholders’ equity	$	246,419		$	401,066

The accompanying notes are an integral part of these condensed consolidated financial statements.

Celularity Inc.

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) (Unaudited)

(in thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Net revenues
Product sales and rentals	$	906		$	1,228		$	1,949		$	1,879
Services		1,278			1,373			2,635			2,656
License, royalty and other		754			1,175			2,289			5,176
Total revenues		2,938			3,776			6,873			9,711
Operating expenses
Cost of revenues (excluding amortization of acquired intangible assets)
Product sales and rentals		207			425			929			899
Services		485			1,265			957			2,213
Licenses, royalties and other		110			1,489			919			4,093
Research and development		8,604			25,349			25,555			47,022
Software cease-use costs		243			-			23,918			-
Selling, general and administrative		12,826			15,574			26,760			32,034
Change in fair value of contingent consideration liability		(85,407	)		(45,047	)		(104,339	)		(40,198	)
Goodwill impairment		-			-			29,633			-
IPR&D impairment		107,800			-			107,800			-
Amortization of acquired intangible assets		546			546			1,087			1,087
Total operating expenses		45,414			(399	)		113,219			47,150
(Loss) income from operations		(42,476	)		4,175			(106,346	)		(37,439	)
Other income (expense):
Interest income		66			41			182			47
Interest expense		(1,104	)		-			(1,381	)		-
Change in fair value of warrant liabilities		(134	)		43,212			1,601			22,280
Change in fair value of debt		(1,077	)		-			(2,357	)		-
Other income (expense), net		(3,224	)		415			(3,665	)		88
Total other income (expense)		(5,473	)		43,668			(5,620	)		22,415
(Loss) income before income taxes		(47,949	)		47,843			(111,966	)		(15,024	)
Income tax expense		-			17			-			17
Net (loss) income	$	(47,949	)	$	47,826		$	(111,966	)	$	(15,041	)
Change in fair value of debt due to change in credit risk, net of tax		(269	)		-			2,389			-
Other comprehensive (loss) income		(269	)		-			2,389			-
Comprehensive (loss) income	$	(48,218	)	$	47,826		$	(109,577	)	$	(15,041	)
Share information:
Net (loss) income per share - basic	$	(0.27	)	$	0.34		$	(0.67	)	$	(0.11	)
Weighted average shares outstanding - basic		176,563,980			140,152,245			166,023,075			135,302,472
Net (loss) income per share - diluted	$	(0.27	)	$	0.32		$	(0.67	)	$	(0.11	)
Weighted average shares outstanding - diluted		176,563,980			151,311,780			166,023,075			135,302,472

The accompanying notes are an integral part of these condensed consolidated financial statements.

Celularity Inc.

Condensed Consolidated Statements of Stockholders’ Equity (Unaudited)

(in thousands, except share amounts)


	Common Stock					Additional Paid-in			Accumulated			Accumulated Other Comprehensive			Total Stockholders’
	Shares			Amount		Capital			Deficit			Income (Loss)			Equity
Balances at December 31, 2022		148,921,287		$	15	$	844,373		$	(645,496	)	$	9		$	198,901
Exercise of stock options		1,071,000			-		300			-			-			300
Common stock issued pursuant to short-term debt conversion		3,656,118			1		3,509			-			(152	)		3,358
Issuance of common stock in PIPE Offering, net of offering expenses		9,381,841			1		8,930			-			-			8,931
Issuance of common stock for stem-cells to be used in research and development		1,694,915			-		1,000			-			-			1,000
Vesting of restricted stock units		253,390			-		-			-			-			-
Tax withholding on vesting of restricted stock units		(81,095	)		-		(53	)		-			-			(53	)
Issuance of common stock under ATM Agreement		132,958			-		136			-			-			136
Issuance of warrants on senior secured bridge loan		-			-		274			-			-			274
Stock-based compensation expense		-			-		3,988			-			-			3,988
Change in fair value of debt due to change in credit risk, net of tax		-			-		-			-			2,810			2,810
Net loss		-			-		-			(64,017	)		-			(64,017	)
Balances at March 31, 2023		165,030,414		$	17	$	862,457		$	(709,513	)	$	2,667		$	155,628
Exercise of stock options		15,371			-		4			-			-			4
Common stock issued pursuant to short-term debt conversion		380,848			-		282			-			(10	)		272
Issuance of common stock in PIPE Offering, net of offering expenses		5,813,945			-		3,750			-			-			3,750
Issuance of common stock in Registered Direct Offering, net of offering expenses		9,230,770			1		1,225			-			-			1,226
Vesting of restricted stock units		391,782			-		-			-			-			-
Tax withholding on vesting of restricted stock units		(45,885	)		-		(33	)		-			-			(33	)
Issuance of warrants on senior secured bridge loans		-			-		2,016			-			-			2,016
Stock-based compensation expense		-			-		3,856			-			-			3,856
Change in fair value of debt due to change in credit risk, net of tax		-			-		-			-			(269	)		(269	)
Net loss		-			-		-			(47,949	)		-			(47,949	)
Balances at June 30, 2023		180,817,245		$	18	$	873,557		$	(757,462	)	$	2,388		$	118,501

Balances at December 31, 2021		124,307,884		$	12	$	763,087		$	(663,681	)	$	-		$	99,418
Cumulative effect adjustment ASU 2016-02		-			-		-			3,996			-			3,996
Reclassification of previously exercised stock options		131,253			-		441			-			-			441
Exercise of warrants		13,281,386			2		46,483			-			-			46,485
Exercise of stock options		10,255			-		21			-			-			21
Purchase and retirement of common shares		(3,058	)		-		(11	)		-			-			(11	)
Stock-based compensation expense		-			-		2,422			-			-			2,422
Net loss		-			-		-			(62,867	)		-			(62,867	)
Balances at March 31, 2022		137,727,720		$	14	$	812,443		$	(722,552	)	$	-		$	89,905
Cumulative effect adjustment ASU 2016-02		-			-		-			(3	)		-			(3	)
Issuance of common stock to PIPE investor, net of issuance costs		4,054,055			-		7,651			-			-			7,651
Exercise of warrants		304			-		4			-			-			4
Exercise of stock options		609,529			-		313			-			-			313
Purchase and retirement of common shares		(7,441	)		-		(75	)		-			-			(75	)
Stock-based compensation expense		-			-		4,529			-			-			4,529
Net income		-			-		-			47,826			-			47,826
Balances at June 30, 2022		142,384,167		$	14	$	824,865		$	(674,729	)	$	-		$	150,150

The accompanying notes are an integral part of these condensed consolidated financial statements.

Celularity Inc.

Condensed Consolidated Statements of Cash Flows

(Unaudited) (in thousands)


	Six Months Ended June 30,
	2023			2022
Cash flow from operating activities:
Net loss	$	(111,966	)	$	(15,041	)
Adjustments to reconcile net loss to net cash used in operations:
Depreciation and amortization		4,685			4,603
Non cash lease expense		(40	)		(25	)
Deferred income taxes		-			-
Provision for doubtful accounts		374			3
Goodwill impairment		29,633			-
IPR&D impairment		107,800			-
Change in fair value of warrant liabilities		(1,601	)		(22,280	)
Stock-based compensation expense		7,844			6,951
Change in fair value of contingent consideration		(104,339	)		(40,198	)
Acquired in-process research and development		3,000			-
Issuance of common stock for stem-cells to be used in research and development		1,000			-
Discounts arising from RWI loan arrangement		2,151			-
Change in fair value of contingent stock consideration		(120	)		611
Change in fair value of debt		2,357			-
Other, net		876			(212	)
Changes in assets and liabilities:
Accounts receivable		1,266			(1,191	)
Inventory		(2,820	)		(14,692	)
Prepaid expenses and other assets		2,981			511
Accounts payable		6,043			1,020
Accrued expenses and other liabilities		645			5,751
Accrued R&D Software		23,917			3,328
Right-of-use assets and lease liabilities		117			128
Deferred revenue		175			162
Net cash used in operating activities		(26,022	)		(70,571	)
Cash flow from investing activities:
Capital expenditures		(240	)		(2,894	)
Purchase of acquired in-process research and development		(3,000	)		-
Net cash used in investing activities		(3,240	)		(2,894	)
Cash flow from financing activities:
Proceeds from RWI senior secured bridge loan and warrants		12,375			-
Principal payments of short-term debt		(16,811	)		-
Proceeds from issuance of senior secured bridge loan and warrants		4,994			-
Proceeds from the exercise of stock options		304			248
Proceeds from the exercise of warrants		-			46,489
Proceeds from PIPE financing		12,750			30,000
Proceeds from the sale of common stock in ATM offering		136			-
Tax withholding on vesting of restricted stock units		(86	)		-
Proceeds from registered direct offering		6,000			-
Payments of PIPE and other issuance costs		(1,293	)		(2,523	)
Net cash provided by financing activities		18,369			74,214
Net (decrease) increase in cash, cash equivalents and restricted cash		(10,893	)		749
Cash, cash equivalents and restricted cash at beginning of period		28,802			52,076
Cash, cash equivalents and restricted cash at end of period	$	17,909		$	52,825

Supplemental disclosure of cash flow information:
Cash paid for interest	$	1,073		$	-
Supplemental non-cash investing and financing activities:
Property and equipment included in accounts payable and accrued expenses	$	(1,010	)	$	(953	)
Issuance of warrants on senior secured bridge loans	$	2,002		$	-
Common stock issued for short-term debt conversion	$	3,792		$	-
PIPE related costs included in accrued expenses	$	(69	)	$	(81	)
Interest accrued on senior secured loans within long-term debt	$	(307	)	$	-
Reclassification of option liabilities to equity	$	-		$	441

The accompanying notes are an integral part of these condensed consolidated financial statements.

Celularity Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(in thousands, except share and per share amounts)

Nature of Business

Celularity Inc., (“Celularity” or the “Company”), formerly known as GX Acquisition Corp. (“GX”), was a blank check company incorporated in Delaware on August 24, 2018. The Company was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses.

On July 16, 2021 (the “Closing Date”), the Company consummated the previously announced merger pursuant to the Merger Agreement and Plan of Reorganization, dated January 8, 2021 (the “Merger Agreement”), by and among GX, Alpha First Merger Sub, Inc., a Delaware corporation and a direct, wholly owned subsidiary of GX (“First Merger Sub”), Celularity LLC (f/k/a Alpha Second Merger Sub LLC), a Delaware limited liability company and a direct, wholly owned subsidiary of GX (“Second Merger Sub”), and the entity formerly known as Celularity Inc., incorporated under the laws of the state of Delaware on August 29, 2016 (“Legacy Celularity”). The Company refers to these mergers as the “Mergers” and, collectively with the other transactions described in the Merger Agreement, the “Business Combination”. Upon completion of the merger transaction GX changed its name to Celularity Inc. The business combination was accounted for as a reverse recapitalization in conformity with accounting principles generally accepted in the United States.

Description of Business

Celularity is a biotechnology company leading the next evolution in cellular medicine by developing off-the-shelf placental-derived allogeneic cell therapies for the treatment of cancer and immune and infectious diseases. Celularity is developing a pipeline of off-the-shelf placental-derived allogeneic cell therapy product candidates including T cells engineered with a chimeric antigen receptor ("CAR"), natural killer ("NK"), cells, and mesenchymal-like adherent stromal cells ("MLASCs") and exosomes. These therapeutic candidates target indications across cancer, infectious and degenerative diseases. Celularity believes that by harnessing the placenta’s unique biology and ready availability, it will be able to develop therapeutic solutions that address a significant unmet global need for effective, accessible and affordable therapeutics. Celularity also actively develops and markets biomaterial products derived from the placenta. Prior to 2023, Celularity marketed those products domestically primarily serving the orthopedic and wound care markets. Celularity now intends to market placental biomaterials outside of the U.S. with an initial focus on markets in the Middle East and North Africa. Celularity's biomaterials business today is comprised primarily of the sale of its Biovance and Interfyl products, directly or through its distribution network. Biovance is decellularized, dehydrated human amniotic membrane derived from the placenta of a healthy, full-term pregnancy. It is an intact, natural extracellular matrix that provides a foundation for the wound regeneration process and acts as a scaffold for restoration of functional tissue. Interfyl is human connective tissue matrix derived from the placenta of a healthy, full-term pregnancy. It is used by a variety of medical specialists to fill soft tissue deficits resulting from wounds, trauma, or surgery. Celularity is developing new placental biomaterial products to deepen the commercial pipeline beyond Biovance and Interfyl. The Company also plans to leverage its core expertise in cellular therapeutic development and manufacturing to generate revenues by providing contract manufacturing and development services to third parties. The initial focus of this new service offering will be to assist development stage cell therapy companies with the development and manufacturing of their therapeutic candidates for clinical trials. In January 2023, the Company announced reprioritization of efforts, which resulted in a reduction of approximately one-third of its workforce as of March 2023.

Celularity is headquartered in Florham Park, NJ. Legacy Celularity acquired Anthrogenesis Corporation (“Anthrogenesis”) in August 2017 from Celgene Corporation (“Celgene”), a global biotechnology company that merged with Bristol Myers Squibb Company. Previously, Anthrogenesis operated as Celgene Cellular Therapeutics, Celgene’s cell therapy division. The Company is no longer actively recruiting into its clinical programs. The Company is evaluating the status of an investigational new drug application (“IND”) it submitted in the first quarter of 2022 before making a commitment to an additional clinical trial.

The Celularity IMPACT platform capitalizes on the benefits of placenta-derived cells to target multiple diseases, and provides seamless integration, from bio sourcing through manufacturing cryopreserved and packaged allogeneic cells at its purpose-built U.S.-based 147,215 square foot facility. Celularity’s placental-derived cells are allogeneic, meaning they are intended for use in any patient, as compared to autologous cells, which are derived from an individual patient for that patient’s use. From a single source material, the postpartum human placenta, the Company derives five allogeneic cell or extracellular vesicle types: T cells, unmodified NK cells, genetically modified NK cells, MLASCs and exosomes, which have the potential to support multiple therapeutic programs. CYCART-19 is a placental-derived CAR-T cell therapy, in development for the treatment of B-cell malignancies, initially targeting the cluster of differentiation 19 ("CD19"), receptor, the construct and related CARs for which are in-licensed from Sorrento. In the first quarter of 2022, the Company submitted an IND to investigate CYCART-19 for treatment of B-cell malignancies and in late May 2022, received formal written communication from the U.S. Food and Drug Administration requesting additional information before it can proceed with the planned Phase 1/2 clinical trial. The Company is assessing the status of the IND to determine an optional path forward for the program. The Company also expects to progress pre-clinical development of CYCART-201, its genetically modified T-cell expressing CD16 with a T-cell receptor ("TCR"), knockout in combination with monoclonal antibodies ("mAbs"), in non-Hodgkin's lymphoma

("NHL"), and in solid tumors. CYNK-001 is a placental-derived unmodified NK cell. In 2022, the Company had active and approved clinical trials under development for the treatment of acute myeloid leukemia ("AML"), a blood cancer, and for glioblastoma multiforme ("GBM"), a solid tumor cancer. Due to a need to prioritize corporate resources, in January 2023 the Company announced its intention to cease recruitment in the GBM and the HER2+ gastric trials. In addition, in April 2023, the Company announced based on the preliminary results of the phase 1 trial data of CYNK-001, the AML trial will be closed to further enrollment and has completed follow up. The Company is currently not investigating CYNK-001 for any indication. During the quarter, the Company fully impaired the in-process research and development ("IPR&D") assets associated with CYNK-001. APPL-001 is a placenta-derived MLASC being developed for the treatment of Crohn’s disease, and other degenerative diseases. pExo-001 is placenta-derived exosome being developed for the treatment of osteoarthritis.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, development by competitors of new technological innovations, dependence on key personnel, protection of proprietary technology, compliance with governmental regulations and the ability to secure additional capital to fund operations. Drug candidates currently under development will require significant additional approval prior to commercialization, including extensive preclinical and clinical testing and regulatory approval. These efforts require significant amounts of additional capital, adequate personnel, and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s drug development efforts are successful, it is uncertain when, if ever, the Company will realize significant revenue from product sales.

Going Concern

In accordance with Accounting Standards Update (“ASU”) No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40) (“ASU 205-40”), the Company has evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the condensed consolidated financial statements are issued.

As an emerging clinical-stage biotechnology company, Celularity is subject to certain inherent risks and uncertainties associated with the development of an enterprise. In this regard, since the Company’s inception, substantially all of management’s efforts have been devoted to making investments in research and development including basic scientific research into placentally-derived allogeneic cells, pre-clinical studies to support its current and future clinical programs in cellular therapeutics, and clinical development of its cell programs as well as facilities and selling, general and administrative expenses that support its core business operations (collectively the “investments”), all at the expense of the Company’s short-term profitability. The Company has historically funded these investments through limited revenues generated from its biobanking and degenerative disease businesses and issuances of equity and debt securities to public and private investors (these issuances are collectively referred to as “outside capital”). Notwithstanding these efforts, management can provide no assurance that the Company’s research and development and commercialization efforts will be successfully completed, or that adequate protection of the Company’s intellectual property will be adequately maintained. Even if these efforts are successful, it is uncertain when, if ever, the Company will generate significant sales or operate in a profitable manner to sustain the Company’s operations without needing to continue to rely on outside capital. Continued decline in the Company’s share price and further discontinuation of clinical trials could result in a material impairment of goodwill or long-lived assets in a future period.

As of the date the accompanying condensed consolidated financial statements were issued (the “issuance date”), management evaluated the significance of the following adverse conditions and events in accordance with ASU 205-40:

•

Since its inception, the Company has incurred significant losses and net cash used in operating activities. For the six months ended June 30, 2023, the Company incurred a net loss of $111,966 and net cash used in operating activities of $26,022. As of June 30, 2023, the Company had an accumulated deficit of $757,462. The Company expects to continue to incur significant losses and use net cash for operations for the foreseeable future.

•

As of the issuance date, the Company had approximately $1,700 of unrestricted cash and cash equivalents available to fund the Company’s operations and no available additional sources of outside capital to sustain the Company’s operations for a period of 12 months beyond the issuance date.

•

The Company expects to incur substantial expenditures to fund its investments for the foreseeable future. In order to fund these investments, the Company will need to secure additional sources of outside capital. While the Company is actively seeking to secure additional outside capital (and has historically been able to successfully secure such capital), as of the issuance date, no additional outside capital has been secured or was deemed probable of being secured. In addition, management can provide no assurance that the Company will be able to secure additional outside capital in the future or on terms that are acceptable to the Company. Absent an ability to secure additional outside capital in the very near term, the Company will be unable to meet its obligations as they become due over the next 12 months beyond the issuance date.

•

As disclosed in Note 7, the Company had approximately $17,000 of principal borrowings outstanding under a financing arrangement referred to as the PPA with a private investor, Yorkville, as of June 30, 2023. These borrowings are scheduled to mature on September 15, 2023, and the Company may not have sufficient cash available when such payments are due. Although stockholders approved a reduced floor price of $0.50 per share, the Company's stock is now trading below such price. On August 2, 2023, Yorkville provided notice to the Company that a “triggering event” had occurred on August 1, 2023, as provided for under the terms of the PPA. As a result of this triggering event, the Company is required to make repayments of $6,000 per month plus a payment premium of 5% of the principal amount being paid and all outstanding accrued and unpaid interest (collectively the “repayment amount”). As of the issuance date, the Company owes $6,340 including interest, which is past due, and for which the Company does not have sufficient available funds to repay. If the Company fails to secure a waiver from Yorkville and fails to pay the remaining repayment amount currently due, Yorkville could deem such non-payment an event of default under the PPA. If Yorkville deems such non-payment an event of default, Yorkville may, at its discretion, exercise its rights and remedies as provided in the PPA which may include, among others, accelerating the repayment of the total principal due under the PPA (approximately $17,000 as of June 30, 2023 or approximately $16,500 as of issuance date), plus accrued and unpaid interest and the 5% premium, and/or force the Company to seek protection under the provisions of the U.S. Bankruptcy Code.

