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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended March 31, 2025


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

For the transition period from to .

Commission File Number: 001-41747

Turnstone Biologics Corp.

(Exact name of registrant as specified in its charter)

     Delaware

     83-2909368

     (State or other jurisdiction of
incorporation or organization)

     (I.R.S. Employer
Identification No.)

9310 Athena Circle, Suite 300

La Jolla, California 92037

(Address of principal executive offices)

(347) 897-5988

(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 ($0.001 par value)

     TSBX

     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 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 ☒

The number of shares of Registrant’s common stock issued and outstanding as of May 01, 2025, was 23,140,349.

Turnstone Biologics Corp.

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I	FINANCIAL INFORMATION

Item 1	Financial Statements	1

	Condensed Consolidated Balance Sheets as of March 31, 2025 (unaudited) and December 31, 2024	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three months ended March 31, 2025 and 2024 (unaudited)	2

	Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2025 and 2024 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2025 and 2024 (unaudited)	4

	Notes to Condensed Consolidated Financial Statements (unaudited)	5

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3	Quantitative and Qualitative Disclosures About Market Risk	30

Item 4	Controls and Procedures	30

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	31

Item 1A	Risk Factors	31

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	76

Item 3	Defaults Upon Senior Securities	76

Item 4	Mine Safety Disclosures	76

Item 5	Other Information	76

Item 6	Exhibits	77

	Signature	78

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements that involve a number of risks and uncertainties, many of which are beyond our control. Although our forward-looking statements reflect the good faith judgment of our management, these statements can only be based on facts and factors currently known by us. Consequently, these forward-looking statements are inherently subject to risks and uncertainties, and actual results and outcomes may differ materially from results and outcomes discussed in the forward-looking statements as a result of various factors, including those set forth below under the caption “Risk Factors.”

In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “would,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplate,” “believe,” “estimate,” “predict,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, results of operations and financial condition. These forward-looking statements speak only as of the date of this Quarterly Report on Form 10-Q and are subject to a number of risks, uncertainties and assumptions described under the sections titled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q. Because forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted or quantified and some of which are beyond our control, you should not rely on these forward-looking statements as predictions of future events. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. Except as required by applicable law, we undertake no obligation to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. You should, however, review the factors and risks we describe in the reports we will file from time to time with the Securities and Exchange Commission, or SEC, after the date of this Quarterly Report on Form 10-Q.

In addition, statements that “we believe” and similar statements reflect our beliefs and opinions on the relevant subject. These statements are based on information available to us as of the date of this Quarterly Report on Form 10-Q, and while we believe such information provides a reasonable basis for these statements, such information may be limited or incomplete. Our statements should not be read to indicate that we have conducted an exhaustive inquiry into, or review of, all potentially available relevant information. These statements are inherently uncertain, and you are cautioned not to unduly rely on these statements.

Risk Factors Summary

•

Below is a summary of material factors that make an investment in our securities speculative or risky. Importantly, this summary does not address all of the risks that we face. Additional discussion of the risks and uncertainties summarized in this risk factor summary, as well as other risks that we face, follows this summary. This summary is qualified in its entirety by that more complete discussion of such risks and uncertainties.

•

We may not be successful in identifying and implementing any potential strategic alternatives in a timely manner or at all, and any strategic transactions that we may consummate in the future could have negative consequences.

•

If a strategic transaction is not consummated, our Board may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend significantly on the timing of such liquidation as well as the amount of cash that may need to be reserved for commitments and contingent liabilities.

•

Even if we successfully consummate any strategic transaction, or series of transactions, from our strategic assessment, we may fail to realize all or any of the anticipated benefits of any such transaction, such benefits may take longer to realize than expected, we may encounter integration difficulties or we may be exposed to other operational and financial risks.

•

The value to stockholders in the event of a strategic transaction or dissolution may depend on the extent to which we will be able to successfully satisfy our existing contractual obligations to third parties and regulatory commitments on favorable terms, which may include the outcome of our negotiations to reduce or terminate such commitments.

•

We may become involved in litigation, including securities class action litigation, that could divert our management’s attention and harm our business, and insurance coverage may not be sufficient to cover all costs and damages.

•

We currently do not meet, and may not regain compliance with, the listing standards of the Nasdaq Stock Market LLC (“Nasdaq”) and as a result our common stock may be delisted. Delisting could adversely affect the liquidity of our common stock and the market price of our common stock could decrease, and our ability to obtain sufficient additional capital to fund our operations and to continue to operate as a going concern would be substantially impaired.

•

We have limited operating history, have incurred substantial net losses and anticipate that we will continue to incur net losses for the foreseeable future. We have no products approved for commercial sale, have never generated any revenue from product sales and may never be profitable.

•

We will require additional capital in addition to the proceeds from our initial public offering, or IPO to fund our operations, and if we fail to obtain necessary capital on acceptable terms, or at all, we will not be able to complete the development and future commercialization of our current and any future product candidates.

•

If we fail to develop and receive approval for our existing or any additional future product candidates, our commercial opportunity could be limited which could adversely affect our business, results of operations and financial condition.

•

Unfavorable global economic conditions, including any adverse macroeconomic conditions or geopolitical events, including the conflict between Ukraine and Russia, conflict in the Middle East, and recent bank failures affecting the financial services industry, could adversely affect our business, financial condition, results of operations or liquidity, either directly or through adverse impacts on certain of the third parties on which we rely to conduct certain aspects of our preclinical studies or clinical trials.

•

Clinical development involves a lengthy and expensive process, with uncertain outcomes. We may incur significant costs and/or experience delays in completing, or ultimately be unable to complete, the development of our current and future product candidates, including our product candidates.

•

Preclinical development is uncertain. Our preclinical programs may experience delays or generate unfavorable data, and may never advance to clinical trials, which would adversely affect our ability to obtain regulatory approvals or commercialize these programs on a timely basis or at all, and any of these events would adversely affect our business, results of operations and financial condition.

•

Our product candidates are based on a novel approach to the treatment of cancer, which makes it difficult to predict the time and cost of product candidate development.

•

The manufacture of our product candidates is complex, and we may encounter difficulties in production, particularly with respect to process development, quality control, or scaling-up of any future manufacturing capabilities. If we, or any of our third-party manufacturers encounter such difficulties, our ability to provide supply of our product candidates for clinical trials or our products for patients, if approved, could be delayed or stopped, or we may be unable to maintain a commercially viable cost structure.

•

We face significant competition and if we fail to compete effectively, our business, results of operations and financial condition could be adversely affected.

•

We have relied and expect to continue to rely on third parties to conduct certain aspects of our preclinical studies, to conduct our clinical trials and to conduct investigator sponsored clinical trials of our product candidates. If these third parties do not successfully carry out their contractual duties or meet expected deadlines, comply with regulatory requirements or terminate the relationship, we may not be able to obtain regulatory approval of or commercialize any potential product candidates.

•

The regulatory approval process for our product candidates in the United States, and other jurisdictions is currently uncertain and will be lengthy, time-consuming and inherently unpredictable, and we may experience significant delays in the clinical development and regulatory approval, if any, of our product candidates.

•

Our success depends in part on our ability to protect our intellectual property. It is difficult and costly to protect our proprietary rights and technology, and we may not be able to ensure their protection.

•

Intellectual property rights do not necessarily address all potential threats to our business.

•

Sales of a substantial number of shares of our common stock in the public market could cause our stock price to fall.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Turnstone Biologics Corp.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	March 31, 2025			December 31, 2024
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	21,847		$	28,926
Restricted cash		116			116
Property and equipment held for sale		602			—
Prepaid expenses		1,226			3,191
Other current assets		3,067			1,987
Total current assets		26,858			34,220
Other assets, noncurrent		267			811
Operating lease right of use assets		488			933
Property and equipment, net		—			4,175
Total assets	$	27,613		$	40,139
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	1,695		$	870
Accrued expenses and other current liabilities		4,873			6,244
Operating lease liability, current		690			1,085
Total current liabilities		7,258			8,199
Operating lease liability, noncurrent		—			104
Other liabilities, noncurrent		369			369
Total liabilities		7,627			8,672
Stockholders’ equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized at March 31, 2025 and December 31, 2024, respectively, 0 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively		—			—
Common stock, $0.001 par value; 490,000,000 shares authorized at March 31, 2025 and December 31, 2024, respectively, 23,138,896 and 23,136,617 shares issued and outstanding as of March 31, 2025 and December 31, 2024, respectively		23			23
Additional paid-in capital		279,566			279,241
Accumulated other comprehensive loss		(202	)		(202	)
Accumulated deficit		(259,401	)		(247,595	)
Total stockholders’ equity		19,986			31,467
Total liabilities and stockholders’ equity	$	27,613		$	40,139

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

Turnstone Biologics Corp.

Condensed Consolidated Statements of Operations and Comprehensive Loss

(unaudited)

(in thousands, except share and per share data)


	Three Months Ended March 31,
	2025			2024
Operating expenses:
Research and development		4,357			15,790
General and administrative		4,807			4,901
Total operating expenses		9,164			20,691
Loss from operations		(9,164	)		(20,691	)
Other income, net		(2,640	)		1,078
Net loss before income taxes		(11,804	)		(19,613	)
Benefit (provision) for income taxes		(2	)		(16	)
Net loss	$	(11,806	)	$	(19,629	)
Other comprehensive loss:
Unrealized loss on available-for-sale debt securities		—			(117	)
Total comprehensive loss	$	(11,806	)	$	(19,746	)
Weighted-average shares of common stock outstanding, basic and diluted		23,138,209			23,011,795
Net loss per share attributable to common stockholders, basic and diluted	$	(0.51	)	$	(0.85	)

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

Turnstone Biologics Corp.

Condensed Consolidated Statements of Stockholders’ Equity

(unaudited)

(in thousands, except share amounts)


	Common Stock				Additional Paid-In		Accumulated Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Equity
Balance at December 31, 2023		23,099,335	$	23	$	275,521	$	(119	)	$	(176,758	)	$	98,667
Exercise of stock options		29,119	$	—	$	44							$	44
Stock-based compensation expense					$	1,046							$	1,046
Unrealized loss on available-for- sale debt securities							$	(117	)				$	(117	)
Net loss										$	(19,629	)	$	(19,629	)
Balance at March 31, 2024		23,128,454	$	23	$	276,611	$	(236	)	$	(196,387	)	$	80,011

Balance at December 31, 2024		23,136,617	$	23	$	279,241	$	(202	)	$	(247,595	)	$	31,467
Vesting of restricted stock units		2,279			$	—							$	—
Stock-based compensation expense					$	325							$	325
Net loss										$	(11,806	)	$	(11,806	)
Balance at March 31, 2025		23,138,896	$	23	$	279,566	$	(202	)	$	(259,401	)	$	19,986

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

Turnstone Biologics Corp.

Condensed Consolidated Statements of Cash Flows

(unaudited)

(in thousands)


	Three Months Ended March 31,
	2025			2024
Operating Activities
Net loss	$	(11,806	)	$	(19,629	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		325			1,046
Loss (Gain) on disposal of property and equipment		2,325			(20	)
Depreciation and amortization		301			509
Accretion of premium on short term investments		—			(791	)
Change in fair value of contingent consideration liability		—			53
Changes in operating assets and liabilities:
Accounts receivable - collaboration agreement		—			194
Prepaid expenses		1,965			115
Other current assets		(145	)		403
Operating lease liabilities		(54	)		(44	)
Accounts payable		825			1,387
Change in contingent consideration liability		—			—
Accrued compensation and other accrued liabilities		(1,371	)		(711	)
Other non-current assets		544			28
Net cash flows used in operating activities		(7,091	)		(17,460	)
Investing Activities
Proceeds from maturities of short-term investments		—			21,000
Purchase of short-term investments		—			(6,761	)
Proceeds from sale of property and equipment		12			—
Purchases of property and equipment		—			(144	)
Net cash flows provided by investing activities		12			14,095
Net decrease in cash, cash equivalents and restricted cash		(7,079	)		(3,365	)
Cash, cash equivalents and restricted cash at beginning of the period		29,042			17,914
Cash, cash equivalents and restricted cash at end of the period	$	21,963		$	14,549

Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes		—			116

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Exercise of stock option in other current assets		—			44
Receivables for equipment sales included in other current assets		935			25

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

Turnstone Biologics Corp.

Notes to the Condensed Consolidated Financial Statements

1. Nature of the Business and Basis of Presentation

Organization

Turnstone Biologics Corp. (the “Company” or “Turnstone”) is a biotechnology company that was focused on developing new medicines to treat and cure patients with solid tumors. Until recently, Turnstone was pioneering a differentiated approach to tumor infiltrating lymphocytes (“TILs”), a clinically validated technology for treating solid tumors. The Company was developing next generation TIL therapies by selecting and expanding the most potent and tumor reactive T cells (“Selected TILs”). The Company's headquarters are located in San Diego, California.

Strategic Alternatives

On January 30, 2025, following a comprehensive evaluation of the Company’s business and the status of the Company’s programs, resources, and capabilities, the Company’s Board of Directors (“Board”) approved the discontinuation of all Company sponsored clinical studies evaluating TIDAL-01 for all indications, and pursuit of strategic alternatives to enhance and preserve stockholder value, which may include exploration and evaluation of strategic options like a merger, reverse merger, other business combination, sale of assets, licensing, or other strategic transactions ("Strategic Alternatives").

In addition, Turnstone is reducing its workforce while also implementing further cost-containment and cash conservation measures. The Company intends to retain all employees essential for supporting value-realization as part of its strategic review. As of March 31, 2025, the Company has 8 employees and may continue reducing headcount as the Company explores Strategic Alternatives.

Nasdaq Compliance

On September 27, 2024, the Company received a deficiency notice (the “Notice”) from the Listing Qualifications Staff of The Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that, for the last 30 consecutive business days, the bid price of the Company’s common stock had closed below $1.00 per share, the minimum closing bid price required by the continued listing requirements of Nasdaq Listing Rule 5450(a)(1). In accordance with Nasdaq Listing Rule 5810(c)(3)(A), the Company was provided an initial period of 180 calendar days to regain compliance with the Minimum Bid Requirement.

