Capricor Therapeutics, Inc.: Form 10-Q for the period ended Sep 30, 2023

The following discussion of our financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the condensed consolidated notes to those statements included elsewhere in this Quarterly Report on Form 10-Q. This discussion includes forward-looking statements that involve risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements.

As used in this Quarterly Report on Form 10-Q, references to “Capricor Therapeutics,” the “Company,” “we,” “us,” “our” or similar terms include Capricor Therapeutics, Inc. and its wholly-owned subsidiary. References to “Capricor” are with respect to Capricor, Inc., our wholly-owned subsidiary.

Company Overview

Capricor Therapeutics, Inc. is a clinical-stage biotechnology company focused on the development of transformative cell and exosome-based therapeutics for treating Duchenne muscular dystrophy (“DMD”), a rare form of muscular dystrophy which results in muscle degeneration and premature death, and other diseases with high unmet medical needs.

Since our inception, we have devoted substantial resources to developing CAP-1002 and our other product candidates including our exosomes platform, developing our manufacturing processes, staffing our company and providing general and administrative support for these operations. We do not have any products approved for sale. Our ability to eventually generate any product revenue sufficient to achieve profitability will depend on the successful development, approval and eventual commercialization of CAP-1002 for the treatment of DMD and our other product candidates. If successfully developed and approved, we intend to commercialize CAP-1002 in the United States and Japan with our partner, Nippon Shinyaku Co., Ltd. (“Nippon Shinyaku”), and may enter into licensing agreements or strategic collaborations in other markets. If we generate product sales or enter into licensing agreements or strategic collaborations, or further distribution relationships, we expect that any revenue we generate will fluctuate from quarter-to-quarter and year-to-year as a result of the timing and amount of any product sales, license fees, milestone payments and other payments. If we fail to complete the development of our product candidates in a timely manner, our ability to generate future revenue, and our results of operations and financial position, would be materially adversely affected.

A summary description of our key product candidates, is as follows:

• CAP-1002 for the treatment of DMD (Phase 3): Our core program is focused on the development and commercialization of a cell therapy technology (referred herein as CAP-1002) comprised of CDCs, which are an endogenous population of stromal cells isolated from donated cells of healthy human hearts, for the treatment of DMD. CAP-1002 is designed to slow disease progression in DMD through the immunomodulatory, anti-inflammatory, and anti-fibrotic actions of CDCs, which are mediated by secreted exosomes laden with bioactive cargo. Among the cargo elements known to be bioactive in CDC exosomes are microRNAs. Collectively, these non-coding RNA species alter gene expression in macrophages and other target cells, dialing down generalized inflammation and stimulating tissue regeneration in DMD (and in a variety of other inflammatory diseases). This mechanism of action, which is consistent with the changes observed in clinical studies to date in circulating inflammatory biomarkers, contrasts with that of exon-skipping oligonucleotides and gene therapy approaches, which aim to restore dystrophin expression. DMD is a rare form of muscular dystrophy which results in muscle degeneration and premature death. Additionally, the absence of dystrophin in muscle cells leads to significant cell damage and ultimately causes muscle cell death and fibrotic replacement. The annual cost of care for patients with DMD is very high and increases with disease progression. We therefore believe that DMD represents a significant market opportunity for our product candidate, CAP-1002.

To date, we have completed two promising clinical trials investigating CAP-1002 for DMD. Data from the first trial, a Phase I/II trial named HOPE-Duchenne, suggested improvements in skeletal and cardiac endpoints. In HOPE-2, a Phase II clinical trial conducted in the United States, CAP-1002 was used to treat patients with late-stage DMD. In March 2022, we announced that the final one-year results from HOPE-2 were published in The Lancet showing that the trial met its primary efficacy endpoint of the mid-level dimension of the Performance of the Upper Limb (“PUL”) v1.2 (p=0.01) and additional positive endpoints of full PUL v2.0 (p=0.04) and a cardiac endpoint of left ventricular ejection fraction (p=0.002). CAP-1002 was generally safe and well-tolerated throughout the studies.

Additionally, we are currently conducting an open label extension (“OLE”) study of the HOPE-2 trial in which 12 patients have elected to continue treatment of CAP-1002. We announced positive one-year and two-year results from this ongoing OLE study. The HOPE-2-OLE study previously met its primary endpoint at the one-year timepoint on the PUL v2.0 scale (p=0.02). At the two-year timepoint, data showed statistically significant differences in the PUL v2.0 in the OLE treatment group when compared to the original rate of decline of the placebo group from HOPE-2 after one-year (p=0.021). LVEF was measured using cardiac magnetic resonance imaging (cMRI) and six of nine patients showed improvements in heart function with CAP-1002 treatment compared to their final assessment at the end of the HOPE-2 study. Over time, there was an increasing correlation with PUL v2.0 and ejection fraction results (24-month OLE results r=0.75, p=0.02). CAP-1002 treatment during the OLE portion of the study continues to yield a consistent safety profile and has been well-tolerated throughout the study.

• We have recently reached our target enrollment of 58 patients for Cohort A of the HOPE-3, Phase 3 clinical trial investigating CAP-1002 for the treatment of late-stage DMD patients for the potential approval of CAP-1002 in the United States. Cohort A of HOPE-3 is a multi-center, randomized, double-blind, placebo-controlled study currently designed to treat approximately 58 patients at approximately 15-20 investigative sites in the United States. The primary outcome measure will be the full PUL v2.0 at one-year. HOPE-3 will also measure various secondary endpoints including cardiac function assessments. Furthermore, we plan to conduct an interim analysis which will focus on futility and we anticipate that these results will be available in the fourth quarter of this year. Additionally, based on recent guidance from the FDA, we have now added an additional Cohort B to the HOPE-3 clinical study. This cohort is designed to enroll approximately 44 patents and enrollment will commence in the fourth quarter of 2023. The placebo-controlled, randomized cohort will assess similar measures as Cohort A. The aim of Cohort B is to support inclusion of our San Diego GMP manufacturing site. Furthermore, we have submitted to the FDA the one-year and two-year results from our HOPE-2 OLE trial for their review and we are planning to request a meeting with the FDA to discuss chemistry, manufacturing and controls (“CMC”) and explore the potential for expedited approval pathways.

