Longeveron Inc. - Quarter Report: 2021 June (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 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, 2021

OR 

☐ 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: 001-40060

Longeveron Inc.

(Exact name of registrant as specified in its charter)

1951 NW 7^th Avenue, Suite 520, Miami, Florida 33136

(Address of Principal Executive Offices)

Registrant’s Telephone Number, Including Area Code: (305) 909-0840

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

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, a 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 12, 2021, the registrant had 3,411,796 shares of Class A common stock, $0.001 par value per shares, and 15,702,834 shares of Class B common stock, $0.001 par value per share, outstanding.

LONGEVERON INC.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements.

Longeveron Inc.

Condensed Balance Sheets

(In thousands, except share and per share data)

See accompanying notes to unaudited condensed financial statements.

Longeveron Inc.

Condensed Statements of Operations

(In thousands, except per share data)

(Unaudited)

See accompanying notes to unaudited condensed financial statements.

Longeveron Inc.

Condensed Statements of Members’ Equity and Stockholders’ Equity

For the Six Months Ended June 30, 2021 and 2020 (In Thousands, Except Share Amounts) (Unaudited)

See accompanying notes to unaudited condensed financial statements.

Longeveron Inc.

Condensed Statements of Members’ Equity and Stockholders’ Equity

For the Three Months Ended June 30, 2021 and 2020 (In Thousands, Except Share Amounts) (Unaudited)

See accompanying notes to unaudited condensed financial statements.

Longeveron Inc.

Condensed Statements of Cash Flows

(In thousands) (Unaudited)

See accompanying notes to unaudited condensed financial statements.

Longeveron Inc.

Notes to the Condensed Financial Statements (Unaudited)

Three Month Periods Ended June 30, 2021 and 2020

1. Nature of Business, Basis of Presentation, and Liquidity

Nature of business:

On February 12, 2021, Longeveron LLC converted its corporate form from a Delaware limited liability company (Longeveron, LLC) to a Delaware corporation, Longeveron Inc. (the “Company,” “Longeveron” or “we,” “us,” or “our”). Longeveron LLC was formed as a Delaware limited liability company on October 9, 2014 and authorized to transact business in Florida on December 15, 2014. The Company is a clinical stage biotechnology company developing cellular therapies for specific aging-related and life-threatening conditions. The Company operates out of its leased facilities in Miami, Florida.

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 licenses, protection of proprietary technology, dependence on key personnel, compliance with government regulations and the need to obtain additional financing to fund operations. Product candidates currently under development will require significant additional research and development efforts, including extensive pre-clinical studies and clinical trials and regulatory approval, prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel infrastructure and extensive compliance and reporting capabilities.

The Company’s product candidates are currently in development. There can be no assurance that the Company’s research and development will be successfully completed, that adequate protection for the Company’s intellectual property will be obtained, that any products developed will obtain necessary government regulatory approval or that any approved products will be commercially viable. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will generate significant revenue from product sales. The Company operates in an environment of rapid technological change and substantial competition from, among others, existing pharmaceutical and biotechnology companies. In addition, the Company is dependent upon the services of its employees, partners and consultants.

Initial Public Offering (“IPO”):

On February 12, 2021 our Class A common stock began to trade on NASDAQ under the stock symbol “LGVN”. Pursuant to the IPO, the Company sold 2,660,000 shares of Class A common stock at a public offering price of $10.00 per share for aggregate gross proceeds of $26.6 million prior to deducting underwriting discounts, commissions, and other offering expenses. In addition, the Company granted the underwriters a 30-day option to purchase up to an additional 399,000 shares at the public offering price less the underwriting discounts and commissions.

On March 15, 2021, the Company’s underwriters partially exercised its over-allotment option, resulting in the Company selling an additional 250,000 shares of Class A common stock at a public offering price of $10.00 per share for aggregate gross proceeds of $2.5 million prior to deducting underwriting discounts, commissions, and other offering expenses.

Basis of presentation:

The accompanying unaudited Condensed Financial Statements have been prepared in accordance with the requirements of Article 8 of Regulation S-X promulgated under the Exchange Act and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and cash flows in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”). These unaudited Condensed Financial Statements should be read in conjunction with our Financial Statements and related notes, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, filed with the SEC. Unless otherwise stated, references to particular years or quarters refer to our fiscal years ended December 31 and the associated quarters of those fiscal years.

These Condensed Financial Statements are unaudited, but include all adjustments, including normal recurring adjustments, which, in the opinion of management, are necessary to present fairly our financial position, results of operations and cash flows for the interim periods presented. The Condensed Balance Sheet as of December 31, 2020 has been derived from the audited financial statements at that date but does not include all of the information and notes required by U.S. GAAP for complete financial statements. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year as a whole.

Liquidity:

Since inception, the Company has been engaged in organizational activities, including raising capital, and research and development activities. The Company does not yet have a product that has been approved by the U.S. Food and Drug Administration (“FDA”), and has only generated revenues from grants, clinical trials and contract manufacturing. The Company has not yet achieved profitable operations or generated positive cash flows from operations. The Company intends to continue its efforts to raise additional equity financing, develop its intellectual property, and secure regulatory approvals to commercialize its products. There is no assurance that profitable operations, if achieved, could be sustained on a continuing basis. Further, the Company’s future operations are dependent on the success of the Company’s efforts to raise additional capital, its research and commercialization efforts, regulatory approval, and, ultimately, the market acceptance of the Company’s products. These financial statements do not include adjustments that might result from the outcome of these uncertainties.

The Company has incurred recurring losses from operations since its inception, including a net loss of $8.1 million and $1.4 million for the six months ended June 30, 2021 and 2020, respectively. In addition, as of June 30, 2021, the Company had an accumulated deficit of $35.0 million. The Company expects to continue to generate operating losses for the foreseeable future.

As of June 30, 2021, the Company had cash, and cash equivalents of $16.8 million and short-term investments of $4.6 million. The Company believes that its cash and cash equivalents as of June 30, 2021 will enable it to fund its operating expenses and capital expenditure requirements through at least the next 12 months from the date of issuance of these financial statements.