On March 27, 2025, the Company received approval from the Listing Qualifications Department of Nasdaq to transfer the listing of the Company’s common stock from the Nasdaq Global Market to the Nasdaq Capital Market (the “Approval”). The Company’s securities were transferred to the Nasdaq Capital Market at the opening of business on March 31, 2025. The Company’s common stock continues to trade under the symbol “TSBX.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market, but with less stringent listing requirements, although listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements.

In connection with the Approval, the Company has been granted an additional 180-day grace period, or until September 22, 2025, to regain compliance with the Minimum Bid Price Requirement. To regain compliance with the Minimum Bid Price Requirement and qualify for continued listing on the Nasdaq Capital Market, the minimum bid price per share of the Company’s common stock must be at least $1.00 for at least ten consecutive business days during the additional 180-day grace period. If the Company does not regain compliance during this additional grace period, its common stock would be subject to delisting by Nasdaq. As part of its transfer application, the Company notified Nasdaq that in order to regain compliance with the Minimum Bid Price Requirement during the additional grace period, it will implement a reverse stock split, and has filed a proxy statement soliciting a stockholder vote on such reverse stock split. If the Company’s stock becomes subject to delisting as a result of the Company’s failure to regain compliance with the Minimum Bid Price Requirement by September 22, 2025, the Company may appeal the decision to a Nasdaq Hearings Panel. In the event of an appeal, the Company’s common stock would remain listed on the Nasdaq Capital Market pending a written decision by the Nasdaq Hearings Panel following a hearing. In the event that the Nasdaq Hearings Panel determines not to continue the Company’s listing and the Company’s common stock is delisted from The Nasdaq Capital Market, the Company’s common stock may trade on the OTC Bulletin Board or other small trading markets, such as the pink sheets.

Liquidity and Capital Resources

Going Concern

On February 2, 2025, the Company announced the Strategic Alternatives discontinuing all Company sponsored clinical studies evaluating TIDAL-01 for all indications, and the pursuit of strategic alternatives to enhance and preserve stockholder value. The Company has devoted, and expects to continue to devote, substantial time and resources to exploring strategic alternatives that its Board believes will maximize stockholder value. Despite devoting substantial time and resources to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in the Company pursuing any transaction or that any transaction, if pursued, will be completed on terms favorable to the Company, if at all. The Company expects that this strategic review process will extend into, and possibly beyond, the second quarter of 2025. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value, or that the Company will make any cash distributions to our stockholders. If the strategic review process does not result in the consummation of a strategic transaction, the Board may decide to pursue a dissolution and liquidation.

As of March 31, 2025, the Company had $21.8 million in cash and cash equivalents. The Company has concluded that the balance of cash and cash equivalents will be sufficient to fund its planned expenditures and meet its obligations for the twelve months following the date these unaudited condensed consolidated financial statements are filed with the Securities and Exchange Commission ("SEC").

Sources of Liquidity

Since its inception, the Company has devoted substantially all of its efforts and financial resources to organizing and staffing the Company, business planning, raising capital, discovering product candidates and securing related intellectual property rights, and conducting research and development activities for its Selected TIL programs and product candidates. The Company does not have any products approved for sale, has not generated any revenue from product sales and has incurred overall net losses since commencement of the Company’s operations, including a net loss of $11.8 million and $19.6 million for the three months ended March 31, 2025 and 2024, respectively. The Company has financed its operations through the issuance and sale of shares of the Company’s redeemable convertible preferred stock, from collaboration revenue received pursuant to certain collaboration agreements, and most recently, with proceeds from its initial public offering ("IPO") completed on July 25, 2023 and the exercise of the underwriters option to purchase additional shares on August 15, 2023. As of March 31, 2025, the Company had an accumulated deficit of $259.4 million. The Company expects to continue to generate significant operating losses for the foreseeable future.

On April 26, 2024 (the “Loan Closing Date”), the Company entered into a Loan and Security Agreement ("LSA") with Banc of California ("BOC") for a revolving credit facility in an aggregate principal amount of up to $20 million with annual interest at the greater of the Prime Rate (as defined in the LSA) or 4.25%. This LSA includes a covenant requiring the Company to (i) receive positive interim Phase 1 data for TIDAL-01 (as determined by the Company’s Board), which was achieved in August 2024 and (ii) receive at least $40.0 million in new funding from the sale of equity, partnerships, and/or business development payments, in each case, by March 31, 2025, which was not achieved. If the Company fails to comply with any of the foregoing covenants, the Lender may terminate the commitments to make further loans and declare all of the obligations of the Company under the LSA to be immediately due and payable. As of March 31, 2025, no amounts have been drawn nor are available to be drawn since the Company did not meet the above covenant under the LSA (see Note 8 - Term Loan for additional information).

Risks and Uncertainties

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

2. Summary of Significant Accounting Policies

Basis of Presentation of Unaudited Condensed Consolidated Financial Information

The accompanying unaudited condensed consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all the information and footnotes required by GAAP for complete financial statements. However, such interim financial statements reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and results of operations. Results shown for interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 2025 or for any other period. The condensed consolidated balance sheet as of December 31, 2024 was derived from the audited consolidated financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 31, 2025. Certain prior period amounts reported in the Company’s unaudited condensed consolidated financial statements and accompanying notes have been reclassified to conform to the current period presentation. Any reference in these notes to applicable guidance is meant to refer to the authoritative accounting principles generally accepted in the United States as found in the Accounting Standard Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

Principles of Consolidation

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

Significant Accounting Policies

The significant accounting policies used in preparation of these unaudited condensed consolidated financial statements are consistent with those discussed in Note 2 to the audited consolidated financial statements included in the Company’s Annual Report filed on Form 10-K filed with the SEC on March 31, 2025.

Use of Estimates

The preparation of these unaudited condensed consolidated financial statements in accordance with GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. On an ongoing basis, management evaluates its estimates, including those related to accrued expenses, contingent liabilities, impairment of long-lived assets, revenue recognition, the valuation of equity-based compensation, common stock, restricted common stock, and income taxes. The Company bases its estimates on various assumptions that the Company believes to be reasonable under the circumstances. Actual results could differ from those estimates.

Segment Reporting

Operating segments are defined as components of an entity about which separate discrete information is available for evaluation by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The CODM is the Company's chief executive officer, Dr. Sammy Farah. The Company views its operations as and manages its business in one operating segment, which is the business of developing and commercializing therapeutics. Segment information is further described in Note 13—Segments to these consolidated financial statements.

Restricted Cash and Investments

Restricted cash consists of certificate of deposit accounts that are pledged as collateral for the Company’s San Diego facility lease. Restricted cash was approximately $0.1 million as of March 31, 2025 and December 31, 2024, respectively.

The Company invests its excess cash in investment grade, short-term, fixed income securities and recognizes purchased securities on the settlement date. All investments have been classified as “available-for-sale” in the unaudited condensed consolidated balance sheets and are carried at estimated fair value based upon quoted market prices or pricing models for similar securities. Management determines the appropriate classification of its investments at the time of purchase and re-evaluates such designation as of each balance sheet date.

The Company assesses its available-for-sale securities under the available-for-sale security impairment model in ASC Topic 326, Financial Instruments - Credit Losses ("ASC 326") as of each reporting date in order to determine if a portion of any decline in fair value below carrying value is the result of a credit loss. The Company records credit losses in the unaudited condensed consolidated statements of operations and comprehensive loss as credit loss expense, which is limited to the difference between the fair value and the amortized cost of the security. To date, the Company has not recorded any credit losses on its available-for-sale securities. Declines in fair value below carrying value attributable to non-credit related factors are recorded as accumulated other comprehensive loss, which is a separate component of stockholders’ equity.

Realized gains and losses are reported in other income (expense), net. Interest on short-term investments is included in other income (expense), net. The Company’s investments are classified as current assets which reflects management’s intention to use the proceeds from sales of these securities to fund its operations, as necessary.

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents, investments and restricted cash. The Company’s investment policy restricts cash investments to high credit quality, investment grade investments. The Company’s investment policy provides guidelines and limits regarding investment type, concentration, credit quality, and maturity aimed at maintaining sufficient liquidity to satisfy operating and working capital requirements along with strategic initiatives, preserving capital, and minimizing risk of capital loss while generating returns on its investments. The Company is exposed to credit risk in the event of default by the issuer or the institutions holding the cash and cash equivalents to the extent of the amounts recorded on the balance sheets.

The Company has no off-balance sheet risk, such as foreign exchange contracts, option contracts or other foreign-hedging arrangements.

Fair Value Measurements

The Company applies fair value accounting for all financial assets and liabilities and non-financial assets and liabilities that are recognized or disclosed at fair value in the unaudited condensed consolidated financial statements on a recurring basis. Fair value is defined as the exchange price that would be received for an asset or an exit price that would be paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The fair value hierarchy requires that an entity maximize the use of observable inputs when estimating fair value. The fair value hierarchy includes the following three-level classification which is based on the market observability of the inputs used for estimating the fair value of the assets or liabilities being measured:

Level 1 – Quoted market prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities, quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Inputs that are generally unobservable and typically reflect management’s estimate of assumptions that a market participant would use in pricing the asset or liability.

Fair value accounting is applied for all financial assets and liabilities and non-financial assets and liabilities that are recognized at fair value in the unaudited condensed consolidated financial statements on a recurring basis (at least annually). To the extent the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair values requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for instruments categorized as Level 3. A financial instrument’s level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement.

Stock-Based Compensation

The Company accounts for stock-based compensation expense related to stock options and restricted stock units, ("RSUs"), by estimating the fair value on the date of grant. The fair value of RSUs granted to employees is the closing price of the Company’s common stock on the date of grant. The Company estimates the fair value of stock options granted to employees and non-employees using the Black-Scholes option pricing model. The Company recognizes stock-based compensation expense, over the requisite service period, based on the vesting provisions of the individual grants. Generally, the Company issues stock-based awards with only service-based vesting conditions and records the expense for these awards using the straight-line method. The Company accounts for forfeitures when they occur.

The Black-Scholes option pricing model requires inputs based on certain subjective assumptions, including (a) the expected stock price volatility, (b) the expected term of the award, (c) the risk-free interest rate and (d) expected dividend yields. Due to the lack of a public market for the Company’s common stock until July 21, 2023, and lack of company- specific historical and implied volatility data, the Company has based its computation of expected volatility on the average historical volatility of a representative group of public companies with similar characteristics to the Company, including stage of product development and life science industry focus. The historical volatility is calculated based on a period of time commensurate with the expected term. The Company uses the simplified method as prescribed by the U.S. Securities and Exchange Commission Staff Accounting Bulletin No. 107, Share-Based Payment, to calculate the expected term for options granted to employees as it does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate the expected term. The expected term is applied to the stock option grant group as a whole, as the Company does not expect substantially different exercise or post-vesting termination behavior among its employee population. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected term of the stock options. The expected dividend yield is assumed to be zero as the Company has never paid dividends and has no current plans to pay any dividends on its common stock.

Contingent Consideration

Consideration paid related to the Myst Merger Agreement (see Note 7 - Asset Acquisition for additional information) may include potential future payments that are contingent upon the Company achieving certain milestones in the future. Contingent consideration liabilities are measured at their estimated fair value as of the date of the unaudited condensed consolidated balance sheets using a probability-based income approach based on the monetary value of the milestone payment discounted for the likelihood of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. Contingent consideration liabilities expected to be settled within 12 months after the balance sheet date are presented in current liabilities, with the non-current portion recorded under other liabilities, non-current in the unaudited condensed consolidated balance sheets. Changes in the fair value of the contingent consideration are recorded as research and development expenses in the unaudited condensed consolidated statement of operations and comprehensive loss.

Recently Adopted Accounting Pronouncements

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280)—Improvements to Reportable Segment Disclosures (“ASU 2023-07”). ASU 2023-07 requires that an entity disclose significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker. The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption. The amendments in ASU 2023-07 are required to be adopted for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company adopted ASU 2023-07 during the year ended December 31, 2024 and the amendments have been applied retrospectively to all prior periods presented in the consolidated financial statements. See Note 13 for additional information.

Recently Issued Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses (“ASU 2024-03”), which requires the disaggregation of certain expense captions into specified categories in disclosures within the notes to the financial statements to provide enhanced transparency into the expense captions presented on the face of the income statement. ASU 2024-03 is effective for annual reporting periods beginning after December 15, 2026 and interim periods beginning after December 15, 2027, with early adoption permitted. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740)—Improvements to Income Tax Disclosures (“ASU 2023-09”). ASU 2023-09 requires that an entity disclose specific categories in the effective tax rate reconciliation as well as provide additional information for reconciling items that meet a quantitative threshold. Further, ASU 2023-09 requires certain disclosures of state versus federal income tax expense and taxes paid. The amendments in ASU 2023-09 are required to be adopted for fiscal years beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued. The amendments should be applied on a prospective basis although retrospective application is permitted. The Company is currently evaluating the potential impact that this standard may have on its consolidated financial statements and related disclosures.

3. Fair Value of Financial Assets and Liabilities

As of March 31, 2025 and December 31, 2024, the Company’s restricted cash which is maintained as collateral in connection with its San Diego facility lease, (see Note 2 – Summary of Significant Accounting Policies for additional information) are valued using Level 1 inputs. The Company’s highly liquid money market funds included within cash equivalents and restricted cash are valued using Level 1 inputs.