The regulatory pathway for CAP-1002 is supported by RMAT designation as well as orphan drug designation. In addition, if Capricor were to receive FDA marketing approval for CAP-1002 for the treatment of DMD, Capricor would be eligible to receive a Priority Review Voucher (“PRV”) based on its previous receipt of a rare pediatric disease designation. Capricor retains full rights to the PRV, if received. Further, Capricor has entered into two Commercialization and Distribution Agreements with Nippon Shinyaku appointing Nippon Shinyaku as its exclusive distributor of CAP-1002 in the United States and Japan.

• Exosome-Based Therapeutics and Vaccines (Preclinical): We are focused on developing a precision-engineered exosome platform technology that has the ability to deliver defined sets of effector molecules which exert their effects through defined mechanisms of action. We recently published preclinical data on our StealthXTM platform showing the rapid development of a recombinant protein-based vaccine for immunization and prevention against SARS-CoV-2, the virus causing COVID-19. At this time, we are developing vaccines and therapeutics for infectious diseases, monogenic diseases and other potential indications. Our platform builds on advances in fundamental RNA and protein science, targeting technology and manufacturing, providing us the opportunity to potentially build a broad pipeline of new therapeutic candidates. Our current strategy is focused on securing partners who will provide capital and additional resources to bring this program into the clinic, should we decide to do so.

We estimate our current cash, cash equivalents and marketable securities will fund our operating expenses and capital expenditure requirements into 2025. This expectation includes the recent registered direct offering for approximately $23.0 million in gross proceeds and excludes any potential additional milestone payments under our Commercialization and Distribution Agreements with Nippon Shinyaku. We have not generated any revenues from the commercial sale of products. We will not be able to generate any product revenues until, and only if, we receive approval to sell our drug candidates from the FDA or other regulatory authorities.

Due to our significant research and development expenditures, and general administrative costs associated with our operations, we have generated substantial operating losses in each period since our inception. Our net losses were approximately $6.4 million and approximately $6.4 million for the three months ended September 30, 2023 and 2022, respectively. Our net losses were approximately $21.5 million and approximately $21.3 million for the nine months ended September 30, 2023 and 2022, respectively. As of September 30, 2023, we had an accumulated deficit of approximately $158.6 million. We expect to incur significant expenses and operating losses for the foreseeable future.

Recent Operational Developments

CAP-1002 DMD Program Updates

• Cohort A of our HOPE-3, Phase 3 clinical trial of CAP-1002 in DMD has reached its target enrollment of 58 patients. The multi-center, randomized, double-blind, placebo-controlled study is currently designed to treat approximately 58 subjects in the United States.
• We plan to report the outcome from the interim futility analysis in the fourth quarter of 2023 and report top-line data from Cohort A in the fourth quarter of 2024.
• We held a positive Type-B clinical meeting with FDA in the third quarter of 2023. During the meeting, we outlined our proposed path towards submission of a potential BLA and further discussed the ongoing HOPE-3 clinical trial with the agency. The FDA affirmed alignment on the current HOPE-3 clinical trial design. Based on the feedback from FDA, we plan to submit a BLA for CAP-1002, which will be supported by results from Cohort A which is using product manufactured from our Los Angeles site.
• Although product from our San Diego site would not be required to support initial registration, we have designed Cohort B into the HOPE-3 trial, which will enroll approximately 44 patients. The aim of Cohort B is to support inclusion of our San Diego GMP manufacturing site. Cohort B is expected to commence enrollment in the fourth quarter of 2023.
• Planning to request a meeting with the FDA in the first quarter of 2024 to discuss CMC and explore the potential for expedited approval pathways.
• Hosted a webinar in conjunction with the nonprofit organization Parent Project Muscular Dystrophy (“PPMD”) to review key regulatory details and provide clinical updates for our CAP-1002 program for the treatment of DMD.
• Announced data from two late-breaking posters presented at this year’s 28th International Annual Congress of the World Muscle Society (“WMS”).
• Late-Breaking WMS Poster #1: Capricor’s 24-Month HOPE-2 Results Show CAP-1002’s Long-Term Safety and Efficacy in Patients with Late-Stage DMD. Data from the Company’s HOPE-2 OLE study measured by the Performance of the Upper Limb (PUL 2.0) showed a mean PUL 2.0 decline after 24-months of treatment with CAP-1002 was 2.8 points versus a 7.7-point decline on average observed over 24-months in the placebo patient group (delta change=4.9 points, p=0.021). The average rate of decline in CAP-1002 treated patients showed an attenuation of disease progression by approximately 64%. Additionally, CAP-1002 revealed clinically meaningful improvements in ameliorating cardiac function. The data showed that cardiac function, as measured by left ventricular ejection fraction (LVEF%) by MRI at the 24-month timepoint, improved in 67% of patients, compared to a steady decline in a comparable natural history population.

Exosome Platform Updates

• Late-Breaking WMS Poster #2: StealthX™ Platform for Enhanced Exosome-Based ASO Delivery. One of the predominant strategies for treating DMD has been through the employment of antisense oligonucleotides to exclude exons resulting in DMD proteins with partially restored function. The main challenge of antisense drugs is to improve their delivery to target tissues. To overcome this challenge, a muscle-targeting moiety was engineered on the surface of the exosomes using the StealthX™ technology. The study results showed the presence of exosomes loaded with a labeled ASO in the lower limbs of mice 24 hours post-intravenous (IV) injection. Notably, the exosomes carrying the muscle-targeting moiety were not detected in any other tissues except for the expected clearance pathways (kidney and liver) with a single dose.
• Featured in a poster session at the American Association of Extracellular Vesicles (“AAEV”) 2023 Annual Meeting showing exosomes loaded with siRNA targeting the RRM2 gene trigger apoptosis in the SKOV3 ovarian cancer cell-line.
• Featured in a presentation and poster session at the 5th Exosome Based Therapeutic Development Summit. Our data poster highlighted scalable production, purification and characterization methods for exosome production and manufacturing.
• Published preclinical data in the peer-reviewed publication PLOS ONE showing that nanograms of SARS-CoV-2 spike protein, delivered by exosomes induce neutralization of delta and omicron variants.
• Featured in a poster session at SelectBIO Extracellular Vesicles 2023 highlighting the latest advancements related to methods for loading nucleic acid cargo in exosomes.

