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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023


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

Commission File Number 001-36003

Histogen Inc.

(Exact name of registrant as specified in its charter)


Delaware		20-3183915
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

10655 Sorrento Valley Road, Suite 200, San Diego CA		92121
(Address of principal executive offices)		(Zip Code)

(858) 526-3100

(Registrant’s telephone number, including area code)

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

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

HSTO

The Nasdaq Capital Market

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 and post 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.


Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☒	Smaller reporting company	☒
		Emerging growth company	☐

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

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

As of August 10, 2023, the registrant had 4,271,759 shares of common stock, $0.0001 par value, outstanding.

Histogen Inc.

FORM 10-Q

TABLE OF CONTENTS


PART I - FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements (unaudited)	3
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders' Equity (Deficit)	5
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43
Item 4.	Controls and Procedures	43

PART II - OTHER INFORMATION

Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	69
Item 3.	Defaults Upon Senior Securities	69
Item 4.	Mine Safety Disclosures	69
Item 5.	Other Information	69
Item 6.	Exhibits	70
	Signatures	72

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

HISTOGEN INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)


	June 30, 2023			December 31, 2022
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	7,259		$	12,109
Restricted cash		300			400
Accounts receivable, net		—			99
Prepaid and other current assets		715			848
Total current assets		8,274			13,456
Property and equipment, net		360			436
Right-of-use asset		4,492			4,658
Other assets		416			523
Total assets	$	13,542		$	19,073
Liabilities and stockholders’ equity
Current liabilities
Accounts payable	$	394		$	382
Accrued liabilities		291			595
Current portion of lease liabilities		265			238
Current portion of deferred revenue		19			19
Total current liabilities		969			1,234
Lease liabilities, non-current		4,239			4,379
Deferred revenue, non-current		69			79
Finance lease liability, non-current		—			5
Total liabilities		5,277			5,697
Commitments and contingencies (Note 8)
Stockholders’ equity
Preferred stock, $0.0001 par value; 10,000,000 shares authorized at June 30, 2023 and December 31, 2022; no shares issued and outstanding at June 30, 2023 and December 31, 2022		—			—
Common stock, $0.0001 par value; 200,000,000 shares authorized at June 30, 2023 and December 31, 2022; 4,271,759 shares issued and outstanding at June 30, 2023 and December 31, 2022		5			5
Additional paid-in capital		103,124			102,673
Accumulated deficit		(93,835	)		(88,273	)
Total Histogen Inc. stockholders’ equity		9,294			14,405
Noncontrolling interest		(1,029	)		(1,029	)
Total equity		8,265			13,376
Total liabilities and stockholders’ equity	$	13,542		$	19,073

See accompanying notes to the unaudited condensed consolidated financial statements.

HISTOGEN INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022

Revenue
License revenue	$	5		$	5		$	10		$	3,760
Total revenue		5			5			10			3,760
Operating expense
Research and development		536			1,093			1,529			3,025
General and administrative		1,557			2,306			4,043			4,812
Total operating expense		2,093			3,399			5,572			7,837
Loss from operations		(2,088	)		(3,394	)		(5,562	)		(4,077	)
Other income (expense)
Interest expense, net		(1	)		—			(1	)		(1	)
Gain on sale of subsidiary		—			—			1			—
Net loss		(2,089	)		(3,394	)		(5,562	)		(4,078	)
Loss (gain) attributable to noncontrolling interest		(3	)		6			—			17
Deemed dividend - accretion of discount and redemption feature of redeemable convertible preferred stock		—			(488	)		—			(488	)
Net loss available to common stockholders	$	(2,092	)	$	(3,876	)	$	(5,562	)	$	(4,549	)
Net loss per share available to common stockholders, basic and diluted	$	(0.49	)	$	(1.55	)	$	(1.30	)	$	(1.82	)
Weighted-average number of common shares outstanding used to compute net loss per share, basic and diluted		4,271,759			2,497,450			4,271,759			2,497,450

See accompanying notes to the unaudited condensed consolidated financial statements.

HISTOGEN INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF REDEEMABLE

CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

(In thousands, except share amounts)


	Redeemable Convertible Preferred Stock				Common Stock				Additional Paid-in		Accumulated			Total Histogen Inc. Stockholders’ Equity			Noncontrolling			Total Equity
	Shares		Amount		Shares		Amount		Capital		Deficit			(Deficit)			Interest			(Deficit)
Balance at December 31, 2022		—	$	—		4,271,759	$	5	$	102,673	$	(88,273	)	$	14,405		$	(1,029	)	$	13,376
Stock-based compensation expense		—		—		—		—		419		—			419			—			419
Net loss		—		—		—		—		—		(3,470	)		(3,470	)		(3	)		(3,473	)
Balance at March 31, 2023		—	$	—		4,271,759	$	5	$	103,092	$	(91,743	)	$	11,354		$	(1,032	)	$	10,322
Stock-based compensation expense		—		—		—		—		32		—			32			—			32
Net (loss) gain		—		—		—		—		—		(2,092	)		(2,092	)		3			(2,089	)
Balance at June 30, 2023		—	$	—		4,271,759	$	5	$	103,124	$	(93,835	)	$	9,294		$	(1,029	)	$	8,265


	Redeemable Convertible Preferred Stock						Common Stock				Additional Paid-in			Accumulated			Total Histogen Inc. Stockholders’ Equity			Noncontrolling			Total Equity
	Shares			Amount			Shares		Amount		Capital			Deficit			(Deficit)			Interest			(Deficit)
Balance at December 31, 2021		—		$	—			2,497,450	$	5	$	98,839		$	(77,652	)	$	21,192		$	(1,006	)	$	20,186
Issuance of common stock, net of issuance costs		—			—			—		—		(9	)		—			(9	)		—			(9	)
Issuance of redeemable convertible preferred stock, net of issuance costs		5,000			4,296			—		—		—			—			—			—			—
Stock-based compensation expense		—			—			—		—		165			—			165			—			165
Net loss		—			—			—		—		—			(673	)		(673	)		(11	)		(684	)
Balance at March 31, 2022		5,000		$	4,296			2,497,450	$	5	$	98,995		$	(78,325	)	$	20,675		$	(1,017	)	$	19,658
Issuance of redeemable convertible preferred stock, net of issuance costs		—			—			—		—		(119	)		—			(119	)		—			(119	)
Accretion of issuance costs, discount and redemption feature of redeemable convertible preferred stock		—			954			—		—		(954	)		—			(954	)		—			(954	)
Redemption of redeemable convertible preferred stock		(5,000	)		(5,250	)		—		—		—			—			—			—			—
Stock-based compensation expense		—			—			—		—		115			—			115			—			115
Net loss		—			—			—		—		—			(3,388	)		(3,388	)		(6	)		(3,394	)
Balance at June 30, 2022		—		$	—			2,497,450	$	5	$	98,037		$	(81,713	)	$	16,329		$	(1,023	)	$	15,306

See accompanying notes to the unaudited condensed consolidated financial statements.

HISTOGEN INC. AND SUBSIDIARIES

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)


	Six Months Ended June 30,
	2023			2022
Cash flows from operating activities
Net loss	$	(5,562	)	$	(4,078	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		76			65
Stock-based compensation		451			280
Gain from sale of subsidiary		(1	)		—
Changes in operating assets and liabilities:
Accounts receivable		99			77
Prepaid expenses and other current assets		133			26
Other assets		107			113
Accounts payable		12			(868	)
Accrued liabilities		(304	)		(418	)
Right-of-use asset and lease liabilities, net		53			19
Deferred revenue		(10	)		(10	)
Net cash used in operating activities		(4,946	)		(4,794	)
Cash flows from investing activities
Cash proceeds from sale of subsidiary		1			—
Cash paid for property and equipment		—			(206	)
Net cash provided by (used in) investing activities		1			(206	)
Cash flows from financing activities
Costs paid in connection with December 2021 financing		—			(9	)
Repayment of finance lease obligations		(5	)		(5	)
Issuance costs for redeemable convertible preferred stock		—			(585	)
Redemption payment for redeemable convertible preferred stock		—			(488	)
Net cash used in financing activities		(5	)		(1,087	)
Net decrease in cash, cash equivalents and restricted cash		(4,950	)		(6,087	)
Cash, cash equivalents and restricted cash, beginning of period		12,509			19,085
Cash, cash equivalents and restricted cash, end of period	$	7,559		$	12,998
Reconciliation of cash, cash equivalents and restricted cash to the condensed consolidated balance sheets
Cash and cash equivalents	$	7,259		$	12,598
Restricted cash		300			400
Total cash, cash equivalents and restricted cash	$	7,559		$	12,998
Supplemental disclosure of cash flow information
Cash paid for interest	$	1		$	1
Noncash investing and financing activities
Redemption payment of redeemable convertible preferred stock from escrow	$	—		$	(4,762	)
Issuance of redeemable convertible preferred stock, proceeds held in escrow	$	—		$	4,762
Fair value of warrants issued to Placement Agent	$	—		$	34

See accompanying notes to the unaudited condensed consolidated financial statements.

HISTOGEN INC. AND SUBSIDIARIES

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. Description of Business and Basis of Presentation

Description of Business

Histogen Inc. (the “Company,” “Histogen,” “we,” or the “combined company”), formerly known as Conatus Pharmaceuticals Inc. (“Conatus”), was incorporated in the state of Delaware on July 13, 2005. The Company is a clinical-stage therapeutics company focused on developing potential first-in-class clinical and preclinical small molecule pan-caspase and caspase selective inhibitors that protect the body’s natural process to restore immune function.

