10-Q

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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 June 30, 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.)

1110 North Virgil Avenue PMB 94659

Los Angeles, California 90029

(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 August 5, 2025, was 23,140,691.

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 June 30, 2025 (unaudited) and December 31, 2024	1

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the three and six months ended June 30, 2025 and 2024 (unaudited)	2

	Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2025 and 2024 (unaudited)	3

	Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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	23

Item 3	Quantitative and Qualitative Disclosures About Market Risk	31

Item 4	Controls and Procedures	31

PART II	OTHER INFORMATION

Item 1	Legal Proceedings	32

Item 1A	Risk Factors	32

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	34

Item 3	Defaults Upon Senior Securities	34

Item 4	Mine Safety Disclosures	34

Item 5	Other Information	34

Item 6	Exhibits	35

	Signature	36

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” in our Annual Report on Form 10-K for the year ended December 31, 2024, or Annual Report, and 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.

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Turnstone Biologics Corp.

Condensed Consolidated Balance Sheets

(in thousands, except share and per share amounts)


	June 30, 2025			December 31, 2024
	(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	16,688		$	28,926
Restricted cash		1,906			116
Property and equipment held for sale		313			—
Prepaid expenses		366			3,191
Operating lease right of use assets, current		265			—
Other current assets		1,571			1,987
Total current assets		21,109			34,220
Other assets, noncurrent		—			811
Operating lease right of use assets		—			933
Property and equipment, net		—			4,175
Total assets	$	21,109		$	40,139
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	2,687		$	870
Accrued expenses and other current liabilities		3,247			6,244
Operating lease liability, current		411			1,085
Total current liabilities		6,345			8,199
Operating lease liability, noncurrent		—			104
Other liabilities, noncurrent		—			369
Total liabilities		6,345			8,672
Stockholders' equity
Preferred stock, $0.001 par value; 10,000,000 shares authorized at June 30, 2025 and December 31, 2024, respectively, 0 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively		—			—
Common stock, $0.001 par value; 490,000,000 shares authorized at June 30, 2025 and December 31, 2024, respectively, 23,140,691 and 23,136,617 shares issued and outstanding as of June 30, 2025 and December 31, 2024, respectively		23			23
Additional paid-in capital		279,834			279,241
Accumulated other comprehensive loss		(202	)		(202	)
Accumulated deficit		(264,891	)		(247,595	)
Total stockholders’ equity		14,764			31,467
Total liabilities and stockholders’ equity	$	21,109		$	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 June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
Operating expenses:
Research and development		171			17,730			4,528			33,520
General and administrative		5,388			4,327			10,195			9,228
Total operating expenses		5,559			22,057			14,723			42,748
Loss from operations		(5,559	)		(22,057	)		(14,723	)		(42,748	)
Other income (expense), net		81			755			(2,559	)		1,833
Net loss before income taxes		(5,478	)		(21,302	)		(17,282	)		(40,915	)
Provision for income taxes		(12	)		(2	)		(14	)		(18	)
Net loss	$	(5,490	)	$	(21,304	)	$	(17,296	)	$	(40,933	)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale debt securities		—			10			—			(107	)
Total comprehensive loss	$	(5,490	)	$	(21,294	)	$	(17,296	)	$	(41,040	)
Weighted-average number of shares of common stock outstanding, basic and diluted		23,140,510			23,037,714			23,139,461			23,024,754
Net loss per share attributable to common stockholders, basic and diluted	$	(0.24	)	$	(0.92	)	$	(0.75	)	$	(1.78	)

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, 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
Vesting of restricted stock units		1,795											$	—
Stock-based compensation expense					$	268							$	268
Net loss										$	(5,490	)	$	(5,490	)
Balance at June 30, 2025		23,140,691	$	23	$	279,834	$	(202	)	$	(264,891	)	$	14,764


	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
Stock-based compensation expense					$	1,019							$	1,019
Unrealized gain on available-for-sale debt securities							$	10					$	10
Net loss										$	(21,304	)	$	(21,304	)
Balance at June 30, 2024		23,128,454	$	23	$	277,630	$	(226	)	$	(217,691	)	$	59,736

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)


	Six Months Ended June 30,
	2025			2024
Operating Activities
Net loss	$	(17,296	)	$	(40,933	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation expense		593			2,065
Loss on disposal of property and equipment		2,564			—
Depreciation and amortization		301			1,007
Accretion of premium on short term investments		—			(1,385	)
Change in fair value of contingent consideration liability		(92	)		108
Changes in operating assets and liabilities:
Accounts receivable - collaboration agreement		—			194
Prepaid expenses		2,825			1,233
Other current assets		1,277			464
Operating lease liabilities		(110	)		(97	)
Accounts payable		1,817			1,422
Accrued compensation and other accrued liabilities		(3,274	)		2,445
Other non-current assets		—			92
Net cash flows used in operating activities		(11,395	)		(33,385	)
Investing Activities
Proceeds from maturities of short-term investments		—			40,000
Purchase of short-term investments		—			(6,740	)
Proceeds from sale of property and equipment		947			25
Purchases of property and equipment		—			(249	)
Net cash flows provided by investing activities		947			33,036
Financing Activities
Payments of financing costs		—			(92	)
Proceeds from exercise of stock options		—			44
Net cash flows used in financing activities		—			(48	)
Net decrease in cash, cash equivalents and restricted cash		(10,448	)		(397	)
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	$	18,594		$	17,517

Supplemental Disclosure of Cash Flow Information:
Cash paid for income taxes		2			119

Supplemental Disclosure of Non-Cash Investing and Financing Activities:
Financing costs included in accounts payable		—			28
Equipment sales included in other current assets		50			—

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 Los Angeles, California.