Corporate Updates

• Announced completion of a registered direct offering on October 3, 2023 with participation from Nippon Shinyaku, Co., Ltd. and funds associated with Highbridge Capital Management, LLC. for the issuance and sale of 4,935,621 shares of our common stock. Each share of common stock offered was sold with a warrant to purchase one share of common stock at an exercise price of $5.70 per share. The gross proceeds from the offering were approximately $23.0 million, before deducting the placement agent's fees and other offering expenses.
• Appointed Michael Kelliher to the Capricor Board of Directors. Mr. Kelliher is an experienced business development and finance professional with expertise in corporate strategy, mergers and acquisitions, strategic partnerships and licensing, with a career spanning more than 20 years with leading biotechnology and global pharmaceutical companies. Mr. Kelliher most recently served as Group Vice President of M&A and Business Development at Horizon Therapeutics (now Amgen).

As we seek to develop and commercialize CAP-1002 or any other product candidates including those related to our exosomes program, we anticipate that our expenses will increase significantly and that we will need substantial additional funding to support our continuing operations. Until such time when we can generate significant revenue from product sales, if ever, we expect to finance our operations through a combination of public or private equity financings, debt financings or other sources, which may include licensing agreements or strategic collaborations or other distribution agreements. We may be unable to raise additional funds or enter into such agreements or arrangements when needed on favorable terms, if at all. If we fail to raise capital or other potential funding or enter into such agreements as and when needed, we may have to significantly delay, scale back or discontinue the development or commercialization of CAP-1002 or our other product candidates.

Financial Operations Overview

We have no commercial product sales to date and will not have the ability to generate any commercial product revenue until after we have received approval from the FDA or equivalent foreign regulatory bodies to begin selling our pharmaceutical product candidates. Developing pharmaceutical products is a lengthy and very expensive process. Even if we obtain the capital necessary to continue the development of our product candidates, whether through a strategic transaction or otherwise, we do not expect to complete the development of a product candidate for several years, if ever. To date, most of our development expenses have related to our product candidates, consisting of CAP-1002 and our exosome technologies. As we proceed with the clinical development of CAP-1002, and as we further develop our exosome technologies, our expenses will further increase. Accordingly, our success depends not only on the safety and efficacy of our product candidates, but also on our ability to finance the development of our products and our clinical programs. Our recent major sources of working capital have been primarily proceeds from public equity sales of securities and upfront payments pursuant to our U.S. and Japan Distribution Agreements with Nippon Shinyaku. While we pursue our preclinical and clinical programs, we continue to explore potential partnerships for the development of one or more of our product candidates in the US and in other territories across the world.

Our results have included non-cash compensation expense due to the issuance of stock options and warrants, as applicable. We expense the fair value of stock options and warrants over their vesting period as applicable. When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing model. The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. Generally, the awards vest based upon time-based conditions. Stock-based compensation expense is included in the condensed consolidated statements of operations under general and administrative (“G&A”) or research and development (“R&D”) expenses, as applicable. We expect to record additional non-cash compensation expense in the future, which may be significant.

Results of Operations

Revenue

Clinical Development Income. Clinical development income for the three months ended September 30, 2023 and 2022 was approximately $6.2 million and $1.6 million, respectively. Clinical development income for the nine months ended September 30, 2023 and 2022 was approximately $13.1 million and $1.6 million, respectively. The Company began to recognize the $30.0 million upfront payment received from Nippon Shinyaku related to an Exclusive Commercialization and Distribution Agreement (the “U.S. Distribution Agreement”) with Nippon Shinyaku in the third quarter of 2022. Revenue is ratably recognized using a proportional performance method in relation to the completion of the HOPE-3 clinical trial (Cohort A).

Operating Expenses

Research and Development Expenses. R&D expenses consist primarily of compensation and other related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, certain legal expenses resulting from intellectual property prosecution, stock-based compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates.

The following tables summarize our R&D expenses by category for each of the periods indicated:

R&D expenses for the three months ended September 30, 2023 increased by approximately $4.5 million, or 82%, compared with the three months ended September 30, 2022. The increase is primarily driven by the following:

• $0.7 million increase in compensation and other personnel expenses primarily due to increases in headcount;
• $3.6 million increase in our CAP-1002 DMD program primarily due to the ongoing HOPE-3 clinical trial, our HOPE-2 OLE clinical trial and our expanded manufacturing production efforts for CAP-1002;
• $0.4 million decrease in exosomes platform research primarily due to reduced expenses related to completion of certain research projects;
• $0.1 million increase in facility expenses primarily due to expansion efforts;
• $0.3 million increase in stock-based compensation expense primarily due to increases in headcount, risk-free rate and stock price, which resulted in an increase in fair value of options issued;
• $0.1 million increase in depreciation primarily due to an increase in equipment purchases and capital improvements related to expansion efforts of our research and manufacturing facility in San Diego; and
• $0.1 million increase in research and other.

R&D expenses for the nine months ended September 30, 2023 increased by approximately $10.9 million, or 70%, compared with the nine months ended September 30, 2022. The increase was primarily driven by the following:

• $2.5 million increase in compensation and other personnel expenses primarily due to increases in headcount;
• $9.3 million increase in our CAP-1002 DMD program primarily due to the ongoing HOPE-3 clinical trial, our HOPE-2 OLE clinical trial and our expanded manufacturing production efforts for CAP-1002;
• $1.5 million decrease in exosomes platform research primarily due to reduced expenses related to completion of certain research projects;
• $0.2 million increase in facility expenses primarily due to expansion efforts;
• $0.8 million increase in stock-based compensation expense primarily due to increases in headcount, risk-free rate and stock price, which resulted in an increase in fair value of options issued;
• $0.2 million increase in depreciation primarily due to an increase in equipment purchases and capital improvements related to expansion efforts of our research and manufacturing facility in San Diego; and
• $0.6 million decrease in research and other primarily due to the close-out of our INSPIRE program.