On January 28, 2020, the Company, then operating as Conatus, entered into an Agreement and Plan of Merger and Reorganization, as amended (the “Merger Agreement”), with privately-held Histogen, Inc. (“Private Histogen”) and Chinook Merger Sub, Inc., a wholly-owned subsidiary of the Company (“Merger Sub”). Under the Merger Agreement, Merger Sub merged with and into Private Histogen, with Private Histogen surviving as a wholly-owned subsidiary of the Company (the “Merger”). On May 26, 2020, the Merger was completed. Conatus changed its name to Histogen Inc., and Private Histogen, which remains as a wholly-owned subsidiary of the Company, changed its name to Histogen Therapeutics Inc. On May 27, 2020, the combined company’s common stock began trading on The Nasdaq Capital Market under the ticker symbol “HSTO”.

Recent Developments

On July 5, 2023, the Company announced that it had completed a review of its business, including the status of programs, resources and capabilities, and initiated a process to explore strategic alternatives with the intent to enhance shareholder value. The Company has paused its product development activities and taken other steps to reduce operating costs in order to preserve cash as it explores these strategic alternatives and has engaged Roth Capital Partners, LLC, to act as its strategic advisor. Potential strategic alternatives that may be explored or evaluated as part of this process include an acquisition, merger, reverse merger, other business combination, sale of assets, financing alternatives, licensing, or other strategic transactions involving the Company. The Company’s Board of Directors has not set a timetable for the conclusion of this review, nor has it made any definitive decisions related to taking any further actions or potential strategic options at this time or at all. Despite the undertaking of this process, the Company may not be successful in completing a transaction, and even if a transaction is completed, it may not ultimately deliver the anticipated benefits of enhanced shareholder value.

On August 7, 2023, the Company entered into a Lease Termination Agreement (the “Lease Termination Agreement”) for its headquarters and laboratory operating lease, pursuant to which the Company and the landlord mutually agreed to accelerate the termination date to August 31, 2023, subject to a termination fee paid by the Company of approximately $1.0 million. The Company entered into the Lease Termination Agreement primarily for the purpose of reducing the overall cash commitment and long-term liabilities related to the lease as part of the Company’s efforts to pursue potential strategic alternatives. The lease termination will eliminate the Company’s right-of-use assets and operating lease liabilities balance during the third quarter of 2023 and result in the cancellation of the letter of credit during the fourth quarter of 2023, which will reclass $0.3 million of restricted cash to cash and cash equivalents on the accompanying condensed consolidated balance sheets.

Reverse Stock Split

On June 2, 2022, the Company’s Board of Directors approved a one-for-twenty reverse stock split of its then outstanding common stock (the “Reverse Stock Split”) with any fractional shares resulting from the Reserve Stock Split rounded down to the next whole share of common stock. The par value and the authorized shares of the common stock were not adjusted as a result of the Reverse Stock Split. All references to share and per share amounts for all periods presented in the condensed consolidated financial statements have been retrospectively restated to reflect this Reverse Stock Split. Additionally, all rights to receive shares of common stock under outstanding warrants, options, and restricted stock units (“RSUs”) were adjusted to give effect of the reverse stock split. Furthermore, remaining shares of common stock available for future issuance under stock-based payment award plans and employee stock purchase plans were adjusted to give effect to the Reverse Stock Split.

Liquidity and Going Concern

The Company has incurred operating losses and negative cash flows from operations and had an accumulated deficit of $93.8 million as of June 30, 2023. The Company expects operating losses and negative cash flows from operations to continue for the foreseeable

future. As of June 30, 2023, the Company had $7.3 million in cash and cash equivalents, which will not be sufficient to sustain its operations for at least twelve months following the date these condensed consolidated financial statements are issued.

On June 5, 2023, the Company received a letter from the Listing Qualifications Department of the Nasdaq Stock Market (“Nasdaq”) indicating that, for the last thirty consecutive business days, the bid price for our common stock had closed below the minimum $1.00 per share requirement for continued listing on The Nasdaq Capital Market pursuant to Nasdaq Listing Rule 5550(a)(2). The Company has been provided an initial period of 180 calendar days, or until December 4, 2023, to regain compliance pursuant to Nasdaq Listing Rule 5810(c)(3)(A).

The Company has not yet established ongoing sources of revenues sufficient to cover its operating costs and will need to continue to raise additional capital to support its future operating activities, including progression of its development programs, preparation for potential commercialization, and other operating costs. The Company's plans with regard to these matters include their primary focus of evaluation of strategic alternatives which may include an acquisition, merger, reverse merger, other business combination, sale of assets, financing alternatives, licensing, or other strategic transactions involving the company. The Company’s Board of Directors has not set a timetable for the conclusion of this review, nor has it made any definitive decisions related to taking any further actions or potential strategic options at this time or at all. Despite the undertaking of this process, the Company may not be successful in completing a transaction, and their Board of Directors may decide to pursue a dissolution and liquidation of the Company. Even if a transaction is completed, it may not ultimately provide sufficient capital to continue operations or deliver the anticipated benefits of enhanced shareholder value. The aforementioned factors raise substantial doubt about the Company's ability to continue as a going concern.

The condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Based on the current business plan to pursue strategic alternatives paths and related operating budget, there is substantial doubt about the Company’s ability to continue as a going concern within one year from the date the condensed consolidated financial statements are issued. The condensed consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

Basis of Presentation and Principles of Consolidation

The condensed consolidated financial statements include the accounts of the Company and its controlled subsidiaries, including Histogen Therapeutics, Inc., and have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). All intercompany balances and transactions have been eliminated upon consolidation.

The Company acquired Centro De Investigacion de Medicina Regenerativa, S.A. de C.V. (“CIMRESA”), a company in Mexico, during 2018 to facilitate a potential clinical development program for HST-001, or hair stimulating complex (“HSC”). This was a wholly-owned subsidiary intended to pursue registration with the COFEPRIS (Mexico equivalent to Food and Drug Administration). Since the Company acquired CIMRESA in 2018, there have been no financial or operational activities. On January 17, 2023, the Company sold the wholly-owned subsidiary, CIMRESA, and deconsolidated the former subsidiary, resulting in a gain during the three and six months ended June 30, 2023.

The Company holds a majority interest in Adaptive Biologix, Inc. (“AB”, formerly Histogen Oncology, LLC). AB was formed to develop and market applications for the treatment of cancer. The Company consolidates AB into its condensed consolidated financial statements (refer to Note 2 for further information).

Unaudited Interim Financial Information

The unaudited condensed consolidated financial statements for the three and six months ended June 30, 2023 and 2022 have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission (“SEC”) and GAAP. Accordingly, these condensed consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of Management, these unaudited interim condensed consolidated financial statements contain all adjustments necessary, all of which are of a normal and recurring nature, to present fairly the Company’s financial position, results of operations, and cash flows. Interim results are not necessarily indicative of results for a full year or future periods. These unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and related notes thereto for the year ended December 31, 2022 included in the Annual Report on Form 10-K that the Company filed with the SEC on March 9, 2023.

2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and the disclosure of contingent assets and liabilities and contingencies at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the periods presented. Management believes that these estimates and assumptions are reasonable, however, actual results may differ and could have a material effect on future results of operations and financial position. Though the impact of the COVID-19 pandemic to our business and operating results presents additional uncertainty, the Company continues to use the best information available to them in their significant accounting estimates.

Significant estimates and assumptions include those related to the useful lives of property and equipment, discount rates used in recognizing contracts containing leases, unrecognized tax benefits, and volatility used for stock-based compensation option pricing. Actual results may materially differ from those estimates.

Variable Interest Entities

The Company determined that AB is a variable interest entity (“VIE”) and that the Company is its primary beneficiary. The Company holds greater than 50% of the shares and has the authority to manage the business and affairs of the VIE. AB’s other shareholder does not have a controlling interest.

A VIE is typically an entity for which the Company has less than a 100% equity interest but controls the decision making over the business and affairs of the entity, directs the decisions driving the economic performance of such entity and participates in the profit and losses of such an entity. The Company weighed both quantitative and qualitative information about the different risks and reward characteristics of each entity and the significance of that entity to the consolidating group in the aggregate.

Segment Reporting

Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision-maker, the Chief Executive Officer, in making decisions regarding resource allocation and assessing performance. The Company views its operations and manages its business as one operating segment.

Cash, Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments purchased with an original maturity date of ninety days or less to be cash equivalents. Cash and cash equivalents include cash in readily available checking, money market accounts and brokerage accounts.

The Company’s current restricted cash consists of cash held as collateral for a letter of credit issued as a security deposit for the lease of the Company’s headquarters and is required to be held throughout the lease term.

Risks and Uncertainties

Credit Risk

At certain times throughout the year, the Company may maintain deposits in federally insured financial institutions in excess of federally insured limits.

Customer Risk

During the three and six months ended June 30, 2023 and 2022, one customer accounted for 100% of total revenues.

Accounts Receivable

Accounts receivable are generally due within 30 days and are recorded net of the allowance for doubtful accounts, if any. Management considers all accounts receivable to be recoverable, and accordingly, no provision for doubtful accounts was recorded at December 31, 2022. No accounts receivable are recorded as of June 30, 2023 on the accompanying condensed consolidated balance sheets.

Property and Equipment

Property and equipment are reported net of accumulated depreciation and amortization and are comprised of office furniture and equipment, lab and manufacturing equipment, and leasehold improvements. Ordinary maintenance and repairs are charged to expense, while expenditures that extend the physical or economic life of the assets are capitalized. Furniture and all equipment are depreciated over their estimated useful lives, or five years, using the straight-line method. Software is amortized over its estimated useful lives, or three years, using the straight-line method. Leasehold improvements are amortized over their estimated useful lives and limited by the remaining term of the building lease, using the straight-line method.

