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 report, 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. Factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements contained in this report include, but are not limited to, statements about:

? the ability of our clinical trials to demonstrate safety and efficacy of our

product candidates, and other positive results;

? the timing and focus of our ongoing and future preclinical studies and clinical

trials, and the reporting of data from those studies and trials;

? the size of the market opportunity for our product candidates, including our

estimates of the number of patients who suffer from the diseases we are

targeting;

? the success of competing therapies that are or may become available;

? the beneficial characteristics, safety, efficacy and therapeutic effects of our

product candidates;

? our ability to obtain and maintain regulatory approval of our product

candidates;

? our plans relating to the further development of our product candidates,

including additional disease states or indications we may pursue;

? existing regulations and regulatory developments in the United States, Japan

and other jurisdictions;

? our plans and ability to obtain or protect intellectual property rights,

including extensions of existing patent terms where available and our ability

to avoid infringing the intellectual property rights of others;

? the need to hire additional personnel and our ability to attract and retain

such personnel;

? our estimates regarding expenses, future revenue, capital requirements and

needs for additional financing;

? the effect that global pathogens could have on financial markets, materials

sourcing, patients, governments and population (e.g., COVID-19);

? our need to raise additional capital, the difficulties we may face in obtaining

access to capital, and the dilutive impact it may have on our investors;

? our financial performance; and

? the period over which we estimate our existing cash and cash equivalents will

be sufficient to fund our future operating expenses and capital expenditure


   requirements.



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, 2021, filed with the SEC on March 11, 2022 ("2021 10-K"). Operating results are not necessarily indicative of results that may occur in future periods.





                                       18




Overview and Recent Developments





Overview


We are a clinical stage biotechnology company developing regenerative medicines to address unmet medical needs. The Company's lead investigational product is Lomecel-B™, an allogeneic medicinal signaling cell (MSC) therapy product isolated from the bone marrow of young, healthy adult donors. Lomecel-B™ has multiple modes of action that include pro-vascular, pro-regenerative, and anti-inflammatory mechanisms, promoting tissue repair and healing with broad potential applications across a spectrum of disease areas.

We are currently pursuing three pipeline indications: Hypoplastic Left Heart Syndrome (HLHS), Aging Frailty, and Alzheimer's disease (AD). Our mission is to advance Lomecel-B and other cell-based product candidates into pivotal Phase 3 trials, with the goal of achieving regulatory approvals, subsequent commercialization, and broad use by the healthcare community.

Our philosophy is that healthy aging can be improved through regenerative medicine approaches. Life expectancy has substantially increased over the past century as a result of medical and public health advancements. However, this increase in longevity has not been paralleled by the number of years a person is expected to live in relatively good health, with limited chronic disease and disabilities of aging - a period known as healthspan. As we age, we experience a decline in our own stem cells; a decrease in immune system function, known as immunosenescence; diminished blood vessel functioning; chronic inflammation, known as "inflammaging"; and other aging-related declines. Our preliminary clinical data suggest that Lomecel-B can potentially address these problems through multiple mechanisms of action, or MOAs, that simultaneously target key aging-related processes.

Improving healthspan is an imperative for governmental health agencies. The National Institute on Aging (NIA), an institute of the National Institutes of Health (NIH), has promoted the concept of geroscience - the idea that aging itself is the biggest risk factor for aging-related human diseases and that aging can be approached as a treatable disease to improve healthspan. The geroscience hypothesis provides a strong rationale for the approach of treating underlying biological processes contributing to aging as a way to reduce disease burden and advance global human health. Our investments into developing and testing product candidates are aimed at reducing aging-related disease burden and improving healthspan.





Our Strategy


Our core business strategy is to become a world leading regenerative medicine company through the development and commercialization of novel cell therapy products for unmet medical needs, with emphasis on aging-related indications. Key elements of our business strategy are as follows.

? Advance Lomecel-B and other regenerative medicine products to market. We are

advancing Lomecel-B into later stage clinical trials for the purpose of

achieving commercialization in one or more indications. Our studies throughout

the clinical development process are intended to generate safety and efficacy

data needed to advance these programs and establish foundations for subsequent

development and expansion into new areas. We will continue to leverage our

technical and clinical expertise, and relationships with clinical

investigators, treatment centers, and other key stakeholders, to explore new


   opportunities.



? Expand our manufacturing capabilities to commercial-scale production. We

operate a good manufacturing practice (GMP) - compliant manufacturing facility

and produce our own product candidates for testing. We continue to improve and

expand our capabilities with the goal of achieving cost-effective manufacturing

that may potentially satisfy future commercial demand should Lomecel-B achieve


   commercialization.