The Company had $0.1 million in contingent consideration liabilities as of March 31, 2025 and December 31, 2024, respectively, related to the Myst Merger Agreement. The contingent consideration balances are comprised of one potential milestone payment and is measured at fair value (see Note 7—Asset Acquisition for additional information). The fair value of the contingent consideration is estimated based on the monetary value of the milestone discounted for the likelihood of achieving the milestone and a present value factor based on the timing of when the milestone is expected to be achieved. The value for the contingent consideration balance is based on significant inputs not observable in the market which represents a Level 3 measurement within the fair value hierarchy. There were no transfers in or out of Level 3 during the periods presented.

The following tables represent a summary of the financial assets and liabilities that are measured on a recurring basis at fair value (in thousands):


	March 31, 2025
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	17,872	$	—	$	—	$	17,872
Restricted cash(1)		116		—		—		116
Total financial assets	$	17,988	$	—	$	—	$	17,988
Financial liabilities:
Contingent consideration(2)	$	—	$	—	$	92	$	92
Total financial liabilities	$	—	$	—	$	92	$	92


	December 31, 2024
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	22,159	$	—	$	—	$	22,159
Restricted cash(1)		116		—		—		116
Total financial assets	$	22,275	$	—	$	—	$	22,275
Financial liabilities:
Contingent consideration(2)	$	—	$	—	$	92	$	92
Total financial liabilities	$	—	$	—	$	92	$	92

(1)

Restricted cash serves as deposits for the Company’s San Diego office lease.

(2)

Contingent consideration related to the Myst Merger Agreement.

The following significant unobservable inputs were used in the valuation of the contingent consideration payable to the sole common stockholder of Myst Therapeutics, Inc. ("Myst") pursuant to the Myst Merger Agreement:


	Fair Value as of
Contingent Consideration Liability	March 31, 2025		Valuation Technique	Unobservable Input	Amount
	(in thousands)
Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information)	$	92	Discounted cash flow	Likelihood of occurrence	1%
				Discount rate	25%
				Expected term (in years)	3.3

	Fair Value as of
Contingent Consideration Liability	December 31, 2024		Valuation Technique	Unobservable Input	Amount
	(in thousands)


Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information)	$	92	Discounted cash flow	Likelihood of occurrence	1%
				Discount rate	25%
				Expected term (in years)	3.5

The following table reflects the activity for the Company’s contingent consideration, measured at fair value using Level 3 inputs (in thousands):


Contingent consideration at December 31, 2024	$	92
Changes in the fair value of contingent consideration		-
Contingent consideration at March 31,2025	$	92

The following tables show the Company’s cash and cash equivalents by significant investment category (in thousands):


	March 31, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1: Money market funds	$	17,872	$	—	$	—	$	17,872
Restricted cash		116		—		—		116
Total financial assets	$	17,988	$	—	$	—	$	17,988
Classified as:
Cash and cash equivalents							$	17,872
Restricted cash								116
							$	17,988


	December 31, 2024
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1: Money market funds	$	22,159	$	—	$	—	$	22,159
Restricted cash		116		—		—		116
Total financial assets	$	22,275	$	—	$	—	$	22,275
Classified as:
Cash and cash equivalents							$	22,159
Restricted cash								116
							$	22,275

4. Property and Equipment, Net

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


	March 31,			December 31,
	2025			2024
Laboratory equipment	$	1,109		$	10,053
Furniture		268			690
Leasehold improvements		—			1,308
		1,377			12,051
Less accumulated depreciation and amortization		(775	)		(7,876	)
Total property and equipment, net		602			4,175
Reclassified to held for sale		(602	)		—
Total property and equipment, net	$	—		$	4,175

Property and equipment depreciation and amortization expense for the three months ended March 31, 2025 and 2024, was $0.3 million and $0.5 million, respectively.

As of March 31, 2025, the Company had $0.6 million in property and equipment held for sale, and the Company's intention is to complete the sale of the remaining assets within the second quarter of 2025. During the three months ended March 31, 2025, $1.4 million of assets were reclassified on the balance sheet as property and equipment held for sale and $10.8 million were sold. The Company recognized a loss on disposal of property and equipment of $2.3 million for the three months ended March 31, 2025.

5. Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following (in thousands):


	March 31,		December 31,
	2025		2024
Research and development expense	$	1,219	$	3,774
Professional and consulting expense		1,529		545
Taxes payable		865		837
Compensation		1,033		1,088
Other current liabilities		227		—
Total accrued expenses and other current liabilities	$	4,873	$	6,244

6. Agreements

H. Lee Moffitt Cancer Center

Master Collaboration Agreement

In January 2021, the Company entered into an amended and restated master collaboration agreement (the “Moffitt Agreement”), with Moffitt, to amend a then-existing master collaboration agreement from November 2019, as amended March 2020, between Moffitt and the Company’s now wholly-owned subsidiary, Myst, with the intent to continue to work collaboratively in the research of cancer immunotherapies.

Each party granted the other party a right to use its research materials for performance of the research plans agreed to by the parties (the “Research Plans”). Each party granted the other party a non-exclusive, worldwide, sublicensable, perpetual, irrevocable, royalty-free license under all inventions invented in performance of a Research Plan and invented jointly by the Company and Moffitt (the “Joint Inventions”) (with certain exclusions) to make, use, sell, offer for sale, import products and services and/or otherwise practice such inventions.

The Company granted Moffitt a royalty free, non-sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented solely by the Company in the performance of a Research Plan for its internal non-commercial research purposes.

Moffitt granted the Company (i) a royalty-free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented solely by Moffitt in the performance of a Research Plan (“Moffitt Inventions”), (a) for internal, non-commercial research purposes outside the field of ACT and/or (b) to research, develop, make, use, sell, offer to sell, or import products and/or services in the field of ACT and (ii) a royalty free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented in performance of a Research Plan or through the use of specified Moffitt research materials.

Moffitt granted the Company an option to obtain, with terms to be negotiated in good faith under commercially reasonable terms, a royalty-bearing, sublicensable exclusive license in the Moffitt Inventions, the TCR Inventions, and/or Moffitt’s interest in Joint Inventions. The Company could have exercised this option at any time within six months after Moffitt informed the Company of any new invention, and upon the Company’s exercise, the parties would have a period of six months to negotiate the terms of such exclusive license.

The Moffitt Agreement expired in January 2025, which was four years from the effective date of the Moffitt Agreement. All activity being performed under the Moffitt Agreement has been transferred to the Alliance Agreement (as defined below).

Moffitt Alliance Agreement

In June 2022, the Company entered into a life science alliance agreement with Moffitt (the “Alliance Agreement”), in order to further expand the Company’s relationship and support the Company’s existing agreements with Moffitt (the “Underlying Agreements”). Pursuant to the Alliance Agreement, the Company will have priority access to Moffitt’s scientific research, manufacturing, and clinical capabilities for the development of novel TIL therapies, including expedited clinical trial activation, enhanced patient screening and data sharing, access to Moffitt’s cellular therapies research and development infrastructure, expanded molecular data sets and biospecimens for research, and allocated cGMP manufacturing capacity for the Company’s product candidates.

Under the Alliance Agreement, the Company is obligated to use commercially reasonable efforts to further develop TIL Products, to manufacture TIL Products, to obtain regulatory approval for at least one TIL Product in the United States and to commercialize TIL Products in all countries in which regulatory approval for a TIL Product has been obtained. For purposes of the Alliance Agreement, TIL Product means any pharmaceutical, biopharmaceutical, or biotechnology TIL product that has been developed by us or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.

Pursuant to the Alliance Agreement, the Company agreed to pay to Moffitt a total amount of at least $17.5 million (the “Alliance Funding Amount”), for research, development and manufacturing related services that will be paid equally over five years on June 1st of each year starting on June 1, 2023. The Alliance Funding Amount will be calculated annually at the conclusion of each payment period, and, to the extent the Company’s annual aggregate payments to Moffitt of $3.5 million exceeds the applicable annual installment amount, the Company will receive a reduction in the amount due for future installment payments based on a predetermined formula agreed to by the parties. To the extent the aggregate annual payments are less than $3.5 million, the Company will prepay the remaining amount due.

In connection with the execution of the Alliance Agreement, the Company issued Moffitt 91,721 shares of its common stock. As partial consideration under the Alliance Agreement, the Company also agreed to issue Moffitt an additional 366,884 shares of its common stock in the aggregate upon the satisfaction of certain clinical and regulatory milestones with respect to TIL Products. The issuances of common stock are treated as performance-based stock awards. On February 27, 2023, 91,721 shares were issued due to the achievement of the milestone related to the start of the Phase 1 trial. In addition, upon achievement of certain thresholds for aggregate net sales of all TIL Products, the Company is required to make tiered sales-based milestones payments to Moffitt of up to an aggregate of $50.0 million. With respect to each of the equity and sales milestones described above, TIL Products include any pharmaceutical, biopharmaceutical or biotechnology TIL Product that is developed by the Company or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.

Unless earlier terminated, the Alliance Agreement will remain in effect for a term of five years and may be extended for additional periods upon the mutual written consent of both parties. Either party may terminate the Alliance Agreement in the event of (i) the other party’s material breach of the Alliance Agreement that remains uncured after ninety days of receiving written notice of such breach (or in the case of breach of payment obligations, within ten days), (ii) the other party’s insolvency and (iii) a pandemic event resulting in government lockdowns or orders that legally compel such party to cease operations or that result in material disruptions in the available workforce and prevents such party from performing its contractual obligations for a period of more than six months. At any time after June 1, 2025, either party may terminate the Alliance Agreement without cause upon sixty days prior written notice to the other party (a “Termination for Convenience”). Upon a Termination for Convenience, the terminating party shall pay to the other party a termination fee in an amount equal to a low double digit percentage of the then remaining Alliance Funding Amount. Termination or expiry of one or more Underlying Agreements does not affect the term of the Alliance Agreement, which will continue to apply to the remaining ongoing Underlying Agreements.

7. Asset Acquisition

In December 2020, the Company entered into the Agreement and Plan of Merger and Reorganization (the “Myst Merger Agreement”), by and among the Company, Flatiron Merger Sub I, Inc. (“Merger Sub”), Flatiron Merger Sub II, LLC (“Merger LLC”), a direct, wholly-owned subsidiary of the Company, Myst, and Timothy Langer, the sole common stockholder of Myst (“Langer”). Pursuant to the Myst Merger Agreement, the business combination (the “Merger”) was effected in two steps. The first step was the merger of Merger Sub with and into Myst. The second step was the merger of Myst with and into Merger LLC. The Merger closed on December 14, 2020, and the effective date of the Merger was January 20, 2021. As a result of the Merger, the separate existences of Merger Sub and Myst ceased, and Merger LLC became the Company’s wholly-owned subsidiary.

Pursuant to the Myst Merger Agreement, on December 15, 2020, the Company paid the former equity holders of Myst, (the “Myst Holders”), a one-time up-front payment of $9.0 million in cash. The Company paid an additional cash consideration of $1.0 million to the Myst Holders on June 14, 2022. The Company also issued Langer up to 725,920 shares of the Company’s common stock. Of these shares, 362,960 shares of the Company’s common stock were issued upon the closing of the Merger and the remaining 362,960 shares of the Company’s common stock were held in escrow with 25% vesting in December of each year that Langer remains with the Company. At December 31, 2024, Langer was still an advisor to the Company and all 362,960 shares of the Company’s common stock had vested and were released from escrow. This restricted equity grant was accounted for as a compensatory arrangement under ASC Topic 718, Compensation — Stock Compensation (“ASC 718”) as continued service is required under the agreement.

In addition, under the Myst Merger Agreement, each Myst Holder is entitled to receive certain payments as consideration based on the achievement by the Company of three predefined milestones. The initial milestone is the closing of an initial public offering, which occurred on July 25, 2023, the second milestone is the first acceptance by the FDA of an IND filed by, on behalf of or for the benefit of the Company, or the Company’s sublicensees for a product being developed by or on behalf of the Company or its sublicensees that is claimed as a product or method of making or using the product by a pending or issued Myst patent claim existing at the time of such acceptance, and the third milestone is the occurrence of the earlier of (i) the commencement of the first registration study for a product being developed by, on behalf of or for the benefit of the Company that is claimed as a product or a method of making or using the product by an issued Myst patent claim existing as of the time of such commencement or (ii) the issuance of a Myst patent claim that claims a product or method of making or using the product then being developed by, on behalf of or for the benefit of the Company, or its sublicensees, that is or was the subject of a registration study that has or had commenced. The milestones are not contingent on one another, and the milestones do not need to be achieved in any specific order.

Within 45 days of the achievement of the initial milestone, which occurred on July 25, 2023, the Company is obligated to pay the Myst Holders an aggregate amount equal to $3.0 million. At the Company’s election, the Company may pay this consideration in cash or in shares of the Company’s common stock. Pursuant to a letter agreement dated September 11, 2023 between the Company and the former equityholders of Myst regarding the $3.0 million milestone payment that became due and owing to the Myst Holders, the Company agreed to pay $0.2 million in cash to the former optionholders of Myst on or before September 30, 2023, with the remaining $2.8 million payable to Langer in shares of the Company’s common stock. On September 11, 2023, the Company issued Langer 249,992 shares of the Company’s common stock.

Within 45 days of the achievement of the second milestone, the Company is obligated to pay the Myst Holders an aggregate amount equal to $10.0 million. At the Company’s election, the Company may pay this consideration in cash or in shares of the Company’s common stock. In May 2022, this $10.0 million milestone was achieved. The Company elected to pay $5.0 million in the Company’s common stock and $5.0 million in cash. Pursuant to a letter agreement dated July 25, 2022 between the Company and the former equityholders of Myst regarding the $10.0 million milestone payment that became due and owing to the Myst Holders, the Company agreed to pay to the former optionholders of Myst on or before July 28, 2022, $0.6 million in cash, with the remaining $9.4 million payable to Langer as follows: (i) on or before July 28, 2022, $2.2 million in cash, (ii) on or before July 31, 2022, $5.0 million in shares of the Company’s common stock and (iii) on or before January 10, 2023, $2.2 million in cash. On June 8, 2022, the Company issued Langer 212,203 shares of the Company’s common stock to settle the $5.0 million obligation payable in common stock. The Company then paid the Myst Holders $2.8 million in July 2022, with $2.2 million paid to Langer and $0.6 million paid to the remaining Myst Holders, and the remaining $2.2 million was paid to Langer in January 2023.