2. Summary of Significant Accounting Policies

Use of estimates:

The presentation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Accounting Standard Updates

In December 2019, the Financial Accounting Standards Board issued Accounting Standards Update 2019-12, “Income Taxes (Topic 740)”. The amendments in this ASU simplify the accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and by clarifying and amending other areas of Topic 740. The amendments in this ASU are effective for annual and interim periods beginning after December 15, 2020. We adopted this ASU on January 1, 2021 with no material impact on our consolidated financial statements.

A variety of proposed or otherwise potential accounting standards are currently under consideration by standard-setting organizations and certain regulatory agencies. Because of the tentative and preliminary nature of such proposed standards, management has not yet determined the effect, if any, that the implementation of such proposed standards would have on the Company’s financial statements.

Cash and cash equivalents:

The Company considers cash to consist of cash on hand and temporary investments having an original maturity of 90 days or less that are readily convertible into cash.

Short-term investments:

Short-term investments at June 30, 2021 consist of marketable fixed income securities, primarily corporate bonds, which are categorized as available-for-sale securities and are thus marked to market and stated at fair value in accordance with ASC 820 Fair Value Measurement. These investments are considered Level 2 investments within the ASC 820 fair value hierarchy. The fair value of corporate bonds is determined using standard market valuation methodologies, including discounted cash flows, matrix pricing and / or other similar techniques. The inputs to these valuation techniques include but are not limited to market interest rates, credit rating of the issuer or counterparty, industry sector of the issuer, coupon rate, call provisions, maturity, estimated duration and assumptions regarding liquidity and estimated future cash flows.  In addition to bond characteristics, the valuation methodologies incorporate market data, such as actual trades completed, bids and actual dealer quotes, where such information is available. Accordingly, the estimated fair values are based on available market information and judgments about financial instruments categorized within Level 2 of the fair value hierarchy. Interest and dividends are recorded when earned. Realized gains and losses on investments are determined by specific identification and are recognized as incurred in the statement of operations. Changes in net unrealized gains and losses are reported in the statement of operations in the current period and represent the change in the fair value of investment holdings during the reporting period. Changes in net unrealized gains and losses were not significant for the three and six months ended June 30, 2021, and there were no such changes for the three and six months ended June 30, 2020.

Inventory:

The Company will begin carrying inventory of its biological products on its balance sheets following commercial launch of such products. Inventory will consist of raw materials, biological products in process, and finished goods available for sale. The Company will determine its inventory values using the average cost method. Inventory will be valued at the lower of cost or net realizable value and will exclude units that the Company anticipates distributing for clinical evaluation. As of each of June 30, 2021 and December 31, 2020, all of the Company’s biological products were anticipated to be distributed for clinical evaluation.

The Company does not currently carry any inventory for its biological products, as it has yet to launch a product for commercial distribution. Historically the Company’s operations have focused on clinical trials and discovery efforts, and accordingly, costs of manufactured clinical doses of biological product candidates were expensed as incurred, consistent with the accounting for all other research and development costs. Once the Company begins commercial distribution, costs of all newly manufactured biological products will be allocated either for use in commercial distribution, which will be carried as inventory and not expensed, or for research and development efforts, which will continue to be expensed as incurred.

Accounts and grants receivable:

Accounts and grants receivable include amounts due from customers, granting institutions and others. The amounts as of June 30, 2021 and December 31, 2020 are certain to be collected, and no amount has been recognized for doubtful accounts. MSCRF-TEDCO generally advance grant funds and therefore a receivable is not usually recognized. In addition, for the Clinical trial revenue, most participants pay in advance of treatment. Advanced grant funds and prepayments for the Clinical trial revenue are recorded to deferred revenue.

Accounts and grants receivable by source, as of (in thousands):

Deferred offering costs:

The Company recorded certain legal, professional and other third-party fees that were directly associated with in-process equity financings as deferred offering costs until the applicable equity financing was consummated. After consummation of an equity financing, these costs will be recorded in stockholders’ equity as a reduction of proceeds generated as a result of the offering. At June 30, 2021 the deferred offering costs accrued as of December 31, 2020 of $0.6 million were recorded to stockholder’s equity.

Property and equipment:

Property and equipment, including improvements that extend useful lives of related assets, are valued at cost, while maintenance and repairs are charged to operations as incurred. Depreciation is calculated using the straight-line method based on the estimated useful lives of the assets. Leasehold improvements are amortized over the shorter of the estimated useful life of the asset or the original term of the lease. Depreciation expense is recorded in the research and development line of the Statement of Operations as the assets are primarily related to the Company’s clinical programs.

Intangible assets:

Intangible assets include payments on license agreements with the Company’s co-founder and chief scientific officer (“CSO”) and the University of Miami (“UM”) (see Note 9) and legal costs incurred related to patents and trademarks. License agreements have been recorded at the value of cash consideration, common stock and membership units transferred to the respective parties when acquired.

Payments on license agreements are amortized using the straight-line method over the estimated useful life of 20 and 5 years. Patents are amortized over their estimated useful life, once issued. The Company considers trademarks to have an indefinite useful life and evaluates them for impairment on an annual basis. Amortization expense is recorded in the research and development line of the Statement of Operations as the assets are primarily related to the Company’s clinical programs.

Impairment of Long-Lived Assets:

The Company evaluates long-lived assets for impairment, including property and equipment and intangible assets, when events or changes in circumstances indicate that the carrying value of such assets may not be recoverable. Upon the occurrence of a triggering event, the asset is reviewed to assess whether the estimated undiscounted cash flows expected from the use of the asset plus the residual value from the ultimate disposal exceeds the carrying value of the asset. If the carrying value exceeds the estimated recoverable amounts, the asset is written down to the estimated fair value. Any resulting impairment loss is reflected on the statements of operations. Upon evaluation, management determined that there was no impairment of long-lived assets as of June 30, 2021 and December 31, 2020.

Deferred revenue:

The unearned portion of advanced grant funds and prepayments for Clinical trial revenue, which will be recognized as revenue when the Company meets the respective performance obligations, has been presented as deferred revenue in the accompanying balance sheets. For the six months ended June 30, 2021 and 2020, the Company recognized $0 and $0.5 million, respectively, of funds that were previously classified as deferred revenue ($0.4 million and $0.3 million for the three months ended June 30, 2021 and 2020, respectively).