•

As of issuance date, the Company's cash and cash equivalents fell below $3,000 for more than five consecutive business days, which per the terms of the loan agreements with RWI and C.V. Starr (See Note 7) caused an event of default. The Company is actively pursuing additional capital for working capital and general corporate purposes. As part of these efforts, the Company intends to raise sufficient capital to cure any breach of its contractual covenants within the cure periods set forth in the respective agreements. In the event the Company is unable to cure such breaches during the prescribed cure period, the Company will seek waivers from its lenders. If the Company cannot secure a waiver from its secured lenders, the lenders may declare the outstanding principal of the loans due and payable, which may force the Company to seek protection under the provisions of the U.S. Bankruptcy Code.

•

On March 14, 2023, the Company received a notice from the Nasdaq notifying the Company that it no longer complies with the minimum bid price requirement for continued listing on the Nasdaq Capital Market because the closing bid price for the Company’s Class A common stock has fallen below $1.00 per share for the last 30 consecutive business days. The Company has a period of 180 calendar days, or until September 11, 2023, to regain compliance with the minimum bid price requirement. The Company intends to actively monitor the closing bid price of its Class A common stock and will evaluate available options to regain compliance with the minimum bid requirement. However, management can provide no assurance that the Company will be able to regain compliance with the minimum bid requirement during the 180-day compliance period, secure a second period of 180 days to regain compliance, or maintain compliance with the other Nasdaq listing requirements. In the event the Company is unable to regain or maintain compliance with the Nasdaq listing requirements, the liquidity of the Company's publicly traded securities will be adversely affected and the Company’s ability to secure additional outside capital through public markets will be adversely affected.

•

In the event the Company is unable to secure additional outside capital to fund the Company’s obligations when they become due over the next 12 months beyond the issuance date, which includes the funds needed to repay the outstanding principal on the PPA (plus unpaid accrued interest and the 5% premium) that has become due and will become fully due in September 2023, and/or obtain a waiver to defer the remaining repayment amount currently due to Yorkville, and/or regain compliance with the Nasdaq listing requirements, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment of the Company’s operations, a sale of certain of the Company’s assets, a sale of the entire Company to strategic or financial investors, and/or allowing the Company to become insolvent by filing for bankruptcy protection under the provisions of the U.S. Bankruptcy Code.

These uncertainties raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on the basis that the Company will continue to operate as a going concern, which contemplates that the Company will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Summary of Significant Accounting Policies

Basis of Presentation

The Company’s unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The unaudited condensed consolidated financial statements include the accounts of wholly owned subsidiaries, after elimination of intercompany accounts and transactions. The unaudited condensed consolidated financial

information presented herein reflects all financial information that, in the opinion of management, is necessary for a fair statement of consolidated financial position, results of operations and cash flows for the periods presented.

The Company’s condensed consolidated financial statements are prepared in accordance with the U.S. Securities and Exchange Commission’s rules for the presentation of interim financial statements, which permit certain disclosures to be condensed or omitted. These financial statements should be read in conjunction with the Company’s annual audited financial statements as of and for the year ended December 31, 2022.

In the opinion of management, the accompanying interim financial statements include all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s financial position as of June 30, 2023, and its results of operations, statement of changes in stockholder’s equity and cash flows for the six months ended June 30, 2023 and 2022. Operating results for the six months ended June 30, 2023, are not necessarily indicative of the results that may be expected for the year ending December 31, 2023. The interim financial statements, presented herein, do not contain the required disclosures under GAAP for annual financial statements. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s annual audited financial statements and related notes as of and for the year ended December 31, 2022 included in the Annual Report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on March 31, 2023, (the “2022 Form 10-K”).

Use of Estimates

The preparation of the Company’s unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. Significant estimates and assumptions reflected in these condensed consolidated financial statements include, but are not limited to, assumptions related to the Company’s goodwill and intangible impairment assessment, the valuation of inventory, contingent consideration, short-term debt, determination of incremental borrowing rates, accrual of research and development expenses, and the valuations of stock options and stock warrants. The Company based its estimates on historical experience, known trends and other market-specific or other relevant factors that it believes to be reasonable under the circumstances. On an ongoing basis, management evaluates its estimates when there are changes in circumstances, facts and experience. Changes in estimates are recorded in the period in which they become known. Actual results could differ from those estimates.

Fair Value Measurements

Certain assets and liabilities of the Company are carried at fair value under GAAP. Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. Financial assets and liabilities carried at fair value are to be classified and disclosed in one of the following three levels of the fair value hierarchy, of which the first two are considered observable and the last is considered unobservable:

• Level 1 — Quoted prices in active markets for identical assets or liabilities.

• Level 2 — Observable inputs (other than Level 1 quoted prices), such as quoted prices in active markets for similar assets or liabilities, quoted prices in markets that are not active for identical or similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data.

• Level 3 — Unobservable inputs that are supported by little or no market activity that are significant to determining the fair value of the assets or liabilities, including pricing models, discounted cash flow methodologies and similar techniques.

Comprehensive Income (Loss)

Comprehensive income (loss) refers to revenues, expenses, gains and losses that under U.S. GAAP are included in comprehensive income (loss) but are excluded from net income (loss) as these amounts are recorded directly as an adjustment to accumulated other comprehensive income (loss). The Company’s only component of other comprehensive income (loss) is comprised of the portion of the total change in fair value of indebtedness accounted for under the fair value option that is attributable to changes in instrument-specific credit risk. During the six months ended June 30, 2023, the Company recorded instrument-specific credit risk income of $2,541 and reclassified $162 from accumulated other comprehensive income to other income (expense) on the condensed consolidated statements

of operations upon short-term debt conversion. These amounts have been recorded as a separate component of stockholders’ equity. During the six months ended June 30, 2022, the Company did not have a component of other comprehensive income (loss).

Net Income (Loss) per Share

Basic net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during each period. Diluted net income (loss) per share of common stock includes the effect, if any, from the potential exercise or conversion of securities, such as redeemable convertible preferred stock, convertible debt, stock options, restricted stock units and warrants, which would result in the issuance of incremental shares of common stock. However, potential common shares are excluded if their effect is anti-dilutive. For diluted net income (loss) per share in periods where the Company has a net loss, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive. For the three months ended June 30, 2022, the Company was in a net income position and calculated the diluted net income per share by dividing the Company’s net income by the dilutive weighted average number of share outstanding during the period, determined using the treasury stock method and the average stock price during the period. A reconciliation of the numerators and denominators of the basic and diluted net income (loss) per share calculations are as follows:


	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2023			2022		2023			2022
Numerator:
Net (loss) income	$	(47,949	)	$	47,826	$	(111,966	)	$	(15,041	)
Denominator:
Weighted average shares outstanding, basic		176,563,980			140,152,245		166,023,075			135,302,472
Weighted average dilutive stock options		-			11,089,847		-			-
Weighted average restricted stock units		-			69,688		-			-
Weighted average shares outstanding, diluted		176,563,980			151,311,780		166,023,075			135,302,472

Net income (loss), basic	$	(0.27	)	$	0.34	$	(0.67	)	$	(0.11	)
Net income (loss), diluted	$	(0.27	)	$	0.32	$	(0.67	)	$	(0.11	)

The following potentially dilutive securities have been excluded from the computation of diluted weighted-average shares of common stock outstanding, prior to the use of the two-class method, as they would be anti-dilutive:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Stock options		1,783,883		9,490,717		26,527,892		25,648,358
Restricted stock units		421,987		1,597,502		6,236,967		2,148,776
Convertible debt		24,126,962		-		24,126,962		-
Warrants		62,134,916		33,458,560		62,134,916		33,458,560
		88,467,748		44,546,779		119,026,737		61,255,694

Segment Information

Operating segments are defined as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in deciding how to allocate resources in assessing performance. The Company manages its operations through an evaluation of three distinct businesses segments: Cell Therapy, Degenerative Disease and BioBanking. These segments are presented for the three and six months ended June 30, 2023 and 2022 in Note 14.

Allowance for Credit Losses and Concentrations of Credit Risk

With the adoption of ASU 2016-13 Financial Instruments — Credit Losses, as noted below, the Company recognizes credit losses based on a forward-looking current expected credit losses. The Company makes estimates of expected credit losses based upon its assessment of various factors, including historical collection experience, the age of accounts receivable balances, credit quality of its customers, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect its ability to collect from customers.

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash, cash equivalents and restricted cash. The Company generally maintains balances in various operating accounts at financial institutions that

management believes to be of high credit quality, in amounts that may exceed federally insured limits. The Company has not experienced any losses related to its cash and cash equivalents or restricted cash and does not believe that it is subject to unusual credit risk beyond the normal credit risk associated with commercial banking relationships.

The Company is subject to credit risk from trade accounts receivable related to both degenerative disease product sales and biobanking services. All trade accounts receivables are a result from product sales and services performed in the United States. As of June 30, 2023, two of the Company's customers comprised 60% of the Company's outstanding gross accounts receivable. As of December 31, 2022, three of the Company's customers comprised 71% of the Company's outstanding gross accounts receivable. During the six months ended June 30, 2023, the Company had two customers provide for 31% of revenue. During the three months ended June 30, 2022, the Company had three customers provide for 53% of revenue.

Emerging Growth Company

Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act of 1933, as amended, registration statement declared effective or do not have a class of securities registered under the Securities Exchange Act of 1934, as amended “Exchange Act”) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.

This may make comparison of the Company’s condensed consolidated financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

Reclassifications

Certain prior period amounts have been reclassified to conform with current year presentation on the condensed consolidated balance sheets and condensed consolidated statements of cash flows between accrued expenses and accrued research and development ("R&D") software to separately present the Palantir cease-use liability recorded during the six months ended June 30, 2023 (See Note 9 for further information).

Recently Adopted Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Financial Instruments — Credit Losses (“ASU 2016-13”), which changes the accounting for recognizing impairments of financial assets. Under the new guidance, credit losses for certain types of financial instruments will be estimated based on expected losses. ASU 2016-13 also modifies the impairment models for available-for-sale debt securities and for purchased financial assets with credit deterioration since their origination. ASU 2016-13 is effective for annual periods beginning after December 15, 2022 (fiscal year 2023 for the Company), and interim periods within those periods, with early adoption permitted. The Company adopted ASU 2016-13 effective January 1, 2023. The standard did not have a material impact on the unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

There were no recently issued accounting standards not yet adopted which would have a material effect on the Company’s financial statements.

Fair Value of Financial Assets and Liabilities

The following tables present information about the Company’s financial assets and liabilities measured at fair value on a recurring basis and indicate the level of the fair value hierarchy used to determine such fair values:


	Fair Value Measurements as of June 30, 2023
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents - money market funds	$	2,679	$	—	$	—	$	2,679
Convertible note receivable		—		—		2,072		2,072
	$	2,679	$	—	$	2,072	$	4,751

Liabilities:
Acquisition-related contingent consideration obligations	$	—	$	—	$	1,606	$	1,606
Contingent stock consideration		—		—		66		66
Short-term debt - Yorkville		—		—		16,816		16,816
Warrant liability - April 2023 Registered Direct Warrants		—		—		3,349		3,349
Warrant liability - May 2022 PIPE Warrants		—		—		1,471		1,471
Warrant liability - Sponsor Warrants		—		—		595		595
Warrant liability - Public Warrants		862		—		—		862
	$	862	$	—	$	23,903	$	24,765


	Fair Value Measurements as of December 31, 2022
	Level 1		Level 2		Level 3		Total
Assets:
Cash equivalents - money market funds	$	12,174	$	—	$	—	$	12,174
Convertible note receivable		—		—		2,514		2,514
	$	12,174	$	—	$	2,514	$	14,688

Liabilities:
Acquisition-related contingent consideration obligations	$	—	$	—	$	105,945	$	105,945
Contingent stock consideration		—		—		186		186
Short-term debt - Yorkville		—		—		37,603		37,603
Warrant liability - May 2022 PIPE Warrants		—		—		1,402		1,402
Warrant liability - Sponsor Warrants		—		—		1,190		1,190
Warrant liability - Public Warrants		1,006		—		—		1,006
	$	1,006	$	—	$	146,326	$	147,332

During the six months ended June 30, 2023 and 2022, there were no transfers between Level 1, Level 2 and Level 3.

The Company’s cash equivalents consisted of a money market funds. The money market fund was valued using inputs observable in active markets for similar securities, which represents a Level 1 measurement in the fair value hierarchy. The carrying values of accounts receivable, accounts payable, deferred revenue and other current liabilities approximate fair value in the accompanying condensed consolidated financial statements due to the short-term nature of those instruments. The Company believes that the carrying value of its long-term debt approximates fair value because the stated terms of this debt is consistent with current market rates.

Valuation of Contingent Consideration

The fair value measurement of the contingent consideration obligations is determined using Level 3 inputs and is based on a probability-weighted income approach. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own assumptions.

The following table presents a reconciliation of contingent consideration obligations measured on a recurring basis using Level 3 inputs as of June 30, 2023 and December 31, 2022:


	Balance as of December 31, 2022		Net transfers in to (out of) Level 3		Purchases, settlements and other net		Fair value adjustments			Balance as of June 30, 2023
Liabilities:
Acquisition-related contingent consideration obligations	$	105,945	$	—	$	—	$	(104,339	)	$	1,606

	Balance as of December 31, 2021		Net transfers in to (out of) Level 3		Purchases, settlements and other net		Fair value adjustments			Balance as of December 31, 2022
Liabilities:
Acquisition-related contingent consideration obligations	$	232,222	$	—	$	—	$	(126,277	)	$	105,945

The fair value of the liability to make potential future milestone and earn-out payments was estimated by the Company at each reporting date based, in part, on the results of a third-party valuation using a probability-weighted expected return method ("PWERM") for the regulatory milestones and a real options technique for commercial and royalty milestones based on various estimates and assumptions, including the probability of achieving specified events, discount rates, and the period of time until earn-out payments are payable and the conditions triggering the milestone payments are met. The actual settlement of contingent consideration could differ from current estimates based on the actual occurrence of these specified events.

At each reporting date, the Company revalues the contingent consideration obligation to estimated fair value and records changes in fair value as income or expense in the Company’s condensed consolidated statements of operations. Changes in the fair value of the contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue estimates and changes in probability assumptions with respect to the likelihood of achieving the various contingent consideration obligations. During 2023, the Company discontinued its unmodified NK cell and AML Cell Therapy clinical trials acquired from the Anthrogenesis acquisition and as a result the fair value of the contingent consideration obligation has decreased significantly as of June 30, 2023. The Company has classified all of the contingent consideration as a long-term liability in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022. See Note 9, “Commitment and Contingencies”, for more information on contingent consideration.

Valuation of Warrant Liability

The warrant liability as of June 30, 2023 is composed of the fair value of warrants to purchase shares of Company Class A common stock, par value $0.0001 per share ("Class A common stock" or "common stock"). The liability classified warrants were recorded at their respective Closing Date fair values based on a Black-Scholes option pricing model that utilizes inputs for: (i) value of the underlying asset, (ii) the exercise price, (iii) the risk-free rate, (iv) the volatility of the underlying asset, (v) the dividend yield of the underlying asset and (vi) maturity. The Black-Scholes option pricing model’s primary unobservable input utilized in determining the fair value of the liability classified warrants is the expected volatility of the Class A common stock. Prior to the Mergers, Legacy Celularity was historically a private company and lacks sufficient company-specific historical and implied volatility information for its stock. Therefore, it estimates 50% of its expected stock price volatility based on the historical volatility of publicly traded peer companies and 50% based on the Company's historical volatility. Inputs to the Black-Scholes option pricing model for the warrants are updated each reporting period to reflect fair value. The public warrants assumed upon the Business Combination (the “Public Warrants”) were recorded at the closing date fair value based on the close price of such warrants. Each subsequent reporting period, the Public Warrants are marked-to-market based on the period-end close price.

As of June 30, 2023 and December 31, 2022, the fair value of the warrant liabilities was $6,277 and $3,598, respectively. The risk-free interest rate is determined by reference to the U.S. Treasury yield curve for time periods approximately equal to the estimated remaining term of the warrants.

The following table provides a roll-forward of the aggregate fair values of the Company’s warrant liabilities for which fair values are determined using either Level 1 or Level 3 inputs:


Balance as of December 31, 2021	$	25,962
May 2022 PIPE warrant issuance		19,745
Gain recognized in earnings from change in fair value		(42,109	)
Balance as of December 31, 2022	$	3,598

Balance as of December 31, 2022	$	3,598
Gain recognized in earnings from change in fair value		(1,601	)
April 2023 Registered Direct warrant issuance		4,280
Balance as of June 30, 2023	$	6,277

The fair value of the liability classified warrants are as follows:


	June 30, 2023		December 31, 2022
Public Warrants	$	862	$	1,006
Sponsor Warrants		595		1,190
April 2023 Registered Direct Warrants		3,349		—
May 2022 PIPE Warrants		1,471		1,402
Total	$	6,277	$	3,598

Significant inputs for the Sponsor Warrants are as follows:


	June 30, 2023			December 31, 2022
Common share price	$	0.53		$	1.29
Exercise price	$	11.50		$	11.50
Dividend yield		0	%		0	%
Term (years)		3.0			3.5
Risk-free interest rate		4.48	%		4.16	%
Volatility		103.0	%		75.0	%

Significant inputs for the May 2022 PIPE Warrants and April 2023 Registered Direct Warrants are as follows:


	June 30, 2023			December 31, 2022
Common share price	$	0.53		$	1.29
Exercise price	$	0.75		$	8.25
Dividend yield		0	%		0	%
Term (years)		5.3			4.4
Risk-free interest rate		4.13	%		3.99	%
Volatility		90.1	%		81.2	%

Valuation of the Convertible Note Receivable

The convertible note receivable was received in connection with the disposition of the UltraMIST/MIST business in 2020. At any time on or after January 1, 2021, at the sole discretion of the Company, amounts outstanding under the convertible note receivable (including accrued interest) may be converted into Sanuwave common stock at a defined rate. The convertible promissory note was to be paid on or before August 6, 2021, however, remains outstanding in full at June 30, 2023. As of June 30, 2023 and December 31, 2022, the Company utilized Level 3 inputs on a probability weighted model based on outcomes of a default, repayment and conversion of the note. The measurement is based upon unobservable inputs supported by little or no market activity based on the Company’s own

assumptions. The fair value of the convertible note receivable was $2,072 and $2,514 as of June 30, 2023 and December 31, 2022, respectively.

Significant inputs for the convertible note valuation model are as follows:


	June 30, 2023			December 31, 2022
Face value	$	4,000		$	4,000
Coupon rate	12% - 17%			12% - 17%
Stock price	$	0.02		$	0.02
Term (years)	.51 - 3.45			1.01 - 3.45
Risk-free interest rate		5.47	%		4.73	%
Volatility	n/a			n/a

Valuation of Short-Term Debt - Yorkville

The Company elected the fair value option to account for the financial instrument with Yorkville signed on September 15, 2022 (see Note 7). During the six months ended June 30, 2023, the Company applied a different valuation model for Yorkville given the movement in the Company's share price falling below the floor price at times and triggering of debt repayments. The estimate of the fair value was determined using a scenario analysis which incorporates various repayment and conversion scenarios and corresponding probabilities. The significant inputs to the scenario (PWERM) analysis used to determine the value of each scenario prior to weighting included the following (i) term between 0.17 to 0.21 years (ii) risk-free rate ranging between 5.34% to 5.39% and (iii) interest coupon rate from 6% to 15%. The estimate of the fair value as of December 31, 2022 was determined using a binomial lattice model. The fair value measurement of the debt is determined using Level 3 inputs and assumptions unobservable in the market. Changes in the fair value of debt that is accounted for at fair value, inclusive of related accrued interest expense, are presented as gains or losses in the accompanying condensed consolidated statements of operations and comprehensive income (loss) under change in fair value of debt. The portion of total changes in fair value of debt attributable to changes in instrument-specific credit risk are determined through specific measurement of periodic changes in the discount rate assumption exclusive of base market changes and are presented as a component of accumulated comprehensive income in the accompanying condensed balance sheets. The actual settlement of the short-term debt could differ from current estimates based on the timing of when and if Yorkville elects to convert amounts into common shares, potential cash repayment by the Company prior to maturity, and movements in the Company’s common share price.