Within 45 days of the achievement of the third milestone, the Company is obligated to pay the Myst Holders an aggregate amount equal to $20.0 million. At the Company’s election, the Company may pay this consideration in cash or in shares of its common stock. As part of shutting down the Company's the clinical trials, the Company reassessed the likelihood of achieving this milestone at 10% resulting in a carrying value of $0.1 million (See Note 3—Fair Value of Financial Assets and Liabilities).

The Company accounted for the merger with Myst pursuant to the Myst Merger Agreement as an asset acquisition as substantially all of the value received was concentrated in the acquired in-process research and development of Myst and did not have an alternate future use. The Company recognized a $19.4 million charge to research and development expense at the time of the completion of the asset acquisition during the year ended December 31, 2020. The Company determined that the milestone payments are separate units of account and accounted for the initial milestone as a derivative in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 815”) and the second and third milestones as liabilities in accordance with ASC Topic 480, Distinguishing Liabilities from Equity (“ASC 480”). In connection with the initial public offering, the Company reassessed its initial accounting of the milestone payments and concluded that they should be viewed as one unit of account because the milestone payments are not legally detachable from each other. The milestone payments, as one unit of account, would be classified as a liability in accordance with ASC 480 and measured at fair value, with changes in the fair value recorded in earnings. Regardless of whether the milestone payments are viewed as one unit of account or three units of account, because they are all subject to fair value measurement, the

financial reporting effect of the contingent consideration arrangement as one unit of account or three units of account is substantially the same. As a liability under ASC 480, the contingent consideration will continue to be recorded at fair value until settled. The Company did not record a significant expense to the fair value of the contingent consideration for the three months ended March 31, 2025 and 2024, respectively.

8. Term Loan

On April 26, 2024 (the "Closing Date"), the Company entered into the LSA, by and among the Company, as borrower, the Company’s wholly owned subsidiary, Myst Therapeutics, LLC (together with the Company, the “Loan Parties”) and BOC, as lender. The LSA provides for a revolving credit facility in an aggregate principal amount of up to $20.0 million (the “Revolving Loans”). The Company may request advances at any time the loan is not in default and not to exceed the Revolving Loans limit and may prepay any amounts outstanding at any time with no prepayment penalty. Upon termination of the LSA, whether in connection with acceleration, prepayment in full, or otherwise, the Company is obligated to make a nonrefundable payment of (i) $0.4 million at any time on or prior to the first anniversary of the Closing Date, and (ii) $0.2 million at any time after the first anniversary of the Closing Date but prior to the second anniversary. In addition, the Company is obligated to pay a fee in the event of certain corporate transactions equal to the greater of (i) $50,000 or (ii) 2% of the highest aggregate principal amount outstanding prior to the transaction (the "Success Fee"). The Success Fee is due upon any merger or consolidation, any sale of substantially all of the assets of the Company, or the closing of one or more related financings where aggregate cash proceeds from the sale of equity securities and/or upfront cash proceeds from strategic partnerships is equal to at least $75.0 million and occurs on or before the tenth anniversary of the Closing Date (each a "Success Fee Event"). If the LSA is terminated prior to the payment of the Success Fee, the Company will remain obligated to pay the Success Fee upon the occurrence of a Success Fee Event during such ten-year period.

The annual interest rate applicable to the Revolving Loans is the greater of the Prime Rate (as defined in the LSA) and 4.25%. Interest under the Revolving Loans is due and payable on the first calendar day of month during the term. The initial maturity date of the Revolving Loans is March 31, 2026, which may be extended to March 31, 2027 subject to the satisfaction of certain terms and conditions as set forth in the LSA. Upon maturity, all amounts outstanding will become due and payable.

The LSA contains customary representations and warranties and customary affirmative and negative covenants, including, among other things, restrictions on indebtedness, liens, investments, mergers, dispositions, prepayment of other indebtedness and dividends and other distributions. The Company is also required to comply with certain covenants requiring the Company to (i) receive positive interim Phase 1 data for TIDAL-01 (as determined by the Company’s Board), which was satisfied in August 2024 and (ii) receive at least $40.0 million in new funding from the sale of equity, partnerships, and/or business development payments, which was not achieved, in each case, by March 31, 2025. If the Company fails to comply with any of the foregoing covenants, the Lender may terminate the commitments to make further loans and declare all of the obligations of the Company under the LSA to be immediately due and payable.

The LSA also includes customary events of default, including failure to pay principal, interest or certain other amounts when due, material inaccuracy of representations and warranties, violation of covenants, specified cross-default and cross-acceleration to other material indebtedness, certain bankruptcy and insolvency events, certain undischarged judgments, material invalidity of guarantees or grant of security interest, material adverse effect and change of control, in certain cases subject to certain thresholds and grace periods. If one or more events of default occurs and continues beyond any applicable cure period, the Lender may terminate the commitments to make further loans and declare all of the obligations of the Company under the LSA to be immediately due and payable. Additionally, upon the occurrence of an event of default, the Company is obligated to pay a fee equal to 3.0% above the interest rate then in effect on all outstanding obligations.

As of March 31, 2025, no amounts have been drawn nor are available to be drawn since the Company did not meet the above covenant under the LSA.

The Company incurred $0.1 million of debt issuance costs which were recorded as part of other current assets and will be amortized over the term of the LSA.

9. Stockholders’ Equity

Common Stock

The Company's Amended and Restated Certificate of Incorporation which provides that the authorized common stock of the Company is 490,000,000 shares of common stock with a par value of $0.001 per share.

Shares of common stock reserved for future issuance consisted of the following:


	March 31,		December 31,
	2025		2024
Common stock options outstanding		2,375,279		2,650,751
Unvested RSUs		6,750		37,673
Shares available for issuance under the ESPP		684,646		453,280
Shares available for issuance under the Plans		5,116,616		3,656,918
		8,183,291		6,798,622

10. Equity Based Compensation

2018 Equity Incentive Plan

In December 2018, the Company adopted the 2018 Equity Incentive Plan (the “2018 Plan”) which provided for the Company to grant incentive stock options or nonqualified stock options for the purchase of common stock, or restricted shares, to employees, members of the Board and consultants of the Company. The Company assumed all of the outstanding options under the amended and restated Equity Incentive Plan of Turnstone Biologics Inc. dated October 1, 2016 (the “2016 Plan”) in connection with the corporate reorganization in December 2018. However, there were no changes to the terms of the options requiring modification accounting.

All options granted under the 2018 Plan have an exercise price, a vesting period determined by the Company’s Board and ten-year term as determined and approved by the Company’s Board (the Board may delegate authority to one of the boards’ committees) at the time of grant. The terms and conditions of the restricted shares are determined by the Board at the grant date.

The majority of grants outstanding were approved with a four-year vesting schedule with 25% vesting after one year and the remainder vesting evenly over the remaining 36 months. Upon the effectiveness of the 2023 Plan defined and described below, no further grants will be made under the 2018 Plan. Any outstanding awards granted under these plans will remain subject to the terms of their 2016 and 2018 Plans, respectively, and applicable award agreements.

2023 Equity Incentive Plan

In July 2023, the Company's Board and stockholders adopted the 2023 Equity Incentive Plan (the “2023 Plan” and together with the 2018 and 2016 Plans the "Plans") which became effective upon the date of the IPO. Under the 2023 Plan, the Company may grant stock options, stock appreciation rights, restricted stock, RSUs, performance stock awards, performance cash awards and other forms of stock awards to employees, directors and consultants. The maximum term of the stock option grants under the 2023 Plan is ten years. In general, the awards granted under the 2023 Plan vest over a four-year period from the vesting commencement date. The 2023 Plan does not permit early exercises. The number of shares available for future issuance under the 2023 Plan is the sum of (1) 1,889,435 new shares, plus (2) 712,503 remaining shares of common stock reserved under the 2018 Plan that became available for issuance upon the effectiveness of the 2023 Plan, and (3) up to 120,949 Returning Shares (as defined in the 2023 Plan), as such shares become available from time to time. The number of shares of common stock reserved for issuance under the 2023 Plan will automatically increase on January 1 of each year, for a period of ten years, from January 1, 2024 continuing through January 1, 2033, by 5% of the total number of shares of common stock outstanding on December 31 of the preceding calendar year, or a lesser number of shares as may be determined by the Company’s Board. As of January 1, 2025, an additional 1,156,830 were available for future issuance under the 2023 Plan. Following the effectiveness of the 2023 Plan, no further grants may be made under the 2018 Plan; however, any outstanding equity awards granted under the 2018 Plan will continue to be governed by the terms of the Plan.

A summary of the stock option activity under the Plans is as follows:


	Number of Shares Underlying Outstanding Options			Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value (in thousands)
Outstanding — December 31, 2023		3,374,282		$	7.66		7.1	$	352
Options granted		28,425		$	2.68
Options exercised		(29,119	)	$	1.51
Options canceled/forfeited		(144,338	)	$	6.52
Outstanding — March 31, 2024		3,229,250		$	7.72		6.8	$	354
Exercisable — March 31, 2024		1,866,646		$	8.33		5.1	$	341
Vested and expected to vest — March 31, 2024		3,229,250		$	7.72		6.8	$	354

Outstanding — December 31, 2024		2,650,751		$	7.33		4.9	$	-
Options granted		—
Options exercised		—
Options canceled/forfeited		(275,472	)	$	7.18
Outstanding — March 31, 2025		2,375,279		$	7.35		4.6	$	-
Exercisable — March 31, 2025		1,961,006		$	7.95		3.9	$	-
Vested and expected to vest — March 31, 2025		2,375,279		$	7.35		4.6	$	-

The fair value of each stock option granted to employees and directors was estimated on the date of grant using the Black-Scholes option-pricing model, with the following range of assumptions:


		Three Months Ended March 31,
		2024
Risk-free interest rate		4.3%
Expected term (in years)		5.9
Dividend yield		0.0%
Volatility		94.7
Exercise price of stock options granted		2.68

The RSU activity under the 2023 Plan is summarized as follows:


	Number of RSUs			Weighted- Average Grant Date Fair Value
Outstanding, non-vested as of December 31, 2023		102,945		$	2.71
Granted		10,709		$	2.68
Cancelled/Forfeited		(7,184	)	$	2.71
Vested/Released		—			—
Outstanding, non-vested as of March 31, 2024		106,470		$	2.71

Outstanding, non-vested as of December 31, 2024		37,673		$	2.73
Granted
Cancelled/Forfeited		(27,396	)	$	2.73
Vested/Released		(3,527	)	$	2.69
Outstanding, non-vested as of March 31, 2025		6,750		$	2.71

The allocation of stock-based compensation expense for all stock awards, including options, restricted stock and RSUs, included in the Company’s statements of operations is as follows (in thousands):


	Three Months Ended March 31,
	2025		2024
Research and development	$	55	$	650
General and administrative		270		396
Total stock-based compensation	$	325	$	1,046

The weighted-average grant date fair market value of stock options granted to employees, directors and consultants during the three months ended March 31, 2024 was $2.09 per share. The Company did not grant any stock options during the three months ended March 31, 2025 and did not grant any RSUs for the three months ended March 31, 2025 and 2024.

As of March 31, 2025, the Company had unrecognized stock-based compensation expense of $1.8 million and $0.1 million, related to stock options and RSUs respectively, which is expected to be recognized over a weighted-average period of 2.0 years and 2.7 years, respectively.

2023 Employee Stock Purchase Plan

In July 2023, the Company adopted the Employee Stock Purchase Plan (the “ESPP”), which became effective with the IPO on July 25, 2023. The ESPP was adopted by the Company’s board of directors and stockholders in June 2023. The ESPP initially provides participating employees with the opportunity to purchase up to an aggregate of 222,287 shares of common stock. The number of shares of common stock reserved for issuance will automatically increase on January 1st of each calendar year for a period of up to ten years, commencing on January 1, 2024 and ending on (and including) January 1, 2033, in an amount equal to the lesser of (i) one percent (1%) of the total number of shares of capital stock outstanding on the last day of the calendar month before the date of the automatic increase, and (ii) 666,680 shares of common stock. Notwithstanding the foregoing, the board may act prior to the first day of any calendar year to provide that there will be no January 1st increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year will be a lesser number of shares of common stock than would otherwise occur pursuant to the preceding sentence. On January 1, 2025, the shares available for issuance under the ESPP automatically increased by an additional 231,366 shares to 684,646 total shares available to be issued under the ESPP. As of March 31, 2025, there was no enrollment offered to the Company's employees.

11. Income Taxes

The Company did not record federal income tax expense for the three months ended March 31, 2025 and 2024, respectively, as the Company expects to be in a cumulative taxable loss position in 2025 and 2024, and the net deferred tax assets are fully offset by a

valuation allowance as it is not more likely than not that the benefit will be realized. The Company recorded a benefit (provision) for state income taxes of $0.0 million for the three months ended March 31, 2025 and 2024, respectively.

12. Leases

Operating Leases

The Company leases laboratory and office space for its corporate headquarters located in San Diego, California and office space in New York, New York. Operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term. In calculating the present value of the lease payments, the Company has elected to utilize its incremental borrowing rate based on the original lease term and not the remaining lease term. The Company determines if an arrangement is a lease by considering whether there is an identified asset, and the contract conveys the right to control its use. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company’s lease terms may include options to extend or terminate a lease. If the lease includes non-lease components (i.e., common area maintenance) that are paid separately from rent based on actual costs incurred and therefore are not included in the right-of-use asset and lease liability but are reflected as an expense in the period incurred.