Revenue recognition:

The Company recognizes revenue when performance obligations related to respective revenue streams are met. For Grant revenue, the Company considers the performance obligation met when the grant related expenses are incurred, or supplies and materials are received. The Company is paid in tranches pursuant to terms of the related grant agreements, and then applies payments based on regular expense reimbursement submissions to grantors. There are no remaining performance obligations or variable consideration once grant expense reporting to the grantor is complete. For Clinical trial revenue, the Company considers the performance obligation met when the participant has received the treatment. The Company usually receives prepayment for these services or receives payment at the time the treatment is provided, and there are no remaining performance obligations or variable consideration once the participant received the treatment. For Contract manufacturing revenue, the Company considers the performance obligation met when the contractual obligation and / or statement of work has been satisfied. Payment terms may vary depending on specific contract terms. There are no significant judgments affecting the determination of the amount and timing of revenue recognition.

Revenue by source (in thousands):

The Company records cost of revenues based on expenses directly related to revenue. For Grants, the Company records allocated expenses for Research and development costs to a grant as a cost of revenues. For the Clinical trial revenue directly related expenses for that program are allocated and expensed as incurred. These expenses are similar to those described under “Research and development expense” below.

Research and development expense:

Research and development costs are charged to expense when incurred in accordance with ASC 730. ASC 730 addresses the proper accounting and reporting for research and development costs. It identifies: 1) those activities that should be identified as research and development; 2) the elements of costs that should be identified with research and development activities, and the accounting for these costs; and 3) the financial statement disclosures related to them. Research and development costs include costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, property and equipment depreciation and allocation of various corporate costs. The Company accrues for costs incurred by external service providers, including contract research organizations and clinical investigators, based on its estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, patient enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, the Company may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

Concentrations of credit risk:

Financial instruments which potentially subject the Company to credit risk consist principally of cash and cash equivalents, short-term investments and accounts and grants receivable. Cash and cash equivalents are held in United States financial institutions. At times, the Company may maintain balances in excess of the federally insured amounts.

Income taxes:

Prior to its Corporate Conversion, the Company was treated as a partnership for U.S. federal and state income tax purposes. Consequently, the Company passed its earnings and losses through to its members based on the terms of the Company’s Operating Agreement. Accordingly, no provision for income taxes is recorded in the accompanying financial statements for prior periods.

Following the Corporate Conversion, the Company’s tax provision consists of taxes currently payable or receivable, plus any change during the period in deferred tax assets and liabilities. The Company uses the asset and liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. In addition, a valuation allowance is established to reduce any deferred tax asset for which it is determined that it is more likely than not that some portion of the deferred tax asset will not be realized. The Company’s tax provision was nil for the six months ended June 30, 2021 due to net operating losses. The Company has not recorded any tax benefit for the net operating losses incurred due to the uncertainty of realizing a benefit in the future.

The Company recognizes the tax benefits from uncertain tax positions that the Company has taken or expects to take on a tax return. In the unlikely event an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there is a probability that the uncertain tax position taken would be sustained upon examination by a taxing authority. Reserves for uncertain tax positions would then be recorded if the Company determined it is probable that either a position would not be sustained upon examination or a payment would have to be made to a taxing authority and the amount was reasonably estimable. As of June 30, 2021 and December 31, 2020, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability to the taxing authority. It is the Company’s policy to expense any interest and penalties associated with its tax obligations when they are probable and estimable.

Equity-based compensation:

The Company accounts for equity-based compensation expense by the measurement and recognition of compensation expense for stock-based awards based on estimated fair values on the date of grant. The fair value of the options is estimated at the date of the grant using the Black-Scholes option-pricing model.

The Black-Scholes option-pricing model requires the input of highly subjective assumptions, the most significant of which are the expected share price volatility, the expected life of the option award, the risk-free rate of return, and dividends during the expected term. Because the option-pricing model is sensitive to changes in the input assumptions, different determinations of the required inputs may result in different fair value estimates of the options.

Neither the Company’s stock options or restricted stock units (“RSUs”) do not trade on an active market. Volatility is a measure of the amount by which a financial variable, such as a stock price, has fluctuated (historical volatility) or is expected to fluctuate (expected volatility) during a period. Given the Company’s limited historical data, the Company utilizes the average historical volatility of similar publicly traded companies that are in the same industry. The risk-free interest rate is the average U.S. treasury rate (having a term that most closely approximates the expected life of the option) for the period in which the option was granted. The expected life is the period of time that the options granted are expected to remain outstanding. Options granted have a maximum term of ten years. The Company had insufficient historical data to utilize in determining its expected life assumptions and, therefore, uses the simplified method for determining expected life.

Comprehensive Loss

Comprehensive loss was equal to net loss for the six months ended June 30, 2021 and 2020.

3. Short-term investments

Short-term investments consisted of the following (in thousands):

As of December 31, 2020, the Company did not have any short-term investments.

4. Property and equipment, net

Major components of property and equipment are as follows (in thousands):

Depreciation and amortization expense amounted to approximately $0.2 and $0.4 million for each of the three and six months ended June 30, 2021 and 2020, respectively.

5. Intangible assets, net

Major components of intangible assets as of June 30, 2021 are as follows (in thousands):

Major components of intangible assets as of December 31, 2020 are as follows:

Amortization expense related to intangible assets totaled less than $0.1 million for each of the three and six months ended June 30, 2021 and 2020.

Future amortization expense for intangible assets as of June 30, 2021 is approximately as follows (in thousands):

6. Leases

In accordance with Accounting Standards Update 2016-02, “Leases (Topic 842)”, the Company records a Right-of-use (ROU) asset and a lease liability related to its operating leases (there are no finance leases). The Company’s corporate office lease expires in March 2027. As of June 30, 2021, the ROU asset and lease liability were approximately $1.9 million and $3.4 million, respectively. As of December 31, 2020, the ROU asset and lease liability were approximately $2.1 million and $3.7 million, respectively.

Future minimum payments under the operating leases as of June 30, 2021 are as follows (in thousands):

During the three and six months ended June 30, 2021 and 2020, the Company incurred approximately $0.2 million and $0.4 million of total lease costs, respectively, that are included in the general and administrative expenses in the statements of operations.

On July 1, 2020, the Company entered into a sublease agreement for a portion of its leased space for a one-year period ending June 30, 2021, with three optional one-year renewal periods, and $10,000 in monthly payments. For the six months ended June 30, 2021, $60,000 was recognized as sublease income, and is included in other income in the accompanying statements of operations.