The following table provides a roll-forward of the aggregate fair values of the Company’s Yorkville debt for which fair values are determined using Level 3 inputs:


Liabilities:
Balance as of December 31, 2022	$	37,603
Conversion of debt into common shares		(3,792	)
Principal repayments		(16,811	)
Fair value adjustment through earnings		2,357
Fair value adjustment through accumulated other comprehensive income		(2,541	)
Balance as of June 30, 2023	$	16,816

Significant inputs for the Yorkville short-term debt valuation model as of December 31, 2022 were as follows:


	December 31, 2022
Common share price	$	1.29
Credit spread		13.71	%
Dividend yield		0	%
Term (years)		0.71
Risk-free interest rate		4.75	%
Volatility		45.0	%
Discount yield		18.46	%

Inventory

The Company’s major classes of inventories were as follows:


	June 30, 2023			December 31, 2022
Raw materials	$	7,677		$	7,719
Work in progress		16,247			12,381
Finished goods		8,278			9,256
Inventory, gross		32,202			29,356
Less: inventory reserves		(1,125	)		(1,099	)
Inventory, net		31,077			28,257
Balance Sheet Classification:
Inventory		5,738			5,308
Inventory, net of current portion		25,339			22,949
	$	31,077		$	28,257

Inventory, net of current portion includes inventory expected to remain on-hand beyond one year from each balance sheet date presented.

Property and Equipment, Net

Property and equipment, net consisted of the following:


	June 30, 2023			December 31, 2022
Leasehold improvement	$	73,213		$	70,113
Laboratory and production equipment		14,433			14,433
Machinery, equipment and fixtures		7,780			7,780
Construction in progress		1,127			3,660
Property and equipment		96,553			95,986
Less: Accumulated depreciation and amortization		(23,929	)		(20,331	)
Property and equipment, net	$	72,624		$	75,655

For the three months ended June 30, 2023 and 2022, depreciation and amortization expense was $1,776 and $1,773, respectively. For the six months ended June 30, 2023 and 2022, depreciation and amortization expense was $3,598 and $3,516, respectively.

Goodwill and Intangible Assets, Net

The Company tests its goodwill for impairment on an annual basis in the fourth quarter of each year for all of its reporting units, or more frequently if events or circumstances indicate a potential impairment. The Company manages its operations through an evaluation of three different operating segments: Cell Therapy, Degenerative Disease and BioBanking (see Note 14). The Company determined that the operating segments represented the reporting units. The Company has two reporting units with goodwill: Cell Therapy and Biobanking. Goodwill allocated to its third reporting unit, Degenerative Disease, was fully impaired during the fourth quarter of 2022.

During annual impairment tests and for any period in which the Company identifies an impairment trigger, the Company’s methodology includes internally generated separate cash flow projections for each reporting unit based on the different drivers that affect each reporting unit. The Company compares the fair values of each of its reporting units to their respective carrying amounts. If the carrying value of the reporting unit exceeds its estimated fair value, a goodwill impairment charge is recorded for the difference, with the impairment loss limited to the total amount of goodwill allocated to that reporting unit. The fair values of each of the Company's reporting units were derived using the income approach, specifically the discounted cash flow method. The use of a discounted cash flow analysis requires significant judgment to estimate the future cash flows and the period of time over which those cash flows will be realized, as well as to determine the appropriate discount rate. The discounted cash flow model reflects management's assumptions regarding revenue growth rates, risk-adjusted discount rates, terminal period growth rates, economic and market trends, and other expectations about the anticipated operating results of the Company's reporting units. As part of the goodwill impairment test, the Company also considers its market capitalization in assessing the reasonableness of the combined fair values estimated for its reporting units. Substantial changes in the cash flows assumptions of the different reporting units may lead to a future impairment or may alter the implied distribution of value between the different reporting units. A material decline in the Company’s stock price may affect the imputed discount rate and the distribution of value between the reporting units, which may also lead to a future impairment.

During the first quarter of 2023, as a result of a sustained decrease in its stock price and market capitalization, and its decision to cease recruitment in its GBM and HER2+ gastric trials, the Company tested for impairment due to these triggering events. Based on the results of the impairment analysis, the carrying value exceeded the fair value on the Cell Therapy reporting unit. The Company recognized a $29,633 goodwill impairment charge during the first quarter of 2023 in its condensed consolidated statements of operations.

During the second quarter of 2023, the Company’s stock price and market capitalization continued to decline, and the Company also determined to cease active recruitment in its AML trial and halted all NK programs. The AML trial was the Company’s most advanced clinical program with a relatively large addressable patient population given the high unmet medical need in relapsed and refractory AML. After the Company ceased recruitment, it removed all associated cash flows relating to that program including all other NK related programs as well. As a result of these triggering events, the Company fully impaired the IPR&D assets associated with these product candidates, and performed a goodwill impairment test on its Cell Therapy reporting unit. At June 30, 2023, the estimated fair value of the Cell Therapy reporting unit was determined to be at breakeven compared to the carrying value using a discount rate commensurate with the risks associated with the cash flows for preclinical product candidates. The Company also performed a reconciliation of the aggregate fair value of each reporting unit to the market capitalization of the Company. The analysis showed the fair value of the reporting units approximated our market capitalization, indicating an insignificant control premium. A future material impairment is likely to occur if there are future adverse events, including but not limited to, if the Company’s stock price and market capitalization continues to decline, if the Company concludes that additional programs in its Cell Therapy clinical pipeline will not have market potential or if the Company lowers future cash flow projections. At June 30, 2023, the estimated fair value of the Biobanking reporting unit was substantially in excess of its book value. The relative stability of the expected cash flows of the Biobanking reporting unit makes an impairment of goodwill in the future less likely. Based on the results of the impairment analysis, the Company did not recognize a goodwill impairment charge during the second quarter of 2023.

During the three and six months ended June 30, 2022, no goodwill impairment was recognized. Refer to below discussion on acquired IPR&D asset impairments.

The carrying values of goodwill assigned to the Company’s operating segments are as follows:


	Cell Therapy			Biobanking		Degenerative Disease		Total
Balance at December 31, 2022	$	112,347		$	7,347	$	-	$	119,694
Impairment(1)		(29,633	)		-		-		(29,633	)
Balance at June 30, 2023	$	82,714		$	7,347	$	-	$	90,061

(1) As of June 30, 2023 and December 31, 2022, the accumulated goodwill impairment for the Degenerative Disease reporting unit was $3,610 and for Cell Therapy the accumulated goodwill impairment was $29,633 and $0 as of June 30, 2023 and December 31, 2022, respectively.

Intangible Assets, Net

Intangible assets, net consisted of the following:


	June 30, 2023			December 31, 2022			Estimated Useful Lives
Amortizable intangible assets:
Developed technology	$	16,810		$	16,810		11-16 years
Customer relationships		2,413			2,413		10 years
Trade names & trademarks		570			570		10-13 years
Reacquired rights		4,200			4,200		6 years
		23,993			23,993
Less: Accumulated amortization
Developed technology		(7,131	)		(6,549	)
Customer relationships		(1,566	)		(1,435	)
Trade names & trademarks		(302	)		(275	)
Reacquired rights		(3,587	)		(3,240	)
		(12,586	)		(11,499	)
Amortizable intangible assets, net		11,407			12,494

Non-amortized intangible assets
Acquired IPR&D product rights		700			108,500		indefinite
	$	12,107		$	120,994

For the three months ended June 30, 2023 and 2022, amortization expense for intangible assets was $546 and $546, respectively. For the six months ended June 30, 2023 and 2022, amortization expense for intangible assets was $1,087 and $1,087, respectively.

During the three and six months ended June 30, 2023, the Company discontinued its unmodified NK cell and AML Cell Therapy clinical trials and as a result recorded an IPR&D impairment of $107,800 on its CYNK-001 and GMNK intangible assets acquired from the Anthrogenesis acquisition. During the three and six months ended June 30, 2022, no impairment charges were recorded on intangible assets.

Debt

Short-Term Debt - Yorkville

On September 15, 2022, the Company entered into a Pre-Paid Advance Agreement (the “PPA”) with YA II PN, Ltd. ("Yorkville"), pursuant to which the Company may request advances of up to $40,000 in cash from Yorkville (or such greater amount that the parties may mutually agree) (each, a “Pre-Paid Advance”) over an 18-month period, with an aggregate limitation of $150,000. Pre-Paid Advances are issued at a 2% discount, bear interest at an annual rate equal to 6% (increased to 15% in the event of default as described in the PPA) and may be offset by the issuance of shares of common stock, at Yorkville’s option, at a price per share calculated pursuant to the PPA, which in no event will be less than $0.75 per share. The issuance of the shares under the PPA is subject to certain limitations, including that the aggregate number of shares of common stock issued pursuant to the PPA cannot exceed 19.9% of the Company’s outstanding stock as of September 15, 2022, as well as a beneficial ownership limitation of 4.99%. Further, Yorkville agreed not to purchase any shares of common stock for 60 days following entry into the PPA, nor may Yorkville purchase more than $6,000 of shares of common stock during a 30-day period, in each case at a price per share less than the Fixed Price, as defined in the PPA. In the event the daily volume weighted average price ("VWAP") of the Class A common stock is below $0.75 (the "floor price") for any five of seven consecutive trading days, the Company will pay Yorkville a monthly cash payment of $6,000, plus any accrued and unpaid interest along with a 5.0% redemption premium until such time as the daily VWAP for five consecutive trading days immediately prior to the due date of the next monthly payment is at least 10% greater than $0.75.

On February 22, 2023, Yorkville provided notice to the Company that a "triggering event" under the terms of the PPA occurred on February 21, 2023 and approximately $6,500 was due to Yorkville consisting of principal, accrued interest, and redemption premium of 5% of the principal amount being paid (collectively the “repayment amount”). On March 24, 2023, the Company paid $1,950 of the repayment amount owed to Yorkville towards the first trigger payment. In April 2023, the Company and Yorkville agreed that Yorkville would not accelerate any amounts outstanding under the PPA provided that (i) the Company pays the remaining balance on the first trigger payment of approximately $4,600 within two business days of closing a financing transaction, but in any event no later than April 14, 2023; and (ii) the Company pays in full the payment due on the second trigger payment of approximately $6,500 within two business days of closing a financing transaction, but in any event no later than May 14, 2023. On April 11, 2023, the Company used the net proceeds of $5,500 from a registered direct offering to pay in full the remaining balance on the first trigger payment and approximately $900 was applied towards the second trigger payment. On May 16, 2023, the Company used the net proceeds from the RWI Bridge Loan (as defined below) to repay the remaining balance on the second trigger payment for approximately $5,600. Further, on June 21, 2023, the Company used the net proceeds from the Amended RWI Loan (as defined below) to repay $5,700 towards the third trigger payment at which point payments due under the triggering event were satisfied. During the six months ended June 30, 2023, total repayments to Yorkville were $18,724 which consisted of (i) $16,811 applied to the principal amount; (ii) $1,073 towards accrued interest; and (iii) $840 of redemption premium.

In connection with the Company's 2023 annual stockholder meeting held in June 2023, the Company and Yorkville agreed to lower the floor price to $0.50 (the "amended floor price"). The Company also received stockholder approval of the proposal for the issuance of more than 20% of its pre-transaction Class A common stock outstanding at a price below the minimum price pursuant to the PPA. Further, absent prior written consent from Yorkville, the Company agreed it will not increase the size or amount borrowed under the C.V. Starr loan facility nor will not incur other borrowings or liens of any kind as long as any amounts are due and remain outstanding to Yorkville until paid in full. The Company agreed that all obligations due and owing to Yorkville will become secured obligations upon any violation under the PPA. On August 2, 2023, Yorkville provided notice to the Company that a "triggering event" under the term of the PPA occurred on August 1, 2023. As of the issuance date the Company owes $6,340 including interest, which is past due. Refer to Note 16 for additional information regarding subsequent events.

In connection with the entry into the PPA, the Company received the initial Pre-Paid Advance of $40,000 gross or $39,200 net of discount. Each Pre-Paid Advance has a maturity of 12 months. Further Pre-Paid Advances will be based upon the mutual agreement of the parties. Direct costs and fees related to the PPA were recognized in earnings. At issuance, the Company concluded that certain features of the PPA would be considered a derivative that would require bifurcation. In lieu of bifurcation, the Company elected the fair value option for this financial instrument and will record changes in fair value within the statements of operations and comprehensive income (loss) at the end of each reporting period. Under the fair value option, upon derecognition the Company will include in net income the cumulative amount of the gain or loss on the debt that resulted from changes in instrument-specific credit risk.

During the six months ended June 30, 2023, Yorkville elected to convert $3,207 of principal and $303 of accrued interest into 4,036,966 shares of common stock and $162 was recognized in earnings from changes in instrument-specific credit risk. As of June 30, 2023, the fair value of the debt was $16,816 and the principal balance was $16,982. As of December 31, 2022, the fair value of the debt was $37,603 and the principal balance was $37,000. Refer to Note 3 for additional details regarding the fair value measurement.

Long-Term Debt – Senior Secured Bridge Loans

C.V. Starr & Co., Inc

On March 17, 2023, the Company entered into a loan agreement (the "Starr Bridge Loan") with C.V. Starr & Co., Inc. (“C.V. Starr”), a stockholder of the Company, for an aggregate principal amount of $5,000 net of an original issue discount of $100. The loan bears interest at a rate equal to 12.0% per year, with the first year of interest being paid in kind on the last day of each month, and matures on March 17, 2025. In addition, the parties entered into a warrant agreement to acquire up to an aggregate 750,000 shares of Class A common stock ("Starr Warrant"), at a purchase price of $0.125 per whole share underlying the Starr Warrant or $94. The Starr Warrant has a five-year term and an exercise price of $0.71 per share. In June 2023, the Company granted C.V. Starr additional warrants to acquire up to an aggregate 500,000 shares of its Class A common stock, which additional warrants have a 5-year term and an exercise price of $0.81 per share. The Company applied the guidance for this transaction in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815, Derivatives and Hedging. The net proceeds of the Starr Bridge Loan and Starr Warrants were recorded at fair value. The fair value of the Starr Warrants was determined using a Black-Scholes option pricing model. The Starr Warrants met the requirements for a derivative scope exception under ASC 815-10-15-74(a) for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity. The carrying amount of the Starr Bridge Loan was deemed to approximate fair value. The original issue discount is being amortized over the term of the Starr Bridge Loan. As of June 30, 2023, the carrying value of Starr Bridge Loan inclusive of accrued interest is $4,910 on the condensed consolidated balance sheets.

Under the terms of the Starr Bridge Loan, the Company agreed to customary negative covenants restricting its ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any of the Company’s assets, other than as permitted, or hold cash and cash equivalents less than $3,000 for more than five consecutive business days. In addition to the negative covenants in the Starr Bridge Loan, the Starr Bridge Loan includes customary events of default and the Company granted C.V. Starr a senior security interest in all of its assets, pari passu with RWI (as defined below).

Resorts World Inc Pte Ltd

On May 16, 2023, with written consent provided by Yorkville, the Company entered into a senior secured loan agreement ("RWI Bridge Loan") with Resorts World Inc Pte Ltd, ("RWI") providing for an initial loan in the aggregate principal amount of $6,000 net of an original issue discount of $120, which bears interest at a rate of 12.5% per year, with the first year of interest being paid in kind on the last day of each month, and matured on June 14, 2023. On June 21, 2023, the Company closed on an amended and restated senior secured loan agreement ("Amended RWI Loan"), to amend and restate the previous senior secured loan agreement, in its entirety. The Amended RWI Loan provided for an additional loan in the aggregate principal amount of $6,000 net of an original issue discount of $678, which bears interest at a rate of 12.5% per year, with the first year of interest being paid in kind on the last day of each month, and matures March 17, 2025. The Amended RWI Loan extended the maturity date of the initial loan to March 17, 2025. In addition, the Amended RWI Loan provided for the issuance of warrants to acquire up to an aggregate of 3,000,000 shares of the Company's Class A common stock ("RWI Warrants"), at a purchase price of $0.125 per whole share underlying the RWI Warrant (or an aggregate purchase price of $375). The RWI Warrant has a 5-year term and an exercise price of $0.81 per share.

The Company applied the guidance for this transaction in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815, Derivatives and Hedging. The net proceeds of the Amended RWI Loan and RWI Warrants were recorded at fair value, which resulted in a total discount of $2,151 based on the difference between the proceeds and fair value which were recorded as a loss within other income (expense) on the condensed consolidated statements of operations. The fair value of the RWI Warrants was determined using a Black-Scholes option pricing model. The RWI Warrants met the requirements for a derivative scope exception under ASC 815-10-15-74(a) for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity. The carrying amount of the Amended RWI Loan was deemed to approximate fair value. As of June 30, 2023, the carrying value of Amended RWI Loan inclusive of accrued interest is $12,117 on the condensed consolidated balance sheets.

Pursuant to the terms of the Amended RWI Loan, the Company was required to apply the net proceeds to the trigger payments due to Yorkville pursuant to the PPA. RWI is affiliated with Lim Kok Thay, a member of the Company's board of directors. In addition, the Company agreed to customary negative covenants restricting its ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any of its assets, other than as permitted, or hold cash and cash equivalents less than $3,000 for more than five consecutive business days, and includes customary events of default. The Company granted RWI a senior security interest in all of its assets, pari passu with C.V. Starr pursuant to the Starr Bridge Loan.

Leases

Lease Agreements

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The Company’s lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. In determining the present value of lease payments, the Company uses its incremental borrowing rate based on the information available at the lease commencement date to determine the appropriate discount rate by multiple asset classes. Variable lease payments that are not based on an index or that result from changes to an index subsequent to the initial measurement of the corresponding lease liability are not included in the measurement of lease ROU assets or liabilities and instead are recognized in earnings in the period in which the obligation for those payments is incurred. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise any such options. Lease expense is recognized on a straight‐line basis over the expected lease term. Rent expense was $909 and $940 for the three months ended June 30, 2023 and 2022, respectively. Rent expense was $1,893 and $1,923 for the six months ended June 30, 2023 and 2022, respectively.

On March 13, 2019, Legacy Celularity entered into a lease agreement for a 147,215 square foot facility consisting of office, manufacturing and laboratory space in Florham Park, New Jersey, which expires in 2036. The Company has the option to renew the term of the lease for two additional five-year terms so long as the lease is then in full force and effect. The lease term commenced on March 1, 2020 subject to an abatement of the fixed rent for the first 13 months following the lease commencement date. The initial monthly base rent is approximately $230 and will increase annually. The Company is obligated to pay real estate taxes and costs related to the premises, including costs of operations, maintenance, repair, replacement and management of the new leased premises. In connection with entering into this lease agreement, Legacy Celularity issued a letter of credit of $14,722 which is classified as restricted cash (non-current) on the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022. The lease agreement allows for a landlord provided tenant improvement allowance of $14,722 to be applied to the costs of the construction of the leasehold improvements.

The components of the Company’s lease costs are classified on its condensed consolidated statements of operations as follows:


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Operating lease cost	$	760	$	759	$	1,519	$	1,519
Variable lease cost		286		367		591		692
Total operating lease cost	$	1,046	$	1,126	$	2,110	$	2,211
Short term lease cost	$	-	$	34	$	-	$	80

The table below shows the cash and non-cash activity related to the Company’s lease liabilities during the period:


	For the Six Months Ended June 30,
	2023		2022
Cash paid related to lease liabilities:
Operating cash flows from operating leases	$	1,441	$	1,417

Non-cash lease liability activity:
Right-of-use assets obtained in exchange for lease obligations - operating leases	$	-	$	-

As of June 30, 2023, the maturities of the Company’s operating lease liabilities were as follows:


2023 (remaining six months)	$	1,454
2024		2,969
2025		3,042
2026		3,116
2027		3,190
Thereafter		70,341
Total lease payments		84,112
Less imputed interest		(56,010	)
Total	$	28,102

As of June 30, 2023, the weighted average remaining lease term of the Company’s operating lease was 22.8 years, and the weighted average discount rate used to determine the lease liability for the operating lease was 11.12%.