? Non-dilutive funding. Our clinical programs have received over $16.0 million in

competitive extramural grant awards ($11.5 million which has been directly

awarded to us and which are recognized as revenue when the performance

obligations are met) from the NIH, Alzheimer's Association, and Maryland Stem

Cell Research Fund (MSCRF). These prestigious funding awards are non-dilutive

and allow us to collaborate with state and federal partners in pursuing safe

and effective therapeutics for disorders that have few, if any, available


   approved treatments.



? Continue to develop our existing international programs. We have selected Japan

as our first non-U.S. territory for a randomized, double-blinded,

placebo-controlled clinical trial to evaluate Lomecel-B for Aging Frailty. We

may explore other indications in Japan, and potentially pursue Aging Frailty

and other indications in additional international locations for further

development and commercialization.

? Collaboration arrangements and out-licensing opportunities. We will be

opportunistic and consider entering into co-development, out-licensing,

commercialization or other collaboration agreements for the purpose of

commercializing Lomecel-B and other products domestically and internationally.

? Product candidate development pipeline through internal research and

development, and in-licensing. Through our research and development program,

and through strategic in-licensing agreements, or other business development

arrangements, we continue to actively explore promising potential additions to

our pipeline of product candidates.

? Continue to expand our intellectual property portfolio. Our intellectual

property is vitally important to our business strategy, and we take significant

steps to develop this property and protect its value. Results from our ongoing

research and development efforts are intended to add to our existing

intellectual property portfolio.






                                       19




Impact of COVID-19 Pandemic and other Macroeconomic Conditions

We continue to monitor new developments on the effects of COVID-19 on our employees, business, and clinical trials. During the initial stages associated with the spread of COVID-19, we instructed all employees who could perform their essential employment duties from home to do so. Our laboratory scientists, cell-processing scientists and other manufacturing personnel continued to work from our GMP facility and headquarters on a day-to-day basis, and as such, cell production was minimally impacted. Certain other employees continue to maintain a fully remote or "hybrid" work arrangement as their roles allow. 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 on-study and in follow-up experienced difficulties in adhering to the protocol visit schedule. Because we primarily enroll older adults in our trials, who are at particular risk for poor outcomes related to COVID-19 infection, we experienced some disruption in executing the follow-up visits in our studies. These disruptions resulted in challenges that included temporary clinical site closures, the inability to leave a residence due to regional "stay-at-home" orders and an unwillingness of trial subjects to leave their residence to visit the hospital or clinic. To minimize and mitigate these disruptions, we conducted remote visits (via telemedicine), arranged for in-home visits for phlebotomy in order to collect blood samples and other protocol-specific assessments, and amended protocols to increase the window of time for follow-up visits. Despite these efforts, several subjects missed follow-up visits, had their follow up visit outside of the protocol-defined time-window, or withdrew from the trial prior to completion. Regardless, given the steps implemented by Longeveron, the cumulative instances were few and did not appear to have a material impact on our now-completed Phase 2b Aging Frailty study, Phase 1 Vaccine trial, Phase 1 Alzheimer's disease trial, and Phase 1 HLHS clinical trial.

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 since been lifted, participation in the Registry Trial has not completely been restored.

As it relates to current macroeconomic conditions in the U.S., although we have experienced some supply constraints and marginal price increases, to date current macroeconomic conditions have not materially impacted our programs or our operations. We continue to monitor economic conditions in the U.S. and globally and expect to act proactively where possible to minimize the impact of continued inflation or supply constraints on materials and inventory needed for operations.





Recent Developments



Lomecel-B for Hypoplastic Left Heart Syndrome (HLHS):

? The ELPIS II trial (Phase 2a) continues to enroll infants in the 38-patient,

2-arm, parallel design, randomized (1:1), blinded, controlled trial intended to

evaluate the safety and efficacy of Lomecel-B injection into the right

ventricle of children born with HLHS who are undergoing Stage II reconstructive

cardiac surgery. All seven planned clinical sites have now been activated for

screening and enrollment, and we are continuing to monitor timelines for the

trial as patients continue to be enrolled.

? A manuscript detailing the full Phase 1 ("ELPIS I") trial results (the top-line

data having been previously announced on September 9, 2021), was released on

the pre-print server MedRxiv and is in the submission process at peer-reviewed

journal(s), with acceptance and publication currently anticipated in the fourth


   quarter of 2022.