Valuation of Long-Lived Assets

Long-lived assets to be held and used, including property and equipment, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. As of June 30, 2023, the Company has not recognized any impairment to long-lived assets.

Comprehensive Loss

The Company is required to report all components of comprehensive loss, including net loss, in the accompanying condensed consolidated financial statements in the period in which they are recognized. Comprehensive loss is defined as the change in equity during a period from transactions and other events and circumstances from non-owner sources, including unrealized gains and losses on investments and foreign currency translation adjustments. Net loss and comprehensive loss were the same for all periods presented.

Revenue Recognition

License Revenue

The Company records revenue in accordance with ASC 606, Revenue from Contracts with Customers, whereby revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration expected to be received in exchange for those goods or services. A five-step model is used to achieve the core principle: (1) identify the customer contract, (2) identify the contract’s performance obligations, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations and (5) recognize revenue when or as a performance obligation is satisfied. The Company applies the five-step model to contracts when it is probable that the entity will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. The Company applies the revenue recognition standard, including the use of any practical expedients, consistently to contracts with similar characteristics and in similar circumstances (refer to Note 5 for further information).

Grant Awards

In September 2020, the Company was approved for a grant award from the U.S. Department of Defense (“DoD”) in the amount of approximately $2.0 million to partially fund the Company’s Phase 1/2 clinical trial of HST-003 for regeneration of cartilage in the knee. The Company applies International Accounting Standard (“IAS”) 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy as there is no existing authoritative guidance under GAAP. Under the terms of the award, the DoD will reimburse the Company for certain allowable costs. The period of performance for the grant award substantially expires in September 2025 and is subject to annual and quarterly reporting requirements. As the DoD grant is a cost-type (reimbursement) grant, the Company must incur program expenses in accordance with the Statement of Work and approved budget in order to be reimbursed by the DoD. The Company will recognize funding received from the grant award as a reduction of research and development expenses in the period in which qualifying expenses have been incurred, as the Company is reasonably assured that the expenses will be reimbursed and the funding is collectible. For the three and six months ended June 30, 2023 and 2022, qualifying expenses totaling $0 and $0.1 million have been incurred with a corresponding reduction of research and development expenses related to the award, respectively. As of June 30, 2023 and December 31, 2022, $0 and $0.1 million was included in accounts receivable within the condensed consolidated balance sheets with respect to the award, respectively. The Company made the decision in December 2022 to terminate the study for futility regarding patient recruitment and redirect efforts and funding away from HST-003 to other product candidates. As of March 31, 2023, the Company had completed its HST-003 clinical study close-out activities and early terminated the grant award.

Research and Development Expenses

All research and development costs are charged to expense as incurred. Research and development expenses primarily include (i) payroll and related costs associated with research and development performed, (ii) costs related to clinical and preclinical testing of the Company’s technologies under development, and (iii) other research and development costs, net of reimbursable research and development costs incurred under the DoD grant.

General and Administrative Expenses

General and administrative expenses represent personnel costs for employees involved in general corporate functions, including finance, accounting, legal and human resources, among others. Additional costs included within general and administrative expenses consist of professional fees for legal (including patent costs), audit and other consulting services, travel and entertainment, recruiting, facility costs, general information technology costs, depreciation and amortization, and other general corporate overhead expenses.

Patent Costs

The Company expenses all costs as incurred in connection with patent applications (including direct application fees, and the legal and consulting expenses related to making such applications) and such costs are included as a component of general and administrative expenses in the accompanying consolidated statements of operations.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred income taxes are recorded for temporary differences between consolidated financial statement carrying amounts and the tax basis of assets and liabilities. Deferred tax assets and liabilities reflect the tax rates expected to be in effect for the years in which the differences are expected to reverse. No income tax expense or benefit was recorded for the three and six months ended June 30, 2023 and 2022, due to the full valuation allowance on the Company’s net deferred tax assets. A valuation allowance is provided if it is more likely than not that some or all the deferred tax assets will not be realized.

The Company also follows the provisions of accounting for uncertainty in income taxes which prescribes a model for the recognition and measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification, interest and penalties, disclosure and transition.

The Company’s policy is to recognize interest or penalties related to income tax matters in income tax expense. Interest and penalties related to income tax matters were not material for the periods presented.

Net Loss Per Share

Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average common shares outstanding during the period, without consideration for potentially dilutive securities. Diluted net loss per share attributable to common stockholders is computed by dividing the net loss attributable to common stockholders by the weighted-average number of common shares and potentially dilutive securities outstanding for the period. For the three and six months ended June 30, 2023 and 2022, diluted net loss per share attributable to common stockholders is equal to basic net loss per share attributable to common stockholders as common stock equivalent shares from stock options and warrants were anti-dilutive.

The following table sets forth outstanding potentially dilutive shares that have been excluded from the calculation of diluted net loss per share attributable to common stockholders because of their anti-dilutive effect (in common stock equivalents):


	June 30, 2023		June 30, 2022
Common stock options issued and outstanding		612,796		133,257
Warrants to purchase common stock		4,876,639		1,203,819
Total anti-dilutive shares		5,489,435		1,337,076

Stock-Based Compensation

Service-Based Awards

The Company recognizes stock-based compensation expense for service-based stock options and restricted stock units (“RSUs”) over the requisite service period on a straight-line basis. Employee and director stock-based compensation for service-based stock options is measured based on estimated fair value as of the grant date using the Black-Scholes option pricing model. The Company estimates the fair value of RSUs based on the closing price of the Company’s common stock on the date of issuance. The Company uses the following assumptions for estimating fair value of service-based option grants:

Fair Value of Common Stock – The fair value of common stock underlying the option grant is determined based on observable market prices of the Company’s common stock.

Expected Volatility – Volatility is a measure of the amount by which the Company’s share price has historically fluctuated or is expected to fluctuate (i.e., expected volatility) during a period. Due to the lack of an adequate history of a public market for the trading of the Company’s common stock and a lack of adequate company-specific historical and implied volatility data, volatility has been estimated and based on the historical volatility of a group of similar companies that are publicly traded. For these analyses, the Company has selected companies with comparable characteristics, including enterprise value, risk profiles, and position within the industry, and with historical share price information sufficient to meet the expected term of the stock-based awards.

Expected Term – This is the period of time during which the options are expected to remain unexercised. Options have a maximum contractual term of ten years. The Company estimates the expected term of stock options using the “simplified method”, whereby the expected term equals the average of the vesting term and the original contractual term of the underlying option.

Risk-Free Interest Rate – This is the observed yield on zero-coupon U.S. Treasury securities, as of the day each option is granted, with a term that most closely resembles the expected term of the option.

Expected Forfeiture Rate – Forfeitures are recognized as they occur.

Performance-Based Options

Stock-based compensation expense for performance-based options is recognized based on amortizing the fair market value as of the grant date over the periods during which the achievement of the performance is probable. Performance-based options require certain performance conditions to be achieved in order for these options to vest. These options vest on the date of achievement of the performance condition.

Market-Based Options

Stock-based compensation expense for market-based options is recognized on a straight-line basis over the derived service period, regardless of whether the market condition is satisfied. Market-based options subject to market-based performance targets require achievement of the performance target in order for these options to vest. The Company estimates the fair value of market-based options as of the grant date and expected term using a Monte Carlo simulation that incorporates option-pricing inputs covering the period from the grant date through the end of the derived service period.

Recently Issued Accounting Pronouncements Not Yet Adopted

In March 2023, the FASB issued ASU No. 2023-01, Leases (Topic 842): Common Control Arrangements ("ASU 2023-01"), amending certain provisions of ASC 842 that apply to arrangements between related parties under common control. This standard amends the accounting for leasehold improvements in common-control arrangements for all entities. The amendments in this ASU are effective for public business entities for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company does not expect to early adopt this guidance and is in the process of evaluating the impact of adoption of this guidance on the Company’s consolidated financial statements.

Recently Adopted Accounting Pronouncements

None.

3. Property and Equipment, Net

Property and equipment, net consisted of the following (in thousands):


	June 30, 2023			December 31, 2022
Lab and manufacturing equipment	$	931		$	937
Office furniture and equipment		225			225
Software		48			48
Total		1,204			1,210
Less: accumulated depreciation and amortization		(844	)		(774	)
Property and equipment, net	$	360		$	436

Depreciation and amortization expense for the six months ended June 30, 2023 and 2022, were $76 thousand and $65 thousand, respectively.

4. Balance Sheet Details

Prepaid and other current assets consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Insurance	$	557	$	626
Prepaid rent		84		81
Pre-clinical and clinical related expenses		13		64
Other		61		77
Total	$	715	$	848

Other assets consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Insurance	$	407	$	513
Other		9		10
Total	$	416	$	523

Accrued liabilities consisted of the following (in thousands):


	June 30, 2023		December 31, 2022
Current portion of finance lease liabilities	$	10	$	9
Accrued compensation		136		160
Preclinical and clinical related expenses		19		150
Legal fees		20		44
Accrued franchise tax		20		162
Other		86		70
Total	$	291	$	595

5. Revenues

The following is a summary description of the material revenue arrangements, including arrangements that generated revenues during the three and six months ended June 30, 2023 and 2022.