Commitments and Contingencies

Contingent Consideration Related to Business Combinations

In connection with the Company's acquisition of HLI Cellular Therapeutics, LLC and Anthrogenesis, the Company has agreed to pay future consideration to the sellers upon the achievement of certain regulatory and commercial milestones. As a result, the Company recorded $1,606 and $105,945 as contingent consideration as of June 30, 2023 and December 31, 2022, respectively. During 2023, the Company discontinued its unmodified NK cell and AML Cell Therapy clinical trials subject to the contingent consideration agreement under the Anthrogenesis acquisition, and as a result the fair value of the contingent consideration obligation has decreased significantly as of June 30, 2023. Due to the contingent nature of these milestone and royalty payments, there is a high degree of management estimates that determine the fair value of the contingent consideration. See Note 3 for further discussion.

Indemnification Agreements

In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and its executive officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited. To date, the Company has not incurred any material costs as a result of such indemnifications. The Company is not currently aware of any indemnification claims and has not accrued any liabilities related to such obligations in its condensed consolidated financial statements as of June 30, 2023 or December 31, 2022.

Agreement with Palantir Technologies Inc.

On May 5, 2021, Legacy Celularity executed a Master Subscription Agreement with Palantir under which it will pay $40,000 over five years for access to Palantir’s Foundry platform along with certain professional services. The Company intended to utilize Palantir’s Foundry platform to secure deeper insights into data obtained from the Company’s discovery and process development, as well as manufacturing and biorepository operations. In January 2023, the Company ceased use of the software and provided a notice of dispute to Palantir on the basis that the software has not performed as promised and that Palantir has failed to provide the Company with the professional services necessary to successfully implement, integrate and enable the Foundry platform. As a result, in accordance with ASC 420 Exit or Disposal Costs, during the six months ended June 30, 2023, the Company recognized the remaining related cease-use costs and liability estimated based on the discounted future cash flows of contract payments for $23,918 which is included as software cease-use costs in the condensed consolidated statements of operations. The Company has both a current and noncurrent liability for accrued R&D software on the condensed consolidated balance sheets for a total liability of $31,250 and $7,333 as of June 30, 2023 and December 31, 2022, respectively. For the six months ended June 30, 2022, the Company recorded $4,000, which was on a straight-line basis, which was included as a component of research and development expense in the condensed consolidated statements of operations. Palantir has filed to compel arbitration of this dispute. See further discussion below.

Sirion License Agreement

In December 2021, the Company entered into a license agreement (“Sirion License”) with Sirion Biotech GmbH (“Sirion”). Under the Sirion License, Sirion granted the Company a license related to patent rights and know-how associated with poloxamers (“Licensed Product”). As part of the Sirion License, the Company paid Sirion $136 as an upfront fee, a $113 annual maintenance fee and may owe up to $5,099 related to clinical and regulatory milestones for each Licensed Product during the term. The Company also agreed to pay Sirion low-single digit royalties on net sales on a Licensed Product-by-Licensed Product and country-by-country basis and until the later of: (i) expiration of the last to expire valid claim of the patents covering such Licensed Product, and (ii) 10 years after first Commercial Sale of a Licensed Product. In addition, the Sirion License is subject to termination rights including for termination for material breach and by the Company for convenience upon 30 days written notice. During the six months ended June 30, 2023, no milestones have been achieved.

Legal Proceedings

At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings.

Arbitration Demand from Palantir Technologies Inc.

On April 20, 2023, Palantir Technologies Inc. ("Palantir"), commenced an arbitration with JAMS Arbitration asserting claims for declaratory relief and breach of contract relating to the May 5, 2021 Master Service Agreement (the "Palantir MSA"), seeking damages in an amount equal to the full value of the contract. The Company has responded to the arbitration demand and asserted counterclaims for breach of contract, breach of warranty, fraudulent inducement, violation of California’s Unfair Competition Law, amongst others, in relation to the Palantir MSA. While the Company believes that Palantir’s claims are without merit and intends to vigorously defend against those claims, there can be no assurance as to the outcome of the arbitration.

Celularity Inc. v. Evolution Biologyx, LLC, et al.

On April 17, 2023, the Company filed a complaint against Evolution Biologyx, LLC, Saleem S. Saab, individually, and Encyte, LLC (collectively, “Evolution”) in the United States District Court for the District of New Jersey to recover unpaid invoice amounts for the sale of its biomaterial products in the amount of approximately $2.35 million, plus interest. In September 2021, the Company executed a distribution agreement with Evolution, whereupon Evolution purchased biomaterial products from the Company for sale through Evolution’s distribution channels. The Company fulfilled Evolution’s orders and otherwise performed each of its obligations under the distribution agreement. Despite attempts to recover the outstanding invoices and Evolution’s promise to pay, Evolution has refused to pay any of the invoices and has materially breached its obligations under the distribution agreement. The Company’s complaint asserts claims of breach of contract and fraudulent inducement, amongst others. The Company intends to vigorously pursue the matter to recover the outstanding payments owed by Evolution, as well as interest and reasonable attorney's fees, but there can be no assurance as to the outcome of the litigation.

Civil Investigative Demand

The Company received a Civil Investigative Demand (the “Demand”) under the False Claims Act, 31 U.S.C. § 3729, dated August 14, 2022, from the U.S. Attorney’s Office for the Eastern District of Pennsylvania. The Demand requests documents and information relating to claims submitted to Medicare, Medicaid, or other federal insurers for services or procedures involving injectable human tissue therapy products derived from amniotic fluid or birth tissue and includes Interfyl. The Company is cooperating with the request and is engaged in an ongoing dialogue with the Assistant U.S. Attorneys handling the Demand. The matter is still in preliminary stages and there is uncertainty as to whether the Demand will result in any liability.

10.

Equity

Common Stock

As of June 30, 2023 and December 31, 2022, the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue 730,000,000 shares of $0.0001 par value Class A common stock.

Voting Power

Except as otherwise required by law or as otherwise provided in any certificate of designation for any series of preferred stock, the holders of common stock possess all voting power for the election of the Company’s directors and all other matters requiring stockholder action. Holders of common stock are entitled to one vote per share on matters to be voted on by stockholders.

Dividends

Holders of Class A common stock will be entitled to receive such dividends, if any, as may be declared from time to time by the Company’s board of directors in its discretion out of funds legally available therefor. In no event will any stock dividends or stock splits or combinations of stock be declared or made on common stock unless the shares of common stock at the time outstanding are treated equally and identically.

Liquidation, Dissolution and Winding Up

In the event of the Company’s voluntary or involuntary liquidation, dissolution, distribution of assets or winding-up, the holders of the common stock will be entitled to receive an equal amount per share of all of the Company’s assets of whatever kind available for distribution to stockholders, after the rights of the holders of the preferred stock have been satisfied.

Preemptive or Other Rights

The Company’s stockholders have no preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to common stock.

Election of Directors

The Company’s board of directors is divided into three classes, Class I, Class II and Class III, with only one class of directors being elected in each year and each class serving a three-year term, except with respect to the election of directors at the special meeting held in connection with the merger with GX, Class I directors are elected to an initial one-year term (and three-year terms subsequently), the Class II directors are elected to an initial two-year term (and three-year terms subsequently) and the Class III directors are elected to an initial three-year term (and three-year terms subsequently). There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.

Preferred Stock

The Company’s certificate of incorporation authorized 10,000,000 shares of preferred stock and provides that shares of preferred stock may be issued from time to time in one or more series. The Company’s board of directors is authorized to fix the voting rights, if any, designations, powers and preferences, the relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series of preferred stock. The Company’s board of directors is able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of common stock and could have anti-takeover effects. The ability of the Company’s board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control of Celularity or the removal of existing management. As of June 30, 2023 and December 31, 2022, the Company does not have any outstanding preferred stock.

May 2022 PIPE

On May 18, 2022, the Company entered into a securities purchase agreement with an institutional accredited investor providing for the private placement of (i) 4,054,055 shares of Class A common stock and (ii) accompanying warrants to purchase up to 4,054,055 shares of Class A common stock (the “May 2022 PIPE Warrants”), for $7.40 per share and accompanying warrant, or an aggregate purchase price of approximately $30,000 gross, or $27,396 net of related costs of $2,604 which were recorded as a reduction to additional paid-in-capital. The net proceeds were allocated to the warrant liability as noted below with the remainder of $7,651 recorded in additional paid-in capital. Each warrant has an exercise price of $8.25 per share, is immediately exercisable, will expire on May 20, 2027 (five years from the date of issuance) (the “May 2022 PIPE Financing”). The closing of the May 2022 PIPE Financing occurred on May 20, 2022. In the event of certain fundamental transactions involving the Company, the holders of May 2022 PIPE Warrants may require the Company to make a payment based on a Black-Scholes valuation, using specified inputs that are not considered indexed to the Company’s stock in accordance with ASC 815. Therefore, the Company accounted for the May 2022 PIPE Warrants as liabilities and were recorded at the Closing Date fair value $19,745 which was based on a Black-Scholes option pricing model. The remainder of the proceeds were allocated to the Class A common stock issued and recorded as a component of equity.

On April 10, 2023, upon the closing of a registered direct offering (see further discussion below), the Company amended the existing May 2022 PIPE Warrants, to reduce the exercise price from $7.40 to $0.75 per share and extended the expiration date to five and one-half years following the closing of the offering or October 10, 2028. The modification resulted in the recognition of additional

warrant liability of $1,389 based on the Black-Scholes option pricing model as of the modification date. A further modification occurred in connection with the July 2023 registered direct offering disclosed in Note 16 Subsequent Events.

ATM Agreement

On September 8, 2022, the Company entered into an At-the-Market Sales Agreement (the “ATM Agreement”) with BTIG, LLC, Oppenheimer & Co. Inc. and B. Riley Securities, Inc., acting as sales agents and/or principals, pursuant to which the Company may offer and sell, from time to time in its sole discretion, shares of its common stock, having an aggregate offering price of up to $150,000, subject to certain limitations as set forth in the ATM Agreement. The Company is not obligated to make any sales of shares under the ATM Agreement.

Any shares offered and sold in the at-the-market offering will be issued pursuant to the Company’s effective shelf registration statement on Form S-3 and the related prospectus supplement. Under the ATM Agreement, the sales agents may sell shares of common stock by any method permitted by law deemed to be an “at the market offering” as defined in Rule 415(a)(4) of the Securities Act of 1933, as amended. The Company will pay the sales agents a commission rate of up to 3% of the gross sales proceeds of any shares sold and has agreed to provide the sales agents with customary indemnification, contribution and reimbursement rights. The ATM Agreement contains customary representations and warranties and conditions to the placements of the shares pursuant thereto.

During the six months ended June 30, 2023, the Company received gross and net proceeds of $141 and $136, respectively, from the sale of 132,958 shares of its common stock at an average price of $1.06 per share under the ATM Agreement.

March 2023 PIPE

On March 20, 2023, the Company entered into a securities purchase agreement with two accredited investors, including its Chairman and Chief Executive Officer, Dr. Robert Hariri, providing for the private placement of (i) 9,381,841 shares of its Class A common stock, and (ii) accompanying warrants to purchase up to 9,381,841 shares of Class A common stock (the "March 2023 PIPE Warrants"), for $0.8343 per share and $0.125 per accompanying March 2023 PIPE Warrant, for an aggregate purchase price of $9,000 (of which Dr. Hariri subscribed for $2,000). The closing of the private placement occurred on March 27, 2023. Each March 2023 PIPE Warrant has an exercise price of $3.00 per share, is immediately exercisable, will expire on March 27, 2028 (five years from the date of issuance), and is subject to customary adjustments for certain transactions affecting the Company's capitalization. The March 2023 PIPE Warrants may not be exercised if the aggregate number of shares of Class A common stock beneficially owned by the holder thereof (together with its affiliates) would exceed the specified percentage cap provided therein (which may be adjusted upon 61 days advance notice) immediately after exercise thereof.

The Company accounted for the March 2023 PIPE Warrants and common stock as a single non-arm's length transaction. The Company applied the guidance for this transaction in accordance with ASU 2020-06, (Subtopic 470-20): Debt - Debt with Conversion and Other Options, ASC 815 Derivatives and Hedging, and ASC 480 Distinguishing Liabilities from Equity. Accordingly, the net proceeds were allocated between common stock and the March 2023 PIPE warrants at their respective fair value, which resulted in a net premium of $1,650 based on the difference between the proceeds and fair value of the common stock and March 2023 PIPE warrants, which was recorded as additional paid-in capital within stockholders' equity on the condensed consolidated balance sheets. The fair value of the March 2023 PIPE Warrants was determined using a Black-Scholes option pricing model and the common stock based on closing date share price. The Company evaluated the March 2023 PIPE warrants under ASC 815 and determined that they did not require liability classification and met the requirements for a derivative scope exception under ASC 815-10-15-74(a) for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity. The warrants were recorded in additional paid-in capital within stockholders' equity on the condensed consolidated balance sheets.

Registered Direct Offering

On April 10, 2023, the Company closed on a registered direct offering of 9,230,770 shares of its Class A common stock together with warrants ("Registered Direct Warrants") to purchase up to 9,230,770 shares of its Class A common stock at a combined purchase price of $0.65 per share and accompanying warrant, resulting in total gross proceeds of approximately $6,000 before deducting placement agent commissions and other estimated offering expenses. The Registered Direct Warrants have an exercise price of $0.75, will be exercisable beginning six months after the date of issuance and will expire five years thereafter. The Company used the $5,505 net proceeds from the offering to repay its obligations to Yorkville under the PPA. The Company considered the appropriate accounting guidance and concluded that the Registered Direct Warrants qualified for liability treatment, and therefore, recorded the warrant liability at fair value $4,280 which was based on a Black-Scholes option pricing model. The remainder of the net proceeds were allocated to the Class A common stock issued and recorded as a component of equity.

May 2023 PIPE

On May 18, 2023, the Company closed on a securities purchase agreement with a group of accredited investors, providing for the private placement of an aggregate (i) 5,813,945 shares of its Class A common stock and (ii) accompanying warrants to purchase up to 5,813,945 shares of Class A common stock (the “May 2023 PIPE Warrants”), for $0.52 per share and $0.125 per accompanying May 2023 PIPE Warrant, for an aggregate gross purchase price of $3,750. Each May 2023 PIPE Warrant has an exercise price of $1.00 per share, is immediately exercisable, will expire on May 18, 2028 (five years from the date of issuance), and is subject to customary adjustments for certain transactions affecting the Company’s capitalization. The May 2023 PIPE Warrants may not be exercised if the aggregate number of shares of Class A common stock beneficially owned by the holder thereof (together with its affiliates) would exceed the specified percentage cap provided therein (which may be adjusted upon 61 days advance notice) immediately after exercise thereof. The Company evaluated the May 2023 PIPE Warrants under ASC 815 and determined that they did not require liability classification and met the requirements for a derivative scope exception under ASC 815-10-15-74(a) for instruments that are both indexed to an entity’s own stock and classified in stockholders’ equity. Accordingly, the proceeds were allocated between common stock and the May 2023 PIPE Warrants at their respective relative fair value basis to stockholders’ equity on the condensed consolidated balance sheets. The fair value of the May 2023 PIPE Warrants was determined using a Black-Scholes option pricing model and the common stock based on the closing date share price and were recorded in additional paid-in capital within stockholders' equity on the condensed consolidated balance sheets. A partial modification occurred on the May 2023 PIPE warrants in connection with the July 2023 registered direct offering disclosed in Note 16 Subsequent Events.

Warrants

On March 1, 2022, Celularity and certain of the related party investors amended and restated the investors’ respective Legacy Celularity Warrants (the “A&R Warrants”) to (i) reduce the exercise price per share from $7.53 per share to $3.50 per share, subject to adjustment as set forth in the A&R Warrants, (ii) remove the transfer restrictions set forth in the A&R Warrants, and (iii) make other changes reflecting the impact of the business combination. In conjunction with the amendment, those investors exercised 13,281,386 of the A&R Warrants in exchange for 13,281,386 shares of Class A common stock for gross proceeds of $46,485. The Company accounted for the amendment as a cost to issue equity with the incremental fair value of $15,985 related to the amendment recognized as an offset to the proceeds received. However, because these were equity classified warrants, the net impact to the condensed consolidated statements of stockholders’ equity was zero.

As of June 30, 2023, the Company had 62,134,916 outstanding warrants to purchase Class A common stock. A summary of the warrants is as follows:


	Number of shares		Exercise price		Expiration date
Dragasac Warrant		6,529,818	$	6.77	March 16, 2025
Public Warrants		14,374,488	$	11.50	July 16, 2026
Sponsor Warrants		8,499,999	$	11.50	July 16, 2026
May 2022 PIPE Warrants		4,054,055	$	0.75	October 10, 2028
March 2023 PIPE Warrants		9,381,841	$	3.00	March 27, 2028
March 2023 Loan Warrants		750,000	$	0.71	March 17, 2028
April 2023 Registered Direct Warrants		9,230,770	$	0.75	October 10, 2028
May 2023 PIPE Warrants		5,813,945	$	1.00	May 17, 2028
June 2023 Warrants		500,000	$	0.81	June 20, 2028
June 2023 Loan Warrants		3,000,000	$	0.81	June 20, 2028
		62,134,916

Delaware Section 205 Proceeding

On July 14, 2021, Celularity, then operating as GX Acquisition Corp. (“Pre-Merger Company”), held a special meeting of stockholders (the “Special Meeting”) to approve certain matters related to the business combination between the Pre-Merger Company and Celularity Operations, Inc. (“Legacy Celularity”), including a proposal to adopt a certificate of amendment to the Pre-Merger Company’s amended and restated certificate of incorporation (the “Pre-Merger Charter”) to increase the number of authorized shares of its common stock from 110,000,000 to 730,000,000 (the "Increase Amendment”). The Increase Amendment received approval from the holders of a majority of the Pre-Merger Company’s outstanding shares of Class A common stock and Class B common stock, voting together as a single class, that were outstanding as of the record date for such Special Meeting. Following the Special Meeting, the business combination closed, the Pre-Merger Company changed its name to “Celularity Inc.” and the Pre-Merger Charter, as amended to give effect to the Authorized Share Amendment (the “New Charter”), became effective.

A recent decision by the Court of Chancery of the State of Delaware (the “Court”) in Garfield v. Boxed, Inc., 2022 WL 17959766 (Del. Ch. Dec. 27, 2022), created uncertainty as to whether Section 242(b)(2) of the Delaware General Corporation Law (“DGCL”) would have required the Celularity to seek and obtain a vote of a majority of the shares of Class A common stock to approve the Increase Amendment to the Pre-Merger Charter. Thus, to resolve any potential uncertainty, on March 14, 2023, Celularity filed a petition (the

“Petition”) in the Court under Section 205 of the DGCL seeking validation and a declaration of effectiveness of the New Charter and actions taken in reliance thereon, including the Increase Amendment and the shares issued pursuant thereto, captioned In re Celularity, Inc., C.A. No. 2023-0317-LWW (Del. Ch.) (the “Section 205 Action”). Section 205 of the DGCL permits the Court, in its discretion, to ratify and validate potentially validate corporate acts and stock after considering a variety of factors.

On March 29, 2023, the Court of Chancery held a hearing in the Section 205 Action and orally granted the Petition, and, later that same day, the Court issued an order in the Section 205 Action, in which it validated and declared effective the Increase Amendment and the Certificate of Incorporation as of 10:00 a.m. (EDT) on July 16, 2021, and all shares of capital stock of the Company issued in reliance on the effectiveness of the Increase Amendment and the Certificate of Incorporation as of the date and time of the original issuance of such shares. The Courts order has addressed and eliminated the uncertainty created by the Garfield Court’s decision.

11.

Stock-Based Compensation

2021 Equity Incentive Plan

In July 2021, the Company’s board of directors adopted, and the Company’s stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan provides for the grant of incentive stock options (“ISOs”) to employees and for the grant of nonstatutory stock options (“NSOs”), stock appreciation rights, restricted stock awards, restricted stock unit awards, performance awards and other forms of stock awards to employees, directors and consultants.