General and Administrative Expenses. G&A expenses consist primarily of compensation and other related personnel expenses for executive, finance and other administrative personnel, stock-based compensation expense, accounting, legal and other professional fees, consulting expenses, rent for corporate offices, business insurance and other corporate expenses.

The following tables summarize our G&A expenses by category for each of the periods indicated:

G&A expenses for the three months ended September 30, 2023 increased by approximately $0.5 million, or 18%, compared to the three months ended September 30, 2022. The increase was primarily driven by the following:

• $0.3 million increase in stock-based compensation expense primarily due to an increase in our risk-free rate and stock price, which resulted in an increase in fair value of options issued;
• $0.1 million increase in compensation and other personnel related expenses; and
• $0.1 million increase in facility expenses primarily due to expansion efforts.

G&A expenses for the nine months ended September 30, 2023 increased by approximately $1.7 million, or 23%, compared to the nine months ended September 30, 2022. The increase was primarily driven by the following:

• $1.5 million increase in stock-based compensation expense primarily due to an increase in our risk-free rate and stock price, which resulted in an increase in fair value of options issued;
• $0.3 million increase in compensation and other personnel related expenses;
• $0.3 million decrease in professional service expenses primarily due to a decrease in business development related expenses; and
• $0.3 million increase in facility expenses primarily due to expansion efforts.

Investment Income. Investment income for the three months ended September 30, 2023 and 2022 was approximately $0.5 million and $0.1 million, respectively. Investment income for the nine months ended September 30, 2023 and 2022 was approximately $1.3 million and $0.1 million, respectively. The increase in investment income for the three and nine months ended September 30, 2023 as compared to the three and nine months ended September 30, 2022 is due to increased interest rates and the higher principal balance in our marketable securities, savings and money market fund accounts.

Products Under Active Development

CAP-1002 for the treatment of DMD – We are currently conducting our HOPE-3, Phase 3 study for DMD and our ongoing OLE study of the HOPE-2 trial for which we expect to spend approximately $20.0 million to $24.0 million in 2023. The expenses for our DMD program will include costs for personnel, clinical, regulatory and manufacturing- related expenses, including expenses related to the scale-up for potential commercial scale manufacturing if our CAP-1002 product is approved.

Exosome-Based Therapeutics and Vaccines – Our exosome platform is in early-stage preclinical development. We expect to spend approximately $2.5 million to $3.5 million during 2023 on development expenses related to our exosomes program, which includes personnel, preclinical studies and manufacturing related expenses for these technologies. Our expenses for this program are primarily focused on the expansion of our engineered exosomes platform including the conduct of IND-enabling studies.

Our expenditures on current and future clinical development programs, particularly our CAP-1002 and exosomes programs, cannot be predicted with any significant degree of certainty as they are dependent on the results of our current trials and our ability to secure additional funding and a strategic partner. Further, we cannot predict with any significant degree of certainty the amount of time which will be required to complete our clinical trials, the costs of completing research and development projects or whether, when and to what extent we will generate revenues from the commercialization and sale of any of our product candidates. The duration and cost of clinical trials may vary significantly over the life of a project as a result of unanticipated events arising during manufacturing and clinical development and as a result of a variety of other factors, including:

• the number of trials and studies in a clinical program;
• the number of patients who participate in the trials;
• the number of sites included in the trials;
• the rates of patient recruitment and enrollment;
• the duration of patient treatment and follow-up;
• the costs of manufacturing our product candidates;
• the availability of necessary materials required to make our product candidates; and
• the costs, requirements and timing of, and the ability to secure, regulatory approvals.

Liquidity and Capital Resources

The following table summarizes our liquidity and capital resources as of September 30, 2023 and December 31, 2022 and our net increase (decrease) in cash, cash equivalents, and marketable securities for the nine months ended September 30, 2023 and 2022 and is intended to supplement the more detailed discussion that follows. The amounts stated in the tables below are expressed in thousands.

Our total cash, cash equivalents and marketable securities as of September 30, 2023 were approximately $28.5 million compared to approximately $41.4 million as of December 31, 2022. The decrease in cash, cash equivalents and marketable securities from December 31, 2022 to September 30, 2023 is due to a net loss of approximately $21.5 million for the nine months ended September 30, 2023 and receipt of an upfront payment of $12.0 million from Nippon Shinyaku related to the Japan Distribution Agreement. As of September 30, 2023, we had approximately $38.9 million in total liabilities, of which $26.4 million relates to deferred revenue, and approximately $3.4 million in net working capital deficit.

Cash used in operating activities was approximately $14.0 million and cash provided by operating activities was approximately $11.8 million for the nine months ended September 30, 2023 and 2022, respectively. The difference of approximately $25.8 million in cash from operating activities is due to the upfront payment of $12.0 million from Nippon Shinyaku and deferred revenue. Furthermore, there was an increase of approximately $2.2 million in stock-based compensation and an increase of approximately $0.4 million in depreciation and amortization for the nine months ended September 30, 2023 as compared to the same period in 2022. To the extent we obtain sufficient capital and/or long-term debt funding and are able to continue developing our product candidates, including if we expand our platform technology portfolio, engage in further research and development activities, and, in particular, conduct preclinical studies and clinical trials, we expect to continue incurring substantial losses.

We had cash flow provided by investing activities of approximately $11.0 million and cash flow used in investing activities of approximately $40.2 million for the nine months ended September 30, 2023 and 2022, respectively. The net change in investing activities for the nine months ended September 30, 2023 as compared to the same period of 2022 is due to the net effect from purchases, sales and maturities of marketable securities.