Merger Agreement

On June 26, 2025, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with XOMA Royalty Corporation, a Nevada corporation (“XOMA”), and XRA 3 Corp., a Delaware corporation and a wholly-owned subsidiary of XOMA (“Merger Sub”). The Merger Agreement provides for, among other things: (i) the acquisition of all of the Company’s outstanding shares of common stock, par value $0.001 per share common stock, by XOMA through a cash tender offer (the “Offer”) by Merger Sub, for a price per share of common stock of (A) $0.34 (the “Cash Amount”), payable subject to any applicable tax withholding and without interest, plus (B) one contingent value right (“CVR”), which shall represent the right to receive potential payments, in cash, payable subject to any applicable tax withholding and without interest (such amount being the “CVR Amount", and the Cash Amount plus the CVR Amount, collectively being the “Offer Price”); and (ii) the merger of Merger Sub with and into the Company (the “Merger”), with the Company surviving the Merger.

Pursuant to the terms of the Merger Agreement, as of immediately prior to the effective time of the Merger (the “Effective Time”), by virtue of the Merger and without any action on the part of the holders of common stock, each outstanding share of common stock, will be converted into the right to receive the Offer Price. Each option to purchase shares of common stock from the Company will be cancelled and terminated for no consideration. The vesting for each restricted stock unit ("RSU") of the Company shall be accelerated and each RSU that is then outstanding will be cancelled and, in exchange therefor, the holder of such cancelled RSU will be entitled to receive in consideration of the cancellation of such RSU (A) an amount in cash without interest, less any applicable tax withholding, equal to the Cash Amount and (B) one CVR.

XOMA’s obligation to accept shares of common stock tendered in the Offer is subject to conditions, set forth in the Merger Agreement. Following the completion of the Offer, upon the terms and subject to the conditions of the Merger Agreement, including that the number of shares of common stock validly tendered (and not properly withdrawn) prior to the expiration of the Offer equals at least one share more than 50% of all shares of common stock issued and outstanding.

Merger Sub will merge with and into the Company, with the Company surviving as a wholly owned subsidiary of XOMA without any additional Company stockholder approvals. The Merger will be effected as soon as practicable following the time of purchase by XOMA of shares of common stock validly tendered and not withdrawn by XOMA in the Offer.

At or prior to the time at which XOMA first irrevocably accepts for purchase the shares of common stock tendered in the Offer, XOMA and Merger Sub expect to enter into a CVR Agreement with a rights agent and a representative, agent and attorney-in-fact of the holders of CVRs. Each CVR holder will be entitled to the right to receive, its portion of the amount equal to (i) up to an aggregate amount for all CVR holders of $1.1 million to the extent received by the Company as a result of contingent payments relating to tax receivables and a lease security deposit, plus (ii) Net Cash Excess (as defined in the CVR Agreement), and minus (iii) Net Cash Shortfall (as defined in the CVR Agreement) (“CVR Proceeds”). In the event that any such CVR Proceeds are received after one year following the date of the closing of the Merger, holders of the CVRs will not receive any payment pursuant to the CVR Agreement.

The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the United States Securities and Exchange Commission (the “SEC”). The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in XOMA, any constituent corporation party to the Merger or any of their respective affiliates. No interest will accrue on any amounts payable on the CVRs to any holders.

Reduction in Force

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 the Merger Agreement. As of June 30, 2025, the Company has 3 employees and may continue reducing headcount as the Company completes the Merger.

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 June 26, 2025, the Company entered into the Merger Agreement. The Company has devoted, and expects to continue to devote, substantial time and resources to complete the Merger. The Company expects that the Merger will close in the third quarter of 2025. There can be no assurances that this transaction will be successfully consummated or lead to increased stockholder value, or that the Company will make any cash distributions to our stockholders. If the Merger is not consummated, the Board intends to pursue a dissolution and liquidation.

As of June 30, 2025, the Company had $16.7 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 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 $17.3 million and $40.9 million for the six months ended June 30, 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 June 30, 2025, the Company had an accumulated deficit of $264.9 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. On May 14, 2025, the LSA terminated with no amounts having been drawn and no significant termination fees were incurred (see Note 8 - Term Loan for additional information).