In July 2018, the Company entered into a lease agreement for approximately 6,500 square feet of office space in New York, New York. The term of the lease is seven years and three months, starting November 1, 2018. The lease requires the Company to share in prorated expenses and property taxes based upon actual amounts incurred. The lease contains escalating rent clauses which require higher rent payments in future years. In September 2022, the Company made the decision to sublease this space and executed a sublease in November 2022 for the remaining term of the lease. Since the Company is still responsible for making the lease payments, there was no impact to the operating lease liability from the sublease.

In June 2021, the Company entered into a lease agreement for approximately 19,474 square feet of office and laboratory space in San Diego, California. The initial term of the lease is 38 months with one renewal option for a period of three years and commenced in March 2022. The lease requires the Company to share in prorated expenses and property taxes based upon actual amounts incurred. The lease contains escalating rent clauses which require higher rent payments in future years.

The Company recorded rent expense of $0.4 million for the three months ended March 31, 2025 and 2024, respectively. The table below summarizes the Company’s total lease costs included in its unaudited condensed consolidated financial statements, as well as other required quantitative disclosures (in thousands).


	Three Months Ended March 31,
	2025			2024
Operating lease cost	$	510		$	532
Sublease income		(144	)		(134	)
Total lease cost	$	366		$	398

The present value assumptions used in calculating the present value of the lease payments were as follows:


	Three Months Ended
	March 31, 2025
Weighted-average remaining lease term in years		0.8
Weighted-average discount rate		5.51	%

The minimum aggregate future operating lease commitments at March 31, 2025 are as follows (in thousands):


	Minimum Lease Payments
Remainder of 2025		599
2026		104
2027		—
2028		—
2029		—
Total undiscounted lease payments	$	703
Less: imputed interest		(13	)
Operating lease liability, current	$	690

13. Segments

The Company operates and manages its business as one operating segment. The Company's chief operating decision maker, or CODM, is the chief executive officer, Dr. Sammy Farah. The CODM assesses performance for the segment and decides how to allocate resources based on consolidated net loss that is also reported on the consolidated statements of operations.

The measure of segment assets is reported on the consolidated balance sheets as total consolidated assets. All material long-lived assets are located in the United States. Long-lived assets consist of property and equipment, net, and operating lease right-of-use assets.

The CODM uses consolidated net loss to evaluate the Company's spend and monitor budget versus actual results. The monitoring of budgeted versus actual results is used in assessing performance of the segment and in establishing resource allocation across the organization.

Factors used in determining the reportable segment include the nature of the Company's operating activities, the organizational and reporting structure and the type of information reviewed by the CODM to allocate resources and evaluate financial performance.

The following table presents reportable segment profit and loss, including significant expense categories, attributable to the Company's reportable segment for the periods presented (in thousands):


	Three Months Ended March 31,
	2025			2024
Collaboration revenue
Less:
Research and development - TIDAL-01		1,702			9,391
Research and development - compensation		2,001			5,010
General and administrative		4,793			4,874
Other segment expense(1)		398			907
Depreciation expense		270			509
Other income, net		2,640			(1,078	)
Provision (benefit) for income taxes		2			16
Consolidated net loss	$	(11,806	)	$	(19,629	)

(1) includes research and development costs related to TIDAL-02 and other projects.

14. Net Loss per Share

Basic and diluted net loss per share attributed to common stockholders is calculated by dividing net loss attributed to common stockholders by the weighted average number of common shares outstanding during the period, without consideration for common stock equivalents. The Company’s potentially dilutive shares, which include restricted stock, unvested RSUs and options to purchase common stock, are considered to be common stock equivalents and are only included in the calculation of diluted net loss per share when their effect is dilutive. Potentially dilutive common shares have been excluded from the diluted net loss per common share computations in all periods presented because such securities have an anti-dilutive effect on net loss per common share due to the Company’s net loss. There are no reconciling items used to calculate the weighted-average number of total common shares outstanding for basic and diluted net loss per common share.

The following outstanding potentially dilutive shares were excluded from the computation of diluted net loss per share attributable to common stockholders:


	Three Months Ended March 31,
	2025		2024
Restricted stock		—		90,740
Unvested RSUs		6,750		106,470
Options to purchase common stock		2,375,279		3,229,250
Total		2,382,029		3,426,460

15. Restructuring Activities

In January 2025, the Company announced the discontinuation of all clinical studies and the pursuit of Strategic Alternatives which included additional reductions to its workforce. For the three months ended March 31, 2025, the Company incurred $1.8 million in expenses which was recorded within research and development expenses in the Statement of Operations, related to employee severance and notice period payments, benefits and related costs in connection with the restructuring. During the three months ended March 31, 2025, $1.2 million of these payments had been made and $0.7 million were accrued at March 31, 2025 and included with other current liabilities.

The following table represents the expected costs associated with this restructuring (in thousands):


	Employee severance and other benefits
Restructuring expenses		1,819
Cash payments		(1,112	)
Liability included in other current liabilities at March 31, 2025	$	707

In October 2024, the Company announced a strategic prioritization of its pipeline, as well as a workforce reduction of approximately 60% and changes to our leadership team, to focus resources on the continued advancement of our Phase 1 program, TIDAL-01. For the year ended December 31, 2024, the Company incurred $1.8 million in expenses, with $1.5 million recorded with research and development expenses and $0.3 million recorded with general and administrative expenses in the Statement of Operations, related to employee severance and notice period payments, benefits and related costs in connection with the restructuring. This restructuring was completed in the fourth quarter of 2024.

16. Legal Proceedings

The Company is not a party to any material legal matters or claims and does not have contingency reserves established for any litigation liabilities as of March 31, 2025 and December 31, 2024.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited condensed consolidated financial statements and the related notes appearing elsewhere in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2024 and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K filed with the SEC on March 31, 2025. As a result of many factors, including those factors set forth in the “Risk Factors” section of this Quarterly Report on Form 10-Q, our actual results could differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis. You should carefully read the “Risk Factors” section of this Quarterly Report on Form 10-Q to gain an understanding of the important factors that could cause actual results to differ materially from our forward-looking statements. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to “we,” “us” and “our” refer to Turnstone Biologics Corp.

Overview

We are a biotechnology company that was previously focused on developing new medicines to treat and cure patients with solid tumors through a differentiated approach to tumor infiltrating lymphocytes (TIL) therapy by selecting and expanding the most potent tumor-reactive T cells, which we refer to as Selected TILs for potential treatment across the majority of solid tumors. Our previous lead Selected TIL candidate, TIDAL-01, was being developed for the treatment of colorectal cancer, head and neck cancer, and uveal melanoma and two investigator sponsored trials with H. Lee Moffitt Cancer Center and Research Institute, Inc., or Moffitt, across colorectal cancer, head and neck cancer, and uveal melanoma.

Strategic Alternatives

On January 30, 2025, following a comprehensive evaluation of our business and the status of our programs, resources, and capabilities, our Board of Directors (the "Board"), approved the discontinuation of all Company sponsored clinical studies evaluating TIDAL-01 for all indications, and pursuit of strategic alternatives to enhance and preserve stockholder value, which may include exploration and evaluation of strategic options like a merger, reverse merger, other business combination, sale of assets, licensing, or other strategic transactions (the "Strategic Alternatives"). As a result, we initiated process to explore and review strategic alternatives focused on maximizing stockholder value.

In addition, we are reducing our workforce while also implementing further cost-containment and cash conservation measures. We intend to retain all employees essential for supporting value-realization as part of our strategic review. As of March 31, 2025, we have 8 employees and may continue reducing headcount as we explore Strategic Alternatives.

We have engaged a financial advisor to assist in this process, and along with support from our other advisors, we are exploring potential strategic alternatives that may include, but are not limited to, an acquisition, merger, business combination, sale of assets, licensing, or other transactions. Our strategic process is both active and ongoing and includes a range of interactions with transaction counterparties. Thus, we believe it is in our stockholders’ best interest to allow sufficient opportunity to pursue and consummate one or more such transactions and to consider additional alternatives that may materialize in the future. However, there can be no assurance that such activities will result in any agreements or transactions that will enhance stockholder value. Further, any strategic transaction that is completed ultimately may not deliver the anticipated benefits or enhance stockholder value. If the Strategic Alternatives process does not result in the consummation of a strategic transaction, our Board may decide to pursue a dissolution and liquidation.

October 2024 Restructuring and Transition of Certain Executive Officers

In October 2024, we announced a strategic prioritization of our pipeline, as well as a workforce reduction of approximately 60% and changes to our leadership team, (the "October Restructuring"). In connection with the October Restructuring, Saryah Azmat, our former Chief Business Officer, was promoted as our Chief Operating Officer and Corporate Secretary, Vijay Chiruvolu, Ph.D., our former Interim Chief Technology Officer completed his term of service with us as our Interim Chief Technology Officer, Venkat Ramanan, Ph.D. our former Chief Financial Officer, and Michael Burgess, MBChB, Ph.D. our former Interim Chief Medical Officer tendered their respective resignations. Following the October Restructuring, Dr. Ramanan continues to provide limited advisory services to us and Dr. Burgess continues to serve as a non-employee director on our Board.

Nasdaq Compliance

On September 27, 2024, we received a deficiency letter from the Nasdaq Listing Qualifications Department notifying us that we are not in compliance with Nasdaq Listing Rule 5450(a)(1), which requires us to maintain a minimum bid price of at least $1.00

per share for continued listing on The Nasdaq Global Select Market (the “Minimum Bid Requirement”). Our failure to comply with the Minimum Bid Requirement was based on our common stock per share price being below the $1.00 threshold for a period of 30 consecutive business days. In accordance with Nasdaq Listing Rule 5810(c)(3)(A), we have been provided an initial period of 180 calendar days, to regain compliance with the Minimum Bid Requirement.

On March 27, 2025, we received approval from the Listing Qualifications Department of Nasdaq to transfer the listing of the Company’s common stock from the Nasdaq Global Market to the Nasdaq Capital Market (the “Approval”). Our securities were transferred to the Nasdaq Capital Market at the opening of business on March 31, 2025. Our common stock will continue to trade under the symbol “TSBX.” The Nasdaq Capital Market operates in substantially the same manner as the Nasdaq Global Market, but with less stringent listing requirements, although listed companies must meet certain financial requirements and comply with Nasdaq’s corporate governance requirements.

In connection with the Approval, we were granted an additional 180-day grace period, or until September 22, 2025, to regain compliance with the Minimum Bid Price Requirement. To regain compliance with the Minimum Bid Price Requirement and qualify for continued listing on the Nasdaq Capital Market, the minimum bid price per share of our common stock must be at least $1.00 for at least ten consecutive business days during the additional 180-day grace period. If we do not regain compliance during this additional grace period, its common stock would be subject to delisting by Nasdaq. As part of its transfer application, we notified Nasdaq that in order to regain compliance with the Minimum Bid Price Requirement during the additional grace period, we will implement a reverse stock split, and have filed a proxy statement soliciting a stockholder vote on such reverse stock split. If our stock becomes subject to delisting as a result of our failure to regain compliance with the Minimum Bid Price Requirement by September 22, 2025, we may appeal the decision to a Nasdaq Hearings Panel. In the event of an appeal, our common stock would remain listed on the Nasdaq Capital Market pending a written decision by the Nasdaq Hearings Panel following a hearing. In the event that the Nasdaq Hearings Panel determines not to continue our listing and our common stock is delisted from The Nasdaq Capital Market, our common stock may trade on the OTC Bulletin Board or other small trading markets, such as the pink sheets.

Our History and Team

We were founded in 2015 with the goal of developing medicines to treat and cure patients with solid tumors. Our initial scientific and technological focus was built around developing novel oncolytic viral immunotherapies. In late 2020, we acquired an innovative TIL platform and capabilities to expand our portfolio of cancer immunotherapies.

We have assembled a team with extensive experience in complex biologics, drug discovery and development, manufacturing, and business and commercial product development. We are led by our Chief Executive Officer, Sammy Farah, M.B.A, Ph.D., who has 20 years of scientific, business, and executive management experience in the biotechnology industry at Synthetic Genomics, Immune Design, Versant Ventures, and Merck.

Macroeconomic and Geopolitical Trends

We continue to actively monitor the impact of various macroeconomic and geopolitical trends, such as high rates of inflation, supply chain disruptions, tariffs and trade tensions, and geopolitical instability on our business. To date, we have not experienced a material financial statement impact or business disruptions, including with our vendors or third parties, as a result of these negative macroeconomic or geopolitical trends. Our business has been, and may continue to be, impacted by the negative macroeconomic and geopolitical trends wherever we have had clinical trial sites, contract manufacturing organizations, or CMOs, facilities or other business operations.

Global economic and business activities continue to face widespread uncertainties, and global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, rising inflation and monetary supply shifts, rising interest rates, labor shortages, declines in consumer confidence, declines in economic growth, increases in unemployment rates, recession risks, and uncertainty about economic and geopolitical stability. Moreover, negative macroeconomic conditions could adversely impact our ability to obtain financing in the future on terms acceptable to us, or at all. In addition, the geopolitical instability and related sanctions could continue to have significant ramifications on global financial markets, including volatility in the U.S. and global financial markets.

Collaboration Agreements

Below is a summary of the key terms for certain of our collaboration agreements. For a more detailed description of our collaboration agreements, see Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.

Moffitt Collaboration Agreements

Master Collaboration Agreement

In January 2021, we entered into an amended and restated master collaboration agreement, or the Moffitt Agreement, with Moffitt, to amend a then-existing master collaboration agreement from November 2019, as amended March 2020, between Moffitt and our now wholly-owned subsidiary, Myst Therapeutics LLC, with the intent to continue to work collaboratively in the research of cancer immunotherapies.