Lomecel-B for Aging Frailty:

? In collaboration with Dr. Hidenori Arai, president of the National Center for

Geriatrics and Gerontology (NCGG) in Japan and primary investigator of the

investigator-initiated Japan Aging Frailty Phase 2 trial, we have focused the

strategy in Japan toward an approval under Japan's Act on the Safety of

Regenerative Medicine (ASRM). The trial initiated in October of 2022 and the

first patient is expected to be enrolled before the end of 2022. This trial is

a 3-arm, parallel design, randomized (1:1:1), placebo-controlled, double-blind

single infusion study of two different dose levels of Lomecel-B being conducted

by our clinical partners at the NCGG (Nagoya), and Juntendo University Hospital

(Tokyo).

? A manuscript detailing the full Phase 2b Aging Frailty trial results (the

top-line data having been previously announced on was on August 13, 2021), is

in the submission process at peer-reviewed journal(s), with acceptance and

publication currently anticipated in 2022

Lomecel-B for Alzheimer's disease:

? In January 2022, we initiated enrollment of a 48-patient, 4-arm, parallel

design, randomized (1:1:1:1) Phase 2a clinical trial of Lomecel-B infusion in

patients with mild Alzheimer's disease. This study is intended to evaluate the

safety of single and multiple administrations of Lomecel-B compared to placebo

according to the following treatment groups:

o Group 1 (n=12): Placebo infusion (zero cells) on day 0, weeks 4, 8 and 12

o Group 2 (n=12): Lomecel-B infusion (25 million cells) on day 0, followed by

placebo infusions at Weeks 4, 8 and 12

o Group 3 (n=12): Lomecel-B infusion (25 million cells) on day 0, weeks 4, 8,

and 12

o Group 4 (n=12): Lomecel-B infusion (100 million cells) on day 0, weeks 4, 8,

and 12

? Other endpoints in the Phase 2a trial include brain volumetry by MRI,

biomarkers relevant to inflammation and endothelial/vascular systems, and

measures of cognitive function. We have activated 10 of a total of 12 clinical

sites to facilitate enrollment and have now successfully enrolled 48 out of the

48 planned patients. We completed the full enrollment of this study in October

2022. Further details about the trial design can be found on clinicaltrials.gov

by entering trial identifier NCT05233774.






                                       20




Lomecel-B for Acute Respiratory Distress Syndrome (ARDS) caused by either Covid-19 or Influenza Infection:

? The two-cohort, 70 patient (35 patients per cohort) Phase 1 trial has been

discontinued due to changes in the landscape of this disease resulting in a

lack of patients suffering from the condition resulting in an inability to

enroll patients into this study.

Components of Our Results of Operations





Revenue


We have generated revenue from three sources:

? Grant awards. Extramural grant award funding, which is non-dilutive, has been a

core strategy for supporting our ongoing clinical research. Since 2016 our

clinical programs have received over $16.0 million in competitive extramural

grant awards ($11.5 million which has been directly awarded to us and which are

recognized as revenue when the performance obligations are met) from the NIH,

Alzheimer's Association, and Maryland Stem Cell Research Fund (MSCRF)."

? The Bahamas Registry Trial. Participants in The Bahamas Registry Trial pay us a

fee to receive Lomecel-B, imported into The Bahamas, and administered at one of

two private medical clinics in Nassau. While Lomecel-B is considered an

investigational product in The Bahamas, under the approval terms received from

the National Stem Cell Ethics Committee, we are permitted to charge a fee for

participation in the Registry Trial. The fee is recognized as revenue and is

used to pay for the costs associated with manufacturing and testing of

Lomecel-B, administration, shipping and importation fees, data collection and

management, biological sample collection and sample processing for biomarkers

and other data, and overall management of the Registry, including personnel

costs. Lomecel-B is considered an investigational treatment in The Bahamas and

is not licensed for commercial sale.

? Contract development and manufacturing services. From time to time, we enter

into fee-for-service agreements with third parties for our product development

and manufacturing capabilities.






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 University of Miami ("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 ("FASB") 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.





                                       21




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 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.





Other Income and Expenses


Interest income consists of interest earned on cash equivalents and short-term investments. We expect our interest income to increase due to the current cash and short-term investment balances. Other income consists of funds earned that are not part of our normal operations. In past years they have been primarily a result of tax refunds received for social security taxes as part of a research and development tax credit program.





Income Taxes


As of December 31, 2021, we are treated as a C corporation for federal and state income tax purposes. Prior to February 12, 2021, we were treated as a partnership for federal and state income tax purposes, whereby we passed our earnings and losses through to our members based on the terms of our Operating Agreement. No provision for income taxes has been recorded for the years ended December 31, 2021, and 2020. We may incur income taxes in the future if we have earnings. At this time the Company has not evaluated the impact of any future profits.