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 as well as the escrow deposit for H. Lee Moffitt Cancer Center ("Moffitt") (see Note 6 - Agreements for additional information). Restricted cash was approximately $1.9 million and $0.1 million as of June 30, 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 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 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 June 30, 2025 and December 31, 2024, the Company’s restricted cash consists of a certificate of deposit which is maintained as collateral in connection with its San Diego facility lease and the escrow deposit for the Asset Purchase Agreement entered into with Moffitt, (see Note 6 – Agreement for additional information) which 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 $0.0 million and $0.1 million in contingent consideration liabilities as of June 30, 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):


	June 30, 2025
	Level 1		Level 2		Level 3		Fair Value
Financial assets:
Money market funds	$	14,559	$	—	$	—	$	14,559
Restricted cash(1)		1,906		—		—		1,906
Financial liabilities:
Contingent consideration(2)	$	—	$	—	$	—	$	—
Total financial assets	$	16,465	$	—	$	—	$	16,465


	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 consists of a deposit of $0.1 million for the Company’s San Diego office lease as of June 30, 2025 and December 31, 2024 and $1.8 million for the escrow deposit related to the Asset Purchase Agreement entered into with Moffitt as of June 30, 2025.

(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	June 30, 2025		Valuation Technique	Unobservable Input	Amount
	(in thousands)
'Milestone payment for first registrational study (see Note 7 - Asset Acquisition for additional information)	$	—	Discounted cash flow	Likelihood of occurrence	0%

	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		(92	)
Contingent consideration at June 30, 2025	$	-

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


	June 30, 2025
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Level 1: Money market funds	$	14,559	$	—	$	—	$	14,559
Restricted cash		1,906		—		—		1,906
Total financial assets	$	16,465	$	—	$	—	$	16,465
Classified as:
Cash and cash equivalents							$	14,559
Restricted cash								1,906
							$	16,465


	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):


	June 30,			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

Reclassified to held for sale	$	602
Less: Sales	$	(289	)
Held for sale	$	313		$	—

Property and equipment depreciation and amortization expense for the six months ended June 30, 2025 and twelve months ended December 31, 2024 was $0.3 million and $1.0 million, respectively.

As of June 30, 2025, the Company had $0.3 million in property and equipment held for sale, and the Company's intention is to complete the sale of the remaining assets within the third quarter of 2025. During the six months ended June 30, 2025, $1.4 million of assets were reclassified on the balance sheet as property and equipment held for sale. The Company recognized a loss on disposal of property and equipment of $2.6 million for the six months ended June 30, 2025.

5. Accrued Expenses and Other Current Liabilities

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


	June 30,		December 31,
	2025		2024
Research and development expense	$	22	$	3,774
Professional and consulting expense		1,272		545
Taxes payable		277		837
Compensation		1,676		1,088
Total accrued expenses and other current liabilities	$	3,247	$	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.

On June 26, 2025, the Company (i) entered into an Asset Purchase Agreement (the “Purchase Agreement”) by and among the Company and Moffitt, pursuant to which the Company will sell certain assets related to its TIDAL-01 program in consideration for the termination of the Alliance Agreement (as defined in the Purchase Agreement) (“Asset Sale”), subject to the terms and conditions of the Purchase Agreement, and (ii) entered into an Escrow Agreement (the “Escrow Agreement”), by and among the Company, Moffitt, and Citibank, N.A., as escrow agent.

Pursuant to the terms of the Purchase Agreement, Moffitt will assume certain obligations of the Company under the Myst Merger Agreement. The Company will receive a total consideration of approximately $3.0 million to offset the Company’s obligations to Moffitt under the Alliance Agreement, of which, approximately $1.8 million was placed into an escrow account as of the date of the Purchase Agreement (the "Escrow Account"), subject to the terms and conditions of the Escrow Agreement.

Moffitt’s obligation to closing the Asset Sale is subject to certain conditions set forth in the Purchase Agreement. Pursuant to the Merger Agreement, effective as of the Offer Closing Time (as defined in the Merger Agreement), Merger Sub shall assume all of the Company's obligations, duties, and covenants under the Purchase Agreement. Immediately following the consummation of the Merger, Merger Sub, as the sole stockholder of the Company shall duly execute a written consent pursuant to the requirements of the Company's governing documents and applicable law, for the adoption of the transactions, contemplate by the the Purchase Agreement. Following the consummation of the Merger, anticipated to occur in the third quarter of 2025, the Escrow Amount will be released to the Company.

It is a condition to the closing of the Merger that certain conditions to the Asset Sale shall have been satisfied or, if permitted by applicable law, waived.

If the transactions contemplated by the Merger Agreement are not consummated and the Company fails to obtain the requisite stockholder approval for the Asset Sale, the Purchase Agreement will terminate in accordance with its terms. If the foregoing should occur or if the Purchase Agreement is otherwise terminated, including as a result of the Asset Sale not being consummated by December 26, 2025, the Escrow Amount will be released to Moffitt.

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 0% resulting in a carrying value of $0.0 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 six months ended June 30, 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.

On May 14, 2025, the LSA was terminated with no amounts having been drawn and no significant termination fees were incurred.