Allergan License Agreements

2017 Allergan Amendment

In 2017, the Company entered into a series of agreements (collectively, the “2017 Allergan Agreement”), which ultimately transferred Suneva Medical, Inc.’s license and supply rights of the Company’s cell conditioned medium (“CCM”) skin care ingredient in the medical aesthetics market to Allergan Sales LLC (“Allergan”) and granted Allergan an exclusive, royalty-free, perpetual, irrevocable, non-terminable and transferable license, including the right to sublicense to third parties, to use the Company’s CCM skin care ingredient in the medical aesthetics market. The 2017 Allergan Agreement also obligated the Company to deliver CCM to Allergan (the “Supply of CCM to Allergan”) in the future as well as share with Allergan any potential future improvements to the Company’s CCM skin care ingredients identified through the Company’s research and development efforts (“Potential Future Improvements”). In consideration for the execution of the agreements, the Company received a cash payment of $11.0 million and a potential additional payment of $5.5 million if Allergan’s net sales of products containing the Company’s CCM skin care ingredient exceeds $60.0 million in any calendar year through December 31, 2027.

2019 Allergan Amendment

In March 2019, the Company entered into a separate agreement with Allergan (the “2019 Allergan Amendment”) to amend the 2017 Allergan Agreement in exchange for a one-time payment of $7.5 million to the Company. The agreement broadened Allergan’s license rights, expanding Allergan’s access to certain sales channels where its products incorporating the CCM ingredient can be sold. Specifically, the license was broadened to provide Allergan the exclusive right to sell through the “Amazon Professional” website, or any website or digital platform owned or licensed by Allergan or under the Allergan brand name, and non-exclusive rights to sell on other websites and through brick-and-mortar medical spas and wellness centers (excluding websites and brick-and-mortar stores of luxury brands).

The Company evaluated the 2019 Allergan Amendment under ASC 606 and concluded that Allergan continues to be a customer and that the expanded license is distinct from the 2017 Allergan Agreement. The Company determined the expanded license under the 2019 Allergan Amendment to be functional intellectual property as Allergan has the right to utilize the Company’s CCM skin care ingredient, and that ingredient is functional to Allergan at the time the Company transferred the expanded license.

The standalone selling price of the expanded license was not readily observable since the Company has not yet established a price for this expanded license and the expanded license has not been sold on a standalone basis to any customer. The Company accounted for the 2019 Allergan Amendment as a modification to the 2017 Allergan Agreement. The contract modification was accounted for as if the 2017 Allergan Agreement had been terminated and the new contract included the expanded license as well as the remaining performance obligations that arose from the 2017 Allergan Agreement related to the Supply of CCM to Allergan and Potential Future Improvements.

The total transaction price for the new contract included the $7.5 million from the 2019 Allergan Amendment as well as the amounts deferred as of the 2019 Allergan Amendment execution date for each the Supply of CCM to Allergan and Potential Future Improvements.

The standalone selling price for the Supply of CCM to Allergan was determined based on comparable sales transactions. The standalone selling price of the Potential Future Improvements was estimated at the fully burdened rate of research and development employees cost plus a commercially reasonable markup. The amount of the total transaction price allocated to the expanded license was determined using the residual approach, as a result of not having a standalone selling price for the expanded license; that is, the total transaction price less the standalone selling prices of the Supply of CCM to Allergan and Potential Future Improvements.

Revenue related to the Supply of CCM to Allergan has been deferred and recognized at the point in time in which deliveries are completed while revenue related to the Potential Future Improvements has been deferred and amortized ratably over the remaining life of the patent into early 2028. The Supply of CCM to Allergan under the 2019 Allergan Amendment was entirely fulfilled during the year ended December 31, 2019. The $7.5 million residual amount of the total transaction price allocated to the expanded license was recognized as license revenue upon transfer of the license to Allergan in March 2019.

2020 Allergan Amendment

In January 2020, the Company further amended the 2019 Allergan Amendment in exchange for a one-time payment of $1.0 million to the Company (the “2020 Allergan Amendment”). The 2020 Allergan Amendment further broadened Allergan’s exclusive and non-exclusive license rights to include products used for or in connection with microdermabrasion. In addition, the Company agreed to provide Allergan with an additional 200 kilograms of CCM (the “Additional Supply of CCM to Allergan”).

The Company evaluated the 2020 Allergan Amendment under ASC 606 and concluded that Allergan continues to be a customer and that the expanded license is distinct from the 2019 Allergan Amendment. The Company determined the expanded license under the 2020 Allergan Amendment to be functional intellectual property as Allergan has the right to utilize the Company’s CCM skin care ingredient, and that ingredient is functional to Allergan at the time the Company transferred the expanded license.

The standalone selling price of the expanded license was not readily observable since the Company has not yet established a price for this expanded license and the expanded license has not been sold on a standalone basis to any customer. The Company accounted for the 2020 Allergan Amendment as a modification to the 2019 Allergan Amendment (which had modified the 2017 Allergan Agreement, as noted above). The contract modification was accounted for as if the 2019 Allergan Amendment had been terminated and the new contract included the expanded license and Additional Supply of CCM to Allergan, as well as the remaining performance obligation related to Potential Future Improvements.

The total transaction price for the new contract included the $1.0 million from the 2020 Allergan Amendment, the future payment for the Additional Supply of CCM to Allergan, as well as the amounts deferred as of the 2020 Allergan Amendment execution date for Potential Future Improvements.

The standalone selling price for the Additional Supply of CCM to Allergan was determined using the observable inputs of historical comparable sales transactions, including the margin from such sales. The Company also considered its reduced expected cost of satisfying this performance obligation based on the current efficiencies within its CCM manufacturing processes. Due to significant efficiencies in the Company’s CCM manufacturing processes, the forecasted cost of CCM production has decreased, while the applied margin was determined by comparison to similar sales transactions in prior years. The standalone selling price of the Potential Future Improvements was estimated at the fully burdened rate of research and development employees cost plus a commercially reasonable markup. The amount of the total transaction price allocated to the expanded license was determined using the residual approach, as a result of not having a standalone selling price for the expanded license; that is, the total transaction price less the standalone selling prices of the Additional Supply of CCM to Allergan and Potential Future Improvements.

Under the Amended and Restated License Agreement, as amended, Allergan will indemnify the Company for third party claims arising from Allergan’s breach of the agreement, negligence or willful misconduct, or the exploitation of products by Allergan or its sublicensees. The Company will indemnify Allergan for third party claims arising from the Company’s breach of the agreement, negligence or willful misconduct, or the exploitation of products by the Company prior to the effective date. Allergan may terminate the Agreement for convenience upon one business days’ notice to the Company.

Revenue related to the Additional Supply of CCM to Allergan was deferred and was recognized at the point in time in which deliveries were completed. All deliveries of Additional Supply of CCM to Allergan have been completed as of March 31, 2021. As such, there is no revenue for the three and six months ended June 30, 2023 and 2022.

Revenue of $0.2 million related to the Potential Future Improvements has been deferred and amortized ratably over the remaining life of the patent into early 2028, for which $5 thousand and $10 thousand of previously deferred revenue was recognized in revenue during each of the three and six months ended June 30, 2023 and 2022, respectively.

2022 Allergan Letter Agreement

Pursuant to the 2017 Allergan Amendment, the Company had the right to a potential milestone payment of $5.5 million if Allergan’s net sales of products containing the Company’s CCM skin care ingredient exceeds $60.0 million in any calendar year through December 31, 2027. In lieu of the potential milestone payment of $5.5 million, the Company entered into a letter agreement on March 18, 2022 (the “Letter Agreement”) with Allergan. In consideration for the execution of the Letter Agreement, the Company received a one-time payment equal to $3.8 million (the “Final Payment”) in March 2022. In exchange, among other things, the Company agreed that the Final Payment represents a full and final satisfaction of all money due to the Company pursuant to the License Agreement. The Company evaluated the 2022 Allergan Letter Agreement under ASC 606 and concluded that the performance obligation has been satisfied and therefore applied point in time recognition. The Company recognized the entire $3.8 million of license revenue related to the Letter Agreement during the year ended December 31, 2022. The Letter Agreement did not have an impact on the remaining performance obligation to share with Allergan any Potential Future Improvements to CCM identified through the Company’s research and development efforts.

Remaining Performance Obligation and Deferred Revenue

The remaining performance obligation is the Company’s obligation to share with Allergan any Potential Future Improvements to CCM identified through the Company’s research and development efforts. Deferred revenue recorded for the Potential Future Improvements was $0.1 million as of both June 30, 2023 and December 31, 2022. Deferred revenue is classified in current portion of deferred revenue liabilities when the Company’s obligations to provide research for Potential Future Improvements are expected to be satisfied within twelve months of the balance sheet date. The deferred revenue is recognized on a straight-line basis over the remaining life of the licensing patents into early 2028.

Amerimmune Collaborative Development and Commercialization Agreement

In October 2020, the Company entered into a Collaborative Development and Commercialization Agreement (the “Collaboration Agreement”) with Amerimmune to jointly develop emricasan for the potential treatment of COVID-19. The FDA approved an investigational new drug application (IND) to initiate a Phase 1 study of emricasan in mild COVID-19 patients to assess safety and tolerability in 2020. Under the Collaboration Agreement, Amerimmune, at its expense and in collaboration with the Company, was required to use commercially reasonable efforts to lead the development activities for emricasan. Amerimmune was responsible for conducting clinical trials and the Company agreed to provide reasonable quantities of emricasan for such purpose.