RESULTS OF OPERATIONS



COMPARISON OF THE THREE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021

The following table summarizes our results of operations for the three months ended September 30, 2022 and 2021, together with the changes in those items in dollars (in thousands):





                               Three Months Ended
                                  September 30,           Increase
                                2022          2021       (Decrease)
Revenues                     $      265     $    232     $        32
Cost of revenues                    173           68             105
Gross profit                         92          164             (72 )
Expenses
General and administrative        2,074        2,996            (922 )
Research and development          2,960        2,048             912
Selling and marketing               245           25             220
Total operating expenses          5,279        5,069             210

Loss from operations             (5,187 )     (4,905 )          (283 )
Interest expense                      -           (1 )             1
Other (expense) income              (57 )         51            (108 )
Net loss                     $   (5,244 )   $ (4,855 )   $      (389 )

Revenues, Cost of Revenues and Gross Profit:Revenues for the three months ended September 30, 2022 and 2021 was $0.3 million and $0.2 million, respectively. Grant revenue for each of the three months ended September 30, 2022 and 2021 was $55,000 and $68,000, respectively. Grant revenue for the three months ended September 30, 2022, was approximately $13,000, or 19% lower when compared to the same period in 2021, primarily due to a reduction in grant funds available due in part to the completion of the grant-funded clinical trials. Clinical trial revenue, which comes from the Bahamas Registry Trial, for each of the three months ended September 30, 2022 and 2021 was $210,000 and $164,000, respectively. Clinical trial revenue for the three months ended September 30, 2022, was approximately $46,000, or 28%, higher when compared to the same period in 2021. During the second quarter of 2022, clinical trial revenue increased as a result of an increase in participant demand in the Bahamas Registry Trial.





                                       22




Related cost of revenues was approximately $0.2 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. Cost of revenues for the three months ended September 30, 2022, was approximately $0.1 million, or 153%, higher when compared to the same period in 2021, primarily due to increased cost of revenues for the Bahamas Registry Trial. This resulted in a gross profit of approximately $0.1 million and $0.2 million for the three months ended September 30, 2022 and 2021, respectively. Gross profit for the three months ended June 20, 2022, was less than $0.1 million, or 44% lower when compared to the same period in 2021.

General and Administrative Expense: General and administrative expenses for the three months ended September 30, 2022, decreased to approximately $2.1 million, compared to $3.0 million for the same period in 2021. The decrease of approximately $0.9 million, or 31%, was primarily related to a decrease of $1.2 million in equity-based compensation expenses allocated to general and administrative expenses. However, expenses related to legal and consulting services increased by $0.3 million in the three months ended September 30, 2022, compared to the same period in 2021.

Research and Development Expenses: Research and development expenses for the three months ended September 30, 2022, increased to approximately $2.9 million, from approximately $2.0 million for the same period in 2021. The increase of $0.9 million, or 45%, was primarily due to an increase of $1.8 million in research and development expenses that were not reimbursable by grants. This increase was partially offset by a decrease in equity-based compensation allocated to research and development expenses which decreased from $0.9 million for the three months ended September 30, 2021, to $0.1 million for the same period in 2022. Research and development expenses consisted primarily of the following items (less those expenses allocated to the cost of revenues for the grants) (in thousands):





                                                                       Three Months Ended
                                                                          September 30,
                                                                       2022           2021

Clinical trial expenses-statistics, monitoring, labs, sites, etc. $ 1,737 $ 455 Supplies and costs to manufacture Lomecel-B

                                287            100
Employee compensation and benefits                                         569            360
Equity-based compensation                                                  101            878
Depreciation                                                               184            182
Amortization                                                                56             55
Travel                                                                      16             18
Other activities                                                            10              -
                                                                    $    2,960      $   2,048

Selling and Marketing Expenses: Selling and marketing expenses for the three months ended September 30, 2022 and 2021 were approximately $0.2 million and less than $0.1 million, respectively. Selling and marketing expenses consist primarily of investor and public relations expenses.

Other (Expense) Income: Other expense for the three months ended September 30, 2022, was less than $0.1 million. Other expense consisted of an unrealized loss of $0.1 million from short-term investments and interest income of $0.1 million. Other income for the three months ended September 30, 2021, was less than $0.1 million. Other income was primarily the result of $42,000 received in rental payments recorded from a sublease, and $22,000 from federal research tax credits.

Net Loss: Net loss increased to approximately $5.2 million for the three months ended September 30, 2022, from a net loss of 4.9 million for the same period in 2021. The increase in the net loss of $0.3 million, or 8%, was for reasons outlined above.