The Company incurred $0.1 million of debt issuance costs which were recorded as part of other current assets but were written off as part of the termination 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:


	June 30,		December 31,
	2025		2024
Common stock options outstanding		1,856,251		2,650,751
Unvested RSUs		1,135		37,673
Shares available for issuance under the ESPP		684,646		453,280
Shares available for issuance under the Plans		5,636,638		3,656,918
		8,178,670		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		129,165		$	2.73
Options exercised		(29,119	)	$	1.51
Options canceled/forfeited		(175,770	)	$	6.97
Outstanding — June 30, 2024		3,298,558		$	7.56		6.5	$	354
Exercisable — June 30, 2024		1,955,510		$	8.40		4.9	$	341
Vested and expected to vest — June 30, 2024		3,298,558		$	7.56		6.5	$	354


Outstanding — December 31, 2024		2,650,751		$	7.33		4.9	$	—
Options granted		—
Options exercised		—
Options canceled/forfeited		(794,500	)	$	7.47
Outstanding — June 30, 2025		1,856,251		$	7.27		4.0	$	—
Exercisable — June 30, 2025		1,608,990		$	7.69		3.4	$	—
Vested and expected to vest — June 30, 2025		1,856,251		$	7.27		4.0	$	—

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:


		Six Months Ended June 30,
		2024
Risk-free interest rate		4.30% - 4.72%
Expected term (in years)		5.88-6.03
Dividend yield		0.0%
Volatility		94.0%-94.67%
Exercise price of stock options granted		$2.68 - $2.88

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		16,384		$	2.75
Cancelled/Forfeited		(10,430	)	$	2.71
Vested/Released		—		$	—
Outstanding, non-vested as of June 30, 2024		108,899		$	2.72

Outstanding, non-vested as of December 31, 2024		37,673		$	2.73
Granted		—		$	—
Cancelled/Forfeited		(32,464	)	$	2.73
Vested/Released		(4,074	)	$	2.70
Outstanding, non-vested as of June 30, 2025		1,135		$	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 June 30,				Six Months Ended June 30,
	2025		2024		2025		2024
Research and development	$	20	$	644	$	75	$	1,294
General and administrative	$	248	$	375		518		771
Total stock-based compensation	$	268	$	1,019	$	593	$	2,065

The weighted-average grant date fair market value of stock options granted to employees, directors and consultants during the six months ended June 30, 2024 was $2.14 per share. The Company did not grant any stock options during the six months ended June 30, 2025 and did not grant any RSUs for the six months ended June 30, 2025.

As of June 30, 2025, the Company had unrecognized stock-based compensation expense of $1.5 million and less than $0.1 million, related to stock options and RSUs respectively, which is expected to be recognized over a weighted-average period of 1.7 years and 2.4 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 June 30, 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 six months ended June 30, 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 provision for state income taxes of less than $0.1 million for the six months ended June 30, 2025 and 2024, respectively.

12. Leases

Operating Leases

The Company leased laboratory and office space for its former 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. This lease expired in May 2025.

The Company recorded rent expense of $0.5 million and $0.8 million for the six months ended June 30, 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 June 30,						Six Months Ended June 30,
	2025			2024			2025			2024
Operating lease cost	$	243		$	532		$	753		$	1,064
Sublease income		(146	)		(134	)		(290	)		(268	)
Total lease cost	$	97		$	398		$	463		$	796

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


	Six Months Ended
	June 30, 2025
Weighted-average remaining lease term in years		0.7
Weighted-average discount rate		5.77	%

The minimum aggregate future operating lease commitments at June 30, 2025 are as follows (in thousands):


	Minimum Lease Payments
Remainder of 2025	$	313
2026		104
2027		—
2028		—
2029		—
Total undiscounted lease payments	$	417
Less: imputed interest		(6	)
Total operating lease liability		411
Less: current portion of operating lease liability		(411	)
Operating lease liability, noncurrent	$	—

13. Segments

The Company operates and manages its business as one operating segment. The Company's 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):


	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2025			2024			2025			2024
Expenses
Research and development - TIDAL-01		48			(12,054	)		(1,654	)		(21,445	)
Research and development - compensation		(406	)		(4,388	)		(2,407	)		(9,398	)
General and administrative		(5,388	)		(4,308	)		(10,181	)		(9,182	)
Other segment expense(1)		218			(809	)		(180	)		(1,716	)
Depreciation expense		(31	)		(498	)		(301	)		(1,007	)
Other income, net		81			755			(2,559	)		1,833
Provision for income taxes		(12	)		(2	)		(14	)		(18	)
Consolidated net loss	$	(5,490	)	$	(21,304	)	$	(17,296	)	$	(40,933	)

(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:


	Six Months Ended June 30,
	2025		2024
Restricted stock		—		90,740
Unvested RSUs		1,135		108,899
Options to purchase common stock		1,856,251		3,298,558
Total		1,857,386		3,498,197

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 six months ended June 30, 2025, the Company incurred $2.1 million and $1.6 million in expenses which was recorded within research and development and general and administrative expenses, respectively in the Statement of Operations, related to employee severance and notice period payments, benefits and related costs in connection with the restructuring. During the six months ended June 30, 2025, $2.1 million of these payments had been made and $1.7 million were accrued at June 30, 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		3,737
Cash payments		(2,061	)
Liability included in other current liabilities at June 30, 2025	$	1,676

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 June 30, 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 U.S. Securities and Exchange Commission, or 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.