Moffitt granted us (1) a royalty-free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented solely by Moffitt in the performance of a research plan or through use of any data generated thereunder, or Moffitt Inventions, (a) for internal, non-commercial research purposes outside the field of adoptive cell therapy and/or (b) to research, develop, make, use, sell, offer to sell, or import products and/or services in the field of adoptive cell therapy and (2) a royalty free, sublicensable, non-transferable, perpetual, non-exclusive license to use and practice certain inventions invented in performance of a research plan or through the use of Moffitt research materials, which are (i) specifically directed to the identity of melanoma-specific T cell receptors, (ii) invented during the collaboration term or within one year after the end of the collaboration term within the field of adoptive cell therapy, and (iii) invented solely by either parties’ employees or by both parties’ employees jointly, to research, develop, make, use, sell, offer to sell, or import products and/or services for cancer immunotherapy involving identifying relevant tumor reactive T cells from TILs.

Moffitt Alliance Agreement

In June 2022, we entered into a life science alliance agreement with Moffitt, or the Alliance Agreement, in order to further expand our relationship and support our existing agreements with Moffitt, or the Underlying Agreements. Pursuant to the Alliance Agreement, we will have priority access to Moffitt’s scientific research, manufacturing, and clinical capabilities for the development of novel TIL therapies, including expedited clinical trial activation, enhanced patient screening and data sharing, access to Moffitt’s cellular therapies research and development infrastructure, expanded molecular data sets and biospecimens for research, and allocated cGMP manufacturing capacity for our product candidates.

Under the Alliance Agreement, we are obligated to use commercially reasonable efforts to further develop TIL Products (as defined below), to manufacture TIL Products, to obtain regulatory approval for at least one TIL Product in the United States and to commercialize TIL Products in all countries in which regulatory approval for a TIL Product has been obtained. For purposes of the Alliance Agreement, TIL Product means any pharmaceutical, biopharmaceutical, or biotechnology TIL product that has been developed by us or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.

Pursuant to the Alliance Agreement, we agreed to pay to Moffitt a total amount of at least $17.5 million, or Alliance Funding Amount, for research, development and manufacturing related services that will be paid equally over five years on June 1st of each year starting on June 1, 2023. The Alliance Funding Amount will be calculated annually at the conclusion of each payment period, and, to the extent our annual aggregate payments to Moffitt of $3.5 million exceeds the applicable annual installment amount, we will receive a reduction in the amount due for future installment payments based on a predetermined formula agreed to by the parties. To the extent the aggregate annual payments are less than $3.5 million, we will prepay the remaining amount due. On June 28, 2024, the Alliance Agreement was amended to remove the true up of the applicable annual installment amount of $3.5 million. The Alliance Funding Amount remains $17.5 million over the five-year term.

In connection with the execution of the Alliance Agreement, we issued Moffitt 91,721 shares of our common stock. As partial consideration under the Alliance Agreement, we also agreed to issue Moffitt an additional 366,884 shares of our common stock in the aggregate upon the satisfaction of certain clinical and regulatory milestones with respect to TIL Products. During the twelve months ended December 31, 2023, an additional 91,721 shares of our common stock were issued to Moffitt as a result of the achievement of the milestone related to the start of the Phase 1 clinical trial for a TIL Product. In addition, upon achievement of certain thresholds for aggregate net sales of all TIL Products, we are required to make tiered sales-based milestones payments to Moffitt of up to an aggregate of $50.0 million. With respect to each of the equity and sales milestones described above, TIL Products include any pharmaceutical, biopharmaceutical or biotechnology TIL product that is developed by us or Moffitt and is advanced into clinical development under an IND sponsored by Moffitt.

At any time after June 1, 2025, either party may terminate the Alliance Agreement without cause upon sixty days prior written notice to the other party (a “Termination for Convenience”). Upon a Termination for Convenience, the terminating party shall pay to

the other party a termination fee in an amount equal to a low double digit percentage of the then remaining Alliance Funding Amount. In connection with a strategic transaction, we may seek to terminate the Alliance Agreement.

Components of Our Results of Operations

Operating Expenses

Research and Development Expenses

Research and development expenses consist primarily of external and internal costs incurred for our research and development activities, including adjusted development of our platform, our product discovery efforts and the development of our future product candidates. We expense research and development costs as incurred.

External costs include:

•

clinical trial expenses, including costs of third-party contract research organizations, or CROs, and costs of performing toxicity studies;

•

expenses to acquire technologies to be used in research and development;

•

manufacturing scale-up expenses and the cost of acquiring and manufacturing preclinical and clinical materials and developing manufacturing processes; and

•

costs related to compliance with regulatory requirements.

Internal costs include:

•

employee-related expenses, which include salaries, benefits and stock-based compensation for employees engaged in research and development functions; and

•

facility-related and other allocated expenses, which include direct and allocated expenses for rent and maintenance of facilities, depreciation and amortization expense and expenses related to other general support services and supplies.

Costs for external development activities are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors and our clinical investigative sites. Payments for these activities are based on the terms of the individual agreements, which may differ from the pattern of costs incurred, and are reflected in our unaudited condensed consolidated financial statements as prepaid or accrued research and development expenses. Non-refundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed.

In connection with the Strategic Alternatives in January 2025, we discontinued all clinical studies evaluating TIDAL-01 and all nonclinical research and manufacturing activities, except that we continue to incur expenses in connection with the maintenance of our collaboration with Moffitt, and intellectual property protections related to our product candidates and programs. At this time, we cannot reasonably estimate or know the nature, timing and costs of the efforts that will be necessary to complete the preclinical and clinical development of any product candidates should we resume their development, or when, if ever, material net cash inflows may commence from any such product candidates, should we resume their development, or when, if ever, material net cash flow may commence from any of our product candidates. This is due to the numerous risks and uncertainties associated with developing product candidates, including the uncertainty of:

•

the scope, rate of progress and expenses of our planned clinical trials and other research and development activities;

•

successful patient enrollment in, and the initiation and completion of, clinical trials including the impact of patient discontinuations and the number and location of clinical sites;

•

establishing an appropriate safety profile of our product candidates;

•

whether our product candidates show safety and efficacy in our clinical trials;

•

receipt of marketing approvals from applicable regulatory authorities;

•

making arrangements with third-party manufacturers for the supply of materials to support our planned clinical trials and establishing commercial manufacturing capabilities for the potential manufacture of approved products, if any;

•

obtaining, maintaining, protecting and enforcing patent and trade secret protection and regulatory exclusivity for our product candidates;

•

commercializing product candidates, if and when approved, whether alone or in collaboration with others;

•

acceptable safety profile of the products following any regulatory approval: and

•

the risks disclosed in the section entitled "Risk Factors" of this Annual Report on 10-K.

Should we resume development of our product candidates, we may never succeed in achieving regulatory approval for any of our product candidates. We may obtain unexpected results from our clinical trials. We may elect to discontinue, delay or modify clinical trials of some product candidates or focus on others. Any changes in the outcome of any of these variables with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the U.S. Food and Drug Administration, or FDA, or comparable foreign regulatory authority were to delay our planned clinical trials or require us to conduct pre-clinical or clinical trials beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of personnel costs, allocated expenses and other expenses for outside professional services, including legal, intellectual property, human resources, audit and accounting services. Personnel costs consist of salaries, bonuses, benefits and stock-based compensation.

Should we resume development of our product candidates, we anticipate that our general and administrative expenses would increase as we increase our headcount to support research activities and development of our product candidates. We also anticipate that we would incur increased expenses related to compliance with the rules and regulations of the Securities and Exchange Commission, or SEC and Nasdaq, insurance expenses, audit expenses, investor relations activities, Sarbanes-Oxley Act compliance expenses, increased costs related to the hiring of additional personnel and fees to outside consultants, lawyers and accountants, among other administrative expenses and professional services. Additionally, should we resume development of our product candidates, if and when we believe a regulatory approval of a product candidate appears likely, we anticipate an increase in payroll and other commercialization-related expenses as a result of our preparation for commercial operations, especially as it relates to the sales and marketing of our product candidate.

Other Income (Expense), Net

Other income (expense), net consists primarily of interest income earned on our short-term investments and foreign currency remeasurement gains and losses.

Results of Operations

Comparison of the Three Months Ended March 31, 2025 and 2024

The following tables set forth our results of operations (in thousands):



	Three Months Ended March 31,
	2025			2024			Change ($)
Operating expenses:
Research and development		4,357			15,790			(11,433	)
General and administrative		4,807			4,901			(94	)
Total operating expenses		9,164			20,691			(11,527	)
Loss from operations		(9,164	)		(20,691	)		11,527
Other income (expense), net		(2,640	)		1,078			(3,718	)
Benefit (provision) for income taxes		(2	)		(16	)		14
Net income (loss)	$	(11,806	)	$	(19,629	)	$	7,823
		-			-

Research and Development Expenses

The following table summarizes our research and development expenses (in thousands):


	Three Months Ended March 31,
	2025		2024
Pre-clinical research and development	$	588	$	1,366
Manufacturing		603		8,134
Clinical and regulatory		1,165		1,280
Personnel related		2,001		5,010
Total research and development	$	4,357	$	15,790

Research and development expenses were $4.4 million and $15.8 million during the three months ended March 31, 2025 and 2024, respectively, a decrease of $11.4 million, or 72.2%. The decrease was due to shutting down almost all clinical development and pursuit of Strategic Alternatives. We expect our research and development expenses to continue to significantly decline.

General and Administrative Expenses

General and administrative expenses were $4.8 million and $4.9 million during the three months ended March 31, 2025 and 2024, respectively, a decrease of $0.1 million, or 2.0%. We anticipate that general and administrative expenses will decline as a result of our decision to pursue the Strategic Alternatives.

Other Income (Expense), Net

Other income (expense), net was ($2.6) million and $1.1 million during the three months ended March 31, 2025 and 2024, respectively, a decrease of $3.7 million, or 336.4% due to interest income, net decreasing by $0.9 million due to the decrease in cash and cash equivalents as well as a loss on the sale of laboratory equipment of $2.8 million. We anticipate that this will continue to decrease as we earn less interest income due to the continued decrease in the balance of cash and cash equivalents.

Liquidity and Capital Resources

Our headquarters are located in San Diego, California and we operate as one segment. Since our inception, we have devoted substantially all of our efforts and financial resources to organizing and staffing our company, business planning, raising capital, discovering product candidates and securing related intellectual property rights and conducting research and development activities for our Selected TIL programs and product candidates. We do not have any products approved for sale, we have not generated any revenue from product sales, and we have incurred overall net losses since our inception through March 31, 2025.

On February 2, 2025, we announced the Strategic Alternatives discontinuing all clinical studies evaluating TIDAL-01 for all indications, and pursuit of strategic alternatives to enhance and preserve stockholder value. We have devoted, and expect to continue to devote, substantial time and resources to exploring strategic alternatives that our Board of Directors believes will maximize stockholder value. Despite devoting substantial time and resources to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that any transaction, if pursued, will be completed on terms favorable to us, if at all. We expect that this strategic review process will extend into, and possibly beyond, the second quarter of 2025. Additionally, there can be no assurances that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value, or that we will make any cash distributions to our stockholders. If the strategic review process does not result in the consummation of a strategic transaction, our Board may decide to pursue a dissolution and liquidation.

As of March 31, 2025, we had $21.9 million in cash and cash equivalents. We have concluded that the balance of cash and cash equivalents will be sufficient to fund our planned expenditures and meet our obligations for the twelve months following the financial statement issuance date without raising additional funding.

On April 26, 2024, or the Loan Closing Date, we entered into a Loan and Security Agreement, or LSA, with Banc of California, or BOC, for a revolving credit facility in an aggregate principal amount of up to $20 million with interest at the greater of the Prime Rate or 4.25%. This LSA includes a covenant requiring us to (i) receive positive interim Phase 1 data for TIDAL-01 (as determined by our Board) and (ii) receive at least $40.0 million in new funding from the sale of equity, partnerships, and/or business development payments, which was not achieved, in each case, by March 31, 2025. If we fail to comply with any of the foregoing covenants, BOC may terminate the commitments to make further loans and declare all of our obligations under the LSA to be immediately due and

payable. As of March 31, 2025, no amounts have been drawn nor are available to be drawn since the Company did not meet the above covenant under the LSA.

Funding Requirements

Because of the numerous risks and uncertainties associated with the status of our company and the initiation of our Strategic Alternatives process, we are unable to estimate the exact amount of our operating capital requirements. The amount and timing of our future funding requirements will depend on many factors, including, but not limited to:

•

the amount of time it takes to complete our Strategic Alternatives process, including completing any potential merger or reverse merger transaction;

•

the amount and cost of legal and professional services required to conduct our Strategic Alternatives process, including fees related to the engagement of a strategic advisor; and

•

our need to continue to operate as a public company;

As of March 31, 2025 and December 31, 2024, we had cash, cash equivalents and short-term investments of $21.9 million and $28.9 million, respectively. We believe that our existing cash and cash equivalents will enable us to fund our planned operating expenses and capital expenditures into the second quarter of 2026. We have based this estimate on assumptions that may prove to be wrong, and we could utilize our available capital resources sooner than we expect. If the Strategic Alternatives process does not result in the consummation of a strategic transaction, our Board may decide to pursue a dissolution and liquidation.

Cash Flows

The following table summarizes our cash flows (in thousands):


	Three Months Ended March 31,
	2025			2024
Cash used in operating activities	$	(7,091	)	$	(17,460	)
Cash provided by investing activities		12			14,095
Cash used in financing activities		—			—
Net increase (decrease) in cash and cash equivalents	$	(7,079	)	$	(3,365	)

Cash Flows from Operating Activities

Cash used in operating activities for the three months ended March 31, 2025 was $7.1 million, primarily due to our net loss of $11.8 million which was partially offset by the decrease in our net operating assets and liabilities of $1.8 million, changes in stock-based compensation of $0.3 million, loss on the disposal of property and equipment of $2.3 million and depreciation and amortization expense of $0.3 million.

Cash used in operating activities for the three months ended March 31, 2024 was $17.5 million, primarily due to our net loss of $19.6 million and accretion of the premium on short-term investments of $0.8 million which was partially offset by the decrease in our net operating assets and liabilities of $1.4 million, changes in stock-based compensation of $1.1 million, and depreciation and amortization expense of $0.5 million.