COMPARISON OF THE NINE MONTHS ENDED SEPTEMBER 30, 2022 AND 2021





The following table summarizes our results of operations for the nine months
ended September 30, 2022 and 2021, together with the changes in those items in
dollars (in thousands):



                                                        Nine Months Ended
                                                          September 30,            Increase
                                                       2022          2021         (Decrease)
Revenues                                             $   1,101     $   1,097     $          4
Cost of revenues                                           549           576              (27 )
Gross profit                                               552           521               31
Expenses
General and administrative                               6,481         8,454           (1,973 )
Research and development                                 6,107         5,359              748
Selling and marketing                                      766           132              634
Total operating expenses                                13,354        13,945             (591 )

Loss from operations                                   (12,802 )     (13,424 )            622
Non-operating Lawsuit expense                           (1,398 )           -           (1,398 )
Forgiveness of Paycheck Protection Program loan              -           300             (300 )
Interest expense                                            (1 )          (3 )              3
Other (expense) income                                    (177 )         151             (328 )
Net loss                                             $ (14,378 )   $ (12,976 )   $     (1,401 )




                                       23




Revenues, Cost of Revenues and Gross Profit:Revenues for each of the nine months ended September 30, 2022 and 2021 were approximately $1.1 million. Revenues for the nine months ended September 30, 2022, were approximately $4,000, or 0% higher when compared to the same period in 2021. Grant revenue for the nine months ended September 30, 2022 and 2021 was $0.2 million and $0.6 million, respectively. Grant revenue for the nine months ended September 30, 2022, was approximately $0.4 million, or 57% lower when compared to the same period in 2021, primarily due to a reduction in grant funds available due in part to the completion of the grant-funded clinical trials. Clinical trial revenue, which comes from the Bahamas Registry Trial, for the nine months ended September 30, 2022 and 2021 was $0.9 million and $0.5 million, respectively. Clinical trial revenue for the nine months ended September 30, 2022, was approximately $0.3 million, or 58%, higher when compared to the same period in 2021. During the second quarter of 2022, clinical trial revenue increased as a result of an increase in participant demand.

Related cost of revenues was approximately $0.5 million and $0.6 million for the nine months ended September 30, 2022 and 2021, respectively. Cost of revenues for the nine months ended September 30, 2022, was approximately $27,000, or 5%, less when compared to the same period in 2021, primarily due to decreased cost of revenues for the Bahamas Registry Trial. This resulted in a gross profit of approximately $0.6 million and $0.5 million for the nine months ended September 30, 2022 and 2021, respectively. Gross profit for the nine months ended September 30, 2022, was approximately $31,000 or 6% higher when compared to the same period in 2021.

General and Administrative Expense: General and administrative expenses for the nine months ended September 30, 2022, decreased to approximately $6.5 million, compared to $8.5 million for the same period in 2021. The decrease of approximately $2.0 million, or 23%, was primarily related to a decrease of $2.3 million in equity-based compensation expenses allocated to general and administrative expenses. However, expenses related to legal and consulting services increased by $0.4 million in the nine months ended September 30, 2022, compared to the same period in 2021. In addition, employee benefit expenses increased by $0.4 million, which included expenses related to employee recruitment expenses.

Research and Development Expenses: Research and development expenses for the nine months ended September 30, 2022, increased to approximately $6.1 million, from approximately $5.4 million for the same period in 2021. The decrease of $0.7 million, or 14%, was primarily due to an increase an increase of $2.6 million in research and development expenses that were not reimbursable by grants. This increase was offset by a decrease in equity-based compensation allocated to research and development expenses, which decreased from $2.1 million for the nine months ended September 30, 2021, to $0.3 million for the same period in 2022. Research and development expenses consisted primarily of the following items (less those expenses allocated to the cost of revenues for the grants) (in thousands):





                                                                       Nine Months Ended
                                                                         September 30,
                                                                       2022          2021

Clinical trial expenses-statistics, monitoring, labs, sites, etc. $ 2,867 $ 1,214 Supplies and costs to manufacture Lomecel-B

                                532           362
Employee compensation and benefits                                       1,579           860
Equity-based compensation                                                  298         2,097
Depreciation                                                               501           545
Amortization                                                               156           138
Travel                                                                      57            46
Other activities                                                           117            97
                                                                    $    6,107     $   5,359

Selling and Marketing Expenses: Selling and marketing expenses for the nine months ended September 30, 2022 and 2021 were approximately $0.8 million and $0.1 million, respectively. Selling and marketing expenses consist primarily of investor and public relations expenses.