We had cash flow provided by financing activities of approximately $2.4 million and $1.9 million for the nine months ended September 30, 2023 and 2022, respectively. The increase in cash provided by financing activities for the nine months ended September 30, 2023 as compared to the nine months ended September 30, 2022 is primarily due to the increase in net proceeds from issuance of stock in connection to the ATM Program (as described below).

From inception through September 30, 2023, we financed our operations primarily through private and public sales of our equity securities, government grants and payments from distribution agreements and collaboration partners. As we have not generated any revenue from the commercial sale of our products to date, and we do not expect to generate revenue for several years, if ever, we will need to raise substantial additional capital to fund our research and development, including our long-term plans for clinical trials and new product development. We may seek to raise additional funds through various potential sources, such as equity and debt financings, government grants, or through strategic collaborations and license agreements or other distribution agreements. We can give no assurances that we will be able to secure such additional sources of funds to support our operations, complete our clinical trials or if such funds become available to us, that such additional financing will be sufficient to meet our needs. Moreover, to the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution, and debt financing, if available, may involve restrictive covenants. To the extent that we raise additional funds through collaboration and licensing arrangements, it may be necessary to relinquish some rights to our technologies or our product candidates or grant licenses on terms that may not be favorable to us.

Our estimates regarding the sufficiency of our financial resources are based on assumptions that may prove to be wrong. We may need to obtain additional funds sooner than planned or in greater amounts than we currently anticipate. At this time, we believe our cash resources are sufficient to fund our operations for at least the next twelve months. The actual amount of funds we will need to operate is subject to many factors, some of which are beyond our control. These factors include the following:

• the progress of our clinical and research activities;
• the number and scope of our clinical and research programs;
• the progress and success of our preclinical and clinical development activities;
• the progress of the development efforts of parties with whom we have entered into research and development agreements;
• our ability to successfully manufacture product for our clinical trials and potential commercial use;
• the availability of materials necessary to manufacture our product candidates;
• the costs of manufacturing our product candidates, and the progress of efforts with parties with whom we may enter into commercial manufacturing agreements, if necessary;
• our ability to maintain current research and development programs and to establish new research and development and licensing arrangements;
• additional costs associated with maintaining licenses and insurance;
• the costs involved in prosecuting and enforcing patent claims and other intellectual property rights; and
• the costs and timing of regulatory approvals.

Collaborations

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: United States)

On January 24, 2022, Capricor entered into the U.S. Distribution Agreement with Nippon Shinyaku, a Japanese corporation. Under the terms of the U.S. Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in the United States of CAP-1002 for the treatment of DMD.

Under the terms of the U.S. Distribution Agreement, Capricor will be responsible for the conduct of the HOPE-3 trial as well as the manufacturing of CAP-1002. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in the United States. Pursuant to the U.S Distribution Agreement, Capricor received an upfront payment of $30.0 million in the first quarter of 2022. Additionally, there are various potential development, regulatory, and if commercialized, sales-based milestones tied to the achievement of certain sales thresholds for annual net sales of CAP-1002 of up to $705.0 million. In addition to the $30.0 million upfront payment already received, there are potential milestones totaling up to $100.0 million leading up to and including the BLA approval. The first milestone payment will be triggered upon completion of the interim futility analysis of the HOPE-3 trial whereby the outcome is determined to not be futile. Further, pursuant to the U.S. Distribution Agreement, Capricor has the obligation to sell commercial product to Nippon Shinyaku, subject to regulatory approval, and in addition Capricor will have the right to receive a meaningful mid-range double-digit share of product revenue.

Commercialization and Distribution Agreement with Nippon Shinyaku (Territory: Japan)

On February 10, 2023, Capricor entered into the Japan Distribution Agreement with Nippon Shinyaku. Under the terms of the Japan Distribution Agreement, Capricor appointed Nippon Shinyaku as its exclusive distributor in Japan of CAP-1002 for the treatment of DMD.

Under the terms of the Japan Distribution Agreement, Capricor received an upfront payment of $12 million in the first quarter of 2023 and in addition, Capricor will potentially receive additional development and sales-based milestone payments of up to approximately $89 million, subject to foreign currency exchange rates, and a meaningful double-digit share of product revenue. Nippon Shinyaku will be responsible for the distribution of CAP-1002 in Japan. Capricor will be responsible for the conduct of clinical development in Japan, as may be required, as well as the manufacturing of CAP-1002. Upon approval, Capricor will sell commercial product to Nippon Shinyaku in Japan. In addition, Capricor or its designee will hold the Marketing Authorization in Japan if the product is approved in that territory.

Financing Activities by the Company

October 2023 Financing

On October 3, 2023, the Company entered into Securities Purchase Agreements with its commercial partner, Nippon Shinyaku, Co., Ltd. and funds associated with Highbridge Capital Management, LLC (the “Investors”), pursuant to which the Company agreed to issue and sell to the Investors, in a registered direct offering (the “Registered Direct Offering”), an aggregate of 4,935,621 shares of its common stock, par value $0.001 per share, at a price per share of $4.66 for an aggregate purchase price of approximately $23.0 million. Each share of common stock offered was sold with a warrant to purchase one share of common stock at an exercise price of $5.70 per share. Each warrant will be exercisable beginning six months after issuance and will expire seven years from the date of issuance. As part of the Registered Direct Offering, the Company agreed not to issue or sell shares (subject to customary exceptions for employee stock option issuances and other customary exceptions) for a period of 30 days following the date of the prospectus supplement that was used in the Registered Direct Offering. That prospectus was dated September 29, 2023, so the Company “lock-up” expired on October 29, 2023. The Company’s directors and executive officers also entered into “lock-up” agreements with the placement agent in the Registered Direct Offering, which agreements are scheduled to expire on the 60th day following the date of the Securities Purchase Agreements, or December 2, 2023.