Cash Flows from Investing Activities

Cash provided by investing activities for the three months ended March 31, 2024 was $14.1 million, due primarily to $21.0 million in maturities of short-term investments offset by the purchases of $6.8 million of short-term investments and $0.1 million in purchases of property and equipment.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with CROs and CMOs for clinical trials, preclinical research studies and testing, manufacturing and other services and products for operating purposes. These contracts provide for termination at the request of either party with less than one year notice, and therefore we believe that our non-cancellable obligations under these agreements are not material. We additionally have contractual obligations for our operating leases for our corporate headquarters and office and laboratory spaces. These obligations are further described in Note 11 to our unaudited condensed consolidated financial

statements. We are also party to certain collaboration and license agreements, which contain a number of contractual obligations. Those contractual obligations may entitle us to receive, or may obligate us to make, certain payments. The amount and timing of those payments are unknown or uncertain as the Company is unable to estimate the timing or likelihood of the events that will obligate those payments.

We have milestones, royalties, and/or other payments due to third parties under our existing license and collaboration agreements. See Note 6 to our unaudited condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q. We can’t estimate when such payments will be due and none of these events were probable to occur as of March 31, 2025 and December 31, 2024, respectively.

Critical Accounting Polices and Estimates

The preparation of our financial statements and related disclosures in conformity with generally accepted accounting principles in the United States and our discussion and analysis of our financial condition and operating results require us to make judgments, assumptions and estimates that affect the amounts reported in our unaudited condensed consolidated financial statements and accompanying notes. Our significant accounting policies and methods used in preparation of our unaudited condensed consolidated financial statements are described in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q. We base our estimates on historical experience and on various other assumptions we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates, and such differences may be material.

There have been no material changes to our critical accounting policies from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Critical Accounting Policies and Estimates” included in our 10-K filed with the SEC on March 31, 2025

Accounting Pronouncements Recently Adopted

We have reviewed all recently issued standards and have determined that, other than as disclosed in Note 2 to our unaudited condensed consolidated financial statements appearing elsewhere in this Quarterly Report on Form 10-Q, such standards will not have a material impact on our unaudited condensed consolidated financial statements or do not otherwise apply to our current operations.

Emerging Growth and Smaller Reporting Company Status

The JOBS Act permits an “emerging growth company” such as us to take advantage of reduced reporting requirements that are otherwise applicable to public companies and also an extended transition period to comply with new or revised accounting standards applicable to public companies until those standards would otherwise apply to private companies. We have elected to not “opt out” of this provision and, as a result, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standard and will do so until such time that we either (i) irrevocably elect to “opt out” of such extended transition period or (ii) no longer qualify as an emerging growth company.

We will remain an emerging growth company until the earliest of (i) the last day of the fiscal year following the fifth anniversary of the IPO, (ii) the last day of the fiscal year in which we have total annual gross revenues of $1.235 billion or more, (iii) the date on which we have issued more than $1.0 billion in non-convertible debt during the previous rolling three-year period or (iv) the date on which we are deemed to be a large accelerated filer under the Exchange Act.

We are also a “smaller reporting company” as defined in the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company. We may take advantage of certain of the scaled disclosures available to smaller reporting companies and will be able to take advantage of these scaled disclosures for so long as our ordinary shares held by non-affiliates is less than $250.0 million measured on the last business day of our second fiscal quarter, or our annual revenue is less than $100.0 million during the most recently completed fiscal year and our ordinary shares held by non-affiliates is less than $700.0 million measured on the last business day of our second fiscal quarter.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are a smaller reporting company, as defined in Rule 12b-2 under the Exchange Act, for this reporting period and are not required to provide the information required under this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

As of March 31, 2025, management, with the participation and supervision of our Principal Executive Officer and our Principal Financial and Accounting Officer, have evaluated our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act. Based on that evaluation, our Principal Executive Officer and our Principal Financial and Accounting Officer have concluded that, as of March 31, 2025, our disclosure controls and procedures were effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Principal Executive Officer and our Principal Financial and Accounting Officer, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15(d)-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2025 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we have been or may become involved in material legal proceedings or be subject to claims arising in the ordinary course of our business. We are currently not party to any legal proceedings material to our operations or of which any of our property is the subject, nor are we aware of any such proceedings that are contemplated by a government authority. Regardless of outcome, such proceedings or claims can have an adverse impact on us because of defense and settlement costs, diversion of resources, and other factors, and there can be no assurances that favorable outcomes will be obtained.

ITEM 1A. RISK FACTORS

Our business involves significant risks, some of which are described below. You should carefully consider the risks described below, as well as the other information in this Quarterly Report on Form 10-Q, including our unaudited condensed consolidated financial statements and the related notes, and the section titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The occurrence of any of the events or developments described below could adversely affect our business, results of operations and financial condition. In any such event, the market price of our common stock could decline, and you may lose all or part of your investment. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may impair our business, results of operations and financial condition.

Risks Related to Our Strategic Review Process

On January 30, 2025, following a comprehensive evaluation of the Company’s business and the status of the Company’s programs, resources, and capabilities, the Board approved the discontinuation of all Company sponsored clinical studies evaluating TIDAL-01 for all indications, and pursuit of strategic alternatives to enhance and preserve stockholder value, which may include exploration and evaluation of strategic options like a merger, reverse merger, other business combination, sale of assets, licensing, or other strategic transactions. As a result, we initiated process to explore and review strategic alternatives focused on maximizing stockholder value.

We expect to devote substantial time and resources to exploring strategic alternatives that our Board believes will maximize stockholder value. Despite management devoting significant efforts to identify and evaluate potential strategic alternatives, there can be no assurance that this strategic review process will result in us pursuing any transaction or that we will be able to successfully consummate any particular strategic transaction on attractive terms, on a timely basis, or at all. For example, certain types of strategic transactions may require third party consents, such as stockholder approval, which could be difficult or costly to obtain. We have not set a timetable for completion of this strategic review process, and our Board has not approved a definitive course of action. Additionally, there can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated or lead to increased stockholder value or that we will make any cash distributions to our stockholders.

The process of continuing to evaluate our strategic alternatives may be costly, time-consuming and complex, and we may incur significant legal, accounting and advisory fees and other expenses, some of which may be incurred regardless of whether we successfully enter into a transaction. We may also incur additional unanticipated expenses in connection with this process. Any such expenses will decrease the remaining cash available for use in our business. Our ability to pursue or consummate strategic transactions also depends upon our ability to retain certain of our employees, the loss of whose services may adversely impact the ability to identify, negotiate and consummate such transaction. If we are unable to successfully retain certain of our key remaining personnel, we are at risk of a disruption to our exploration and consummation of one or more strategic transactions.

In addition, potential counterparties in a strategic transaction involving us may place minimal or no value on our assets and our public listing. Further, should we resume the development of future product candidates, such as one or more of the programs in our pipeline for which we halted further development in October 2024 and January 2025,the development and any potential commercialization of our future product candidates will require substantial additional cash to fund the costs associated with conducting the necessary preclinical and clinical testing and obtaining regulatory approval. Consequently, any potential counterparty in a strategic transaction involving us may choose not to spend additional resources to resume or continue development of our future product candidates and may attribute little or no value, in such a transaction, to our future product candidates.

In addition, any strategic transactions that we may pursue could have a variety of negative consequences, and we may enter into a transaction that yields unexpected results that adversely affect our business and decreases the remaining cash available for use in our business. Any potential transaction would be dependent on a number of factors that may be beyond our control, including, among other things, market conditions, industry trends, the interest of third parties in a potential transaction with us, obtaining stockholder approval and the availability of financing to third parties in a potential transaction with us on reasonable terms. There can be no assurance that any particular course of action, business arrangement or transaction, or series of transactions, will be pursued, successfully consummated, lead to increased stockholder value, or achieve the anticipated results.

If we are not successful in setting forth a new strategic path for us, or if our plans are not executed in a timely fashion, this may cause reputational harm with our stockholders and the value of our securities may be adversely impacted. In addition, speculation regarding any developments related to the review of strategic alternatives and perceived uncertainties related to the future of us could cause our stock price to fluctuate significantly.

There can be no assurance that a strategic transaction will be completed. If a strategic transaction is not completed, our Board may decide to pursue a dissolution and liquidation. In such an event, the amount of cash available for distribution to our stockholders will depend heavily on the timing of such decision and, with the passage of time, the amount of cash available for distribution will be reduced as we continue to fund our operations. In addition, if our Board were to approve and recommend, and our stockholders were to approve, a dissolution and liquidation, we would be required under Delaware corporate law to pay our outstanding obligations, as well as to make reasonable provision for contingent and unknown obligations, prior to making any distributions in liquidation to our stockholders. As a result of this requirement, a portion of our assets may need to be reserved pending the resolution of such obligations and the timing of any such resolution is uncertain. In addition, we may be subject to litigation or other claims related to a dissolution and liquidation. If a dissolution and liquidation were pursued, our Board, in consultation with our advisors, would need to evaluate these matters and make a determination about a reasonable amount to reserve. Accordingly, holders of our common stock could lose all or a significant portion of their investment in the event of a liquidation, dissolution or winding up.

Even if we successfully consummate any strategic transaction, or series of transactions, from our strategic assessment, we may fail to realize all or any of the anticipated benefits of any such transaction, such benefits may take longer to realize than expected, we may encounter integration difficulties, or we may be exposed to other operational and financial risks.

Our ability to realize the anticipated benefits of any potential strategic transaction will depend on a number of factors, including our ability to integrate with any future business partner, our ability to obtain value for portions of our business, if divested, and our ability to generate future stockholder value. The process may be disruptive to our business and the expected benefits may not be achieved within the anticipated time frame, or at all. The failure to meet the challenges involved and to realize the anticipated benefits of any potential transaction could adversely affect our business and financial condition.

The negotiation and consummation of any potential strategic transaction will require significant time on the part of our management, and the diversion of management’s attention may disrupt our business. The negotiation and consummation of any such transaction may also require more time or greater cash resources than we anticipate and expose us to other operational and financial risks, increased near-term and long-term expenditures, exposure to unknown liabilities, higher than expected acquisition or integration costs, incurrence of substantial debt or dilutive issuances of equity securities to fund future operations, including financings in connection with a strategic transaction, write-downs of assets or goodwill or incurrence of non-recurring, impairment or other charges, increased amortization expenses, difficulty and cost in combining the operations and personnel of any acquired or acquiring business with our operations and personnel, impairment of relationships with key suppliers or customers of any acquired or acquiring business due to changes in management and ownership, inability to retain our key employees or any acquired or acquiring business and possibility of future litigation. Any of the foregoing risks could have a material adverse effect on our business, financial condition and prospects.

We are currently subject to certain contractual and regulatory obligations and commitments. In connection with our comprehensive exploration of strategic alternatives, we may seek to negotiate with third parties in order to reduce or eliminate such obligations and commitments. Our ability to successfully negotiate such obligations or commitments on favorable terms, or at all, or

our ability to satisfy any such obligations may impact our ability to pursue a strategic transaction on terms favorable to us, the resulting value to stockholders in a strategic transaction or the cash available for distribution to our stockholders in the event of our dissolution. We may also incur substantial costs in connection with or as a result of such negotiations or termination of any of our commitments. There can be no assurance that we will be successful in negotiating to reduce or eliminate any of our existing contractual or regulatory obligations and commitments, or that we will be able to satisfy any such obligations on a timetable that will allow us to maximize potential value to our stockholders.

In the past, litigation, including securities class action litigation, has often followed certain significant business transactions, such as the sale of a company or announcement of any other strategic transaction, or the announcement of negative events. These events may also result in investigations by the SEC. We may be exposed to such litigation even if no wrongdoing occurred. Litigation is usually expensive and diverts management’s attention and resources, which could adversely affect our business and cash resources and our ability to consummate a potential strategic transaction or the ultimate value our stockholders receive in any such transaction.

Risks Related to Our Financial Condition and Capital Requirements

We have limited operating history, have incurred substantial net losses and anticipate that we will continue to incur net losses for the foreseeable future.

We are a biotechnology company with a limited operating history. We are a biotechnology company that, until recently, was previously developing a differentiated approach to tumor infiltrating lymphocytes (TIL) therapy by selecting and expanding the most potent tumor-reactive T cells, which we refer to as Selected TILs, for potential treatment across the majority of solid tumors. In February 2025, we made the decision to discontinue all clinical studies of our program, TIDAL-01, and initiated a process to explore strategic alternatives focused on maximizing stockholder value. Since inception, we have incurred significant operating and net losses. We incurred a net loss of $11.8 million and $19.6 million for the three months ended March 31, 2025 and 2024, respectively. As of March 31, 2025 and December 31, 2024, we had an accumulated deficit of $259.4 and $247.6 million, respectively. We expect to continue to incur costs and expenditures in connection with the process of evaluating our strategic alternatives.

Should we resume development activities in the future, we expect that research and development costs would increase significantly and we would continue to incur significant expenses and operating and net losses, as we continue our research and development of our Selected TIL or other future programs, and seek regulatory approvals for our product candidates.

Should we resume the development activities in the future, we anticipate that our expenses will increase substantially if, and as, we:

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continue the development of any product candidate;

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seek regulatory approvals for any product candidates that successfully complete clinical trials, if any;

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increase the amount of research and development activities to identify and develop Selected TIL or other future product candidates;

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hire additional clinical, quality control and scientific personnel;

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expand our operational, financial and management systems and increase personnel, including personnel to support our clinical development, manufacturing and commercialization efforts and our operations as a public company;

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maintain, expand and protect our intellectual property portfolio;

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expand our external manufacturing relationships;

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oversee and maintain our manufacturing infrastructure;

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establish a sales, marketing, medical affairs and distribution infrastructure to commercialize any products for which we may obtain marketing approval and intend to commercialize on our own or jointly with third parties; and

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invest in or in-license enabling technologies.