7. Members’ Equity and Stockholders’ Equity 

IPO

The Corporate Conversion undertaken immediately prior to the IPO, the Company converted its corporate form from a Delaware limited liability company to a Delaware corporation with the name change to Longeveron Inc. The conversion caused all existing Series A and B units to convert into Class B common stock and all existing Series C units to convert into Class A common stock. The purpose of the Corporate Conversion was to reorganize the Company structure so that the entity that offered the Company’s Class A common stock to the public was a Delaware corporation rather than a Delaware limited liability company, and so that the Company’s existing investors own the Company’s Class A common stock or Class B common stock rather than equity interests in a limited liability company.

On March 15, 2021, the Company sold 250,000 shares of Class A common stock at a public offering price of $10.00 per share for aggregate gross proceeds of $2,500,000 prior to deducting underwriting discounts, commissions, and other offering expenses, pursuant to a partial exercise of the over-allotment option held by the underwriters.

Class A Common Stock

During the six months ended June 30, 2021 and prior to the Corporate Conversion, the Company issued 1,130 Series C Common Membership Units (“Series C Units”), as payment for existing consulting agreements, with an aggregate value of $0.1 million. As part of the Corporate Conversion 63,893 outstanding Series C units (which includes the units referenced in the prior sentence) converted into 344,077 shares of Class A common stock.

Also, during the three and six months ended June 30, 2021, the Company issued 131,053 and 157,719 unregistered shares of Class A common stock shares, with an aggregate value of $0.9 million and $1.1 million, respectively, as payment under consulting and license agreements.

During the six months ended June 30, 2020, the Company issued 18,335 Series C Units for $1.1 million in cash (none during the three months ended June 30, 2021). The Company also issued 734 Series C Units with an aggregate value of $0.1 million as payment under consulting agreements.

Class B Common Stock

As part of the Corporate Conversion, 2,000,000 outstanding Series A and B units were converted into 15,702,834 shares of Class B common stock.

The holders of Class B common stock may convert each share of Class B common stock into one share of Class A common stock. The holders of Class B common stock are entitled to five (5) votes per share, and holders of Class A common stock are entitled to one (1) vote per share.

Warrants

As part of the IPO the underwriter received warrants to purchase 106,400 shares of Class A common stock. The warrants are exercisable at any time and from time to time, in whole or in part, during the four and a half-year period commencing August 12, 2021, at a price of $12.00 per Class A common stock share. Total grant date fair value of warrants estimated using the Black-Scholes pricing model was approximately $0.5 million.

8. Equity Incentive Plan

RSUs

As part of the IPO, on January 29, 2021, the Company adopted and approved the 2021 Incentive Award Plan (“2021 Incentive Plan”). Under the 2021 Incentive Plan, the Company may grant cash and equity incentive awards to eligible service providers in order to attract, motivate and retain the talent for which the Company competes. The material terms of the 2021 Incentive Plan are summarized below.

On January 29, 2021, the Board approved the granting of 159,817 Series C RSUs under the Company’s existing 2017 Longeveron LLC Incentive Plan (the “2017 Incentive Plan”), which thereafter converted to RSUs exercisable for Class A common stock as part of the Corporate Conversion. More specifically, 159,817 RSUs were converted to 855,247 RSUs exercisable for Class A common stock. During February 2021, one employee resigned from the Company thereby forfeiting 16,113 RSUs, and 5,000 RSUs each were granted to eight of the Company’s Directors. RSUs have no exercise price and are convertible into Class A common stock shares upon meeting the vesting requirements. The RSUs shall vest, subject to the Participant’s continued Service to the Company, only upon satisfaction of both of the following criteria:

The fair value of each RSU grant made during 2021 will be recognized as stock-based compensation ratably over the related vesting periods, which approximates the service period, except for the Company’s Directors which vest over two years and 50% of the RSUs are vest on grant date, while the remaining vest 25% on each anniversary. As noted in the paragraph above, in order for RSUs to vest they must be held as of the IPO Settlement Date, which has been determined to be October 1, 2021. However, some RSUs with accelerated vesting as described above will be ratably vested over the seven and half month period ending on September 30, 2021. Based upon a third party valuation, the calculated fair value of each RSU was $9.00.

On June 3, 2021, the Company granted 5,000 Class A common stock RSUs to a new board member. The RSUs have no exercise price. As of June 30, 2021, the Company had 879,134 RSUs granted and outstanding.

RSU activity for the six months ended June 30, 2021 was as follows:

Stock Options

Stock options may be granted under the 2021 Incentive Plan. The exercise price of options is equal to the fair market value of the Company’s Class A common stock as of the grant date. Options historically granted have generally become exercisable over four years and expire ten years from the date of grant. The 2021 Incentive Plan provides for equity grants to be granted up to 5% of the outstanding common stock shares.

The fair value of the options issued are estimated using the Black-Scholes option-pricing model and have the following assumptions: a dividend yield of 0%; an expected life of 10 years; volatility of 95%; and risk-free interest rate based on the grant date ranging from of 1.23% to 1.62%. Each option grant made during 2021 will be expensed ratably over the option vesting periods, which approximates the service period.

As of June 30, 2021, the Company has recorded issued and outstanding options to purchase a total of 109,125 shares of Class A common stock pursuant to the 2021 Incentive Plan, at a weighted average exercise price of $5.67 per share.

For the six months ended June 30, 2021:

Stock Option activity for the six months ended June 30, 2021 was as follows:

On April 22, 2021, the Company granted awards of 64,125 Class A common stock options to employees. The stock options awards have four-year vesting periods, that vests 25% per year, and have an exercise price of $5.73. Based upon a Black-Scholes calculation the price per share to be expensed was $5.03 and a total cost of $0.3 million would be expensed ratably over 48 months.

On May 5, 2021, the Company granted an award of 10,000 Class A common stock options to an employee. The stock option award has a four-year vesting period, that vests 25% per year, and has an exercise price of $5.89. Based upon a Black-Scholes calculation the price per share to be expensed was $5.17 and a total cost of less than $0.1 million would be expensed ratably over 48 months.