Pursuant to the terms of the Collaboration Agreement, each party retained ownership of their legacy intellectual property and responsibility for ongoing patent application prosecution and maintenance costs and jointly owned any intellectual property developed during the term of the agreement. In addition, the Company granted Amerimmune an exclusive option, subject to terms and conditions including completion of a Phase 2 clinical trial by Amerimmune during the research term, to obtain an exclusive license that, if granted by us, would have allowed Amerimmune alone, or in conjunction with one or more strategic partners, to use its commercially reasonable efforts to develop, manufacture, and commercialize emricasan and other caspase modulators, including CTS-2090 and CTS-2096, and the Company would have shared the profits equally with Amerimmune. No consideration would have been transferred to the Company until profits, as defined in the Collaboration Agreement, were generated by Amerimmune from developing or commercializing products.

The Company identified multiple promises to deliver goods and services, which included at the inception of the agreement: (i) a license to technology and patents, information, and know-how; (ii) supply of emricasan, and (iii) collaboration, including the Company’s participation in a Joint Development Committee and Joint Partnering Committee. At inception and through November 28, 2022, the Company has identified one performance obligation for all the deliverables under the Collaboration Agreement since the delivered

elements were either not capable of being distinct or were not distinct within the context of the contract. No upfront consideration was exchanged between the parties and any consideration received would have been dependent on the successful execution of a qualifying strategic partnership, as defined, on the successful commercialization of emricasan, or upon a change in control of Amerimmune, as defined. Although the Company would have recognized revenue upon the occurrence of one of these events, no such events had occurred as of November 28, 2022.

On January 19, 2022, the Company provided a notice of material breach in connection with Amerimmune’s non-performance under the Collaboration Agreement and, on March 3, 2022, filed a demand for arbitration (“Arbitration Demand”). On March 11, 2022, Judicial Arbitration and Mediation Services, Inc. (“JAMS”) issued a Notice of Commencement of Arbitration letter, confirming the commencement of the arbitration as of that date.

On March 8, 2022, Amerimmune provided written notice to exercise an option for additional license rights to develop additional products however, the Company rejected Amerimmune’s election of the option and believes that Amerimmune no longer has the right to exercise the option based on, among other reasons, the Company’s belief that the Collaboration Agreement is properly terminated as set forth in the Company’s Arbitration Demand.

On November 28, 2022, the Company received an Interim Award (“Interim Award”) issued by the Arbitrator presiding over the Arbitration Demand filed by the Company in the County of San Diego, against Amerimmune LLC seeking a declaratory judgment that Amerimmune has materially breached the terms of the Collaboration Agreement to jointly develop emricasan for the potential treatment of COVID-19 entered into by and between the Company and Amerimmune on October 26, 2020, and that the Company therefore was entitled to terminate the Collaboration Agreement.

As affirmed by the Interim Award, the Company has terminated the Collaboration Agreement and all rights and licenses granted to Amerimmune by the Company have been terminated, and Amerimmune shall cease any and all development, manufacture and commercialization activities under the Collaboration Agreement, and any and all rights granted by the Company to Amerimmune revert to the Company except any such rights that shall survive termination of the Collaboration Agreement.

On January 2, 2023, the arbitrator issued the Final Award affirming the arbitration outcome set forth in the Interim Award. Amerimmune did not petition a court to vacate or correct the Final Award by the applicable deadline. The Company sought to confirm the award to judgment by filing a petition to confirm award filed. A hearing on the petition was held on May 26, 2023 at which the Superior Court of California granted the Company’s petition to confirm the arbitration award.

6. Redeemable Convertible Preferred Stock

The redeemable convertible preferred stock instruments were contingently redeemable preferred stock. Each series contained redemption features, limited voting rights, dividends, and conversion terms. The convertible preferred stock was presented on the consolidated balance sheets as mezzanine equity as of March 31, 2022. All shares of redeemable convertible preferred stock were fully redeemed and were no longer outstanding as of June 30, 2022.

March 2022 Offering

In March 2022, the Company completed a private placement offering (the “March 2022 Offering”) of (i) 2,500 shares of the Company’s Series A Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series A Preferred Stock”), and (ii) 2,500 shares of the Company’s Series B Redeemable Convertible Preferred Stock, par value $0.0001 per share (the “Series B Preferred Stock” and together with the Series A Preferred Stock, the “Preferred Stock”), in each case, at an offering price of $952.38 per share, representing a 5% original issue discount to the stated value of $1,000 per share of Preferred Stock, for gross proceeds from the Offerings of approximately $4.76 million, before the deduction of the placement agent’s fee and other offering expenses. The shares of Series A Preferred Stock had a stated value of $1,000 per share and were convertible, at a conversion price of $20.00 per share, into 125,000 shares of common stock. The shares of Series B Preferred Stock had a stated value of $1,000 per share and were convertible, at a conversion price of $20.00 per share, into 125,000 shares of common stock. The closing occurred on March 25, 2022. The proceeds of $4.76 million were held in escrow and were only permitted to be disbursed to the Company upon conversion of the Series A and Series B Preferred Stock. Since the redeemable convertible preferred stock could have been redeemed at the option of the holder, but was not mandatorily redeemable, the redeemable preferred stock was classified as mezzanine equity and initially recognized at fair value of $4.76 million as mezzanine equity on the accompanying statement of redeemable convertible preferred stock and stockholders' equity.

The March 2022 Offering generated gross proceeds of $4.76 million and the Company incurred cash-based placement agent fees and other offering expenses of approximately $0.6 million. The proceeds were held in escrow and were only permitted to be disbursed to the Company upon conversion of the Series A and Series B Preferred Stock.

The Company’s placement agent was issued compensatory warrants to purchase up to 7.0% of the aggregate number of shares of Preferred Stock sold in the offering (on an as-converted to common stock basis), resulting in common stock warrants to purchase up to 17,501 shares of common stock, with an exercise price of 125% of the offering price, or $25.00 per share, which are exercisable 6 months after issuance on or after September 25, 2022, and expire five and a half (5.5) years following the date of issuance on September 25, 2027.

The placement agent warrants, which are recorded as a component of stockholders’ equity, were valued at an aggregate of $34 thousand dollars using the Black Scholes option pricing model based upon the following assumptions: expected volatility of 78.90%, risk-free interest rate of 2.40%, expected dividend yield of 0%, and an expected term of 5.5 years.

As of June 30, 2023, the Company had 17,501 shares of common stock reserved for issuance pursuant to the placement agent’s warrants issued by the Company in the March 2022 Offering at an exercise price of $25.00 per share.

Voting Rights

The shares of Preferred Stock had no voting rights, except that they only have the right to vote, with the holders of common stock, as a single class on a proposal to approve an amendment to our certificate of incorporation to effect a reverse stock split of our issued and outstanding common stock within a range, to be determined by our board of directors and set forth in such proposal.

Each share of Series A Preferred Stock outstanding on April 14, 2022 (the “Record Date”) had a number of votes equal to the number of shares of Common Stock issuable upon conversion of such share (whether or not such shares are then convertible). Accordingly, as of the Record Date, each share of Series A Preferred Stock had 3,776 votes, which is determined by dividing $1,000, the stated value of one share of Series A Preferred Stock, by $0.2648, the NASDAQ Minimum Price as of the closing on March 25, 2022. The holders of the Series A Preferred Stock agreed to not transfer their shares of Series A Preferred Stock until after the 2022 Annual Meeting and to vote all shares of Series A Preferred Stock in favor of the Reverse Stock Split Proposal.

Each share of Series B Preferred Stock outstanding on the Record Date entitled the holder thereof to cast 30,000 votes on the Reverse Stock Split Proposal. The holders of the Series B Preferred Stock agreed to not transfer their shares of Series B Preferred Stock until after the 2022 Annual Meeting and to vote all shares of Series B Preferred Stock in the same proportion as the aggregate shares of Common Stock and Series A Preferred Stock are voted on the Reverse Stock Split Proposal. As an example, if 70% of the aggregate votes cast by Common Stock and Series A Preferred Stock voting on the Reverse Stock Split Proposal were voted in favor thereof and 30% of the aggregate votes cast by Common Stock and Series A Preferred Stock voting on the Reverse Stock Split Proposal were voted against such Proposal, then 70% of the votes entitled to be cast by Series B Preferred Stock would have been cast in favor of the proposal and 30% of such votes would have been cast against the proposal.

Dividends

The holders of the redeemable convertible preferred stock were entitled to receive dividends on shares of Preferred Stock equal (on an as-if-converted-to-Common-Stock basis, disregarding for such purpose any conversion limitations hereunder) to and in the same form as dividends actually paid on shares of the Common Stock when, as and if such dividends are paid on shares of the Common Stock. No other dividends were payable on shares of Preferred Stock.

Conversion Rights

Each share of Preferred Stock was convertible, at any time and from time to time from and after the Reverse Stock Split Date at the option of the Holder thereof, into that number of shares of Common Stock determined by dividing the stated value per share of preferred stock by the conversion price. The shares of Series A Preferred Stock had a stated value of $1,000 per share and were convertible, at a conversion price of $20.00 per share, into 125,000 shares of common stock. The shares of Series B Preferred Stock had a stated value of $1,000 per share and were convertible, at a conversion price of $20.00 per share, into 125,000 shares of common stock.

Redemption Rights

Each share of Preferred Stock was redeemable after (i) the earlier of (1) the receipt of authorized stockholder approval for the reverse stock split and (2) the date that was 90 days following the Original Issue Date of March 25, 2022, and (ii) before the date that was 120 days after the Original Issue Date or July 23, 2022 (the “Redemption Period”), each stockholder had the right to cause the Company to redeem all or part of such stockholder’s shares of Preferred Stock at a price per share equal to 105% of the stated value of $1,000 per share.