Merger Agreement

On June 26, 2025, we entered into an Agreement and Plan of Merger, or the Merger Agreement, with XOMA Royalty Corporation, a Nevada corporation, or XOMA, and XRA 3 Corp., a Delaware corporation and a wholly-owned subsidiary of XOMA, or the Merger Sub. The Merger Agreement provides for, among other things: (i) the acquisition of all of our outstanding shares of common stock, par value $0.001 per share common stock, by XOMA through a cash tender offer, or the Offer, by Merger Sub, for a price per share of common stock of (A) $0.34, or the Cash Amount, payable subject to any applicable tax withholding and without interest, plus (B) one contingent value right, or CVR, which shall represent the right to receive potential payments, in cash, payable subject to any applicable tax withholding and without interest (such amount being the “CVR Amount", and the Cash Amount plus the CVR Amount, collectively being the “Offer Price”); and (ii) the merger of Merger Sub with and into us, or the Merger, with us surviving the Merger.

Pursuant to the terms of the Merger Agreement, as of immediately prior to the effective time of the Merger, or the Effective Time, by virtue of the Merger and without any action on the part of the holders of common stock, each outstanding share of common stock will be converted into the right to receive the Offer Price. Each option to purchase shares of common stock will be cancelled and terminated for no consideration. The vesting for each restricted stock unit, or RSU, shall be accelerated and each RSU that is then outstanding will be cancelled and, in exchange therefor, the holder of such cancelled RSU will be entitled to receive in consideration of the cancellation of such RSU (A) an amount in cash without interest, less any applicable tax withholding, equal to the Cash Amount and (B) one CVR.

At or prior to the time at which XOMA first irrevocably accepts for purchase the shares of common stock tendered in the Offer, XOMA and Merger Sub expect to enter into a CVR Agreement with a rights agent and a representative, agent and attorney-in-fact of the holders of CVRs. Each CVR holder will be entitled to the right to receive, its portion of the amount equal to (i) up to an aggregate amount for all CVR holders of $1.1 million to the extent received by us as a result of contingent payments relating to tax receivables and a lease security deposit, plus (ii) Net Cash Excess (as defined in the CVR Agreement), and minus (iii) Net Cash Shortfall (as defined in the CVR Agreement), or the CVR Proceeds. In the event that any such CVR Proceeds are received after one year following the date of the closing of the Merger, holders of the CVRs will not receive any payment pursuant to the CVR Agreement.

The right to the contingent payments contemplated by the CVR Agreement is a contractual right only and will not be transferable, except in the limited circumstances specified in the CVR Agreement. The CVRs will not be evidenced by a certificate or any other instrument and will not be registered with the SEC. The CVRs will not have any voting or dividend rights and will not represent any equity or ownership interest in XOMA, any constituent corporation party to the Merger or any of their respective affiliates. No interest will accrue on any amounts payable on the CVRs to any holders.

If the Merger is consummated, our common stock will be delisted and will no longer be quoted on Nasdaq, our obligation to file periodic reports under the Securities Exchange Act of 1934, as amended, will be suspended and we will be privately held.

Reduction in Force and No Standalone Business Plan

We are reducing our workforce while also implementing cost-containment and cash conservation measures. We intend to retain all employees essential for supporting value-realization as part of our pursuit of the Merger. As of the date hereof, we have 2 employees.

After a thorough assessment of our assets, liabilities and financial condition, particularly considering our market capitalization and our workforce reductions executed in October 2024 through July 2025, our Board has concluded that we do not have a standalone business plan and our only plan in the absence of a sale or merger is to pursue a dissolution and liquidation.

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, or 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, or 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.

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.

On June 26, 2025, we (i) entered into an Asset Purchase Agreement, or the Purchase Agreement, by and among us and Moffitt, pursuant to which we will sell certain assets related to its TIDAL-01 program in consideration for the termination of the Alliance Agreement (as defined in the Purchase Agreement), or the Asset Sale, subject to the terms and conditions of the Purchase Agreement, and (ii) entered into an Escrow Agreement, or the Escrow Agreement, by and among us, Moffitt, and Citibank, N.A., as escrow agent.

Pursuant to the terms of the Purchase Agreement, Moffitt will assume certain obligations of ours under the Myst Merger Agreement. We will receive a total consideration of approximately $3.0 million to offset our obligations to Moffitt under the Alliance Agreement, of which, approximately $1.8 million was placed into an escrow account as of the date of the Purchase Agreement (the "Escrow Account"), subject to the terms and conditions of the Escrow Agreement.