Non-operating Lawsuit expense: Non-operating Lawsuit expense for the nine months ended September 30, 2022, was approximately $1.4 million. This expense was deemed probable and therefore the amount was accrued in this period. Additional detail can be found in Part II, Item 1 "Legal Proceedings" of this Quarterly Report on Form 10-Q. Legal expenses incurred in ordinary business activities are reported within general and administrative expenses.





                                       24




Forgiveness of Paycheck Protection Program loan: Forgiveness of the Paycheck Protection Program loan for the nine months ended September 30, 2022, decreased to approximately $0 million, compared to $0.3 million for the same period in 2021. The decrease of $0.3 million, or 100% was due to the non-recurring nature of the forgiveness of the PPP loan.

Other (Expense) Income: Other expense for the nine months ended September 30, 2022, was $0.2 million for unrealized loss on investments. Other income was primarily the result of $102,000 received in rental payments recorded from a sublease, $8,000 from recorded investment income, $24,000 from federal research tax credits and $17,000 from a gain resulting from an equity exchange.

Net Loss: Net loss increased to approximately $14.4 million for the nine months ended September 30, 2022, from a net loss of 13.0 million for the same period in 2021. The increase in the net loss of $1.4 million, or 11%, was a result of the items outlined above.





Cash Flows



The following table summarizes our sources and uses of cash for the period
presented (in thousands):



                                                        Nine Months Ended
                                                          September 30,
                                                        2022          2021
Net cash used in operating activities                 $ (11,661 )   $ (8,355 )
Net cash provided by investing activities                  (107 )     (9,381 )

Net cash (used in) provided by financing activities (316 ) 26,658 Change in cash and cash equivalents

$ (12,084 )   $  8,922

Operating Activities. We have incurred losses since inception. Net cash used in operating activities for the nine months ended September 30, 2022, was $11.7 million, consisting primarily of our net loss of $14.4 million as we incurred $1.4 million in non-operating lawsuit expenses, $1.9 million in equity-based compensation expenses and $0.5 million in prepaid insurance expenses. Net cash used in operating activities for the nine months ended September 30, 2021, was $8.4 million, consisting primarily of our net loss of $13.0 million as we incurred expenses associated with research activities for our lead product candidate and incurred general and administrative expenses; including $6.0 million of equity-based compensation recorded for RSUs and stock options granted.

Investing Activities. Net cash provided by investing activities for the nine months ended September 30, 2022, was $0.1 million consisting primarily of a decrease in short-term investments and purchase of property and equipment. Net cash used in investing activities for the nine months ended September 30, 2021, was $9.4 million, consisting primarily of an increase of $9.2 million in short-term investments.

Financing Activities. Net cash used in financing activities for the nine months ended September 30, 2022, was $0.3 million for the payment of taxes upon vesting of RSUs. Net cash provided by financing activities for the nine months ended September 30, 2021, was $26.7 million consisting primarily of: $26.1 million in net proceeds received from our IPO.

LIQUIDITY AND CAPITAL RESOURCES

Since our inception, we have incurred significant operating losses. We expect to incur significant expenses and operating losses as we advance the preclinical and clinical development of our programs. We expect that our sales, research and development and general and administrative costs will increase in connection with conducting additional preclinical studies and clinical trials for our current and future programs and product candidates, contracting with CROs to support preclinical studies and clinical trials, expanding our intellectual property portfolio, and providing general and administrative support for our operations. As a result, we will need additional capital to fund our operations, which we may obtain from additional equity or debt financings, collaborations, licensing arrangements, or other sources.

To date, we have financed our operations primarily through our IPO, private placement equity financings, grant awards, and fees generated from the Bahamas Registry Trial and contract manufacturing services. Since we were formed, we have raised approximately $77.2 million in gross proceeds from the issuance of equity. As of September 30, 2022, the Company had cash, and cash equivalents of $13.6 million, short-term investments of $8.7 million and working capital of approximately $19.5 million.





Grant Awards


From inception through September 30, 2022, we have been awarded approximately $11.5 million in governmental and non-profit association grants, which have been used to fund our clinical trials, research and development, production and overhead. Grant awards are recognized as revenue, and depending on the funding mechanism, are deposited directly in our accounts as lump sums, which are staggered over a predetermined period, or drawn down from a federal payment management system account for reimbursement of expenses incurred. Revenue recognition occurs when the grant related expenses are incurred or supplies, and materials are received. As of September 30, 2022, and December 31, 2021, the amount of unused grant funds that were available for us to draw was approximately $0.1 million and $0.8 million, respectively.