Between June 2, 2022, and June 29, 2022, at the request of the holders, the Company redeemed for cash proceeds totaling $5.25 million ($4.76 million payment from escrow and $0.5 million redemption payment by the Company), 2,500 outstanding shares of Series A Preferred Stock and 2,500 outstanding shares of Series B Preferred Stock based on the receipt of the Redemption Notices (the “Preferred Redemption”) at a price equal to 105% of the $1,000 stated value per share, which represented all outstanding shares of Preferred Stock. The approximately $1.1 million accretion of the Series A and Series B Preferred Stock to its redemption value was recorded as a reduction to additional paid-in capital. The Company recognized a portion of the accretion as a deemed dividend related to the accretion of the discount and redemption feature of approximately $0.5 million upon redemption of Preferred Stock on the consolidated statement of operations.

On June 30, 2022, the Company filed a Certificate of Elimination with respect to the Series A Preferred Stock and Series B Preferred Stock (the “Series A Certificate of Elimination and the Series B Certificate of Elimination”), which upon filing with the Secretary of State of the State of Delaware (“Delaware Secretary”), eliminated from all matters set forth in the Certificates of Designation of Series A and Series B Preferred Stock.

As of June 30, 2023 and December 31, 2022, all shares of the Series A Preferred Stock and Series B Preferred Stock are no longer outstanding and the Company’s only remaining class of outstanding stock is its common stock, par value $0.0001 per share.

7. Stockholders’ Equity

Common Stock

January 2021 Offering

In January 2021, the Company completed an S-1 offering (the “January 2021 Offering”) of an aggregate of 580,000 shares of common stock, pre-funded warrants to purchase up to 120,000 shares of its common stock, and common stock warrants to purchase up to an aggregate of 700,000 shares of common stock. To the extent that an investor determines, at their sole discretion, that they would beneficially own in excess of the Beneficial Ownership Limitations (or as such investor may otherwise choose), in lieu of purchasing shares of common stock and common stock warrants, such investor could have elected to purchase Pre-Funded Warrants and Common Warrants at the pre-funded purchase price in lieu of the shares of common stock and common stock warrants in such a manner to result in the same aggregate purchase price being paid by such investor to the Company. The combined purchase price of one share of common stock and the accompanying common stock warrant was $20.00, and the combined purchase price of one pre-funded warrant and accompanying common stock warrant was $19.998. The common stock warrants are exercisable for five (5) years at an exercise price of $20.00 per share. The pre-funded warrants were immediately exercisable at an exercise price of $0.002 per share and were exercisable at any time until all of the pre-funded warrants are exercised in full. Placement agent warrants were issued to purchase up to 35,000 shares of common stock, are immediately exercisable for an exercise price of $25.00 per share, and are exercisable for five (5) years following the date of issuance. The Company received gross proceeds of $14.0 million and incurred placement agent’s fees and other offering expenses of approximately $1.9 million.

The common stock warrants and placement agent warrants were valued at $7.2 million and $0.3 million, respectively, using the Black-Scholes option pricing model based on the following assumptions: expected volatility 80.08%, risk-free interest rate 0.38%, expected dividend yield 0%, and an expected term of 5.0 years.

As of June 30, 2023, a total of 336,060 warrants issued in the January 2021 Offering to purchase shares of common stock have been exercised and the Company issued 336,060 shares of its common stock. The Company received gross proceeds of approximately $6.8 million.

As of June 30, 2023, the Company had 387,565 shares and 11,375 shares of common stock reserved for issuance pursuant to the warrants and placement agent’s warrants, respectively, issued by the Company in the January 2021 Offering, at an exercise price of $20.00 per share and $25.00 per share, respectively.

June 2021 Offering

In June 2021, the Company completed a registered direct offering (the “June 2021 Offering”) of an aggregate of 298,865 shares of common stock, together with accompanying warrants to purchase up to an aggregate of 239,093 shares of common stock, at a public offering price of $22.00 per share. The accompanying warrants permit the investor to purchase additional shares equal to 80% of the number of shares of the Company’s common stock purchased by the investor. The warrants have an exercise price of $20.00 per share, are immediately exercisable, and expire five and a half (5.5) years following the date of issuance. In addition, the Company’s placement agent was issued compensatory warrants equal to 5.0%, or 14,946 shares, of the aggregate number of common stock sold in the offering, which are immediately exercisable for an exercise price of $27.50 and expire five (5) years following the date of issuance on June 7,

2026. The Company received gross proceeds of $6.6 million and incurred cash-based placement agent fees and other offering expenses of approximately $0.9 million.

The warrants and placement agent warrants were valued at $3.0 million and $0.2 million, respectively, using a Black-Scholes option pricing model with the following assumptions: expected volatility 81.44% and 80.15%, risk-free interest rate 0.88% and 0.77%, expected dividend yield 0% and 0%, and an expected term of 5.5 years or 5.0 years, respectively.

As of June 30, 2023, no warrants associated with the June 2021 Offering have been exercised.

As of June 30, 2023, the Company had 90,910 shares and 14,946 shares of common stock reserved for issuance pursuant to the warrants and placement agent’s warrants, respectively, issued by the Company in the June 2021 Offering, at an exercise price of $20.00 per share and $27.50 per share, respectively. In connection with the July 2022 Offering, the Company agreed to amend warrants, by reducing the exercise price and extending the expiration date, to purchase up to an aggregate of 148,183 shares of common stock of the Company that were originally issued to the investor in the June 2021 Offering. Refer to July 2022 Offering overview below for accounting treatment for the amended warrants.

December 2021 Offering

In December 2021, the Company completed a registered direct offering (the “December 2021 Offering”) of an aggregate of 411,764 shares of common stock and 411,766 warrants to purchase up to 411,766 shares of common stock, at a public offering price of $8.50 per share. The accompanying warrants permit the investor to purchase additional shares equal to approximately the same number of shares of the Company’s common stock purchased by the investor. The warrants have an exercise price of $8.50 per share, may be exercised any time on or after 6 months and one (1) day after the issuance date, and expire five and a half (5.5) years following the date of issuance. In addition, the Company’s placement agent was issued compensatory warrants equal to 5.0%, or 20,590 shares, of the aggregate number of shares of common stock sold in the offering, which are immediately exercisable for an exercise price of $10.626 and expire five and a half (5.5) years following the date of issuance on June 21, 2027. The Company received gross proceeds of $3.5 million and incurred cash-based placement agent fees and other offering expenses of approximately $0.5 million.

The placement agent warrants, which are recorded as a component of stockholders’ equity, were valued at an aggregate $0.1 million using the Black-Scholes option pricing model based on the following assumptions: expected volatility of 79.81%, risk-free interest rate of 1.21%, expected dividend yield of 0% and an expected term of 5.5 years.

As of June 30, 2023, no warrants associated with the December 2021 Offering have been exercised.

As of June 30, 2023, the Company had 164,707 shares and 20,590 shares of common stock reserved for issuance pursuant to the warrants and placement agent’s warrants, respectively, issued by the Company in the December 2021 Offering, at an exercise price of $8.50 per share and $10.626 per share, respectively. In connection with the July 2022 Offering, the Company agreed to amend warrants, by reducing the exercise price and extending the expiration date, to purchase up to an aggregate of 247,059 shares of common stock of the Company that were originally issued to the investor in the December 2021 Offering. Refer to July 2022 Offering overview below for accounting treatment for the amended warrants.

July 2022 Offering

On July 12, 2022, the Company entered into a Securities Purchase Agreement (the “July 2022 Purchase Agreement”) with a single healthcare-focused institutional investor for the sale by the Company of (i) a pre-funded warrant to purchase up to 1,774,309 shares of Common Stock (the “Pre-Funded Warrant”), (ii) a Series A warrant to purchase up to an aggregate of 1,774,309 shares of common stock (the “Series A Warrant”), and (iii) a Series B warrant to purchase up to an aggregate of 1,774,309 shares of common stock (the “Series B Warrant,” and together with the Pre-Funded Warrant and the Series A Warrant, the “Warrants”), in a private placement offering (the “Offering”). The combined purchase price of one Pre-Funded Warrant and accompanying Series A Warrant and accompanying Series B Warrant was $2.818.

Subject to certain ownership limitations, the Series A Warrant became exercisable immediately after the issuance date at an exercise price equal to $2.568 per share of common stock, subject to adjustments as provided under the terms of the Series A Warrant, and has a term of five and a half (5.5) years from the issuance date. Subject to certain ownership limitations, the Series B Warrant became exercisable immediately after the issuance date at an exercise price equal to $2.568 per share of common stock, subject to adjustments as provided under the terms of the Series B Warrant, and has a term of one and a half (1.5) years from the issuance date. Subject to certain ownership limitations described in the Pre-Funded Warrant, the Pre-Funded Warrant was immediately exercisable at an exercise price of $0.0001 per share of common stock any time until all of the Pre-Funded Warrant is exercised in full. As of June 30, 2023, the

Pre-Funded Warrant to purchase up to an aggregate of 1,774,309 shares of common stock had been fully exercised and the Company issued 1,774,309 shares of common stock.

The Company also agreed to amend certain warrants to purchase up to an aggregate of 447,800 shares of common stock of the Company that were issued to the investor in the private placement in November 2020, June 2021 and December 2021 with exercise prices ranging from $8.50 to $34.00 per share and expiration dates ranging from May 18, 2026 to June 21, 2027, so that such warrants have a reduced exercise price of $2.568 per share and expiration date of five and a half (5.5) years following the closing of the private placement, for an additional offering price of $0.0316 per amended warrant. The incremental fair value resulting from the modifications to the warrants was adjusted against the gross proceeds from the offering as an equity issuance cost.

The gross proceeds to the Company were approximately $5 million, before deducting the placement agent’s fees and other offering expenses, and excluding the proceeds, if any, from the exercise of the Series A Warrant, the Series B Warrant, and amended warrants.