The number of shares of Class A common stock initially reserved for issuance under the 2021 Plan is 20,915,283. As of June 30, 2023, 14,808,089 shares remain available for future grant under the 2021 Plan. The number of shares reserved for issuance will automatically increase on January 1 of each year, for a period of 10 years, from January 1, 2022 through January 1, 2031, by 4% of the total number of shares of Celularity capital stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s board of directors. Shares subject to stock awards granted under the 2021 Plan that expire or terminate without being exercised in full, or that are paid out in cash rather than in shares, will not reduce the number of shares available for issuance under the 2021 Plan. Additionally, shares issued pursuant to stock awards under the 2021 Plan that are repurchased or forfeited, as well as shares that are reacquired as consideration for the exercise or purchase price of a stock award or to satisfy tax withholding obligations related to a stock award, will become available for future grant under the 2021 Plan.

The 2021 Plan is administered by the Company’s board of directors. The Company’s board of directors, or a duly authorized committee thereof, may delegate to one or more officers the authority to (i) designate employees other than officers to receive specified stock awards and (ii) determine the number of shares to be subject to such stock awards. Subject to the terms of the 2021 Plan, the plan administrator has the authority to determine the terms of awards, including recipients, the exercise price or strike price of stock awards, if any, the number of shares subject to each stock award, the fair market value of a share, the vesting schedule applicable to the awards, together with any vesting acceleration, the form of consideration, if any, payable upon exercise or settlement of the stock award and the terms and conditions of the award agreements for use under the 2021 Plan. The plan administrator has the power to modify outstanding awards under the 2021 Plan. Subject to the terms of the 2021 Plan and in connection with a corporate transaction or capitalization adjustment, the plan administrator may not reprice or cancel and regrant any award at a lower exercise price, strike price or purchase price or cancel any award with an exercise price, strike price or purchase price in exchange for cash, property or other awards without first obtaining the approval of the Company’s stockholders.

2017 Equity Incentive Plan

The 2017 Equity Incentive Plan (the “2017 Plan”) adopted by Legacy Celularity’s board of directors and approved by Legacy Celularity’s stockholders provided for Legacy Celularity to grant stock options to employees, directors and consultants of Legacy Celularity. In connection with the closing of the Business Combination and effectiveness of the 2021 Plan, no further grants will be made under the 2017 Plan.

The total number of stock options that could have been issued under the 2017 Plan was 32,342,049. Shares that expired, forfeited, canceled or otherwise terminated without having been fully exercised were available for future grant under the 2017 Plan.

The 2017 Plan is administered by the Company’s board of directors or, at the discretion of the Company’s board of directors, by a committee of the board of directors. The exercise prices, vesting and other restrictions were determined at the discretion of Legacy Celularity’s board of directors, or its committee if so delegated, except that the exercise price per share of stock options could not be less than 100% of the fair market value of the share of common stock on the date of grant and the term of stock option could not be greater than ten years. Stock options granted to employees, officers, members of the board of directors and consultants typically vested over a three or four year period.

Stock Option Valuation

Awards with Service Conditions

The fair value of each option is estimated on the date of grant using a Black-Scholes option pricing model that takes into account inputs such as the exercise price, the estimated fair value of the underlying common stock at grant date, expected term, expected stock price volatility, risk-free interest rate, and dividend yield. The fair value of each grant of stock options was determined by the Company using the methods and assumptions discussed below. Certain of these inputs are subjective and generally required judgment to determine.

•

The expected term of employee stock options with service-based vesting is determined using the “simplified” method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data. The expected term of non-employee options is equal to the contractual term or estimated term based on the underlying agreement.

•

The expected stock price volatility is based on historical volatilities of comparable public entities within the Company’s industry.

•

The risk-free interest rate is based on the interest rate payable on U.S. Treasury securities in effect at the time of grant for a period that is commensurate with the respective expected term or contractual term.

•

The expected dividend yield is 0% because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock.

The following table presents, on a weighted average basis, the assumptions used in the Black-Scholes option-pricing model to determine the grant-date fair value of stock options granted during the six months ended June 30, 2023:


Risk-free interest rate	4.0	%
Expected term (in years)	5.5
Expected volatility	85.2	%
Expected dividend yield	0	%

The weighted average grant-date fair value per share of stock options granted during the six months ended June 30, 2023 and 2022 was $0.54 and $6.23, respectively.

The following table summarizes option activity with service conditions under the 2021 Plan and the 2017 Plan:


	Options			Weighted average exercise price		Weighted average contract term (years)		Aggregate intrinsic value
Outstanding at January 1, 2023		25,059,409		$	4.90		6.1	$	7,851
Granted		2,222,224			0.75
Exercised		(1,086,371	)		0.28
Forfeited		(717,370	)		6.32
Outstanding at June 30, 2023		25,477,892		$	4.65		6.1	$	1,690
Vested and expected to vest June 30, 2023		25,477,892		$	4.65		6.1	$	1,690
Exercisable at June 30, 2023		20,452,090		$	4.55		5.4	$	1,690

The aggregate intrinsic value of options is calculated as the difference between the exercise price of the stock options and the fair value of Class A common stock for those options that had exercise prices lower than the fair value of Class A common stock.

During the six months ended June 30, 2023, the aggregate intrinsic value was $488 for the stock options exercised.

The Company recorded stock-based compensation expense relating to option awards with service conditions of $2,285 and $4,697 for the three and six months ended June 30, 2023, respectively. The Company recorded stock-based compensation expense relating to option awards with service conditions of $2,754 and $4,322 for the three and six months ended June 30, 2022, respectively. As of June 30, 2023, unrecognized compensation cost for options issued with service conditions was $17,554, and will be recognized over an estimated weighted-average amortization period of 1.72 years.

Awards with Market Conditions

In September 2021, the Company awarded options to acquire a total of 2,469,282 shares with an exercise price of $6.32 to the Company’s former President in connection with the commencement of his employment. The grant was comprised of four equal tranches, and would vest in up to five equal installments in respect of achieving certain share price targets between the third and fourth anniversary of the effective date, subject to his continued employment with the Company. The Company’s President resigned effective August 31, 2022, and the President’s award was terminated at such time, all previously recognized stock-based compensation expense was reversed,

and a consulting agreement was signed thereafter, refer to Note 15 for further details. The Company recognized $437 and $869 in stock-based compensation for the three and six months ended June 30, 2022.

Awards with Performance Conditions

In connection with the advisory agreement signed with Robin L. Smith, MD (see Note 15), the Company awarded options to acquire a total of 1,050,000 shares with an exercise price of $2.99 to Dr. Smith, a member of the Company’s board of directors. The initial tranche of 250,000 stock options vested upon execution of the advisory agreement on August 16, 2022. The remaining 800,000 stock options are subject to vesting upon achievement of certain predefined milestones in relation to the expansion of the degenerative disease business. On November 1, 2022, the second tranche of 200,000 stock options vested upon achievement of the first milestone. The fair value of the award was determined based on a Black-Scholes option-pricing model. The Company's grant date fair value assumptions were 79.9% expected volatility, 2.95% risk-free interest rate, 5 year expected term, and 0% expected dividend yield. There were no milestones achieved and accordingly there was no stock-based compensation recorded during the three and six months ended June 30, 2023. As of June 30, 2023, the remaining unrecognized compensation cost was $1,175, and will be recognized upon probable achievement of the milestones.

Restricted Stock Units

The Company issues restricted stock units (“RSUs”) to employees that generally vest over a four-year period, with 25% vesting on the anniversary of the grant date, and the remainder vesting in equal annual installments thereafter so that vested in full on the four-year anniversary of the grant date. At times, the board of directors may approve exceptions to the standard RSU vesting terms. Any unvested shares will be forfeited upon termination of services. The fair value of an RSU is equal to the fair market value price of the Company’s common stock on the date of grant. RSU expense is amortized straight-line over the vesting period.

The following table summarizes activity related to RSU stock-based payment awards:


	Number of Shares			Weighted Average Grant Date Fair Value
Outstanding at January 1, 2023		2,274,029		$	7.34
Granted		5,717,268		$	0.72
Vested		(645,172	)	$	6.71
Forfeited		(1,109,158	)	$	3.50
Outstanding at June 30, 2023		6,236,967		$	2.01

The Company recorded stock-based compensation expense of $1,571 and $3,147 for the three and six months ended June 30, 2023, respectively, related to RSUs. The Company recorded stock-based compensation expense of $1,340 and $1,760 for the three and six months ended June 30, 2022, respectively, related to RSUs. As of June 30, 2023, the total unrecognized expense related to all RSUs was $10,381, which the Company expects to recognize over a weighted-average period of 1.34 years.

Stock-Based Compensation Expense

The Company recorded stock-based compensation expense in the following expense categories of its condensed consolidated statements of operations:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	132	$	131	$	296	$	168
Research and development		447		741		1,005		989
Selling, general and administrative		3,277		3,657		6,543		5,794
	$	3,856	$	4,529	$	7,844	$	6,951

12.

Revenue Recognition

The following table provides information about disaggregated revenue by product and services:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Product sales and rentals, net	$	906	$	1,228	$	1,949	$	1,879
Processing and storage fees, net		1,278		1,373		2,635		2,656
License, royalty and other		754		1,175		2,289		5,176
Net revenue	$	2,938	$	3,776	$	6,873	$	9,711

The following table provides changes in deferred revenue from contract liabilities:


	2023			2022
Balance at January 1	$	4,492		$	4,067
Deferral of revenue*		2,438			2,397
Recognition of unearned revenue		(2,263	)		(2,235	)
Balance at June 30	$	4,667		$	4,229

* Deferral of revenue resulted from payments received in advance of performance under the biobanking services storage contracts that are recognized as revenue under the contract as performance is completed.

13.

License and Distribution Agreements

Sorrento Therapeutics, Inc. License and Transfer Agreement

The Company and Sorrento Therapeutics, Inc. ("Sorrento"), a related party, are party to a License and Transfer Agreement for the exclusive worldwide license to CD19 CAR-T constructs for use in placenta-derived cells and/or cord blood-derived cells for the treatment of any disease or disorder (the “2020 Sorrento License Agreement”). The Company retains the right to sublicense the rights granted under the agreement with Sorrento’s prior written consent. As consideration for the license, the Company is obligated to pay Sorrento a royalty equal to low single-digit percentage of net sales (as defined within the agreement) and a royalty equal to low double-digit percentage of all sublicensing revenues (as defined within the agreement). The 2020 Sorrento License Agreement will remain in effect until terminated by either the Company or Sorrento for uncured material breach upon 90 days written notice or, after the first anniversary of the effective date of the 2020 Sorrento License Agreement, by the Company for convenience upon six months’ written notice to Sorrento.

The Company and Sorrento are actively negotiating a new supply agreement related to the 2020 Sorrento License Agreement. The 2020 Sorrento Term Sheet details certain aspects of this supply agreement, including pricing terms on material and/or licensed product supplied under the 2020 Sorrento License Agreement. The Company did not incur incentive payments related to the 2020 Sorrento Term Sheet.

Genting Innovation PTE LTD Distribution Agreement

On May 4, 2018, concurrently with Dragasac’s equity investment in Legacy Celularity, Legacy Celularity entered into a distribution agreement with Genting Innovation PTE LTD (“Genting”), a related party, pursuant to which Genting was granted supply and distribution rights to certain Company products in select Asia markets (the “Genting Agreement”). The Genting Agreement grants Genting limited distribution rights to the Company’s then-current portfolio of degenerative disease products and provides for the automatic rights to future products developed by or on behalf of the Company.

The term of the Genting Agreement was renewed on January 31, 2023, and automatically renews for successive 12-month terms unless Genting provides written notice of its intention not to renew at least three months prior to a renewal term or the Genting Agreement is otherwise terminated by either party for cause.

On June 14, 2023, the Genting Agreement was amended to include manufacturing rights in the territories covered under the agreement, expanded to include two new countries, and a commitment by the Company to provide technology transfer pursuant to the plan established by a Joint Steering Committee.

Genting and Dragasac are both direct subsidiaries of Genting Berhad, a public limited liability company incorporated and domiciled in Malaysia.

Celgene Corporation License Agreement

The Company is party to a license agreement with Celgene (the “Celgene Agreement”) pursuant to which the Company granted Celgene two separate licenses to certain intellectual property. The Celgene Agreement grants Celgene a royalty-free, fully-paid up, worldwide, non-exclusive license to the certain intellectual property (“IP”) for pre-clinical research purposes in all fields and a royalty-free, fully-paid up, worldwide license, with the right to grant sublicenses, for the development, manufacture, commercialization and exploitation of products in the field of the construction of any CAR, the modification of any T-lymphocyte or NK cell to express such a CAR, and/or the use of such CARs or T-lymphocytes or NK cells for any purpose, including prophylactic, diagnostic, and/or therapeutic uses thereof. The Celgene Agreement will remain in effect until its termination by either party for cause.

Pulthera, LLC Binding Term Sheet

Concurrent with the entry into the securities purchase agreement for the private placement described in Note 10 above, the Company executed a binding term sheet to negotiate and enter into a sublicense agreement of certain assets from an affiliate of Pulthera, LLC (the "sublicensor"). Pursuant to the binding term sheet, the Company paid sublicensor $3,000 option fee in cash and issued $1,000 of shares of its Class A common stock (1,694,915 shares based on the closing price on March 17, 2023) as consideration for stem-cells inventory to be used in research and development. The option fee paid by the Company will be applied towards an initial license fee as outlined in the sublicense agreement. The Company is required to use diligent and reasonable efforts to develop and obtain regulatory approval to market at least one licensed product contingent upon a firm written commitment to provide further financing to the Company. The $3,000 option fee was recorded as acquired IPR&D expense included in research and development expense on the condensed consolidated statements of operations for the six months ended June 30, 2023, as the acquired IPR&D had no alternative future use.

14.

Segment Information

The Company regularly reviews its segments and the approach used by management to evaluate performance and allocate resources. The Company manages its operations through an evaluation of three distinct business segments: Cell Therapy, Degenerative Disease, and BioBanking. The chief operating decision maker uses the revenues and earnings (losses) of the operating segments, among other factors, for performance evaluation and resource allocation among these segments.

The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to therapies the Company is researching and developing. Therapies being researched are unproven and in various phases of development. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets. Biobanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use.

The Company manages its assets on a total company basis, not by operating segment. Therefore, the chief operating decision maker does not regularly review any asset information by operating segment and, accordingly, asset information is not reported by operating segment. Total assets were $246,419 and $401,066 as of June 30, 2023 and December 31, 2022, respectively.

Financial information by segment for the three months ended June 30, 2023 and 2022 is as follows:


	Three Months Ended June 30, 2023
	Cell Therapy			BioBanking		Degenerative Disease			Other				Total
Net sales	$	-		$	1,278	$	1,660		$	-			$	2,938
Gross profit		-			793		1,343			-				2,136
Direct expenses		8,456			86		1,889			11,252				21,683
Segment contribution	$	(8,456	)	$	707	$	(546	)		(11,252	)			(19,547	)
Indirect expenses										22,929		(a)		22,929
Loss from operations													$	(42,476	)

(a) Components of other
Change in fair value of contingent consideration liability										(85,407	)
Change in fair value of contingent stock consideration										(10	)
Goodwill impairment										-
IPR&D impairment										107,800
Amortization										546
Total other									$	22,929


	Three Months Ended June 30, 2022
	Cell Therapy			BioBanking			Degenerative Disease			Other				Total
Net sales	$	-		$	1,373		$	2,403		$	-			$	3,776
Gross profit		-			108			489			-				597
Direct expenses		24,820			256			3,179			13,622				41,877
Segment contribution	$	(24,820	)	$	(148	)	$	(2,690	)		(13,622	)			(41,280	)
Indirect expenses											(45,455	)	(b)		(45,455	)
Income from operations														$	4,175

(b) Components of other
Change in fair value of contingent consideration liability											(45,047	)
Change in fair value of contingent stock consideration											(954	)
Amortization											546
Total other										$	(45,455	)

Financial information by segment for the six months ended June 30, 2023 and 2022 is as follows:


	Six Months Ended June 30, 2023
	Cell Therapy			BioBanking		Degenerative Disease			Other				Total
Net sales	$	-		$	2,635	$	4,238		$	-			$	6,873
Gross profit		-			1,678		2,390			-				4,068
Direct expenses		48,618			430		4,898			22,407				76,353
Segment contribution	$	(48,618	)	$	1,248	$	(2,508	)		(22,407	)			(72,285	)
Indirect expenses										34,061		(c)		34,061
Loss from operations													$	(106,346	)

(c) Components of other
Change in fair value of contingent consideration liability										(104,339	)
Change in fair value of contingent stock consideration										(120	)
Goodwill impairment										29,633
IPR&D impairment										107,800
Amortization										1,087
Total other									$	34,061


	Six Months Ended June 30, 2022
	Cell Therapy			BioBanking			Degenerative Disease			Other				Total
Net sales	$	-		$	2,656		$	7,055		$	-			$	9,711
Gross profit		-			443			2,063			-				2,506
Direct expenses		46,033			882			4,638			26,892				78,445
Segment contribution	$	(46,033	)	$	(439	)	$	(2,575	)		(26,892	)			(75,939	)
Indirect expenses											(38,500	)	(d)		(38,500	)
Loss from operations														$	(37,439	)

(d) Components of other
Change in fair value of contingent consideration liability											(40,198	)
Change in fair value of contingent stock consideration											611
Amortization											1,087
Total other										$	(38,500	)

15.

Related Party Transactions

Amended and Restated Employment Agreement with Dr. Robert Hariri

On January 25, 2023, in order to address the Company's current working capital requirements, Robert Hariri, M.D., Ph.D., the Company's Chairman and Chief Executive Officer, agreed to temporarily reduce payment of his salary pursuant to his employment agreement to minimum wage level with the remaining salary deferred until December 31, 2023. As of June 30, 2023, $536 was recorded to accrued expenses on the condensed consolidated balance sheets.

Consulting Agreement with Dr. Andrew Pecora

On August 31, 2022, Dr. Pecora resigned as the Company’s President, and subsequently entered into a consulting agreement with the Company dated September 21, 2022, to receive a $10 monthly fee for an initial six-month term and will be automatically renewed for one additional six- month term if either party does not provide notice of non-renewal. Simultaneously, the Company entered into a scientific and clinical advisor agreement (the “SAB Agreement”), effective as of September 1, 2022, whereby Dr. Pecora agreed to serve as co-chair of the Company’s scientific and clinical advisory board for a $10 monthly fee and a one-time grant of RSUs having a value of $125 on the grant date and will vest equally over four years. The SAB Agreement has a one-year term and may be renewed for successive one-year terms upon mutual agreement of both parties. The consulting agreement was early terminated effective January 14, 2023. Dr. Pecora continues to serve on the Company’s scientific and clinical advisory board.

Advisory Agreement with Robin L. Smith MD

On August 16, 2022, the Company entered into an advisory agreement with Robin L. Smith, MD, a member of the Company’s board of directors, to receive $20 per month for advisory fees, an equity grant for a total amount of 1,050,000 stock options with the initial tranche of 250,000 stock options vesting upon execution of the advisory agreement and the remaining shares subject to vesting upon achievement of certain predefined milestones. The agreement also provides for a one-time cash bonus of $1,500 upon the successful achievement of the trigger event, as defined in the agreement. The Company paid advisory fees of $20 for the six months ended June 30, 2023, and $100 was recorded to accrued expenses on the condensed consolidated balance sheets as of June 30, 2023.

COTA, Inc

In November 2020, Legacy Celularity and COTA, Inc. (“COTA”) entered into an Order Schedule (the “Order Schedule No. 2”), to the Master Data License Agreement between Legacy Celularity and COTA, dated October 29, 2018, pursuant to which COTA will provide the licensed data in connection with AML patients. The COTA Order Schedule No. 2 will terminate on the one-year anniversary following the final licensed data deliverable described therein. Andrew Pecora, M.D., Celularity’s former President, is the Founder and Chairman of the Board of COTA and Dr. Robin L. Smith, a member of the Company’s board of directors, is an investor in COTA. The Company did not make any payments to COTA for the six months ended June 30, 2023 and 2022, respectively.