On May 17, 2021, the Company granted an award of 30,000 Class A common stock options to an employee. The stock option award has a four-year vesting period, that vests 25% per year, and has an exercise price of $5.29. Based upon a Black-Scholes calculation the price per share to be expensed was $4.64 and a total cost of less than $0.1 million would be expensed ratably over 48 months.

On June 1, 2021, the Company granted an award of 5,000 Class A common stock options to an employee. The stock option award has a four-year vesting period, that vests 25% per year, and has an exercise price of $6.77. Based upon a Black-Scholes calculation the price per share to be expensed was $5.94 and a total cost of $0.1 million would be expensed ratably over 48 months.

For the six months ended June 30, 2021 and 2020, the equity-based compensation expense amounted to approximately $3.5 million ($2.2 million for the three months ended June 30, 2021) and $24,000 ($11,000 for the three months ended June 30, 2020), respectively, which is included in the research and development and general and administrative expenses in the accompanying statements of operations for the six months ended June 30, 2021 and 2020. As of June 30, 2021, the remaining unrecognized equity based compensation of approximately $5.0 million will be recognized over approximately 2.5 years.

9. Commitments and Contingencies

Master Services Agreements:

As of June 30, 2021, the Company had two active master services agreements with third parties to conduct its clinical trials and manage clinical research programs and clinical development services on behalf of the Company. The Company expects these agreements or amended current agreements to have total expenditures of less than $1.0 million for 2021.

Consulting Services Agreement:

On November 20, 2014, the Company entered into a ten-year consulting services agreement with its CSO. Under the agreement, the Company agreed to pay the CSO $270,000 annually. The compensation payments are for scientific knowledge, medical research, technical knowledge, skills, and abilities to be provided by the CSO to further develop the intellectual property rights assigned by the CSO to the Company. This agreement requires the CSO to also assign to the Company the exclusive right, title, and interest in any work product developed from his efforts during the term of this agreement. As of June 30, 2021, the Company had an accrued balance due to the CSO of $0.3 million and as of December 31, 2020 had a balance due of $0.3 million.

Technology Services Agreement:

On March 27, 2015, the Company entered into a technology services agreement with Optimal Networks, Inc. (a related company owned by a board member’s brother-in-law) for use of information technology services. The Company agreed to issue the related party equity incentive units in the amount equal to 50% of the charges for invoiced services, with such equity to be issued annually on or about the anniversary date of the agreement. During 2017, the Company issued 1,901 Series C Units, and on November 22, 2019 and January 29, 2021, the Company issued 820 and 410 Series C Units, respectively, as payment for an aggregate of $0.2 million of accrued technology services. The Series C units were converted to 16,755 Class A common stock shares as part of the Corporate Conversion. As of June 30, 2021, and December 31, 2020, the Company owed less than $0.1 million, pursuant to this agreement, which is included in accounts payable in the accompanying June 30, 2021 and December 31, 2020 balance sheets.

Exclusive Licensing Agreements:

UM Agreement

On November 20, 2014, the Company entered into an exclusive license agreement with UM for the use of certain stem cell aging-related frailty technology rights developed by the CSO while employed at UM. The Company recorded the value of the membership units issued to obtain this license agreement as an intangible asset. The Company is required to pay UM up to 3% of net sales on products or services developed from the technology. The agreement extends for up to 20 years from the last date a product or process is commercialized from the technology. Under the agreement, the Company is required to pay an annual fee to UM. As of June 30, 2020, the Company had accrued $50,000 based on the terms of the agreement. In addition, on November 14, 2014, as required by the license agreement the Company issued 20,000 series C membership units valued at $0.5 million to UM. The Company recorded this $500,000 as an intangible asset that is amortized over the life of the license agreement which was defined as 20 years. As of June 30, 2021, the Company had accrued less than $0.1 million in milestone fees payable to UM based on the estimated progress to date.

The UM agreement was amended on March 3, 2021 to increase the license fee due to UM. The Company agreed to pay UM an additional fee, which will be recorded as legal costs, of $0.1 million, to defray patent costs, with $70,000 due within thirty (30) days of the effective date of the amendment, and the remainder to be paid in equal installments of $7,500 on the 2^nd, 3^rd, and 5^th year anniversaries of the effective date. The Company also agreed to issue an additional 110,387 unregistered shares of Class A common stock shares to UM. The Company recorded this $0.8 million as an intangible asset that is amortized over the life of the license agreement which was defined as 5 years. The Company and UM agreed to the following modification of the milestone payments: (a) No payment will be due upon the completion of Phase 2 clinical trials for the product; (b) a one-time payment of $0.5 million, payable within six months of the completion of the first Phase 3 clinical trial of the products (based upon the final data unblinding); (c) a one-time payment of $0.5 million payable within six months of the receipt by the Company of approval for the first new drug application, biologics application, or other marketing or licensing application for the product; and (d) a one-time payment of $0.5 million payable within six months of the first sale following product approval. “Approval” refers to Product approval, licensure, or other marketing authorization by the U.S. Food and Drug Administration, or any successor agency. The amendment also provided for the Company’s license of additional technology, to the extent not previously included in the UM License, and granted the Company an exclusive option to obtain an exclusive license for (a) the HLHS IND with ckit+ cells; and (b) UMP-438 titled “Method of Determining Responsiveness to Cell Therapy in Dilated Cardiomyopathy.”

CD271

On December 22, 2016, the Company entered into an exclusive license agreement with JMHMD Holdings, LLC, an affiliated entity of the CSO for the use of CD271 cellular therapy technology. The Company recorded the value of the cash consideration and membership units issued to obtain this license agreement as an intangible asset. The Company is required to pay as royalty 1% of the annual net sales of the licensed product(s) used, leased, or sold by or for licensee or its sub-licensees. If the Company sublicenses the technology, it is also required to pay an amount equal to 10% of the net sales of the sub-licensees. In addition, on December 23, 2016, as required by the license agreement, the Company paid an initial fee of $250,000 to JMHMD, and issued to it 10,000 Series C Units, valued at $250,000. The $0.5 million of value provided to JMHMD for the license agreement, along with professional fees of approximately $27,000, were recorded as an intangible asset that is amortized over the life of the license agreement which was defined as 20 years. Further, expenses related to the furtherance of the CD271+ technology is being capitalized and amortized as incurred over 20 years. There were no license fees due during the six months ended June 30, 2021 or year ended December 31, 2020 pertaining to this agreement.