The Series A warrants and placement agent warrants were valued at $3.8 million and $0.2 million, respectively, using the Black-Scholes option pricing model based on the following assumptions: expected volatility 79.28%, risk-free interest rate 3.06%, expected dividend yield 0%, and an expected term of 5.5 years.

The Series B warrants were valued at $2.3 million using the Black-Scholes option pricing model based on the following assumptions: expected volatility 74.25%, risk-free interest rate 3.16%, expected dividend yield 0%, and an expected term of 1.5 years.

The amended warrants were valued at $1.0 million using the Black-Scholes option pricing model based on the following assumptions: expected volatility 79.28%, risk-free interest rate 3.06%, expected dividend yield 0%, and an expected term of 5.5 years. The estimated fair value of the original warrants immediately prior to the warrant amendments was $0.5 million using Black-Scholes option pricing model based on the following assumptions: expected volatility ranging from 81.21 – 83.34%, risk-free interest rates of 3.06 – 3.16%, expected dividend yield 0%, and an expected terms of 3.84 – 4.94 years. The warrant modifications resulted in an estimated value of $0.5 million, measured as the incremental fair value of the amended warrants, and was adjusted against the gross proceeds from the offering.

As of June 30, 2023, no warrants associated with the July 2022 Purchase Agreement have been exercised.

As of June 30, 2023, the Company had 3,996,418 shares and 124,202 shares of common stock reserved for issuance pursuant to the warrants and placement agent’s warrants, respectively, issued by the Company in the July 2022 Purchase Agreement, at an exercise price of $2.568 per share and $3.5225 per share, respectively.

Common Stock Purchase Agreement with Lincoln Park

In July 2020, the Company entered into a common stock purchase agreement (the “2020 Purchase Agreement”) with Lincoln Park which provided that, upon the terms and subject to the conditions and limitations in the 2020 Purchase Agreement, Lincoln Park was committed to purchase up to an aggregate of $10.0 million of shares of the Company’s common stock at the Company’s request from time to time during a 24 month period that began in July 2020 and at prices based on the market price of the Company’s common stock at the time of each sale. Upon execution of the 2020 Purchase Agreement, the Company sold 16,425 shares of common stock at $60.88 per share to Lincoln Park for gross proceeds of $1.0 million. During the year ended December 31, 2020, the Company sold an additional 15,000 shares of common stock to Lincoln Park for gross proceeds of approximately $0.5 million. In addition, in consideration for entering into the 2020 Purchase Agreement and concurrently with the execution of the 2020 Purchase Agreement, the Company issued 3,348 shares of its common stock to Lincoln Park. The 2020 Purchase Agreement expired automatically pursuant to its term on August 1, 2022, and, as of such expiration, the Company could not, and has not, sold any additional shares of common stock to Lincoln Park pursuant to the 2020 Purchase Agreement.

Common Stock Warrants

As of June 30, 2023, warrants to purchase 68 shares of common stock with an exercise price of $1,486.00 per share remain outstanding that were issued by Conatus in connection with obtaining financing in 2016. These warrants expire on July 3, 2023.

See warrant discussion above in connection with the January 2021 Offering, the June 2021 Offering, the December 2021 Offering, and the July 2022 Offering.

Stock-Based Compensation

Equity Incentive Plans

On December 18, 2017, Private Histogen established the Histogen Inc. 2017 Stock Plan (the “2017 Plan”). Under the 2017 Plan, Private Histogen was authorized to issue a maximum aggregate of 41,861 shares of common stock with adjustments for unissued or forfeited shares under the predecessor plan (the Histogen Inc. 2007 Stock Plan). In April 2019, Private Histogen amended the 2017 Plan, which increased the number of common stock available for grants by 16,336 shares. The 2017 Plan permitted the issuance of incentive stock options (“ISOs”), non-statutory stock options (“NSOs”), and Stock Purchase Rights. NSOs could be granted to employees, directors, or consultants, while ISOs could be granted only to employees. Options granted vest over a maximum period of four years and expire ten years from the date of grant. In connection with the closing of the Merger, no further awards were made under the 2017 Plan and any cancelled, forfeited or expired options were not made available for granting. As of June 30, 2023, 4,662 fully vested options remain outstanding under the 2017 Plan.

In May 2020, in connection with the closing of the Merger, the Company’s stockholders approved the Company’s 2020 Incentive Award Plan (the “2020 Plan”). The maximum number of shares of the Company’s common stock available for issuance under the 2020 Plan equals the sum of (a) 42,500 shares; (b) any shares of common stock of the Company which are subject to awards under the Conatus 2013 Equity Incentive Plan (the “Conatus 2013 Plan”) as of the effective date of the 2020 Plan which become available for issuance under the 2020 Plan after such date in accordance with its terms; and (c) an annual increase on the first day of each calendar year beginning with the January 1 of the calendar year following the effectiveness of the 2020 Plan and ending with the last January 1 during the initial ten-year term of the 2020 Plan, equal to the lesser of (i) five percent of the number of shares of the Company’s common stock outstanding (on an as-converted basis) on the final day of the immediately preceding calendar year, and (ii) such lesser number of shares of the Company’s common stock as determined by the Company’s board of directors.

On June 20, 2023, the Company held its 2023 Annual Meeting of Stockholders (the “Annual Meeting”) at which time the stockholders approved an amendment to the Company’s 2020 Plan to increase the number of shares authorized for issuance thereunder by 500,000 shares, as previously approved by the Company's Board of Directors.

The following summarizes activity related to the Company’s stock options under the 2017 Plan and the 2020 Plan for the six months ended June 30, 2023:


	Options Outstanding			Weighted- average Exercise Price		Weighted- average Remaining Contractual Term (in years)		Aggregate Intrinsic Value (in thousands)
Outstanding at December 31, 2022		113,279		$	21.30		8.09	$	—
Granted		472,454			0.94
Cancelled / Forfeited		(84,617	)		18.86
Outstanding at June 30, 2023		501,116		$	2.52		9.58	$	—
Vested and exercisable at June 30, 2023		27,662		$	28.64		6.17	$	—

Valuation of Stock Option Awards

The following weighted-average assumptions were used to calculate the fair value of awards granted to employees, non-employees and directors:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Expected volatility		97.14	%		79.50	%		93.53	%		79.00	%
Risk-free interest rate		3.92	%		2.96	%		3.91	%		2.14	%
Expected option life (in years)		5.93			5.84			6.03			6.02
Expected dividend yield		—	%		—	%		—	%		—	%

Additionally, in connection with the closing of the Merger, no further awards will be made under the Conatus 2013 Plan. As of June 30, 2023, 4,887 fully vested options remain outstanding under the Conatus 2013 Plan with a weighted average exercise price of $859.59 per share.

Restricted Stock Units

On November 8, 2021, the Company granted 23,423 restricted stock units to the Company’s then Interim Chief Executive Officer, Chief Financial Officer, and Senior Vice President of Technical Operations. The fair value of the RSUs was $14.58 per share, which was the closing market price of the Company’s common stock on the date of grant. The RSUs vest in full upon the earlier of (1) 12 months following the grant date and (2) a change of control of the Company, as defined in the Company’s 2020 Plan, subject to continued service to the Company. Prior to RSU vesting, on November 7, 2022, the Company and the RSU recipients mutually agreed to enter into RSU Cancellation Agreements such that the RSU awards are cancelled and no longer outstanding.

Forfeiture Stock Option Grants

On March 10, 2023, the Company approved stock option grants to purchase 111,063 shares of the Company’s common stock to certain officers and employees as part of an annual award grant. Because the Company did not have sufficient shares available under the 2020 Plan at the time of approval, these shares were subject to forfeiture in the event that the shares available pursuant to the plan were not increased prior to the one-year anniversary and vesting of the award by an amount required to be available for issuance for all outstanding stock awards containing the forfeiture condition (“Forfeiture Stock Option Grants”). The Company had a conditional obligation to increase the shares available for issuance under the stock option plans before these Forfeiture Stock Option Grants can be granted at which time the Company would begin to recognize compensation costs from the inception date of the award through grant date. On June 20, 2023, the Company held its Annual Meeting at which the stockholders approved an amendment to the Company’s 2020 Plan to increase the number of shares authorized for issuance thereunder by 500,000 shares, which met the Company’s conditional obligation to increase the shares available for issuance. The Forfeiture Stock Options Grants were granted as of June 20, 2023.

As such, during the three and six months ended June 30, 2023, the Company began recognizing compensation expense for the Forfeiture Stock Option Grants dating back to the March 10, 2023 inception date of the grant awards.

Stock Option Cancellations

On March 10, 2023, the Company entered into Stock Option Cancellation Agreements with certain officers and employees (the “Option holders”), pursuant to which such individuals surrendered and cancelled 69,045 stock options with a weighted average price of $17.92 per share to purchase shares of the Company’s common stock (the “Cancelled Stock Options”). Pursuant to the terms of the Stock Option Cancellation Agreements, the Company agreed to pay each of the option holders a lump sum cash payment of $250 in exchange for the agreement to cancel the aforementioned stock options. The Company determined that because the Cancelled Stock Options were cancelled in exchange of cash consideration, the cash payments are considered partial settlements of the original awards and the cancellation should be accounted for as a repurchase of outstanding equity. The Company also determined that cash paid in exchange of cancellation was less than the fair value of the original awards and the stock options were probable of vesting pursuant to their original terms. Therefore, the Company recorded previously unrecognized compensation costs related to the Cancelled Stock Options of approximately $0.4 million during the three and six months ended June 30, 2023.