Cryoport Systems, Inc

During the six months ended June 30, 2023 and 2022, the Company made payments totaling $33 and $35, respectively, to Cryoport Systems, Inc (“Cryoport”) for transportation of cryopreserved materials. The Company’s Chief Executive Officer and director, Dr. Robert Hariri, M.D, Ph.D., has served on Cryoport’s board of directors since September 2015.

C.V. Starr Loan

On March 17, 2023, the Company entered into a $5,000 loan agreement with C.V. Starr. C.V. Starr is a significant stockholder of the Company, holding 750,000 warrants issued in March 2023 and another 500,000 issued in June 2023, for a total of 1,250,000 warrants to purchase Class A common stock and 7,640,693 shares of Class A common stock as of June 30, 2023.

Resorts World Inc Pte Ltd

On May 16, 2023, the Company entered into a $12,000 loan agreement, as amended on June 21, 2023, with Resorts World Inc Pte Ltd, ("RWI"). RWI is affiliated with Lim Kok Thay, a member of the Company's board of directors, holding 3,000,000 warrants to purchase Class A common stock as of June 30, 2023.

Sorrento Therapeutics, Inc.

In September 2020, the Company entered into the 2020 Sorrento Agreement, with Sorrento. Henry Ji, Ph.D., a member of Legacy Celularity’s board of directors, currently serves as President and Chief Executive Officer of Sorrento. Sorrento is also a significant stockholder of the Company and invested in the July 2021 private investment in public equity financing. During the six months ended June 30, 2023 and 2022, the Company made payments totaling $0 and $1,821, respectively, to Sorrento for supply of products pursuant to the supply agreement.

16.

Subsequent Events

The Company has evaluated subsequent events and there are no items requiring disclosure except the following:

Registered Direct Offering

In July 2023, the Company closed a registered direct offering contemplated by a securities purchase agreement with an institutional accredited investor for the sale and issuance of (i) 8,571,429 shares of the Company's Class A common stock and (ii) accompanying warrants to purchase up to 8,571,429 shares of Class A common stock, at a combined purchase price of $0.35 per share and accompanying warrant, for an aggregate purchase price of approximately $3,000. Each warrant has an exercise price of $0.35 per share, is initially exercisable beginning six months following the date of issuance, and will expire five years from the initial exercise date. In connection with the offering, the Company also entered into an amendment to certain existing warrants to purchase up to an aggregate of 8,928,572 shares (consisting of all of the warrants originally issued in May 2022 and a portion of which were issued in April 2023), pursuant to which, effective upon the closing of the offering, such amended warrants will have a reduced exercise price of $0.35 per share.

Board Member Departure

On July 31, 2023, John Sculley, a Class III member of the board of directors, notified the board of directors of his intention to resign as a member of the board and all committees thereof effective August 4, 2023. Mr. Sculley’s decision to resign was not due to any disagreement with Celularity on any matter, or relating to its operations, policies, or practices.

Yorkville

On August 2, 2023, Yorkville provided notice to the Company that a “triggering event” had occurred on August 1, 2023, as provided for under the terms of the PPA. As a result of this triggering event, the Company is required to make repayments of $6,000 per month plus a payment premium of 5% of the principal amount being paid and all outstanding accrued and unpaid interest (collectively the “repayment amount”). As of the issuance date, the Company owes $6,340 including interest, which is past due. While the Company intends to obtain a waiver, if the Company fails to secure a waiver from Yorkville and fails to pay the remaining repayment amount currently due, Yorkville could deem such non-payment an event of default under the PPA. If Yorkville deems such non-payment an event of default, Yorkville may, at its discretion, exercise its rights and remedies as provided in the PPA which may include, among others, accelerating the repayment of the total principal due under the PPA. Refer to the Going Concern disclosure in Note 1 for further details.

C.V. Starr and RWI Loan Agreements

As of issuance date, the Company's cash and cash equivalents fell below $3,000 for more than five consecutive business days, which per the terms of the loan agreements with RWI and C.V. Starr (See Note 7) caused an event of default. The Company is actively pursuing additional capital for working capital and general corporate purposes. As part of these efforts, the Company intends to raise sufficient capital to cure any breach of our contractual covenants within the cure periods set forth in the respective agreements. In the event the Company is unable to cure such breaches during the prescribed cure period, the Company will seek waivers from its lenders. If the Company cannot secure a waiver from its secured lenders, the lenders may declare the outstanding principal of the loans due and payable. Refer to the Going Concern disclosure in Note 1 for further details.

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

You should read the following discussion of our financial condition and results of operations together with the unaudited interim condensed consolidated financial statements and the notes thereto included elsewhere in this report and other financial information included in this report. The following discussion may contain predictions, estimates and other forward-looking statements. See “Special Note Regarding Forward-Looking Statements.” These forward-looking statements involve a number of risks and uncertainties, including those discussed in this report and under “Part I — Item 1A. Risk Factors” in the 2022 Form 10-K. These risks could cause our actual results to differ materially from any future performance suggested below.

Overview

We are a biotechnology company leading the next evolution in cellular medicine by developing off-the-shelf placental-derived allogeneic cell therapies for the treatment of cancer and immune and infectious diseases. We are developing a pipeline of off-the-shelf placental-derived allogeneic cell therapy product candidates including T cells engineered with a chimeric antigen receptor, or CAR, natural killer, or NK, cells, mesenchymal-like adherent stromal cells, or MLASCs, and exosomes. These therapeutic candidates target indications across cancer, infectious and degenerative diseases. We believe that by harnessing the placenta’s unique biology and ready availability, we will be able to develop therapeutic solutions that address a significant unmet global need for effective, accessible and affordable therapeutics. We also actively develop and market biomaterial products derived from the placenta. Prior to 2023, we marketed those products domestically primarily serving the orthopedic and wound care markets. We now intend to market placental biomaterials outside of the United States with an initial focus on markets in the Middle East and North Africa. Our biomaterials business today is comprised primarily of the sale of our Biovance and Interfyl products, directly or through our distribution network. Biovance is decellularized, dehydrated human amniotic membrane derived from the placenta of a healthy, full-term pregnancy. It is an intact, natural extracellular matrix that provides a foundation for the wound regeneration process and acts as a scaffold for restoration of functional tissue. Interfyl is human connective tissue matrix derived from the placenta of a healthy, full-term pregnancy. It is used by a variety of medical specialists to fill soft tissue deficits resulting from wounds, trauma, or surgery. We are developing new placental biomaterial products to deepen the commercial pipeline beyond Biovance and Interfyl. We also plan to leverage our core expertise in cellular therapeutic development and manufacturing to generate revenues by providing contract manufacturing and development services to third parties. The initial focus of this new service offering will be to assist development stage cell therapy companies with the development and manufacturing of their therapeutic candidates for clinical trials. In January 2023, we announced reprioritization of efforts, which resulted in a reduction of approximately one-third of our workforce as of March 2023.

Our Celularity IMPACT platform capitalizes on the benefits of placenta-derived cells to target multiple diseases, and provides seamless integration, from bio sourcing through manufacturing cryopreserved and packaged allogeneic cells, in our purpose-built U.S.-based 147,215 square foot facility. We believe the use of placental-derived cells, sourced from the placentas of full-term healthy informed consent donors, has potential inherent advantages, from a scientific and an economic perspective. First, relative to adult-derived cells, placental-derived cells demonstrate greater stemness, meaning the ability to expand and persist. Second, placental-derived cells are immunologically naïve, meaning the cells have never been exposed to a specific antigen, and suggesting the potential for less toxicity and for low or no graft-versus-host disease, or GvHD, in transplant. Third, our placental-derived cells are allogeneic, meaning they are intended for use in any patient, as compared to autologous cells, which are derived from an individual patient for that patient’s sole use. We believe this is a key difference that will enable readily available off-the-shelf treatments that can be delivered faster, more reliably, at greater scale and to more patients.

From a single source material, the postpartum human placenta, we derive four allogeneic cell or extracellular vesicle types: T cells, genetically modified NK cells, MLASCs and exosomes, which have the potential to support multiple therapeutic programs. CYCART-19 is a placental-derived CAR-T cell therapy, in development for the treatment of B-cell malignancies, initially targeting the cluster of differentiation 19, or CD19, receptor, the construct and related CARs for which are in-licensed from Sorrento. In the first quarter of 2022, we submitted an IND to investigate CYCART-19 for treatment of B-cell malignancies and in late May 2022, received formal written communication from FDA requesting additional information before we can proceed with the planned Phase 1/2 clinical trial. We are assessing the status of the IND to determine an optional path forward for the program. We also expect to progress CYCART-201, our genetically modified T-cell expressing CD16 with a T-cell receptor, or TCR, knockout in combination with monoclonal antibodies, or mAbs, in non-Hodgkin's lymphoma, or NHL, and in solid tumors. CYNK-001 is a placental-derived unmodified NK cell. In 2022, we had active and approved clinical trials under development for the treatment of acute myeloid leukemia, or AML, a blood cancer, and for glioblastoma multiforme, or GBM, a solid tumor cancer. Due to a need to prioritize corporate resources, in January 2023 we announced our intention to cease recruitment in the GBM and the HER2+ gastric trials. In addition, in April 2023, we announced based on the preliminary results of the phase 1 trial data of CYNK-001, the AML trial will be closed to further enrollment and completed follow up. APPL-001 is a placenta-derived MLASC being developed for the treatment of Crohn’s disease, and other degenerative diseases. pExo-001 is placenta-derived exosome being developed for the treatment of osteoarthritis.

Our Celularity IMPACT manufacturing process is a seamless, fully integrated process designed to optimize speed and scalability from the sourcing of placentas from full-term healthy informed consent donors through the use of proprietary processing methods, cell selection, product-specific chemistry, manufacturing and controls, or CMC, advanced cell manufacturing and cryopreservation. The

result is a suite of allogeneic inventory-ready, on demand placental-derived cell therapy products. We also operate and manage a commercial biobanking business that includes the collection, processing and cryogenic storage of certain birth byproducts for third-parties.

Our current science is the product of the cumulative background and effort over two decades of our seasoned and experienced management team. We have our roots in Anthrogenesis Corporation, or Anthrogenesis, a company founded under the name Lifebank in 1998 by Robert J. Hariri, M.D., Ph.D., our founder and Chief Executive Officer, and acquired in 2002 by Celgene Corporation, or Celgene. The team continued to hone their expertise in the field of placental-derived technology at Celgene through August 2017, when we acquired Anthrogenesis. We have a robust global intellectual property portfolio comprised of over 1,500 patents and patent applications protecting our Celularity IMPACT platform, our processes, technologies and current key cell therapy programs. We believe this know-how, expertise and intellectual property will drive the rapid development and, if approved, commercialization of these potentially lifesaving therapies for patients with unmet medical needs.

Recent Developments

Private Placement - March 2023

In March 2023, we closed a private placement of (i) 9,381,841 shares of our Class A common stock, and (ii) accompanying warrants to purchase up to 9,381,841 shares of our Class A common stock, or the March 2023 PIPE Warrants, for $0.8343 per share and $0.125 per accompanying March 2023 PIPE Warrant, for an aggregate purchase price of approximately $9.0 million (of which Dr. Hariri subscribed for $2.0 million) pursuant to that certain securities purchase agreement dated March 20, 2023 with two accredited investors, including our Chairman and Chief Executive Officer, Dr. Robert Hariri. Each March 2023 PIPE Warrant has an exercise price of $3.00 per share, is immediately exercisable, will expire on March 27, 2028 (five years from the date of issuance), and is subject to customary adjustments for certain transactions affecting our capitalization.

We also entered into a registration rights agreement with the purchasers whereby we agreed to register the resale of the shares of our Class A common stock and the shares of our Class A common stock issuable upon exercise of the March 2023 PIPE Warrants as well as the shares issued as payment pursuant to the binding term sheet for a sublicense (described below). We were required to prepare and file a registration statement with the Securities and Exchange Commission, or SEC, within 30 days of the filing of our annual report on Form 10-K for the year ended December 31, 2022, and to use commercially reasonable efforts to have the registration statement declared effective within 45 days if there is no review by the SEC, and within 90 days in the event of such review, and in any event, no later than June 30, 2023.

Senior Secured Bridge Loans

In March 2023, we entered into a Loan Agreement with C.V. Starr & Co. Inc., one of our stockholders, or C.V. Starr, providing for a loan in the aggregate principal amount of $5.0 million net of an original issue discount of $100,000, which bears interest at a rate of 12.0% per year, with the first year of interest being paid in kind on the last day of each month, and matures March 17, 2025, or the Starr Bridge Loan, and warrants to acquire up to an aggregate 750,000 shares of our Class A common stock, or the Starr Warrant, at a purchase price of $0.125 per whole share underlying the Starr Warrant (or $93,750). The Starr Warrant has a 5-year term and an exercise price of $0.71 per share. In June 2023, we granted C.V. Starr additional warrants to acquire up to an aggregate 500,000 shares of our Class A common stock which has a 5-year term and an exercise price of $0.81 per share.

Pursuant to the terms of the Starr Bridge Loan, we agreed to customary negative covenants restricting our ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any our assets, other than as permitted, or hold cash and cash equivalents less than $3.0 million for more than five consecutive business days. In addition to the negative covenants in the Starr Bridge Loan, the Starr Bridge Loan include customary events of default. Pursuant to the terms of the Starr Bridge Loan, we granted Starr a senior security interest in all of our assets.

In May 2023, we entered into a senior secured loan agreement with Resorts World Inc Pte Ltd, or RWI, providing for an initial loan in the aggregate principal amount of $6.0 million net of an original issue discount of $120,000, which bears interest at a rate of 12.5% per year, with the first year of interest being paid in kind on the last day of each month, and matures June 14, 2023, or the RWI Bridge Loan. Pursuant to the terms of the RWI Bridge Loan, we are required to apply the net proceeds from the RWI Bridge Loan to the payment due to Yorkville pursuant to that certain pre-paid advance agreement dated September 15, 2022, as amended, or the PPA. Any other use of proceeds requires prior written approval by RWI. RWI is affiliated with Lim Kok Thay, a member of our board of directors.

In June 2023, we entered into an amended and restated senior secured loan agreement, or the Amended Loan, with RWI, to amend and restate the previously announced senior secured loan agreement with RWI, or the Initial Loan, in its entirety. The Amended Loan provided for an additional loan in the aggregate principal amount of $6.0 million net of an original issue discount of $678,000, which bears interest at a rate of 12.5% per year, with the first year of interest being paid in kind on the last day of each month, and matures March 17, 2025. The Amended Loan extended the maturity date of the Initial Loan to March 17, 2025. In addition, the Amended Loan provided for the issuance of warrants to acquire up to an aggregate of 3,000,000 shares of Celularity’s Class A common stock, or the RWI Warrant, at a purchase price of $0.125 per whole share underlying the RWI Warrant (or an aggregate purchase price of $375,000).

The RWI Warrant has a 5-year term and an exercise price of $0.81 per share. Pursuant to the terms of the Amended Loan, Celularity was required to apply the net proceeds to the payments due under the Yorkville PPA.

Pursuant to the terms of the RWI Bridge Loan, as amended, we agreed to customary negative covenants restricting our ability to repay indebtedness, pay dividends to stockholders, repay or incur other indebtedness other than as permitted, grant or suffer to exist a security interest in any of our assets, other than as permitted, or hold cash and cash equivalents less than $3.0 million for more than five consecutive business days, and includes customary events of default. We granted RWI a senior security interest in all of our assets, pari passu with C.V. Starr pursuant to the Starr Bridge Loan.

Binding Term Sheet for Sublicense Agreement

Concurrent with the entry into the securities purchase agreement for the March 2023 private placement described above; we executed a binding term sheet to negotiate and enter into a sublicense of certain assets from an affiliate of the accredited investor party to the private placement transaction. Pursuant to the binding term sheet, we paid the sublicensor $3.0 million in cash and issued $1.0 million of shares of our Class A common stock (1,694,915 shares based on the closing price on March 17, 2023) as consideration for stem-cells inventory to be used in research and development.

Registered Direct Offerings

In April 2023, we closed on a registered direct offering of 9,230,770 shares of our Class A common stock together with warrants to purchase up to 9,230,770 shares of our Class A common stock at a combined purchase price of $0.65 per share and accompanying warrant, resulting in total gross proceeds of approximately $6.0 million before deducting placement agent commissions and other estimated offering expenses. The warrants have an exercise price of $0.75, will be exercisable beginning six months after the date of issuance and will expire five years thereafter. We also amended existing warrants to purchase up to an aggregate of 4,054,055 shares at an exercise price of $8.25 per share, with an expiration date of May 20, 2027, held by the same investor, effective upon the closing of the offering to reduce the exercise price to $0.75 per share and extended expiration date to five and one-half years following the closing of the offering. We used the $5.5 million net proceeds from the offering to repay our obligations to Yorkville under that certain pre-paid advance agreement dated September 15, 2022, as amended, or the PPA.

In July 2023, we closed on a securities purchase agreement with an institutional accredited investor, or the Purchase Agreement, providing for the sale and issuance of (i) 8,571,429 shares of its Class A common stock, par value $0.0001 per share, or the Class A common stock, and (ii) accompanying warrants to purchase up to 8,571,429 shares of Class A common stock, at a combined purchase price of $0.35 per share and accompanying warrant, for an aggregate purchase price of approximately $3.0 million. Each warrant has an exercise price of $0.35 per share, is initially exercisable beginning six months following the date of issuance, and will expire five years from the initial exercise date. In connection with the offering described above, we also entered into an amendment to certain existing warrants to purchase up to an aggregate of 8,928,572 shares at an exercise price of $0.75 per share and a termination date of October 10, 2028 (consisting of all of the warrants originally issued in May 2022 and a portion of which were issued in April 2023), pursuant to which, effective upon the closing of the offering, such amended warrants will have a reduced exercise price of $0.35 per share.

Private Placement – May 2023

In May 2023, we entered into a securities purchase agreement with a group of accredited investors, providing for the private placement of an aggregate (i) 5,813,945 shares of our Class A common stock and (ii) accompanying warrants to purchase up to 5,813,945 shares of Class A common stock, or the May 2023 PIPE Warrants, for $0.52 per share and $0.125 per accompanying May 2023 PIPE Warrant, for an aggregate purchase price of approximately $3.7 million, which private placement closed on May 18, 2023 upon satisfaction of customary closing conditions.

Each May 2023 PIPE Warrant has an exercise price of $1.00 per share, is immediately exercisable, will expire on May 18, 2028 (five years from the date of issuance), and is subject to customary adjustments for certain transactions affecting our capitalization. The May 2023 PIPE Warrants may not be exercised if the aggregate number of shares of Class A common stock beneficially owned by the holder thereof (together with its affiliates) would exceed the specified percentage cap provided therein (which may be adjusted upon 61 days advance notice) immediately after exercise thereof.

We also entered into a registration rights agreement with the purchasers whereby we agreed to register the resale of the shares of Class A common stock and the shares of Class A common stock issuable upon exercise of the May 2023 PIPE Warrants. We will be required to prepare and file a registration statement with the SEC within 30 days, and to use commercially reasonable efforts to have the registration statement declared effective within 45 days if there is no review by the SEC, and within 90 days in the event of such review, and in any event, no later than July 31, 2023.

Cell Therapy – Impairments

During the second quarter of 2023, our stock price and market capitalization continued to decline, and we also determined to cease active recruitment in our AML trial and halted all NK programs. The AML trial was our most advanced clinical program with a relatively

large addressable patient population given the high unmet medical need in relapsed and refractory AML. After we ceased recruitment, we removed all associated cash flows relating to that program including all other NK related programs as well. As a result of these triggering events, we fully impaired the IPR&D assets associated with these product candidates, and performed a goodwill impairment test on our Cell Therapy reporting unit. At June 30, 2023, the estimated fair value of the Cell Therapy reporting unit was determined to be at breakeven compared to the carrying value using a discount rate commensurate with the risks associated with the cash flows for preclinical product candidates. We also performed a reconciliation of the aggregate fair value of each reporting unit to the market capitalization of the Company. The analysis showed the fair value of the reporting units approximated our market capitalization, indicating an insignificant control premium. A future material impairment is likely to occur if there are future adverse events, including but not limited to, if our stock price and market capitalization continues to decline, if we concludes that additional programs in its Cell Therapy clinical pipeline will not have market potential or if we lower future cash flow projections.