Other Royalty

Under the grant award agreement with the Alzheimer’s Association, the Company may be required to make revenue sharing or distribution of revenue payments for products or inventions generated or resulting from this clinical trial program. The potential payments, although not currently defined, could result in a maximum payment of five times (5x) the award amount.

Contingencies – COVID-19 Pandemic

The COVID-19 outbreak has impacted, and in the future could continue to adversely impact the Company’s ability to conduct business in the future. In December 2019, it was first reported that there had been an outbreak of a novel strain of coronavirus, SARS-CoV-2, COVID-19, in China. As COVID-19 continues to spread globally, including throughout the United States, the Company may experience disruptions that could severely impact its business, including:

The global outbreak of COVID-19 continues to rapidly evolve. The extent to which COVID-19 impacts the Company’s results will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID-19, the ultimate geographic spread of COVID-19, the duration of the outbreak, travel restrictions imposed by countries in which the Company conducts business, business closures or business disruption in the world, a reduction in time spent out of home and the actions taken throughout the world, including in the Company’s markets, to contain COVID-19 or treat its impact. The future impact of the outbreak is highly uncertain and cannot be predicted, and the Company cannot provide any assurance that the outbreak will not have a material adverse impact on the Company’s operations or future results or filings with regulatory health authorities. The extent of the impact to the Company, if any, will depend on future developments, including actions taken to contain COVID-19.

The Company continues to monitor how the COVID-19 pandemic is affecting the Company’s employees, business, and clinical trials. In response to the spread of COVID-19, the Company has instructed all employees who can perform their essential employment duties from home to do so. The Company’s laboratory scientists, cell processing scientists and other manufacturing personnel continue to work from the Company GMP facility on a day-to-day basis, and as such cell production has been minimally impacted. When the pandemic began to emerge in the U.S., most of the Company’s ongoing clinical trials had completed enrollment, however a few subjects that were currently on study and in follow-up experienced some difficulties in adhering to the protocol schedule. Because the Company primarily enrolls elderly subjects in the trials, who are at particular risk for poor outcomes related to COVID-19 infection, the Company has experienced some disruption in executing the follow-up visits in Company protocols. While the Company believes the number of instances where a visit was missed completely is small, the Company cannot predict whether this will have a material impact on the Company clinical results in the future. If too many subjects drop-out or the protocol is no longer effective, the Company may have to restart the clinical trial entirely.

10. Short-term Note Payable

On September 27, 2020, the Company entered into a premium finance agreement to finance its insurance policies for approximately $63,000. The note requires down payment of $6,334, ratable monthly payments of $6,499, including interest at 5.353% and matures in June 2021. As of June 30, 2021, the outstanding balance was paid in full.

11. Long-term Loan

On April 16, 2020, the Company received a loan from the Small Business Administration (“SBA”) pursuant to the Paycheck Protection Program (“PPP”) as part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) in the amount of $300,390. The loan had interest at a rate of 1.00%, and initial maturity in 24 months. It was anticipated that not more than 25% of the forgiven amount may be for non-payroll costs. The Company also received $10,000 from the SBA for the Economic Relief Fund; this amount does not need to be repaid and was recorded as Other Income for the year ended December 31, 2020. As of December 31, 2020, the outstanding balance of the PPP loan was $300,390. On March 4, 2021, the full balance due for the PPP loan was forgiven by the SBA.

On May 12, 2020, the Company received a loan from the SBA pursuant to the Disaster Recovery Plan as part of the CARES Act in the amount of $150,000. The Company began repayment on July 20, 2021 of $731 per month. The note will mature in 30 years and bears an interest rate of 3.75%. Due to part of the notes being due within one year, the Company recorded $5,000 and $139,000 in the current portion of loans line on the Balance Sheet as of June 30, 2021 and December 31, 2020, respectively.

Future debt obligations at June 30, 2020 for Long-term loans are as follows (in thousands):

12. Employee Benefits Plan

The Company sponsors a defined contribution employee benefit plan (the “Plan”) under the provisions of Section 401(k) of the Internal Revenue Code. The Plan covers substantially all full-time employees of the Company who have completed one year of service. Contributions to the Plan by the Company are at the discretion of the Board of Directors.

The Company contributed approximately $31,000 and $21,000 to the Plan during the six months ended June 30, 2021 and 2020, respectively and $15,000 and $10,000 for the three months ended June 30, 2021 and 2020, respectively.

13. Loss Per Share

Basic and diluted net loss per share have been computed using the weighted-average number of shares of common stock outstanding during the period. We have outstanding stock-based awards that are not used in the calculation of diluted net loss per share because to do so would be anti-dilutive. These common share equivalents were as follows at June 30, 2021 and 2020:

14. Subsequent Events

On July 20, 2021, the Company granted 225,000 Class A common stock options to executives. Mr. Green was granted 75,000 Class A common stock options and Mr. Lehr, Dr. Hare and Mr. Clavijo were granted 50,000 Class A common stock options. The stock options had four-year vesting, that vests 12.5% on July 22, 2021 and the remaining vests equally over the remaining four years, and an exercise price of $6.08. Based upon a Black-Scholes calculation the price per share to be expensed was $5.32 and a total cost of $1.2 million would be expensed ratably over 48 months.

Further on July 20, 2021, the Company changed the base compensation for its executive team; retroactive to February 12, 2021. The primary change was that the annual base salaries were changed for: Mr. Green, Mr. Lehr, Dr. Hare and Mr. Clavijo to $340,000, $300,000, $265,000 and $270,000. The Company also provided for an annual cash bonus which will be recorded and expensed when paid and shall be paid with the following conditions: Annual Cash Bonus for current year shall be paid at the rate of 33% of base salary for the Mr. Green and at 27% of the base salary for the Dr. Hare and at 25% of the respective base salaries for the Mr. Lehr and Mr. Clavijo, according to the following milestones/ company: 20% if budget revenues during the prior year review period meet projections; 20% if earnings/losses during the prior year review period are on budget (within 15%); 20% if stock price during the prior year review period has reached over $10/share; 20% if stock price during the prior year review period has reached over $12/share; 20% if stock price during the prior year review period has reached over $15/share. In addition, the Company granted a bonus for the completion of the IPO to Mr. Green, Mr. Lehr and Dr. Hare of $100,000, $75,000 and $75,000. The bonus would be paid out in cash and RSUs. With Mr. Green, Mr. Lehr and Dr. Hare receiving 8,223, 6,167 and 12,335 RSUs each. The RSU were issued based on a fair market value at the time of grant, July 20, 2021, of $6.08. The adjustments to base salaries and the IPO bonuses were recorded and expensed as of June 30, 2021.