Moffitt’s obligation to closing the Asset Sale is subject to certain conditions set forth in the Purchase Agreement. Pursuant to the Merger Agreement, effective as of the Offer Closing Time (as defined in the Merger Agreement), Merger Sub shall assume all of our obligations, duties, and covenants under the Purchase Agreement. Immediately following the consummation of the Merger, Merger Sub, as the sole stockholder of ours shall duly execute a written consent pursuant to the requirements of the our governing documents and applicable law, for the adoption of the transactions, contemplate by the the Purchase Agreement. Following the consummation of the Merger, anticipated to occur in the third quarter of 2025, the Escrow Amount will be released to the us.

It is a condition to the closing of the Merger that certain conditions to the Asset Sale shall have been satisfied or, if permitted by applicable law, waived.

If the transactions contemplated by the Merger Agreement are not consummated and we fail to obtain the requisite stockholder approval for the Asset Sale, the Purchase Agreement will terminate in accordance with its terms. If the foregoing should occur or if the Purchase Agreement is otherwise terminated, including as a result of the Asset Sale not being consummated by December 26, 2025, the Escrow Amount will be released to Moffitt.

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 execution of the Merger Agreement, we discontinued all clinical studies evaluating TIDAL-01 and all nonclinical research and manufacturing activities.

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.

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 June 30, 2025 and 2024

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


	Three Months Ended June 30,
	2025			2024			Change ($)
Operating expenses:
Research and development		171			17,730			17,559
General and administrative		5,388			4,327			(1,061	)
Total operating expenses		5,559			22,057			16,498
Loss from operations		(5,559	)		(22,057	)		16,498
Other income, net		81			755			(674	)
Provision for income taxes		(12	)		(2	)		(10	)
Net loss	$	(5,490	)	$	(21,304	)	$	15,814

Research and Development Expenses

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


	Three Months Ended June 30,
	2025			2024
Pre-clinical research and development	$	(121	)	$	2,130
Manufacturing		(193	)		9,195
Clinical and regulatory		79			2,017
Personnel related		406			4,388
Total research and development	$	171		$	17,730

Research and development expenses were $0.1 million and $17.7 million during the three months ended June 30, 2025 and 2024, respectively, a decrease of $17.6 million, or 99.4%. The decrease was due to shutting down all clinical development and pursuit of a strategic transaction.

General and Administrative Expenses

General and administrative expenses were $5.4 million and $4.3 million during the three months ended June 30, 2025 and 2024, respectively, an increase of $1.1 million, or 25.6% due to the costs to the execution of our Merger Agreement and employee restructuring.

Other Income, Net

Other income, net was $0.1 million and $0.8 million during the three months ended June 30, 2025 and 2024, respectively, a decrease of $0.7 million, or 89.3% due to the decrease in interest earned on cash and cash equivalents as well as a loss on the sale of laboratory equipment of $0.2 million.

Comparison of the Six Months Ended June 30, 2025 and 2024

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


	Six Months Ended June 30,
	2025			2024			Change ($)
Operating expenses:
Research and development		4,528			33,520			28,992
General and administrative		10,195			9,228			(967	)
Total operating expenses		14,723			42,748			28,025
Loss from operations		(14,723	)		(42,748	)		28,025
Other income (expense), net		(2,559	)		1,833			(4,392	)
Provision for income taxes		(14	)		(18	)		4
Net loss	$	(17,296	)	$	(40,933	)	$	23,637

Research and Development Expenses

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


	Six Months Ended June 30,
	2025		2024
Pre-clinical research and development	$	467	$	3,496
Manufacturing		410		17,329
Clinical and regulatory		1,244		3,297
Personnel related		2,407		9,398
Total research and development	$	4,528	$	33,520

Research and development expenses were $4.5 million and $33.5 million during the six months ended June 30, 2025 and 2024, respectively, a decrease of $29.0 million, or 86.6%. The decrease was due to shutting down clinical development and pursuit of a strategic transaction.

General and Administrative Expenses

General and administrative expenses were $10.2 million and $9.2 million during the six months ended June 30, 2025 and 2024, respectively, an increase of $1.0 million, or 10.9% due to expenses related to the pursuit of a strategic transaction.

Other Income (Expense), Net

Other income (expense), net was ($2.6) million and $1.8 million during the six months ended June 30, 2025 and 2024, respectively, a decrease of $4.4 million, or 244.4% due to the decrease in cash and cash equivalents as well as a loss on the sale of laboratory equipment. 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 Los Angeles, 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 June 30, 2025.

On June 26, 2025 we entered into the Merger Agreement. We have devoted, and expect to continue to devote, substantial time and resources to complete the Merger. We expect that the Merger will close in the third quarter of 2025. There can be no assurance that the Merger will be consummated or lead to increase stockholder value, or that we will make any cash distributions to our stockholders. If the Merger is not consummated, our Board intends to pursue a dissolution and liquidation.

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. On May 14, 2025, the LSA was terminated with no amounts having been drawn and no significant termination fees incurred.