Based on the results of the impairment analysis, we recognized a $0 and $29.6 million goodwill impairment charge during the three and six months ended June 30, 2023, respectively, relating to our Cell Therapy reporting unit in our condensed consolidated statements of operations. In addition, we incurred an IPR&D impairment charge of $107.8 million due to discontinuing our Cell Therapy clinical trials noted above during the three and six months ended June 30, 2023.

Palantir – Cease-Use Costs

In May 2021, our subsidiary, Legacy Celularity executed a Master Subscription Agreement with Palantir Technologies, Inc., or Palantir, under which it agreed to pay $40.0 million over five years for access to Palantir’s Foundry platform along with certain professional services. In January 2023, we ceased use of the software and provided a notice of dispute to Palantir on the basis that the software has not performed as promised and that Palantir has failed to provide us with the professional services necessary to successfully implement, integrate and enable the Foundry platform. As a result, in accordance with ASC 420 Exit or Disposal Costs, during the six months ended June 30, 2023, we recognized the remaining related cease-use costs and liability estimated based on the discounted future cash flows of contract payments for $23.9 million which is included as a component of research and development expense in the condensed consolidated statements of operations. We have both a current and noncurrent liability for accrued research and development software on the condensed consolidated balance sheets for a total liability of $31.3 million and $7.3 million as of March 31, 2023 and December 31, 2022, respectively. For the six months ended June 30, 2022, we had recorded $4.0 million, which was on a straight-line basis, which was included as a component of research and development expense in our condensed consolidated statements of operations. Palantir has filed to compel arbitration of this dispute. See also Item 1 of Part II of this quarterly report on Form 10-Q.

Middle East Distribution

We continue to work with our distribution partners to enable sales of our biomaterial products in the Middle East. The commercialization of our biomaterial products is subject to local regulatory approval, and we are actively working with our partners to obtain such approvals from health authorities in the Kingdom of Saudi Arabia and the United Arab Emirates. As of the date of this quarterly report on Form 10-Q, we have not received the requisite local regulatory approvals and have not generated any revenue from sales of our biomaterial products in these territories.

Going Concern

In accordance with Accounting Standards Update ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (Subtopic 205-40), or ASU 205-40, we evaluated whether there are certain conditions and events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As an emerging clinical-stage biotechnology company, we are subject to certain inherent risks and uncertainties associated with the development of an enterprise. In this regard, since our inception, substantially all of management’s efforts have been devoted to making investments in research and development including basic scientific research into placentally-derived allogeneic cells, pre-clinical studies to support our current and future clinical programs in cellular therapeutics, and clinical development of our cell programs as well as facilities and selling, general and administrative expenses that support our core business operations (collectively the “investments”), all at the expense of our short-term profitability. We have historically funded these investments through limited revenues generated from our biobanking and degenerative disease businesses and issuances of equity and debt securities to public and private investors (these issuances are collectively referred to as “outside capital”). Notwithstanding these efforts, management can provide no assurance that our research and development and commercialization efforts will be successfully completed, or that adequate protection of our intellectual property will be adequately maintained. Even if these efforts are successful, it is uncertain when, if ever, we will generate significant sales or operate in a profitable manner to sustain our operations without needing to continue to rely on outside capital. Continued decline in our share price and further discontinuation of clinical trials could result in impairment of goodwill or long-lived assets in a future period.

As of the date the accompanying consolidated financial statements were issued, or the issuance date, management evaluated the significance of the following adverse conditions and events in accordance with ASU 205-40:

•

Since inception, we have incurred significant losses and net cash used in operating activities. For the six months ended June 30, 2023, we incurred a net loss of $111,966 million and net cash used in operating activities of $26,022 million. As of June 30, 2023, we had an accumulated deficit of $757,462 million. We expect to continue to incur significant losses and use net cash for operations for the foreseeable future.

•

We expect to incur substantial expenditures to fund our investments for the foreseeable future. In order to fund these investments, we will need to secure additional sources of outside capital. While we are actively seeking to secure additional outside capital (and have historically been able to successfully secure such capital), as of the issuance date, no additional outside capital has been secured or was deemed probable of being secured. In addition, management can provide no assurance that we will be able to secure additional outside capital in the future or on terms that are acceptable to us. Absent an ability to secure additional outside capital in the very near term, we will be unable to meet our obligations as they become due over the next 12 months beyond the issuance date.

•

We had approximately $17.0 million of principal borrowings outstanding under a financing arrangement referred to as the PPA with a private investor, Yorkville, as of June 30, 2023. These borrowings are scheduled to mature on September 15, 2023, and we may not have sufficient cash available when such payments are due. Although stockholders approved a reduced floor price of $0.50 per share, our stock is now trading below such price. On August 2, 2023, Yorkville provided notice to us that a "triggering event" had occurred on August 1, 2023, as provided for under the terms of the PPA. As a result of this triggering event, we are required to make repayments of $6.0 million per month plus a payment premium of 5% of the principal amount being paid and all outstanding accrued and unpaid interest, or the repayment amount. As of the issuance date, we owe $6.3 million including interest, which is past due, and for which we do not have sufficient available funds to repay. If we fail to secure a waiver from Yorkville and fail to pay the remaining repayment amount currently due, Yorkville could deem such non-payment an event of default under the PPA. If Yorkville deems such non-payment an event of default, Yorkville may, at its discretion, exercise its rights and remedies as provided in the PPA which may include, among others, accelerating the repayment of the total principal due under the PPA (approximately $17.0 million as of June 30, 2023 or approximately $16.5 million as of issuance date), plus accrued and unpaid interest and the 5% premium, and/or force us to seek protection under the provision of the U.S. Bankruptcy Code.

•

As of issuance date, our cash and cash equivalents fell below $3.0 million for more than five consecutive business days which per the terms of the RWI and C.V. Starr loan agreements caused an event of default. We are actively pursuing additional capital for working capital and general corporate purposes. As part of these efforts, we intend to raise sufficient capital to cure any breach of our contractual covenants within the cure periods set forth in the respective agreements. In the event we are unable to cure such breaches during the prescribed cure period, we will seek waivers from the secured lenders. If we cannot secure a waiver from the secured lenders, the lenders may declare the outstanding principal of the loans due and payable, which may force us to seek protection under the provisions of the U.S. Bankruptcy Code.

•

On March 14, 2023, we received a notice from the Nasdaq notifying us that we no longer comply with the minimum bid price requirement for continued listing on the Nasdaq Capital Market because the closing bid price for our Class A common stock has fallen below $1.00 per share for the last 30 consecutive business days. We have a period of 180 calendar days, or until September 11, 2023, to regain compliance with the minimum bid price requirement. We intend to actively monitor the closing bid price of our Class A common stock and will evaluate available options to regain compliance with the minimum bid requirement. However, we can provide no assurance that we will be able to regain compliance with the minimum bid requirement during the 180-day compliance period, secure a second period of 180 days to regain compliance, or maintain compliance with the other Nasdaq listing requirements. In the event we are unable to regain or maintain compliance with the Nasdaq listing requirements, the liquidity of our publicly traded securities will be adversely affected and our ability to secure additional outside capital through public markets will be adversely affected.

•

In the event we are unable to secure additional outside capital to fund our obligations when they become due over the next 12 months beyond the issuance date, which includes the funds needed to repay the outstanding principal on the PPA (plus unpaid accrued interest and the 5% premium) that has become due and will become fully due in September 2023, and/or obtain a waiver to defer the remaining repayment amount currently due to Yorkville, and/or regain compliance with the Nasdaq listing requirements, management will be required to seek other strategic alternatives, which may include, among others, a significant curtailment of our operations, a sale of certain of our assets, a sale of our entire company to strategic or financial investors, and/or allowing us to become insolvent by filing for bankruptcy protection under the provisions of the U.S. Bankruptcy Code.

These uncertainties raise substantial doubt about our ability to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared on the basis that we will continue to operate as a going concern, which contemplates that we will be able to realize assets and settle liabilities and commitments in the normal course of business for the foreseeable future. Accordingly, the accompanying condensed consolidated financial statements do not include any adjustments that may result from the outcome of these uncertainties.

Business Segments

We manage our operations through an evaluation of three distinct business segments: Cell Therapy, Degenerative Disease, and BioBanking. The reportable segments were determined based on the distinct nature of the activities performed by each segment. Cell Therapy broadly refers to cellular therapies we are researching and developing, which are unproven and in various phases of development. All of the cell therapy programs fall into the Cell Therapy segment. We have no approved cell therapy product and have not generated revenue from the sale of cellular therapies to date. Degenerative Disease produces, sells and licenses products used in surgical and wound care markets, such as Biovance, Biovance 3L, Interfyl and CentaFlex. We sell products in this segment both using our own sales force as well as independent distributors. We are developing additional tissue-based products for the Degenerative Disease segment. BioBanking collects stem cells from umbilical cords and placentas and provides storage of such cells on behalf of individuals for future use. We operate in the biobanking business primarily under the LifebankUSA brand. For more information about our reportable business segments refer to Note 14, “Segment Information” of our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

Acquisitions and Divestitures

Our current operations reflect strategic acquisitions and divestitures that we have made since formation. Additional details regarding the following acquisitions can be found in Note 1, “Nature of Business” to our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

In May 2017, we acquired HLI Cellular Therapeutics, LLC, or HLI CT, from Human Longevity Inc. HLI CT operated LifebankUSA, a private umbilical cord blood stem cell and cord tissue bank that offers parents the option to collect, process and cryogenically preserve newborn umbilical cord blood stem cells and cord tissue units. The HLI CT acquisition also provided us with rights to a portfolio of biomaterial assets, including Biovance and Interfyl. At the time of the HLI CT acquisition, Biovance and Interfyl were subject to an exclusive distribution arrangement with Alliqua Biomedical, Inc., or Alliqua. In May 2018, we acquired certain assets from Alliqua, including Alliqua’s biologic wound care business, which included the marketing and distribution rights to Biovance and Interfyl.

In August 2017, we acquired Anthrogenesis, a wholly-owned subsidiary of Celgene. The Anthrogenesis acquisition included a portfolio of pre-clinical and clinical stage assets, including key cellular therapeutic assets that we continue to develop. The Anthrogenesis acquisition gives us access to Anthrogenesis’ proprietary technologies and processes for the recovery of large quantities of high-potential stem cells and cellular therapeutic products derived from postpartum human placentas, each an Anthrogenesis Product. As part of the Anthrogenesis acquisition, some of the inventors of the Anthrogenesis Products and other key members of the Anthrogenesis Product development team joined us.

In October 2018, we acquired CariCord Inc., or CariCord, a family cord blood bank established by ClinImmune Labs University of Colorado Cord Blood Bank and the Regents of the University of Colorado, a body corporate, for and on behalf of the University of Colorado School of Medicine.

Licensing Agreements

In the ordinary course of business, we license intellectual property and other rights from third parties and have also out-licensed our intellectual property and other rights, including in connection with our acquisitions and divestitures, described above. Additional details regarding our licensing agreements can be found in Note 13, “License and Distribution Agreements” to our unaudited interim condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q.

In September 2020, we entered into a license and transfer agreement, or the Sorrento Agreement, with Sorrento. Henry Ji, Ph.D., a former member of the board of directors of our wholly-owned subsidiary, which we refer to as Legacy Celularity, currently serves as President and Chief Executive Officer of Sorrento. Sorrento is also a significant stockholder of our company and invested in the July 2021 private investment in public equity financing concurrent with the closing of the business combination among our company and Legacy Celularity. Pursuant to the Sorrento Agreement, we obtained a worldwide license for the CD19 CAR construct that forms the basis of the genetic modification for CYCART-19. We are currently in the process of negotiating a supply agreement with Sorrento for the manufacturing and supply of the CD19 CAR construct licensed from Sorrento.

In August 2017, in connection with the Anthrogenesis acquisition, we entered into a license agreement, or the Celgene License, with Celgene, which has since been acquired by Bristol Meyers Squibb. Pursuant to the Celgene License, we granted Celgene a

worldwide, royalty-free, fully-paid up, non-exclusive license, without the right to grant sublicenses (other than to its affiliates), under Anthrogenesis’ intellectual property in existence as of the date of the Celgene License or as developed by Celgene in connection with any transition services activities related to the merger for non-commercial pre-clinical research purposes, as well as to develop, manufacture, commercialize and fully exploit products and services that relate to the construction of any CAR, the modification of any T-cell or NK cell to express such a CAR, and/or the use of such CARs or T-cells or NK cells for any purpose, which commercial license is sublicensable. Either party may terminate the Celgene License upon an uncured material breach of the agreement by the other party or insolvency of the other party.

In August 2017, Legacy Celularity also issued shares of its Series X Preferred Stock to Celgene as merger consideration and entered into a contingent value rights agreement, or the CVR Agreement, with Celgene pursuant to which Legacy Celularity issued one contingent value right or CVR, in respect of each share of Legacy Celularity Series X Preferred Stock issued to Celgene in connection with the Anthrogenesis acquisition. The CVR Agreement entitles the holders of the CVRs to an aggregate amount, on a per program basis, of $50 million in regulatory milestones and an aggregate $125 million in commercial milestone payments with respect to certain of our investigational therapeutic programs. In addition, with respect to each such program and calendar year, the CVR holders will be entitled to receive a royalty equal to a mid-teen percentage of the annual net sales for such program’s therapeutics from the date of the first commercial sale of such program’s therapeutic in a particular country until the latest to occur of the expiration of the last to expire of any valid patent claim covering such program therapeutic in such country, the expiration of marketing exclusivity with respect to such therapeutic in such country, and August 2027 (i.e., the tenth anniversary of the closing of the acquisition of Anthrogenesis). No payments under the CVR Agreement have been made to date. We estimate the liability associated with the CVR quarterly. Changes to that liability include but are not limited to changes in our clinical programs, assumptions about the commercial value of those programs and the time value of money.

Components of Operating Results

Net revenues

Net revenues include: (i) sales of biomaterial products, including Biovance, Biovance 3L, Interfyl, and CentaFlex of which our direct sales are included in Product Sales and Rentals while sales through our network of distribution partners are included in License, royalty and other; and (ii) the collection, processing and storage of umbilical cord and placental blood and tissue after full-term pregnancies, collectively, Services.

Cost of revenues

Cost of revenues consists of labor, material and overhead costs associated with our two existing commercial business segments, biobanking and degenerative disease. Biobanking costs include the cost of storage and transportation kits for newly banked materials as well as tank and facility overhead costs for cord blood and other units in storage. Degenerative disease costs include costs associated with procuring placentas, qualifying the placental material and processing the placental tissue into a marketable product. Costs in the degenerative disease segment include labor and overhead costs associated with the production of the Biovance, Biovance 3L, Interfyl and CentaFlex product lines. Cost of revenues associated with direct sales are part of Product Sales and Rentals while cost of revenues associated with sales through our network of distribution partners are included in License, royalty and other.

Research and development expense

Our research and development expenses primarily relate to basic scientific research into placentally derived allogeneic cells, pre-clinical studies to support our current and future clinical programs in cellular medicine, clinical development of our NK cell programs and facilities, depreciation and other direct and allocated expenses incurred as a result of research and development activities. We incur expenses for third party CROs, that assist in running clinical trials, clinical trial supply costs, personnel expenses for research scientists, specialized chemicals and reagents used to conduct biologic research, expense for third party testing and validation and various overhead expenses including rent and facility maintenance expense. Basic research, research collaborations involving partners and research designed to enable successful regulatory submissions is critical to our current and future success in cell therapy. As a result of our reprioritization efforts, we anticipate that our research and development expenditures will decrease in the near term. The amount of our research and development expenditures will depend on numerous factors, including the timing of clinical trials, preliminary evidence of efficacy in clinical trials and the number of indications that we choose to pursue.

General and administrative expense

Selling, general and administrative expense consists primarily of personnel costs including salaries, bonuses, stock compensation and benefits for specialized staff that support our core business operations. Executive management, finance, legal, human resources and information technology are key components of selling, general and administrative expense and those expenses are recognized when incurred. We expect that as a result of our reprioritization efforts, we will see a decrease in our selling, general and administrative costs

in the near term. The magnitude and timing of our selling, general and administrative costs will depend on the progress of clinical trials, commercialization efforts for any approved therapies including the release of new products within the degenerative disease portfolio, changes in the regulatory environment or staffing needs to support our business strategy.

Change in fair value of contingent consideration liability

Because the acquisitions of Anthrogenesis from Celgene and HLI CT were accounted for as business combinations, we recognized acquisition-related contingent consideration on the balance sheets in accordance with the acquisition method of accounting. See “— Acquisitions and Divestitures” for more information. The fair value of contingent consideration liability is determined based on a probability-weighted income approach derived from revenue estimates and a probability assessment with respect to the likelihood of achieving regulatory and commercial milestone obligations and royalty obligations. The fair value of acquisition related contingent consideration is remeasured each reporting period with changes in fair value recorded in the condensed consolidated statements of operations. Changes in contingent consideration fair value estimates result in an increase or decrease in our contingent consideration obligation and a corresponding charge or reduction to operating results. Key elements of the contingent consideration are regulatory milestone payments, sales milestone payments and royalty payments. Regulatory payments are due on regulatory approval of certain cell types in the United States and the European Union. Regulatory milestone payments are one time but are due prior to any potential commercial success of a cell type in a specific indication. Royalty payments are a percentage of net sales. Sales milestone payments are due when certain aggregate sales thresholds have been met. Management must use substantial judgment in evaluating the value of the contingent consideration. Estimates used by management include but are not limited to: (i) the number and type of clinical programs that we are likely to pursue based on the quality of our preclinical data, (ii) the time required to conduct clinical trials, (iii) the odds of regulatory success in those trials, (iv) the potential number of patients treatable for the indications in which we are successful and (v) the pricing of treatments that achieve commercial status. All of these areas involve substantial judgment on the part of management and are inherently uncertain.

Results of Operations

Comparison of Three Months Ended June 30, 2023 to June 30, 2022


	Three Months Ended									Percent
	June 30, 2023			June 30, 2022			Increase (Decrease)			Increase (Decrease)
Net revenues
Product sales and rentals	$	906		$	1,228		$	(322	)		(26.2	)%
Services		1,278			1,373			(95	)		(6.9	)%
License, royalty and other		754			1,175			(421	)		(35.8	)%
Total revenues		2,938			3,776			(838	)		(22.2	)%
Operating expenses:
Cost of revenues (excluding amortization of acquired intangible assets)
Product sales and rentals		207			425			(218	)		(51.3	)%
Services		485			1,265			(780	)		(61.7	)%
License, royalty and other		110			1,489			(1,379	)		(92.6	)%
Research and development		8,604			25,349			(16,745	)		(66.1	)%
Software cease-use costs		243			—			243			100.0	%
Selling, general and administrative		12,826			15,574			(2,748	)		(17.6	)%
Change in fair value of contingent consideration liability		(85,407	)		(45,047	)		(40,360	)		89.6	%
Goodwill impairment		—			—			—			100.0	%
IPR&D impairment		107,800			—			107,800			100.0	%
Amortization of acquired intangible assets		546			546			—			—
Total operating expenses		45,414			(399	)		45,813			(11482.0	)%
(Loss) income from operations	$	(42,476	)	$	4,175		$	(46,651	)		(1117.4	)%

Net Revenues and Cost of Revenues

Net revenues for the three months ended June 30, 2023 was $2.9 million, a decrease of $0.8 million, or 22.2% compared to the prior year period. The decrease was primarily due to decreased license, royalty and other revenues due to loss of business with Evolution, a former distribution partner as well as lower product sales.

Cost of revenues for the three months ended June 30, 2023 was $0.8 million, a decrease of $2.4 million, or 74.8% compared to the prior year period. The decrease was primarily driven by lower sales to our distribution partners corresponding to our decrease in license, royalty and other revenues and decreased product sales.