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Terms and Conditions of Grant Awards

Grant projects are typically divided into periods (e.g., a three-year grant may have three one-year periods), and the total amount awarded is divided according to the number of periods. At pre-specified time points, which are detailed in the grant award notifications, we are required to submit interim financial and scientific reports to the granting agency totaling funds spent, and in some cases, detailing use of proceeds and progress made during the reporting period. After funding the initial period, receipt of additional grant funds is contingent upon satisfactory submission of our interim reports to the granting agency.

Grant awards arise from submitting detailed research proposals to granting agencies and winning a highly competitive and rigorous application review and process that is judged on the merits of the proposal. There are typically multiple applicants applying and competing for a finite amount of funds. As such we cannot be sure that we will be awarded grant funds in the future despite our past success in receiving such awards.





Funding Requirements


Our operating costs will continue to increase substantially for the foreseeable future in connection with our ongoing activities. In past years we have been able to fund a large portion of our clinical programs and our administrative overhead with the use of grant funding.

Specifically, our expenses will increase as we:





  ? advance the clinical development of Lomecel-B for the treatment of several
    disease states and indications;




  ? pursue the preclinical and clinical development of other current and future
    research programs and product candidates;




  ? in-license or acquire the rights to other products, product candidates or
    technologies;




  ? maintain, expand and protect our intellectual property portfolio;




  ? hire additional personnel in research, manufacturing and regulatory and
    clinical development as well as management personnel;




  ? seek regulatory approval for any product candidates that successfully complete
    clinical development; and




  ? expand our operational, financial and management systems and increase
    personnel, including personnel to support our operations as a public company.



We believe that our existing cash and cash equivalents will enable us to fund our operating expenses and capital expenditure requirements through the first half of 2024. We have based these estimates on assumptions that may prove to be imprecise, and we could utilize our available capital resources sooner than we expect.

Because of the numerous risks and uncertainties associated with research, development and commercialization of our product candidates, it is difficult to estimate with certainty the amount of our working capital requirements. Our future funding requirements will depend on many factors, including:





  ? the progress, costs and results of our clinical trials for our programs for
    our cell-based therapies;




  ? the progress, costs and results of additional research and preclinical studies
    in other research programs we initiate in the future;




  ? the costs and timing of process development and manufacturing scale-up
    activities associated with our product candidates and other programs we
    advance through preclinical and clinical development;




  ? our ability to establish and maintain strategic collaborations, licensing or
    other agreements and the financial terms of such agreements;




  ? the extent to which we in-license or acquire rights to other products, product
    candidates or technologies; and




  ? the costs and timing of preparing, filing and prosecuting patent applications,
    maintaining and protecting our intellectual property rights and defending
    against any intellectual property-related claims.



Further, our operating results may change in the future, and we may need additional funds to meet operational needs and capital requirements associated with such operating plans. Until such time, if ever, that we can generate product revenue sufficient to achieve profitability, we expect to finance our cash needs through a combination of equity offerings, debt financings, grant awards, collaboration agreements, other third-party funding, strategic alliances, licensing arrangements and marketing and distribution arrangements.





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We currently have no credit facility or committed sources of capital. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends. If we raise additional funds through other third-party funding, collaboration agreements, strategic alliances, licensing arrangements or marketing and distribution arrangements, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or grant licenses on terms that may not be favorable to us. If we are unable to raise additional funds through equity or debt financings when needed, we may be required to delay, limit, reduce or terminate our product candidates development or future commercialization efforts or grant rights to develop and market products or product candidates that we would otherwise prefer to develop and market ourselves.

In order to meet our operational goals, we will need to obtain additional capital, which we will likely obtain through a variety of means, including through public or private equity, debt financings or other sources, including up-front payments and milestone payments from strategic collaborations. To the extent that we raise additional capital through the sale of convertible debt or equity securities, your ownership interest will be diluted, and the terms may include liquidation or other preferences that adversely affect your rights as a stockholder. Such financing will likely result in dilution to stockholders, and may result in imposition of debt covenants, increased fixed payment obligations or other restrictions that may affect our business. If we raise additional funds through up-front payments or milestone payments pursuant to strategic collaborations with third parties, we may have to relinquish valuable rights to our product candidates or grant licenses on terms that are not favorable to us. In addition, we may seek additional capital due to favorable market conditions or strategic considerations even if we believe we have sufficient funds for our current or future operating plans.

Contractual Obligations and Commitments

As of September 30, 2022, we have $3.6 million in operating lease obligations and in contract research organization payment obligations. We enter into contracts in the normal course of business with third-party contract organizations for clinical trials, preclinical studies, manufacturing and other services and products for operating purposes. These contracts generally provide for termination following a certain period after notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

We have not included milestone or royalty payments or other contractual payment obligations if the timing and amount of such obligations are unknown or uncertain.