To become and remain profitable, we and any current or potential future collaborators must develop and eventually commercialize products with significant market potential. This will require us to be successful in a range of challenging activities, including should we resume development of our product candidates or any future product candidate, completing preclinical studies

and clinical trials, obtaining marketing approval for product candidates, manufacturing, marketing and selling products if we obtain marketing approval, obtaining market acceptance for such products and satisfying any post-marketing requirements. We may never succeed in any or all of these activities and, even if we do, we may never generate revenue that is significant or large enough to achieve profitability. If we do achieve profitability, we may not be able to sustain or increase profitability on a quarterly or annual basis. Our failure to become and remain profitable would decrease the value of our company and the price or of common stock, and could impair our ability to raise capital, maintain our research and development efforts, expand our business or continue our operations. A decline in the value of our company also could cause you to lose all or part of your investment.

Even if we succeed in commercializing one or more of our product candidates, should we resume development of our product candidates or any future product candidate, we will continue to incur substantial research and development and other expenditures to develop and market such product candidates. We also may encounter unforeseen expenses, difficulties, complications, delays and other unknown factors that may adversely affect our business. The size of our future net losses will depend, in part, on the rate of future growth of our expenses and our ability to generate revenue. Our prior losses and expected future losses have had and will continue to have an adverse effect on our stockholders’ (deficit) equity and working capital.

If we decide to resume development of our product candidates or any future product candidate, we will require additional capital, and may be unable to obtain necessary capital on acceptable terms, or at all, which will force us to delay, reduce or eliminate product development programs.

Conducting clinical trials, pursuing regulatory approvals, establishing outsourced manufacturing relationships, and successfully manufacturing and commercializing products and product candidates is expensive. If we resume development of our product candidate or any future product candidate, we will need to raise additional capital to resume the development of TIDAL-01 and potentially in-license or acquire other product candidates.

In February 2025, we made the decision to discontinue all clinical studies evaluating TIDAL-01 as a potential treatment for solid tumors and initiate a comprehensive exploration of strategic alternatives focused on maximizing stockholder value. Should we resume development of our product candidate or future product candidates, we expect to continue to spend substantial amounts of cash to conduct further research and development, preclinical studies and clinical trials of our product candidates and future product candidates, to seek regulatory approvals for our product candidates and to launch and commercialize any products if we receive regulatory approval.

As of December 31, 2024, we had approximately $28.9 million in cash and cash equivalents. Based on our current operating plan, we believe that this amount is sufficient to fund the Company' s operations for at least the next 12 months after the date the audited consolidated financial statements are filed with the SEC. In October 2024, the October Restructuring. While the October Restructuring was completed in the fourth quarter of 2024, we may also incur other charges or cash expenditures not currently contemplated due to events that may occur as a result of, or associated with, the October Restructuring. After taking into account the discontinuation of our clinical development programs, October Restructuring and comprehensive exploration of strategic alternatives, we expect that our current unrestricted cash and cash equivalents will be sufficient to fund our currently anticipated operating plan for at least the next 12 months. In connection with the termination of all ongoing clinical programs, our research and development expenses have decreased. However, we expect to continue to incur costs and expenditures in connection with the process of evaluating our strategic alternatives. Should we resume development activities in the future, we expect that research and development costs would increase significantly. It is possible that the assumptions upon which we have based this estimate may prove to be wrong, and we could use our capital resources sooner than we presently expect.

Should we resume development of our product candidate or any future product candidates, our future capital requirements will depend on many factors, including:

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the costs of conducting clinical trials;

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the progress of preclinical development for our programs and clinical trials of our current earlier-stage product candidates;

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the costs of manufacturing;

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the scope, progress, results and costs of discovery, preclinical development, laboratory testing and clinical trials for other potential product candidates we may develop, if any;

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the costs, timing and outcome of regulatory review of our product candidates;

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our ability to establish and maintain collaborations and partnerships on favorable terms, if at all;

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the achievement of milestones or occurrence of other developments that trigger payments to us or by us under any collaboration agreements we might have at such time;

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the costs of preparing, filing and prosecuting patent applications, obtaining, maintaining and enforcing our intellectual property rights and defending intellectual property-related claims;

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our headcount growth and associated costs as we expand our business operations and research and development activities;

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the cost of operating as a public company;

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our ability to mitigate the impact of adverse macroeconomic conditions or geopolitical events, including the ongoing conflict between Ukraine and Russia, the ongoing conflict in the Middle East, recent bank failures or other factors on our preclinical and clinical development or operations;

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the costs and timing of future commercialization activities, if any, including product sales, marketing, manufacturing and distribution, if we receive marketing approval for any of our product candidates;

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our ability to achieve sufficient market acceptance, adequate coverage and reimbursement from third-party payors and adequate market share; and

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the amount of revenue, if any, received from commercial sales of our product candidates, if any of our product candidates receive marketing approval.

Should we resume development of our product candidates or any future product candidates, we will be required to undertake significant additional preclinical or clinical development before we are able to seek regulatory approval for and launch a product commercially.

Our current and any future product candidates will require significant preclinical or clinical development, regulatory review and approval in one or more jurisdictions, substantial investment, and access to sufficient commercial manufacturing capacity and significant marketing efforts before we can generate any revenue from product sales. We may not have the financial resources to continue development of, or enter into new collaborations for, any product candidate if we experience any issues that delay or prevent regulatory approval of, or our ability to commercialize, our product candidates, including:

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negative or inconclusive results from our preclinical studies or clinical trials or the clinical trials of others for product candidates similar to ours, leading to a decision or requirement to conduct additional preclinical testing or clinical trials or abandon a program;

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product-related side effects experienced by subjects in our clinical trials or by individuals using products or immunotherapies similar to our product candidates;

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delays in submitting INDs or comparable foreign applications or delays or failure in obtaining the necessary authorizations or approvals from regulators to commence a clinical trial, or a suspension or termination of a clinical trial once commenced;

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conditions imposed by the FDA or comparable foreign regulatory authorities regarding the scope or design of our clinical trials;

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delays in enrolling subjects in clinical trials;

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high drop-out rates of subjects from clinical trials;

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inadequate supply or quality of product candidates or other materials necessary for the conduct of our clinical trials;

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greater than anticipated clinical trial costs;

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poor effectiveness of or safety issues associated with our product candidates during clinical trials;

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unfavorable FDA or comparable foreign regulatory authorities’ inspection and review of a clinical trial site;

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failure of our third-party contractors or investigators to comply with regulatory requirements or otherwise meet their contractual obligations in a timely manner, or at all;

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potential disruptions caused by health pandemics or epidemics, including difficulties in initiating clinical sites, enrolling and retaining participants, diversion of healthcare resources away from clinical trials, travel or quarantine policies that may be implemented, and other factors;

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delays and changes in regulatory requirements, policy and guidelines, including the imposition of additional regulatory oversight around clinical testing generally or with respect to our technology in particular;

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varying interpretations of data by the FDA or comparable foreign regulatory authorities;

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manufacturing failures, including our TIL selection process, resulting in a less effective product candidate in the tumor indications we are pursuing; or

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unsuccessful improvements to our internal manufacturing processes.

The occurrence of any of the above events could adversely affect our business, results of operations and financial condition.

Should we resume development of our product candidates or future product candidates, if we are unable to successfully complete clinical development, obtain regulatory approvals for our product candidates or future product candidates, our commercial opportunity could be limited which could adversely affect our business, results of operations and financial condition.

Developing, obtaining marketing approval for, and commercializing any product candidates will require substantial additional funding and will be subject to the risks of failure inherent in medical product development. Should we resume development of our product candidates or future product candidates, we may not be able to successfully advance any such product candidates or any additional product candidates through the development process.

Even if we obtain approval from the FDA or comparable foreign regulatory authorities to market any product candidates, any such product candidates may not be successfully commercialized, widely accepted in the marketplace, or more effective than other commercially available alternatives. If we are unable to successfully develop and commercialize any product candidates, our commercial opportunity may be limited and our business, results of operations and financial condition may be adversely affected.

Unfavorable global economic conditions, including any adverse macroeconomic conditions or geopolitical events, including the conflict between Ukraine and Russia and the conflict in the Middle East, could adversely affect our business, financial condition, results of operations or liquidity, either directly or through adverse impacts on certain of the third parties on which we may rely to conduct certain aspects of preclinical studies or clinical trials.

Our results of operations could be adversely affected by general conditions in the global economy and in the global financial markets. Global economic and business activities continue to face widespread uncertainties, and global credit and financial markets have experienced extreme volatility and disruptions in the past several years, including severely diminished liquidity and credit availability, rising inflation and monetary supply shifts, fluctuations in interest rates, labor shortages, declines in consumer confidence, declines in economic growth, increases in unemployment rates, recession risks, and uncertainty about economic and geopolitical stability. A severe or prolonged economic downturn, or additional global financial or political crises, could result in a variety of risks to our business, including delayed clinical trials or preclinical studies, delayed approval of any product candidates we may develop, delayed ability to obtain patents and other intellectual property protection, weakened demand for any product candidates we may develop, if approved, or our ability to raise additional capital when needed on acceptable terms, if at all. The extent of the impact of these conditions on our operational and financial performance, including our ability to execute our business strategies and initiatives in the expected timeframe, as well as that of third parties upon whom we rely, will depend on future developments which are uncertain and cannot be predicted. A weak or declining economy also could strain our suppliers, possibly resulting in supply disruption. Any of the foregoing could harm our business and we cannot anticipate all of the ways in which the current economic climate and financial market conditions could adversely impact our business. Furthermore, our stock price may decline due in part to the volatility of the stock market and the general economic downturn.

Our ability to use our net operating loss carryforwards to offset future income could be subject to limitation.

As of December 31, 2024, we had approximately $77.0 million of U.S. federal and $9.4 million of state net operating loss, or NOL, carryforwards. Our U.S. federal NOL carryforwards can be carried forward indefinitely, but use of such carryforwards is limited to 80% of taxable income. If not utilized, our state NOL carryforwards will begin to expire at various dates beginning in 2038. These NOL carryforwards could expire unused and be unavailable to offset future income tax liabilities if we are not able to generate sufficient taxable income to utilize our state NOL carryforwards before they expire. We have recorded a full valuation allowance related to our carryforwards due to the uncertainty of the ultimate realization of the future benefits of those assets.

Furthermore, under Section 382 of the Internal Revenue Code of 1986, as amended, or the Code, the amount of benefits from our NOL carryforwards may be impaired or limited if we incur a cumulative ownership change of more than 50% over a three-year period. Any future offerings of our securities may trigger such an ownership change. In addition, because we will need to raise substantial additional funding to finance our operations, we may in the future undergo further ownership changes. We have not conducted an analysis as to whether such a change of ownership has occurred, but if such a change has occurred or occurs in the future, we will be limited regarding the amount of NOL carryforwards that can be utilized annually in the future to offset taxable

income. Any such annual limitation may significantly reduce the value of our NOL carryforwards before they expire, which could result in greater tax liabilities than we would incur in the absence of such a limitation.

We may have exposure to greater-than-anticipated tax liabilities, which could seriously harm our business.

The tax laws applicable to our international business activities, including the laws of the United States and other jurisdictions, are subject to change and uncertain interpretation. The U.S. government may enact significant changes to the taxation of business entities including, among others, the imposition of additional minimum taxes and an increase in the corporate tax rate. Any such change could have a significant impact on our cash flow.

Our income tax obligations are based on our corporate operating structure and third-party and intercompany arrangements, including the manner in which we develop, value, and use our intellectual property and the valuations of our intercompany transactions. The taxing authorities of the jurisdictions in which we operate may challenge our methodologies for valuing developed technology, intercompany arrangements, or transfer pricing, which could increase our worldwide effective tax rate and the amount of taxes we pay and seriously harm our business. Taxing authorities also may determine that the manner in which we operate our business is not consistent with how we report our income, which could increase our effective tax rate and the amount of taxes we pay and seriously harm our business. In addition, our future income taxes could fluctuate because of earnings being lower than anticipated in jurisdictions that have lower statutory tax rates and higher than anticipated in jurisdictions that have higher statutory tax rates, by changes in the valuation of our deferred tax assets and liabilities. We are subject to regular review and audit by U.S. federal and state and foreign tax authorities. Any adverse outcome from a review or audit could seriously harm our business. In addition, determining our worldwide provision for income taxes and other tax liabilities requires significant judgment by management, and there are many transactions where the ultimate tax determination is uncertain. Although we believe that our estimates are reasonable, the ultimate tax outcome may differ from the amounts recorded in our financial statements for such period or periods and may seriously harm our business.

Exchange rate fluctuations may adversely affect our business, results of operations and financial condition.

We employ a portion of our workforce, in Ottawa, Canada. Owing to such employment, fluctuations in exchange rates between the U.S. dollar and the Canadian dollar may adversely affect our business and financial condition. As a result, our business and the price of our common stock may be affected by fluctuations in foreign exchange rates, which may have a significant impact on our cash flows from period to period. Currently, we do not have any exchange rate hedging arrangements in place.

Risks Related to Our Operations and the Development and Commercialization of Potential Product Candidates

Should we resume development of our product candidates or any future product candidates, we will need to grow the size of our organization, and we may experience difficulties in managing this growth, which could adversely affect our business.

As of March 31, 2025, we had 8 full-time employees. Should we resume development of our product candidates or any future product candidates, we will need to hire additional managerial, clinical, regulatory, sales, marketing, financial, legal and other personnel. Future growth would impose significant added responsibilities on members of management, including:

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identifying, recruiting, integrating, maintaining and motivating additional employees;

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managing our development efforts effectively, including the clinical and FDA or comparable foreign regulatory authorities review process for our current product candidates and any future product candidates, while complying with our contractual obligations to contractors and other third parties;

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Turnstone Biologics Corp. 10-Q