Funding Requirements

Because of the numerous risks and uncertainties associated with the status of our company and the Merger, 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 consummate our Merger Agreement and whether it is completed;

•

the amount and cost of legal and professional services required to consummate our Merger, including fees related to the engagement of a advisors; and

•

our need to continue to operate as a public company.

As of June 30, 2025 and December 31, 2024, we had cash and cash equivalents of $16.7 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 through our anticipated closing of the Merger in the third quarter of 2025. If the Merger is not consummated, our Board intends to pursue a dissolution and liquidation.

Cash Flows

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


	Six Months Ended June 30,
	2025			2024
Cash used in operating activities	$	(11,395	)	$	(33,385	)
Cash provided by investing activities		947			33,036
Cash used in financing activities		—			(48	)
Net decrease in cash and cash equivalents	$	(10,448	)	$	(397	)

Cash Flows from Operating Activities

Cash used in operating activities for the six months ended June 30, 2025 was $11.4 million, primarily due to our net loss of $17.3 million which was partially offset by the decrease in our net operating assets and liabilities of $2.5 million, changes in stock-based compensation of $0.6 million, loss on the disposal of property and equipment of $2.6 million and depreciation and amortization expense of $0.3 million.

Cash used in operating activities for the six months ended June 30, 2024 was $33.4 million, primarily due to our net loss of $40.9 million and accretion of the premium on short-term investments of $1.4 million which was partially offset by the decrease in our net operating assets and liabilities of $5.8 million, changes in stock-based compensation of $2.1 million, and depreciation and amortization expense of $1.0 million.

Cash Flows from Investing Activities

Cash provided by investing activities for the six months ended June 30, 2025 was $1.0 million, resulting from the sale of property and equipment.

Cash provided by investing activities for the six months ended June 30, 2024 was $33.0 million, due primarily to $40.0 million in maturities of short-term investments offset by the purchases of $6.7 million of short-term investments and $0.3 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 lease related to our office space. These obligations are further described in Note 12 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 June 30, 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 June 30, 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 Exchange Act. Based on that evaluation, our Principal Executive Officer and our Principal Financial and Accounting Officer have concluded that, as of June 30, 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 June 30, 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. Except for the additional risk factors set forth below, there have been no material changes to the risk factors disclosed in Item1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on March 31, 2025,and Item 1A. “Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2025 filed with the SEC on May9, 2025.

Risks Related to the Offer and the Merger

The Offer and the Merger are subject to a number of conditions beyond our control. Failure to complete the Offer and the Merger within the expected time frame, or at all, could have a material adverse effect on our business, operating results, financial condition and our share price.

On June 26, 2025, we entered into the Merger Agreement with XOMA and Merger Sub, pursuant to which, and upon the terms and subject to the conditions of, Merger Sub commenced a cash tender offer to purchase our common stock. After the completion of the Offer, the satisfaction or waiver of certain conditions set forth in the Merger Agreement and in accordance with the DGCL, Merger Sub will be merged with and into Turnstone, with Turnstone continuing as the surviving corporation and as a wholly owned subsidiary of XOMA, and pursuant to the Merger, each share of common stock that is not validly tendered and irrevocably accepted for purchase pursuant to the Offer, except as provided in the Merger Agreement, will be converted in the Merger into the right to receive an amount equal to the Merger Consideration (as defined in the Merger Agreement). Merger Sub’s obligation to accept shares of common stock tendered in the Offer is subject to conditions, including: (i) that the number of shares of common stock validly tendered (and not properly withdrawn) prior to the expiration of the Offer equals at least one share more than 50% of all shares of common stock then issued and outstanding as of the expiration of the Offer; (ii) the absence of any legal restraint preventing or prohibiting the consummation of the Offer, the Merger or any of the other transactions contemplated by the Merger Agreement; (iii) accuracy of the representations and warranties made by the Company in the Merger Agreement, subject to specified materiality qualifications; (iv) compliance by the Company with its covenants under the Merger Agreement in all material respects; and (v) the Closing Net Cash (as defined in the Merger Agreement) shall be no less than the amount specific in the Merger Agreement. The obligations of XOMA and Merger Sub to consummate the Offer and the Merger under the Merger Agreement are not subject to a financing condition.

We cannot predict whether or when the conditions to the Offer will be satisfied. If one or more of these conditions are not satisfied, and as a result, we do not complete the Offer and the Merger, we would remain liable for significant transaction costs, and the focus of our management would have been diverted from seeking other potential strategic opportunities, in each case without realizing any benefits of the Offer and the Merger. Certain costs associated with the Offer and the Merger have already been incurred or may be payable even if the Offer and the Merger are not consummated. Finally, any disruptions to our business resulting from the announcement and pendency of the Offer and the Merger, including any adverse changes in our relationships with our partners, suppliers and employees, could continue or accelerate in the event that we fail to consummate the Offer and the Merger.