Critical Accounting Policies and Use of Estimates

Our management's discussion and analysis of financial condition, results of operations and liquidity are based on our financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. ("U.S. GAAP"). The preparation of our financial statements and related disclosures requires us to make estimates, judgements and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experience, known trends and events and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may materially differ from these estimates under different assumptions or conditions. On an on-going basis, we review our estimates to ensure that they appropriately reflect changes in our business or new information as it becomes available.

While our significant accounting policies are described in more detail in the notes to our financial statements included in the 2021 10-K, we believe that the following accounting policies are those most critical due to the judgments and estimates used in the preparation of our financial statements.

Intangible assets. Intangible assets include payments on license agreements with our co-founder and CSO and UM and legal costs incurred related to patents and trademarks. License agreements have been recorded at the value of cash consideration and/or estimated value of 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 years. Patents are amortized over their estimated useful life, once issued. We consider trademarks to have an indefinite useful life and evaluate 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 our clinical programs.

Impairment of Long-Lived Assets. We evaluate 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. Management determined that there was no impairment of long-lived assets during the three months ended September 30, 2022 and 2021.





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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 nine months ended September 30, 2022 and 2021, the Company recognized $0.1 million and $0 of funds that were previously classified as deferred revenue ($0.1 million and $0 million, respectively for the three months ended September 30, 2022 and 2021, respectively). Due to the MSCRF - TEDCO - grant ARDS program being discontinued, the $0.4 million recorded as deferred revenue will be reversed when the funds are returned to MSCRF - TEDCO.

Revenue recognition. Effective January 1, 2018, we adopted ASC Topic 606, Revenue from Contracts with Customers, which establishes a single and comprehensive framework on how much revenue is to be recognized, and when. The core principle is that a vendor should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the vendor expects to be entitled in exchange for those goods or services. Revenue will be recognized by a vendor when control over the goods or services is transferred to the customer.

We recognize revenue when performance obligations related to respective revenue streams are met. For grant revenue, we consider the performance obligation met when the grant related expenses are incurred or supplies and materials are received. For clinical trial revenue, we consider the performance obligation met when the participant has received the therapy. For contract manufacturing revenue, we consider the performance obligation met when the contractual obligation and/or statement of work has been satisfied.

Cost of revenues. We record cost of revenues based on expenses directly related to revenue. For grant revenue, we record allocated expenses for research and development costs to a grant as a cost of revenues. Expenses directly related to clinical trial revenue are allocated and accrued as incurred. These expenses are similar to those described in the "Research and development expense" section of the Notes to the Condensed Financial Statements in this 10-Q.

Research and development expense. Research and development costs are charged to expense when incurred in accordance with FASB ASC 730, Research and Development. 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 contract research organizations 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.

Equity-based compensation. We account for equity-based compensation expense by the measurement and recognition of compensation expense for unit-based awards based on estimated fair values on the date of grant. The fair value of incentive awards is estimated at the date of the grant using a 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 unit 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 for the incentive awards.

The Company estimates the fair value of its units by using the Black-Scholes option-pricing model. Volatility is a measure of the amount by which a financial variable, such as a unit 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 publicly traded companies that are similar 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. Incentive awards have a maximum term of ten years. The Company has insufficient historical data to utilize in determining its expected life assumptions and, therefore, uses the simplified method for determining expected life.

Emerging Growth Company Status

We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or JOBS Act, which is a law intended to encourage funding of small businesses in the U.S. by easing certain securities regulations, and we may take advantage of reduced reporting requirements that are otherwise applicable to public companies. Section 107 of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies are required to comply with those standards. We have elected to take advantage of the extended transition period for complying with new or revised accounting standards, and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. The JOBS Act also exempts us from having to provide an auditor attestation of internal control over financial reporting under Sarbanes-Oxley Act Section 404(b).

We will remain an "emerging growth company" until the earliest of (1) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more, (2) the last day of the fiscal year following the fifth anniversary of the completion of our IPO, (3) the date on which we have issued more than $1.0 billion in nonconvertible debt during the previous three years or (4) the date on which we are deemed to be a large accelerated filer under the rules of the SEC, which generally is when a company has more than $700 million in market value of its reported class of stock held by non-affiliates and has been a public company for at least 12 months and has filed at least one Annual Report on Form 10-K.





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Recent Accounting Pronouncements

A description of recent accounting pronouncements that may potentially impact our financial position, results of operations or cash flows is disclosed in Note 2 to our audited financial statements included in Item 1 of this 10-Q.

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