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

In this document, the terms “Longeveron,” “Company,” “we,” “us,” and “our” refer to Longeveron Inc. We have no subsidiaries.

This Quarterly Report on Form 10-Q (this “10-Q”) contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that reflect our current expectations about our future results, performance, prospects and opportunities. This 10-Q contains forward-looking statements that can involve substantial risks and uncertainties. All statements other than statements of historical facts contained in this 10-Q, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, future revenue, timing and likelihood of success, plans and objectives of management for future operations, future results of anticipated products and prospects, plans and objectives of management are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “anticipate,” “believe,” “contemplate,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “plan,” “potential,” “predict,” “project,” “should,” “target,” “will,” or “would” or the negative of these terms or other similar expressions, although not all forward-looking statements contain these words. Forward-looking statements contained in this report include, but are not limited to, statements about:

The forward-looking statements contained in this 10-Q are made on the basis of the views and assumptions of management regarding future events and business performance as of the date this 10-Q is filed with the Securities and Exchange Commission (the “SEC”). In addition, we operate in a highly competitive and rapidly changing environment; therefore, new risk factors can arise, and it is not possible for management to predict all such risk factors, nor to assess the impact of all such risk factors on our business or the extent to which any individual risk factor, or combination of risk factors, may cause results to differ materially from those contained in any forward-looking statement. We do not undertake any obligation to update these statements to reflect events or circumstances occurring after the date this 10-Q is filed. In addition, this discussion and analysis should be read in conjunction with our unaudited financial statements and notes thereto included in this 10-Q and the audited financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March 30, 2021 (“2020 10-K”). Operating results are not necessarily indicative of results that may occur in future periods.

Overview and Recent Developments

Overview

We are a clinical stage biotechnology company developing cellular therapies for aging-related and life-threatening conditions. Our lead investigational product is Lomecel-B, which is derived from culture-expanded Medicinal Signaling Cells (MSCs) sourced from bone marrow of young healthy adult donors. As a company in the regenerative medicine field, we believe that by using allogeneic MSCs that promote tissue repair, organ maintenance, and immune system function, we can develop safe and effective therapies for some of the most difficult disorders associated with the aging process, in addition to other life-threatening diseases.

We currently have clinical research programs in the following diseases or conditions: Aging Frailty, Alzheimer’s disease, the Metabolic Syndrome, Acute Respiratory Distress Syndrome (ARDS) due to either COVID-19 or influenza infection, and Hypoplastic Left Heart Syndrome (HLHS). Our mission is to advance, either independently, or with an industry partner, Lomecel-B and other cell-based product candidates into Phase 3 (i.e. pivotal) trials for multiple indications, with the goal of achieving regulatory approvals, subsequent commercialization, and broad use by the healthcare community.

Status of US Trials of Lomecel-B

As of June 30, 2021, the U.S. FDA has authorized us to conduct six (6) clinical trials evaluating Lomecel-B. We have completed four (4) out of six of these studies.

In addition, we anticipate initiating a US Phase 2 trial in Alzheimer’s disease later in 2021.

Status of Japan Trial of Lomecel-B

Japan’s Pharmaceutical and Medical Device Agency (PMDA) approved a Clinical Trial Notification (CTN) submitted by the National Center for Geriatrics and Gerontology (NCGG) to conduct a Phase 2 study of Lomecel-B infusion in Japanese Aging Frailty subjects, and we expect this study to initiate in 2021. The trial is a 45-subject, randomized, placebo-controlled double blind study testing 50 million cell Lomecel-B (n=15), 100 million cell Lomecel-B (n=15), and placebo (n=15).

Bahamas Treatment Registry Trial

Since 2017 we have sponsored a registry in The Bahamas under the approval and authority of the Ministry of Health’s National Stem Cell Ethics Committee (NSCEC). The Bahamas Registry Trial administers Lomecel-B to eligible participants at two private clinics in Nassau for a variety of indications. While Lomecel-B is considered an investigational product in The Bahamas, under the approval terms from the NSCEC, we are permitted to charge a fee to participate and receive Lomecel-B.

Strategy

Since our founding in 2014, we have focused the majority of our time and resources on the following: organizing and staffing our company, building, staffing and equipping a GMP manufacturing facility with research and development labs, business planning, raising capital, establishing our intellectual property portfolio, generating clinical safety and efficacy data in our selected disease conditions and indications, and developing and expanding our manufacturing processes and capabilities.

We manufacture our own product candidates for clinical trials. In 2017 we opened a manufacturing facility comprised of eight clean rooms, two research and development laboratories, and warehouse and storage space. We have supply contracts with two third party suppliers for fresh bone marrow, which we use to produce our product candidate for clinical testing and research and development. From time to time, we enter into contract development and manufacturing contracts or arrangements with third parties who seek to utilize our product development capabilities.

When appropriate funding opportunities arise, we routinely apply for grant funding to support our ongoing research and since 2016 we have received approximately $16.0 million in grant awards ($11.9 million of which has been directly awarded to us and is recognized as revenue when the performance obligations are met) from the National Institute on Aging (NIA) of the National Institutes of Health (NIH), National Heart Lung and Blood Institute (NHLBI) of the NIH, the Alzheimer’s Association, and the Maryland Stem Cell Research Fund (MSCRF) of the Maryland Technology Development Corporation (TEDCO).