Research and Development Expenses

Research and development expenses for the three months ended June 30, 2023 were $8.6 million, a decrease of $16.7 million, or 66.1% compared to the prior year period. The decrease was primarily due to lower personnel costs resulting from our March 2023 reduction in force, the Palantir platform fees captured in software cease-use costs in the current period, lower clinical trial costs and lab supplies as we determined to discontinue certain clinical trials of our cell therapy candidates, as well as lower allocated costs as compared to the prior period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended June 30, 2023 were $12.8 million, a decrease of $2.7 million, or 17.6% compared to the prior year period. The primary reason for the decrease was driven by lower personnel costs and lower consulting expenses resulting from our March 2023 reduction in force.

Goodwill and IPR&D Impairments

Goodwill and IPR&D impairment charges for the three months ended June 30, 2023 was $29.6 million and $107.8 million, respectively, due to the decline in future revenue projections in the Cell Therapy business driven by discontinuation of clinical trials and changes in our strategy and pipeline.

Change in Fair Value of Contingent Consideration Liability

The change in fair value of contingent consideration liability for the three months ended June 30, 2023 was $85.4 million, a decrease of $40.4 million, or 89.6% compared to the period year period. The decrease resulted from a change in market-based assumptions as we discontinued our Cell Therapy clinical trials during 2023 (for more information about changes in the fair value of contingent consideration liability refer to Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).

Other Income (Expense)


	Three Months Ended								Percent
	June 30, 2023			June 30, 2022		Increase (Decrease)			Increase (Decrease)
Interest income	$	66		$	41	$	25			61.0	%
Interest expense		(1,104	)		—		(1,104	)		(100.0	)%
Change in fair value of warrant liabilities		(134	)		43,212		(43,346	)		(100.3	)%
Change in fair value of debt		(1,077	)		—		(1,077	)		100.0	%
Other, net		(3,224	)		415		(3,639	)		(876.9	)%
Total other income (expense)	$	(5,473	)	$	43,668	$	(49,141	)		(112.5	)%

For the three months ended June 30, 2023, other income decreased by $49.1 million compared to the prior year period. The decrease was primarily related to a change in the fair value of the warrant liabilities due to the decrease in the price of our Class A common stock (see Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).

Comparison of Six Months Ended June 30, 2023 to June 30, 2022


	Six Months Ended									Percent
	June 30, 2023			June 30, 2022			Increase (Decrease)			Increase (Decrease)
Net revenues
Product sales and rentals	$	1,949		$	1,879		$	70			3.7	%
Services		2,635			2,656			(21	)		(0.8	)%
License, royalty and other		2,289			5,176			(2,887	)		(55.8	)%
Total revenues		6,873			9,711			(2,838	)		(29.2	)%
Operating expenses:
Cost of revenues (excluding amortization of acquired intangible assets)
Product sales and rentals		929			899			30			3.3	%
Services		957			2,213			(1,256	)		(56.8	)%
License, royalty and other		919			4,093			(3,174	)		(77.5	)%
Research and development		25,555			47,022			(21,467	)		(45.7	)%
Software cease-use costs		23,918			—			23,918			100.0	%
Selling, general and administrative		26,760			32,034			(5,274	)		(16.5	)%
Change in fair value of contingent consideration liability		(104,339	)		(40,198	)		(64,141	)		159.6	%
Goodwill impairment		29,633			—			29,633			100.0	%
IPR&D impairment		107,800			—			107,800			100.0	%
Amortization of acquired intangible assets		1,087			1,087			—			—
Total operating expenses		113,219			47,150			66,069			140.1	%
Loss from operations	$	(106,346	)	$	(37,439	)	$	(68,907	)		184.1	%

Net Revenues and Cost of Revenues

Net revenues for the six months ended June 30, 2023 was $6.9 million, a decrease of $2.8 million, or 29.2% compared to the prior year period. The decrease was primarily due to a $2.9 million decrease in license, royalty and other revenues due to loss of business with Evolution, a former distribution partner and more than offset the slight increase in product sales.

Cost of revenues for the six months ended June 30, 2023 was $2.8 million, a decrease of $4.4 million, or 61.1% compared to the prior year period. The decrease was primarily due to a $3.1 million decrease in license, royalty and other cost of revenues, which corresponds to our decrease in license, royalty and other revenues.

Research and Development Expenses

Research and development expenses for the six months ended June 30, 2023 were $25.6 million, a decrease of $21.5 million, or 45.7% compared to the prior year period. The decrease was primarily due to the Palantir platform fees captured in software cease-use costs in the current period, as well as lower personnel costs, lower clinical trial costs, lab supplies, and lower allocated costs as compared to the prior period reflecting our March 2023 reduction in force and decision to discontinue clinical trials of our cell therapy candidates.

Goodwill and IPR&D Impairments

Goodwill and IPR&D impairment charges for the six months ended June 30, 2023 was $29.6 million and $107.8 million, respectively, due to the decline in future revenue projections in the Cell Therapy business driven by discontinuation of clinical trials and changes in our strategy and pipeline.

Software Cease-Use Costs

Software cease-use costs for the six months ended June 30, 2023 was $23.9 million compared to $0 for the prior period due to the recognition of the remaining contract value associated with the Palantir platform fees. See Note 9 to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q for additional information related to the Palantir agreement.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the six months ended June 30, 2023 were $26.8 million, a decrease of $5.3 million, or 16.5% compared to the prior year period. The decrease was primarily due to lower personnel costs and consulting expenses resulting from our March 2023 reduction in force.

Change in Fair Value of Contingent Consideration Liability

Change in fair value of contingent consideration liability for the six months ended June 30, 2023 was $104.3 million, a decrease of $64.1 million, or 159.6% compared to the prior year period. The decrease resulted from a change in market-based assumptions as we discontinued our Cell Therapy clinical trials during 2023 (for more information about changes in the fair value of contingent consideration liability refer to Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).

Other Income (Expense)


	Six Months Ended								Percent
	June 30, 2023			June 30, 2022		Increase (Decrease)			Increase (Decrease)
Interest income	$	182		$	47	$	135			287.2	%
Interest expense		(1,381	)		—		(1,381	)		(100.0	)%
Change in fair value of warrant liabilities		1,601			22,280		(20,679	)		(92.8	)%
Change in fair value of debt		(2,357	)		—		(2,357	)		100.0	%
Other, net		(3,665	)		88		(3,753	)		(4264.8	)%
Total other income (expense)	$	(5,620	)	$	22,415	$	(28,035	)		(125.1	)%

For the six months ended June 30, 2023, other income (expense), net decreased by $28.0 million compared to the prior year period. The decrease was primarily related to a change in the fair value of the warrant liabilities due to the decrease in the price of our Class A common stock (see Note 3, “Fair Value of Financial Assets and Liabilities” in our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q).

Liquidity and Capital Resources

As of June 30, 2023, we had $3.1 million of cash and cash equivalents and an accumulated deficit of $757.5 million. Our primary use of our capital resources is funding our operating expenses, which consist primarily of funding the research and development of our cellular therapeutic candidates, and to a lesser extent, selling, general and administrative expenses.

As of the issuance date, we had approximately $1.7 million of unrestricted cash and cash equivalents available to fund our operations and no available additional sources of outside capital to sustain our operations and insufficient available cash to make the required Yorkville cash repayments, for a period of 12 months beyond the issuance date. These uncertainties raise substantial doubt about our ability to continue as a going concern. Refer to the Going Concern section above for further details.

To date, we have not had any cellular therapeutics approved for sale and have not generated any revenues from the sale of our cellular therapeutics. We generate limited revenues from our biobanking and degenerative disease businesses. We do not expect to generate any revenues from cellular therapeutic product sales unless and until we successfully complete development and obtain regulatory approval for one or more of our therapeutic candidates, which we expect will take a number of years. If we obtain regulatory approval for any of our therapeutic candidates, we expect to incur significant commercialization expenses related to therapeutic sales, marketing, manufacturing and distribution as our current commercialization efforts are limited to our biobanking and degenerative disease businesses. As a result, until such time, if ever, as we can generate substantial revenue from therapeutics and sales of our biomaterials products, we expect to finance our cash needs through equity offerings, debt financings or other capital sources, including potentially collaborations, licenses and other similar arrangements, including drawdowns under the At-The-Market Sales Agreement, dated as of September 8, 2022, by and between us and BTIG, LLC, Oppenheimer & Co. Inc. and B. Riley Securities, Inc., or the ATM Program, and we continue to explore licensing and collaboration arrangements for our cellular therapeutics as well as distribution arrangements for our degenerative disease business including our distribution agreements with CH Trade Group, Tamer and AD Ports to support expansion abroad. However, we may be unable to raise additional funds or enter into such other arrangements when needed on favorable terms or at all. Any failure to raise capital as and when needed could have a negative impact on our financial condition and on our ability to pursue our business plans and strategies. Failure to obtain this necessary capital or address our liquidity needs may force us to delay, limit or terminate our operations, make further reductions in our workforce, discontinue our commercialization efforts for our biomaterials products as well as other clinical trial programs, liquidate all or a portion of our assets or pursue other strategic alternatives, and/or seek protection under the provisions of the U.S. Bankruptcy Code.

We expect to incur substantial expenses in the foreseeable future for the development and potential commercialization of our cellular therapeutic candidates, expansion of our degenerative disease business and ongoing internal research and development programs. At this time, we cannot reasonably estimate the nature, timing or aggregate amount of costs for our development, potential commercialization, and internal research and development programs. However, to complete our current and future preclinical studies and clinical trials, and to complete the process of obtaining regulatory approval for our therapeutic candidates, as well as to build the sales, marketing and distribution infrastructure that we believe will be necessary to commercialize our cellular therapeutic candidates, if approved, and biomaterials products we may require substantial additional funding in the future.

To date, inflation has not had a significant impact on our business. However, any significant increase in inflation and interest rates could have a significant effect on the economy in general and, thereby, could affect our future operating results.

Cash Flows

The following table summarizes our cash flows for the six months ended June 30, 2023 and 2022:


	Six Months Ended
	June 30, 2023			June 30, 2022			Change
Cash provided by (used in)
Operating activities	$	(26,022	)	$	(70,571	)	$	44,549
Investing activities		(3,240	)		(2,894	)		(346	)
Financing activities		18,369			74,214			(55,845	)
Net change in cash, cash equivalents and restricted cash	$	(10,893	)	$	749		$	(11,642	)

Operating Activities

Net cash used in operations for the six months ended June 30, 2023 was $44.5 million lower than the prior year period, primarily due to adjustments for non-cash items for impairments and recognition of the Palantir cease-use liability (See Note 9).

Investing Activities

We used $3.2 million and $2.9 million of net cash in investing activities for the six months ended June 30, 2023 and 2022, respectively, which consisted of capital expenditures in each period and $3.0 million used to acquire IPR&D for the six months ended June 30, 2023.

Financing Activities

We generated $18.4 million of net cash provided by financing activities for the six months ended June 30, 2023, which consisted primarily of $12.4 million from the March 2023 and May 2023 private placements, $5.0 million of proceeds from the Starr Bridge Loan, $12.8 million of proceeds from the RWI Loans, $6.0 million from the April 2023 registered direct offering, offset by principal repayments on the Yorkville PPA of $16.8 million and $1.4 million of issuance costs. For the six months ended June 30, 2022 we generated $74.2 million of net cash provided by financing activities, which consisted primarily of $46.5 million in cash proceeds from the exercise of warrants to acquire 13,281,386 shares of our Class A common stock, and $27.5 million in cash proceeds from the May 2022 PIPE financing.

Critical Accounting Estimates

Our significant accounting policies are summarized in Note 2, “Summary of Significant Accounting Policies,” included within the Notes to our unaudited condensed consolidated financial statements included elsewhere in this quarterly report on Form 10-Q and in Note 2 to our audited annual financial statements included in the 2022 Form 10-K.

There have been no significant changes in our critical accounting policies during the six months ended June 30, 2023 as compared with those previously disclosed in the 2022 Form 10-K.

Recent Accounting Pronouncements

See Note 2 to our unaudited condensed consolidated financial statements included herein and Note 2 to our audited annual financial statements for the year ended December 31, 2022 included in the 2022 Form 10-K for information about recent accounting pronouncements, the timing of their adoption, and our assessment, to the extent we have made one, of their potential impact on our financial condition and results of operations.

JOBS Act Accounting Election

We are an “emerging growth company,” as defined in the JOBS Act. Under the JOBS Act, emerging growth companies can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.

We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth

company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

The term “disclosure controls and procedures”, as defined under Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.

Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered in this quarterly report Form 10-Q. Based on that evaluation, management concluded that the disclosure controls and procedures were not effective, at the reasonable assurance level, as of the end of the period covered by this quarterly report on Form 10-Q, as a result of the material weaknesses in internal control over financial reporting discussed below.

We previously identified the following material weaknesses in our internal control over financial reporting:

Control Environment: We had insufficient internal resources with appropriate accounting and finance knowledge and expertise to design, implement, document and operate effective internal controls around our financial reporting process.

ii.

Accounting for Contingent Consideration: Our calculation of the contingent consideration liability contained inconsistent and / or incorrect assumptions resulting in identified audit adjustments.

iii.

Accounting for Deferred Taxes: Our calculation of deferred tax assets and deferred tax liabilities contained errors resulting in identified audit adjustments.

iv.

Accounting for Warrants: Our calculation of warrant liabilities contained inconsistent and / or incorrect assumptions resulting in identified audit adjustments.

We are currently implementing our remediation plan to address the material weaknesses identified above. Such measures include:

•

Hiring additional accounting personnel to ensure timely reporting of significant matters.

•

Designing and implementing controls to formalize roles and review responsibilities to align with our team’s skills and experience and designing and implementing formalized controls.

•

Designing and implementing procedures to identify and evaluate changes in our business and the impact on our internal controls.

•

Designing and implementing formal processes, policies and procedures supporting our financial close process.

•

Engaging an outside firm to assist with the documentation, design and implementation of our internal control environment.

Changes in Internal Control over Financial Reporting

Other than in connection with executing upon the continued implementation of the remediation measures referenced above, including replacing our Corporate Controller who departed during the second quarter of 2023, there were no changes in our internal

controls over financial reporting that occurred during our second fiscal quarter ended June 30, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time, we may become involved in litigation or other legal proceedings. Except as set forth below, we are not currently a party to any litigation or legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. Regardless of outcome, litigation can have an adverse impact because of defense and settlement costs, diversion of management resources and other factors.

Arbitration Demand from Palantir Technologies Inc.

On April 20, 2023, Palantir Technologies Inc., or Palantir, commenced an arbitration with JAMS Arbitration asserting claims for declaratory relief and breach of contract relating to the May 5, 2021 Master Service Agreement, or the Palantir MSA, seeking damages in an amount equal to the full value of the contract. The Company has responded to the arbitration demand and asserted counterclaims for breach of contract, breach of warranty, fraudulent inducement, violation of California’s Unfair Competition Law, amongst others, in relation to the Palantir MSA. While the Company believes that Palantir’s claims are without merit and intends to vigorously defend against those claims, there can be no assurance as to the outcome of the arbitration.

Celularity Inc. v. Evolution Biologyx, LLC, et al.

On April 17, 2023, we filed a complaint against Evolution Biologyx, LLC, Saleem S. Saab, individually, and Encyte, LLC (collectively, Evolution) in the United States District Court for the District of New Jersey to recover unpaid invoice amounts for the sale of our biomaterial products in the amount of approximately $2.35 million, plus interest. In September 2021, we executed a distribution agreement with Evolution, whereupon Evolution purchased biomaterial products from us for sale through Evolution’s distribution channels. We fulfilled Evolution’s orders and otherwise performed each of our obligations under the distribution agreement. Despite attempts to recover the outstanding invoices and Evolution’s promise to pay, Evolution has refused to pay any of the invoices and has materially breached its obligations under the distribution agreement. Our complaint asserts claims of breach of contract and fraudulent inducement, amongst others. We intend to vigorously pursue the matter to recover the outstanding payments owed by Evolution, as well as interest and reasonable attorney's fees, but there can be no assurance as to the outcome of the litigation.

Civil Investigative Demand

We received a Civil Investigative Demand, or the Demand, under the False Claims Act, 31 U.S.C. § 3729, dated August 14, 2022, from the U.S. Attorney’s Office for the Eastern District of Pennsylvania. The Demand requests documents and information relating to claims submitted to Medicare, Medicaid, or other federal insurers for services or procedures involving injectable human tissue therapy products derived from amniotic fluid or birth tissue and includes Interfyl. We are cooperating with the request and are engaged in an ongoing dialogue with the Assistant U.S. Attorneys handling the Demand. The matter is still in preliminary stages and there is uncertainty as to whether the Demand will result in any liability.

Item 1A. Risk Factors.

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 31, 2023.

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

On June 20, 2023, in connection with the entry into the amendment of the RWI Bridge Loan, we issued additional warrants to acquire up to an aggregate of 500,000 shares of our Class A common stock, or the Additional Starr Warrant, to C.V. Starr & Co. Inc., one of our significant stockholders. The Additional Starr Warrant has a 5-year term and an exercise price of $0.81 per share.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.



Exhibit Number		Description

3.1		Amended and Restated Certificate of Incorporation of the Company (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the Commission on July 22, 2021).
3.2		Certificate of Amendment of the Second Amended and Restated Certificate of Incorporate of Celularity Inc. (incorporated by reference to Exhibit 3.1 to the current report on Form 8-K, filed with the Commission on June 16, 2023).
3.3		Amended and Restated Bylaws of the Company (incorporated by reference to Exhibit 3.2 to the current report on Form 8-K, filed with the Commission on July 22, 2021).
10.1		Securities Purchase Agreement dated as of April 4, 2023, by and between Celularity Inc. and the investors party thereto. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the Commission on April 7, 2023).
10.2		Form of Common Stock Purchase Warrant issued on April 10, 2023 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the Commission on April 7, 2023).
10.3		Placement Agency Agreement, dated as of April 4, 2023, by and between Celularity Inc. and the placement agent party thereto (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K, filed with the Commission on April 7, 2023).
10.4		Amendment No.1 to certain warrants issued on May 20, 2022, dated as of April 4, 2023, by and between Celularity Inc. and the holder party thereto (incorporated by reference to Exhibit 10.4 to the current report on Form 8-K, filed with the Commission on April 7, 2023).
10.5		Secured Loan Agreement, dated as of May 16, 2023, among Celularity Inc. and the lender party thereto (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the Commission on May 16, 2023).
10.6		Form of Securities Purchase Agreement, dated May 17, 2023, among Celularity Inc. and the purchaser party thereto (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the Commission on May 19, 2023).
10.7		Form of PIPE Warrant issued on May 18, 2023 (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the Commission on May 19, 2023).
10.8		Form of Registration Rights Agreement, dated May 18, 2023, among Celularity Inc. and the holder party thereto (incorporated by reference to Exhibit 10.3 to the current report on Form 8-K, filed with the Commission on May 19, 2023).
10.9		Form of Amended and Restated Secured Loan Agreement, dated as of June 20, 2023, by and between Celularity Inc. and the lender party thereto. (incorporated by reference to Exhibit 10.1 to the current report on Form 8-K, filed with the Commission on June 21, 2023).
10.10		Form of RWI Warrant (incorporated by reference to Exhibit 10.2 to the current report on Form 8-K, filed with the Commission on June 21, 2023).
10.11		Form of Additional Starr Warrant dated as of June 20, 2023, by and between Celularity Inc. and C.V. Starr & Co., Inc.
31.1		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS		Inline XBRL Instance Document- the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document
101.SCH		Inline XBRL Taxonomy Extension Schema Document
101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104		The cover page for the Company’s quarterly report on Form 10-Q has been formatted in Inline XBRL and contained in Exhibit 101

# Indicates a management contract or any compensatory plan, contract or arrangement.

* The certifications attached as Exhibits 32.1 and 32.2 accompanying this report are not deemed filed with the Securities and Exchange Commission and are not to be incorporated by reference into any filing of Celularity Inc. under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report, irrespective of any general incorporation language contained in such filing.

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.


	CELULARITY INC.

Date: August 14, 2023	By:	/s/ Robert J. Hariri
		Robert J. Hariri, M.D., Ph.D.
		Chief Executive Officer
		(Principal Executive Officer)

Date: August 14, 2023	By:	/s/ David C. Beers
		David C. Beers
		Chief Financial Officer
		(Principal Financial and Accounting Officer)