ATM Program

On June 21, 2021, the Company initiated an at-the-market offering under a prospectus supplement for aggregate sales proceeds of up to $75.0 million (the “ATM Program”), with the common stock to be distributed at the market prices prevailing at the time of sale. The ATM Program was established under a Common Stock Sales Agreement (the “Sales Agreement,”), with H.C. Wainwright & Co. LLC (“Wainwright”), under which we may, from time to time, issue and sell shares of our common stock through Wainwright as sales agent. The Sales Agreement provides that Wainwright will be entitled to compensation for its services at a commission rate of 3.0% of the gross sales price per share of common stock sold. All shares issued pursuant to the ATM Program were issued pursuant to our shelf registration statement on Form S-3 (File No. 333-254363), which was initially filed with the Securities and Exchange Commission (the “SEC”), on March 16, 2021, amended on June 15, 2021 and declared effective by the SEC on June 16, 2021. From June 21, 2021 through September 30, 2023, the Company has sold an aggregate of 2,620,703 shares of common stock under the ATM Program at an average price of approximately $5.74 per share for gross proceeds of approximately $15.0 million. Approximately $60.0 million of common stock may still be sold pursuant to the ATM Program. The Company paid cash commissions on the gross proceeds, plus reimbursement of expenses to Wainwright, as well as legal and accounting fees in the aggregate amount of approximately $0.5 million. Subsequent to September 30, 2023 and through the date of this filing, no shares were sold under the ATM Program.

CIRM Grant Award

On June 16, 2016, Capricor entered into an award (the “CIRM Award”) with the California Institute for Regenerative Medicine (“CIRM”) in the amount of approximately $3.4 million to fund, in part, Capricor’s Phase I/II HOPE-Duchenne clinical trial investigating CAP-1002 for the treatment of Duchenne muscular dystrophy-associated cardiomyopathy. Pursuant to terms of the CIRM Award, the disbursements were tied to the achievement of specified operational milestones. In addition, the terms of the CIRM Award included a co-funding requirement pursuant to which Capricor was required to spend approximately $2.3 million of its own capital to fund the CIRM funded research project. The CIRM Award is further subject to the conditions and requirements set forth in the CIRM Grants Administration Policy for Clinical Stage Projects. Such requirements include, without limitation, the filing of quarterly and annual reports with CIRM, the sharing of intellectual property pursuant to Title 17, California Code of Regulations (CCR) Sections 100600-100612, and the sharing with the State of California of a fraction of licensing revenue received from a CIRM funded research project and net commercial revenue from a commercialized product which resulted from the CIRM funded research as set forth in Title 17, CCR Section 100608. The maximum royalty on net commercial revenue that Capricor may be required to pay to CIRM is equal to nine times the total amount awarded and paid to Capricor.

After completing the CIRM funded research project and at any time after the award period end date (but no later than the ten-year anniversary of the date of the award), Capricor has the right to convert the CIRM Award into a loan, the terms of which will be determined based on various factors, including the stage of the research and development of the program at the time the election is made. On June 20, 2016, Capricor entered into a Loan Election Agreement with CIRM whereby, among other things, CIRM and Capricor agreed that if Capricor elects to convert the grant into a loan, the term of the loan could be up to five years from the date of execution of the applicable loan agreement; provided that the maturity date of the loan will not surpass the ten-year anniversary of the grant date of the CIRM Award. Beginning on the date of the loan, the loan shall bear interest on the unpaid principal balance, plus the interest that has accrued prior to the election point according to the terms set forth in CIRM’s Loan Policy (the “New Loan Balance”), at a per annum rate equal to the LIBOR rate for a three-month deposit in U.S. dollars, as published by the Wall Street Journal on the loan date, plus one percent. Interest shall be compounded annually on the outstanding New Loan Balance commencing with the loan date and the interest shall be payable, together with the New Loan Balance, upon the due date of the loan. If Capricor elects to convert the CIRM Award into a loan, certain requirements of the CIRM Award will no longer be applicable, including the revenue sharing requirements. Capricor has not yet made its decision as to whether it will elect to convert the CIRM Award into a loan. If we elect to do so, Capricor would be required to repay some or all of the amounts awarded by CIRM, therefore the Company accounts for this award as a liability rather than income.

In 2019, Capricor completed all milestones and close-out activities associated with the CIRM Award and expended all funds received. As of September 30, 2023, Capricor’s liability balance for the CIRM Award was approximately $3.4 million.

Off-Balance Sheet Arrangements

During the periods presented, we did not have, nor do we currently have, any off-balance sheet arrangements, as defined in the rules and regulations of the SEC.

Critical Accounting Policies and Estimates

Our financial statements are prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosures. We evaluate our estimates and assumptions on an ongoing basis, including research and development and clinical trial accruals, and stock-based compensation estimates. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates. We believe the following critical accounting policies reflect the more significant judgments and estimates used in the preparation of our financial statements and accompanying notes.

Leases

ASC 842 requires lessees to recognize most leases on the balance sheet with a corresponding right-to-use asset, or ROU asset. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. The assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. ROU assets are evaluated for impairment using the long-lived assets impairment guidance.

Leases will be classified as financing or operating, which will drive the expense recognition pattern. The Company elects to exclude short-term leases if and when the Company has them.

The Company leases office and laboratory space, all of which are operating leases. Most leases include the option to renew and the exercise of the renewal options is at the Company’s sole discretion. Options to renew a lease are not included in the Company’s assessment unless there is reasonable certainty that the Company will renew. In addition, the Company’s lease agreements generally do not contain any residual value guarantees or restrictive covenants.

The interest rate implicit in lease contracts is typically not readily determinable. As a result, the Company utilizes its incremental borrowing rate, which reflects the fixed rate at which the Company could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

For real estate leases, the Company has elected the practical expedient under ASC 842 to account for the lease and non-lease components together for existing classes of underlying assets and allocates the contract consideration to the lease component only. This practical expedient is not elected for manufacturing facilities and equipment embedded in product supply arrangements.

Revenue Recognition

The Company applies ASU 606, Revenue for Contracts from Customers, which amended revenue recognition principles and provides a single, comprehensive set of criteria for revenue recognition within and across all industries. The Company has not yet achieved commercial sales of its drug candidates to date, however, the new standard is applicable to its distribution agreements.