Inducement Grant

On February 23, 2023, the Company issued 106,793 stock options to its newly appointed Executive Vice President and Chief Scientific Officer as an inducement grant outside of the Company’s equity incentive plans in accordance with Nasdaq Listing Rule 5635(c)(4). In accordance with the award agreement, 25% of the options vest on the first anniversary of the employee’s hire date, on February 1, 2024, and then ratably over the remaining 36 months. Based on the terms being similar to standard grants as awarded under the 2020 Plan, the Company applied ASC 718 accounting basis for the recognition of share-based compensation expense. The inducement grant was valued at $0.1 million using the Black-Scholes option pricing model based on the following assumptions: expected volatility 91.65%, risk-free interest rate 4.06%, expected dividend yield 0%, and an expected term of 6.08 years. As of June 30, 2023, no inducement grant options are vested and total unrecognized compensation cost related to unvested options was approximately $0.1 million which is expected to be recognized over a weighted-average period of 3.58 years.

Stock-based Compensation Expense

The compensation cost, including the inducement grant expense, that has been included in the accompanying condensed consolidated statements of operations for all stock-based compensation arrangements is detailed as follows (in thousands):


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022			2023		2022
General and administrative	$	24	$	133		$	410	$	267
Research and development		8		(19	)		41		13
Total	$	32	$	114		$	451	$	280

As of June 30, 2023, total unrecognized compensation cost related to unvested options was approximately $0.4 million which is expected to be recognized over a weighted-average period of 3.45 years.

Common Stock Reserved for Future Issuance

Common stock reserved for future issuance is as follows:


	As of June 30,
	2023		2022
Common stock warrants		4,876,639		1,203,819
Common stock options issued and outstanding under stock plans		506,003		133,257
Common stock options issued and outstanding outside of stock plans (inducement grant)		106,793		—
Common stock available for issuance under stock plans		422,084		90,560
Total		5,911,519		1,427,636

8. Commitments and Contingencies

Leases

In January 2020, the Company entered into a long-term operating lease with San Diego Sycamore, LLC (“Sycamore”) for its headquarters that includes office and laboratory space. The lease commenced on March 1, 2020 and expires on August 31, 2031, with no options to renew or extend. The lease was accounted for as a modification of the Company’s existing lease with Sycamore as the lease agreement did not grant the Company an additional right-of-use asset.

The terms of the lease agreement include seven months of rent abatement at lease commencement and a tenant improvement allowance of up to $2.2 million. The tenant improvements are required to be permanently affixed to the leased office and laboratory space and do not constitute leasehold improvements of the Company. During the construction period of the tenant improvements, the lease agreement requires the Company to relocate its operations to a similar Sycamore property whereby monthly rent is substantially reduced for the duration of the construction period. The lease is subject to additional variable charges for common area maintenance, insurance, taxes and other operating costs. At lease commencement, the Company recognized a right-of-use asset and operating lease liability totaling approximately $4.5 million. The Company used a discount rate based on its estimated incremental borrowing rate to determine the right-of-use asset and operating lease liability amounts to be recognized. The Company determined its incremental borrowing rate based on the term and lease payments of the new operating lease and what it would normally pay to borrow, on a collateralized basis, over a similar term for an amount equal to the lease payments. Operating lease expense is recognized on a straight-line basis over the lease term. The terms of the lease required the Company to provide the landlord a security deposit of $0.3 million as collateral for a letter of credit issued to be held throughout the lease term. This security deposit is shown as restricted cash on the accompanying consolidated balance sheets.

In June 2021, the Company entered into the First Amendment to Lease (the “Amendment”). Pursuant to the Amendment, among other things, the Company and Sycamore agreed (i) to substitute the temporary premises, (ii) to delay the start of construction and the timing of the Company’s relocation to the replacement temporary premises, (iii) to increase the tenant improvement allowance from $2.2 million to $2.3 million, (iv) to increase the letter of credit amount from $0.3 million to $0.4 million upon commencement of the tenant improvements, and (v) to review potential subsequent reductions to the security deposit and related letter of credit requirement at certain time intervals along the lease term provided that the Company is not in default. As a result of the modification, the lease liability was remeasured using the incremental borrowing rate at the modification date and a corresponding reduction of $0.3 million was recorded to both the lease liability and right-of-use-asset.

During the year ended December 31, 2022, the Company completed construction of the building improvements. Due to construction delays, the tenant improvement construction period was extended by two months for which the Company was granted an incremental two-month extension of rent abatement and effectively shortened the lease term. Upon completion of the improvements, the building improvement costs in excess of the tenant improvement allowance that was funded by the Company were capitalized to the right-of-use-asset, to be amortized over the remaining lease term. As a result of the modification, the lease liability was remeasured and a corresponding increase of $0.4 million was recorded to both the lease liability and right-of-use-asset.

The Company leases certain office equipment that is classified as a finance lease. As of June 30, 2023, the weighted-average remaining term of the Company’s operating lease and finance lease was approximately 8.2 years and 1.0 years, respectively.

The Company recognizes right-of-use assets and lease liabilities at the lease commencement date based on the present value of future minimum lease payments over the lease term. The discount rate used to determine the present value of the lease payments is the rate implicit in the lease unless that rate cannot be readily determined, in which case, the Company utilizes its incremental borrowing rate in determining the present value of the future minimum lease payments. At the inception dates of the leases, the weighted-average discount rate for the Company’s operating and finance lease was 12.2% and 10.0%, respectively.

The Company does not record leases with an initial term of 12 months or less on the consolidated balance sheets. Expense for these short-term leases is recognized on a straight-line basis over the lease term. The Company has elected the practical expedient to combine lease and non-lease components into a single component for all classes of underlying assets.

At June 30, 2023, future minimum payments of lease liabilities were as follows (in thousands):


	Operating Lease			Finance Lease
2023 (Remaining 6 months)	$	392		$	6
2024		803			5
2025		827			—
2026		853			—
2027		879			—
Thereafter		3,451			—
Total minimum lease payments		7,205			11
Less: imputed interest		(2,701	)		(1	)
Total future minimum lease payments		4,504			10
Less: current obligations under leases		(265	)		(10	)
Noncurrent lease obligations	$	4,239		$	—

Material Contracts

Pfizer Inc.

In July 2010, Conatus entered into a Stock Purchase Agreement with Pfizer, pursuant to which it acquired all of the outstanding capital stock of Idun Pharmaceuticals, Inc., which was subsequently spun off to Conatus stockholders in January 2013. Under the stock purchase agreement, the Company may be required to make payments to Pfizer totaling $18.0 million upon the achievement of specified regulatory milestones.

Prior to the termination of the Collaboration Agreement with Amerimmune on November 28, 2022, the obligations pursuant to the Stock Purchase Agreement were the responsibility of our former collaboration partner, Amerimmune. In accordance with authoritative guidance, amounts for the milestone payments will be recognized when it is probable that the related contingent liability has been incurred and the amount owed is reasonably estimated. No amounts for the milestone payments have been recorded during the three and six months ended June 30, 2023 and year ended December 31, 2022.

PUR Settlement

In April 2019, Private Histogen entered into a Settlement, Release and Termination Agreement (“PUR Settlement”) with PUR Biologics, LLC and its members which terminated the License, Supply and Operating Agreements between Private Histogen and PUR, eliminated Private Histogen’s membership interest in PUR and returned all in-process research and development assets to Private Histogen (the “Development Assets”). The agreement also provided indemnifications and complete releases by and among the parties. The acquisition of the Development Assets was accounted for as an asset acquisition in accordance with ASC 805-50-50, Acquisition of Assets Rather than a Business.

As consideration for the reacquisition of the Development Assets, Private Histogen compensated PUR with both equity and cash components, including 8,366 shares of Series D convertible preferred stock with a fair value of $1.75 million and a potential cash payout of up to $6.25 million (the “Cap Amount”). Private Histogen paid PUR $0.5 million in upfront cash, forgave approximately $22 thousand of accounts receivable owed by PUR to Private Histogen, and settled an outstanding payable of PUR of approximately $23 thousand owed to a third party. The Company is also obligated to make milestone and royalty payments, including (a) a $0.4 million payment upon the unconditional acceptance and approval of a New Drug Application or Pre-Market Approval Application by the FDA related to the Development Assets, (b) a $0.4 million commercialization milestone upon reaching gross sales (by the Company or licensee) of the $0.5 million of products incorporating the Development Assets, and (c) a five percent (5%) royalty on net revenues collected by the Company from commercial sales (by the Company or licensee) of products incorporating the Development Assets. The aforementioned cash payments, along with any future milestone and royalty payments, are all applied against the Cap Amount. In accordance with authoritative guidance, amounts for the milestone and royalty payments will be recognized when it is probable that the related contingent liability has been incurred and the amount owed is reasonably estimated. No amounts for the milestone and royalty payments have been recorded during the three and six months ended June 30, 2023 and year ended December 31, 2022.

JHU License Agreement

On April 3, 2023, the Company entered into an Exclusive License Agreement (the “JHU License Agreement”) with Johns Hopkins University (“Johns Hopkins”), pursuant to which Johns Hopkins granted the Company an exclusive license to certain intellectual property associated with the use of emricasan for the treatment of disease in humans resulting from viral or bacterial infections (including but not limited to, MRSA, VRSA, and SARS-CoV-2). In exchange, the Company agreed to pay Johns Hopkins an upfront license fee, reimbursement of certain patent costs, payments upon meeting certain milestones of up to $2.1 million, and royalty payments, including minimum annual royalty payments that totals $0.3 million of future payables creditable to the then current year royalties on net sales through 2033. The Company recognized expenses of $

Histogen Inc. 10-Q