Impact of COVID-19 Pandemic

We continue to monitor how the COVID-19 pandemic is affecting our employees, business, and clinical trials. In response to the spread of COVID-19, any employee who can perform their essential employment duties from home may continue to do so at their choice. Our laboratory scientists, cell processing scientists and other manufacturing personnel continue to work from our GMP facility on a day-to-day basis, and as such cell production has been minimally impacted. When the pandemic began to emerge in the U.S., most of our ongoing clinical trials had completed enrollment. However, a few subjects that were currently on study and in follow-up experienced some difficulties in adhering to the protocol schedule. Because we primarily enroll elderly subjects in our trials, who are at particular risk for poor outcomes related to COVID-19 infection, we have experienced some disruption in executing the follow-up visits in our protocols. These disruptions were due to a number of reasons that include an unwillingness of the subject to leave their residence to visit the hospital or clinic, the inability to leave their residence due to regional “stay-at-home” orders, and temporary clinical site closures. We have attempted to mitigate this disruption by conducting remote visits where feasible (telemedicine), arranging for in-home visits for phlebotomy in order to collect blood samples and perform protocol-specific assessments if feasible, and amending protocols to increase the window of time for follow-up visits. In spite of these efforts, several subjects either missed their scheduled follow up visit, had their follow up visit outside of the protocol-defined window of time, or dropped out of the trial prior to completing. While we believe the number of instances where a visit was missed completely is small, we cannot predict whether this will have a material impact on our clinical results until the data from the trials are analyzed. If too many subjects drop-out or the protocol is no longer effective, we may have to restart the clinical trial entirely.

In July 2020 the Bahamian government halted travel from the U.S. into The Bahamas, which resulted in the temporary cessation of participation in The Bahamas Registry Trial. While this travel restriction has now been lifted, participation in the Registry Trial remains lower than anticipated, due in part to pandemic-related effects on international travel. We expect that the COVID-19 pandemic will continue to impact our business, results of operations, clinical development timelines and financial condition. At this time, there is significant uncertainty relating to the trajectory of the COVID-19 pandemic and impact of related responses. The impact of COVID-19 on our future results will largely depend on future developments, which are highly uncertain and cannot be predicted with confidence, such as the ultimate geographic concentration and continued spread of the disease, the duration of the pandemic, travel restrictions to and social distancing within the United States and other countries, business closures or business disruptions, the continued impact on financial markets and the global economy, and the effectiveness of the global response to contain and treat the disease.

Recent Developments

Clinical Developments

The pre-specified statistical analysis plan for the primary efficacy endpoint, change in six-minute walk test distance at 180 days post-infusion, involved a primary analysis and a secondary analysis:

Despite not achieving the statistical significance for the pairwise comparison to placebo at Day 180, significant differences from placebo were observed at Day 270, which was a pre-specified exploratory endpoint (25 million Δ=27.5, p=0.1530; 50 million Δ=49.2, p=0.0122; 100 million Δ=31.0, p=0.1071; 200 million Δ=63.4, p=0.0077).

The study’s key secondary endpoints were day 180 change in the patient reported outcome questionnaire PROMIS--Physical Function—Short Form 20a (SF-20a) total score and day 180 change in serum levels of tumor necrosis factor alpha (TNF-α), an inflammatory cytokine. Lomecel-B cohorts did not show a statistically significant difference compared to the placebo cohort in the SF-20a score, and the TNF- analysis is pending. The remainder of the endpoints, which included assessments of physical function, sexual function, fear and risk of falling, depression, cognition, frailty status, pulmonary function, and clinical outcomes, were considered exploratory and Lomecel-B-treated groups did not show significant differences versus placebo at most of the time points for any of the endpoints.

Corporate Developments

Components of Our Results of Operations

Revenue

We have historically generated revenue from three sources:

Cost of revenues

We record cost of revenues based on expenses directly related to revenue. For Grants we record allocated expenses for Research and development costs to a grant as a cost of revenues. For the Clinical trial revenue directly related expenses for that program are allocated and accrued as incurred. These expenses are similar to those described under “Research and development expense” below.

Selling and Marketing Expenses

Selling and marketing expenses consist primarily of royalty and license fees associated with our agreements with the UM, as well as attending and sponsoring industry, investment, organization and medical conferences and events.

Research and Development Expenses

Research and development costs are charged to expense when incurred in accordance with Financial Accounting Standards Board Accounting Standards Codification (“ASC”) 730 Research and Development, ASC 730 addresses the proper accounting and reporting for research and development costs. It identifies: 1) those activities that should be identified as research and development; 2) the elements of costs that should be identified with research and development activities, and the accounting for these costs; and 3) the financial statement disclosures related to them. Research and development include costs such as clinical trial expenses, contracted research and license agreement fees with no alternative future use, supplies and materials, salaries, share-based compensation, employee benefits, property and equipment depreciation and allocation of various corporate costs. We accrue for costs incurred by external service providers, including CROs and clinical investigators, based on estimates of service performed and costs incurred. These estimates include the level of services performed by the third parties, subject enrollment in clinical trials, administrative costs incurred by the third parties, and other indicators of the services completed. Based on the timing of amounts invoiced by service providers, we may also record payments made to those providers as prepaid expenses that will be recognized as expense in future periods as the related services are rendered.

We currently do not carry any inventory for our product candidates, as we have yet to launch a product for commercial distribution. Historically our operations have focused on conducting clinical trials, product research and development efforts, and improving and refining our manufacturing processes, and accordingly, manufactured clinical doses of product candidates were expensed as incurred, consistent with the accounting for all other research and development costs. Once we begin commercial distribution, all newly manufactured approved products will be allocated either for use in commercial distribution, which will be carried as inventory and not expensed, or for research and development efforts, which will continue to be expensed as incurred.

We expect that our research and development expenses will increase in the future as we increase our headcount to support increased research and development activities relating to our clinical programs, as well as incur additional expenses related to our clinical trials.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and other related costs, including stock-based compensation, for personnel in our executive, finance, business development and administrative functions. General and administrative expenses also include public company related expenses; legal fees relating to corporate matters; insurance costs; professional fees for accounting, auditing, tax and consulting services; travel expenses; and facility-related expenses, which include direct depreciation costs and allocated expenses for rent and maintenance of facilities and other operating costs. We capitalized certain legal, professional and other third-party fees that were directly associated with in-process equity financings as deferred offering costs until the applicable equity financing was consummated. After consummation of an equity financing, these costs will be recorded in shareholders’ equity as a reduction of proceeds generated as a result of the offering.

We expect that our general and administrative expenses will increase in the future as we increase our headcount to support increased administrative activities relating to our becoming a public company. We also expect to incur additional expenses associated with being a public company, including costs of accounting, audit, legal, regulatory and tax-related services associated with maintaining compliance with Nasdaq and SEC requirements, director and officer insurance costs, and investor and public relations costs.