The revenue standard provides a five-step framework for recognizing revenue as control of promised goods or services is transferred to a customer at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for arrangements that it determines are within the scope of the revenue standard, the Company performs the following five steps: (i) identify the contract; (ii) identify the performance obligations; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. At contract inception, the Company assesses whether the goods or services promised within each contract are distinct and, therefore, represent a separate performance obligation, or whether they are not distinct and are combined with other goods and services until a distinct bundle is identified. The Company then determines the transaction price, which typically includes upfront payments and any variable consideration that the Company determines is probable to not cause a significant reversal in the amount of cumulative revenue recognized when the uncertainty associated with the variable consideration is resolved. The Company then allocates the transaction price to each performance obligation and recognizes the associated revenue when, or as, each performance obligation is satisfied.

The Company’s distribution agreements may entitle it to additional payments upon the achievement of milestones or shares of product revenue. The milestones are generally categorized into three types: development milestones, regulatory milestones and sales-based milestones. The Company evaluates whether it is probable that the consideration associated with each milestone or shared revenue payments will not be subject to a significant reversal in the cumulative amount of revenue recognized. Amounts that meet this threshold are included in the transaction price using the most likely amount method, whereas amounts that do not meet this threshold are excluded from the transaction price until they meet this threshold. At the end of each subsequent reporting period, the Company re-evaluates the probability of a significant reversal of the cumulative revenue recognized for its milestones and shared revenue payments, and, if necessary, adjusts its estimate of the overall transaction price. Any such adjustments are recorded on a cumulative catch-up basis, which would affect revenues and net income (loss) in the Company’s condensed consolidated statements of operation and comprehensive loss. Typically, milestone payments and shared revenue payments are achieved after the Company’s performance obligations associated with the distribution agreements have been completed and after the customer has assumed responsibility for the commercialization program. Milestones or shared revenue payments achieved after the Company’s performance obligations have been completed are recognized as revenue in the period the milestone or shared revenue payments was achieved. If a milestone payment is achieved during the performance period, the milestone payment would be recognized as revenue to the extent performance had been completed at that point, and the remaining balance would be recorded as deferred revenue.

The revenue standard requires the Company to assess whether a significant financing component exists in determining the transaction price. The Company performs this assessment at the onset of its distribution agreements. Typically, a significant financing component does not exist because the customer is paying for services in advance with an upfront payment. Additionally, future shared revenue payments are not substantially within the control of the Company or the customer.

Whenever the Company determines that goods or services promised in a contract should be accounted for as a combined performance obligation over time, the Company determines the period over which the performance obligations will be performed and revenue will be recognized. Revenue is recognized using either the proportional performance method or on a straight-line basis if efforts will be expended evenly over time. Percentage of completion of patient visits in clinical trials are used as the measure of performance. The Company feels this method of measurement to be the best depiction of the transfer of services and recognition of revenue. Significant management judgment is required in determining the level of effort required under an arrangement and the period over which the Company is expected to complete its performance obligations. If the Company determines that the performance obligation is satisfied over time, any upfront payment received is initially recorded as deferred revenue on its condensed consolidated balance sheets.

Certain judgments affect the application of the Company’s revenue recognition policy. For example, the Company records short-term (less than one year) and long-term (over one year) deferred revenue based on its best estimate of when such revenue will be recognized. This estimate is based on the Company’s current operating plan, and the Company may recognize a different amount of deferred revenue over the next 12-month period if its plan changes in the future.

Grant Income

The determination as to when income is earned is dependent on the language in each specific grant. Generally, we recognize grant income in the period in which the expense is incurred for those expenses that are deemed reimbursable under the terms of the grant. Grant income is due upon submission of reimbursement request. The transaction price varies for grant income based on the expenses incurred under the awards.

CIRM Grant Award

Capricor accounts for the disbursements under its CIRM Award as long-term liabilities. Capricor recognizes the CIRM grant disbursements as a liability as the principal is disbursed rather than recognizing the full amount of the grant award. After completing the CIRM funded research project and after the award period end date, Capricor has the right to convert the CIRM Award into a loan, the terms of which will be determined based on various factors, including the stage of the research and the stage of development at the time the election is made. In June 2016, Capricor entered into a Loan Election Agreement with CIRM whereby, among other things, CIRM and Capricor agreed that if Capricor elects to convert the grant into a loan, the term of the loan could be up to five years from the date of execution of the applicable loan agreement; provided that the maturity date of the loan will not surpass the ten-year anniversary of the grant date of the CIRM Award. Since Capricor may be required to repay some or all of the amounts awarded by CIRM, the Company accounts for this award as a liability rather than income.

Research and Development Expenses and Accruals

R&D expenses consist primarily of salaries and related personnel costs, supplies, clinical trial costs, patient treatment costs, rent for laboratories and manufacturing facilities, consulting fees, costs of personnel and supplies for manufacturing, costs of service providers for preclinical, clinical and manufacturing, and certain legal expenses resulting from intellectual property prosecution, stock compensation expense and other expenses relating to the design, development, testing and enhancement of our product candidates. Except for certain capitalized intangible assets, R&D costs are expensed as incurred.

Our cost accruals for clinical trials and other R&D activities are based on estimates of the services received and efforts expended pursuant to contracts with numerous clinical trial centers and contract research organizations (“CROs”), clinical study sites, laboratories, consultants or other clinical trial vendors that perform activities in connection with a trial. Related contracts vary significantly in length and may be for a fixed amount, a variable amount based on actual costs incurred, capped at a certain limit, or for a combination of fixed, variable and capped amounts. Activity levels are monitored through close communication with the CROs and other clinical trial vendors, including detailed invoice and task completion review, analysis of expenses against budgeted amounts, analysis of work performed against approved contract budgets and payment schedules, and recognition of any changes in scope of the services to be performed. Certain CRO and significant clinical trial vendors provide an estimate of costs incurred but not invoiced at the end of each quarter for each individual trial. These estimates are reviewed and discussed with the CRO or vendor as necessary, and are included in R&D expenses for the related period. For clinical study sites which are paid periodically on a per-subject basis to the institutions performing the clinical study, we accrue an estimated amount based on subject screening and enrollment in each quarter. All estimates may differ significantly from the actual amount subsequently invoiced, which may occur several months after the related services were performed.

In the normal course of business, we contract with third parties to perform various R&D activities in the on-going development of our product candidates. The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows. Payments under the contracts depend on factors such as the achievement of certain events, the successful enrollment of patients, and the completion of portions of the clinical trial or similar conditions. The objective of the accrual policy is to match the recording of expenses in the financial statements to the actual services received and efforts expended. As such, expense accruals related to clinical trials and other R&D activities are recognized based on our estimates of the degree of completion of the event or events specified in the applicable contract.

No adjustments for material changes in estimates have been recognized in any period presented.

Stock-Based Compensation

Our results include non-cash compensation expense as a result of the issuance of stock, stock options and warrants, as applicable. We have issued stock options to employees, directors and consultants under our five stock option plans: (i) the 2006 Stock Option Plan, (ii) the 2012 Restated Equity Incentive Plan (which superseded the 2006 Stock Option Plan), (iii) the 2012 Non-Employee Director Stock Option Plan, (iv) the 2020 Equity Incentive Plan, and (v) the

2021 Equity Incentive Plan. At this time, the Company only issues options under the 2020 Plan and the 2021 Plan and no longer issues options under the 2006 Stock Option Plan, the 2012 Plan, or the 2012 Non-Employee Director Plan.

We expense the fair value of stock-based compensation over the vesting period. When more precise pricing data is unavailable, we determine the fair value of stock options using the Black-Scholes option-pricing model. This valuation model requires us to make assumptions and judgments about the variables used in the calculation. These variables and assumptions include the weighted-average period of time that the options granted are expected to be outstanding, the volatility of our common stock, and the risk-free interest rate. We account for forfeitures upon occurrence.

Stock options or other equity instruments to non-employees (including consultants) issued as consideration for goods or services received by us are accounted for based on the fair value of the equity instruments issued. The fair value of stock options is determined using the Black-Scholes option-pricing model. The Company calculates the fair value for non-qualified options as of the date of grant and expenses over the applicable vesting periods.

The terms and vesting schedules for share-based awards vary by type of grant and the employment status of the grantee. Generally, the awards vest based upon time-based conditions. Stock-based compensation expense is included in general and administrative expense or research and development expense, as applicable, in the Statements of Operations and Comprehensive Income (Loss). We expect to record additional non-cash compensation expense in the future, which may be significant.

Clinical Trial Expense

As part of the process of preparing our condensed consolidated financial statements, we are required to estimate our accrued expenses. Our clinical trial accrual process is designed to account for expenses resulting from our obligations under contracts with vendors, consultants, CROs and clinical site agreements in connection with conducting clinical trials. The financial terms of these contracts are subject to negotiations, which vary from contract to contract and may result in payment flows that do not match the periods over which materials or services are provided to us under such contracts. Our objective is to reflect the appropriate clinical trial expenses in our condensed consolidated financial statements by matching the appropriate expenses with the period in which services are provided and efforts are expended. We account for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. We determine accrual estimates through financial models that take into account discussions with applicable personnel and outside service providers as to the progress or state of completion of trials, or the services completed. During the course of a clinical trial, we adjust our clinical expense recognition if actual results differ from our estimates. We make estimates of our accrued expenses as of each balance sheet date in our condensed consolidated financial statements based on the facts and circumstances known to us at that time. Our clinical trial accrual and prepaid assets are dependent, in part, upon the receipt of timely and accurate reporting from CROs and other third-party vendors. Although we do not expect our estimates to be materially different from amounts actually incurred, our understanding of the status and timing of services performed relative to the actual status and timing of services performed may vary and may result in us reporting amounts that are too high or too low for any particular period.

Recently Issued or Newly Adopted Accounting Pronouncements

Other recent accounting pronouncements issued by the Financial Accounting Standards Board, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the SEC, did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statement presentation or disclosures.

Interest Rate Sensitivity

Our exposure to market risk for changes in interest rates relates primarily to our marketable securities and cash and cash equivalents. As of September 30, 2023, the fair value of our cash, cash equivalents and marketable securities was approximately $28.5 million. Additionally, as of September 30, 2023, Capricor’s investment portfolio was classified as cash, cash equivalents and marketable securities, which consisted primarily of money market funds and bank money market, which included short-term U.S. treasuries, bank savings and checking accounts.

The goal of our investment policy is to place our investments with highly rated credit issuers and limit the amount of credit exposure. We seek to improve the safety and likelihood of preservation of our invested funds by limiting default risk and market risk. Our investments may be exposed to market risk due to fluctuation in interest rates, which may affect our interest income and the fair market value of our investments, if any. We will manage this exposure by performing ongoing evaluations of our investments. Due to the short-term maturities, if any, of our investments to date, their carrying value has always approximated their fair value. Our policy is to mitigate default risk by investing in high credit quality securities, and we currently do not hedge interest rate exposure. Due to our policy of making investments in U.S. treasury securities with primarily short-term maturities, we believe that the fair value of our investment portfolio would not be significantly impacted by a hypothetical 100 basis point increase or decrease in interest rates.

We have adopted and maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that controls and procedures, no matter how well designed and operated, cannot provide absolute assurance of achieving the desired control objectives.

As required by Rules 13a-15(b) and 15d-15(b) of the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our Chief Executive Officer and Chief Financial Officer concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Controls over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2023 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Part 1, Item 1A, “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 17, 2023, describes important risk factors that could cause our business, financial condition, results of operations and prospects to differ significantly from those suggested by forward-looking statements made in this Quarterly Report on Form 10-Q or otherwise presented by us from time to time. There have been no material changes in our risk factors from those previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 17, 2023.