Our share price may also fluctuate significantly based on announcements by XOMA, other third parties, or us regarding the Offer and the Merger or based on market perceptions of the likelihood of the satisfaction of the conditions to the consummation of the Offer and the Merger. Such announcements may lead to perceptions in the market that the Offer and the Merger may not be completed, which could cause our share price to fluctuate or decline. Other factors outside of our control, such as a governmental entity enacting a legal restraint or prohibition that prevents or prohibits the Offer or the Merger, could cause us not to satisfy the

closing condition relating to the absence of Legal Restraints (as defined in the Merger Agreement) (the Legal Restraint Condition) and thus the Offer and the Merger would not be consummated. Further, unforeseen and unexpected expenses could cause our net cash to be below the applicable threshold thus causing us to fail to satisfy the Closing Net Cash Condition.

If we do not consummate the Offer and the Merger, the price of our common stock may decline significantly from the current market price, which may reflect a market assumption that the Offer and the Merger will be consummated. Further, if we do not consummate the Offer and Merger, we will be required to seek stockholder approval to consummate the transactions contemplated by the Purchase Agreement and if such approval is not obtained in a timely manner, the $1.8 million held in escrow would be released entirely to Moffit and such amount would not be available to our stockholders in a dissolution. Any of these events could have a material adverse effect on our business, operating results and financial condition and could cause a decline in the price of our common stock.

Our stockholders may not receive any payment on the CVR and the CVR may expire valueless.

If the Offer and the Merger are completed, the holders of our common stock and RSUs will be entitled to receive one CVR per share of common stock, share of common stock underlying a RSU representing the right to receive, subject to the terms and conditions of the CVR Agreement. Each CVR will represent a contractual right to receive contingent cash payments equal to (i) up to an aggregate amount for all CVR holders of $1,110,000 to the extent received by the Company as a result of contingent payments relating to tax receivables and a lease security deposit, plus (ii) Net Cash Excess (as defined in the CVR Agreement), and minus (iii) Net Cash Shortfall (as defined in the CVR Agreement) (“CVR Proceeds”). In the event that any such CVR Proceeds are received after one year following the date of the closing of the Merger, holders of the CVRs will not receive any payment pursuant to the CVR Agreement. The CVRs will not be transferable, except in the limited circumstances specified in the CVR Agreement, will not have any voting or dividend rights, and will not represent any equity or ownership interest in us or any of our affiliates, and interest will not accrue on any amounts potentially payable on the CVRs. Accordingly, the right of any of our stockholders to receive any future payment on or derive any value from the CVRs will be contingent solely upon the receipt of CVR Proceeds between the Closing Date (as defined in the CVR Agreement) and the Expiration Date (as defined in the CVR Agreement). If no CVR Proceeds are received during this time period, then and no payments will be made under the CVRs, and the CVRs will expire valueless.

Stockholder litigation could prevent or delay the consummation of the Offer and the Merger or otherwise negatively impact our business, operating results and financial condition.

We may incur additional costs in connection with the defense or settlement of any stockholder litigation in connection with the Offer and the Merger. Any such litigation may adversely affect our ability to complete the Offer and the Merger and may impact our ability to meet the Closing Net Cash Condition. We could incur significant costs in connection with any such litigation, including costs associated with the indemnification of our directors and officers. Furthermore, one of the conditions to the consummation of the Offer and the Merger is the Legal Restraint Condition. Consequently, if a plaintiff were to secure injunctive or other relief prohibiting, delaying or otherwise adversely affecting our ability to complete the consummation of the Offer and the Merger, then such injunctive or other relief may prevent the consummation of the Offer or the Merger within the expected time frames or at all.

If the Merger is not consummated, our Board intends 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.

There can be no assurance that the Merger will be completed. If the Merger is not completed, our Board intends 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.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

Not applicable.

ITEM 6. EXHIBITS


		Incorporated by Reference
Exhibit No.	Description	Form	File No.	Exhibit	Filing Date

2.1	Agreement and Plan of Merger and Reorganization, dated December 11, 2020, between Turnstone Biologics Corp., Flatiron Merger Sub I, Inc., Flatiron Merger Sub II, LLC, Myst Therapeutics, Inc. and Timothy Langer.	S-1/A	333-272600	2.1	July 17, 2023
2.2	Agreement and Plan of Merger, dated June 26, 2025, by and among XOMA Corporation, XRA 3 Corp. and Turnstone Biologics Corp.	8-K/A	001-41747	2.1	July 1, 2025
2.3	Asset Purchase Agreement, dated June 26, 2025, by and among Turnstone Biologics Corp. and Lee Moffitt Cancer Center and Research Institute, Inc	8-K	001-41747	2.2	June 27, 2025

3.1	Amended and Restated Certificate of Incorporation of the Company.	8-K	001-41747	3.1	July 25, 2023

3.2	Amended and Restated Bylaws of the Company.	8-K	001-41747	3.2	July 25, 2023
10.1	Escrow Agreement, dated June 26, 2025, by and among Turnstone Biologics Corp., H. Lee Moffitt Cancer Center and Research Institute, Inc. and Citibank, N.A.	8-K	001-41747	10.1	June 27, 2025

31.1*	Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*+	Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document.

101.SCH*	Inline XBRL Taxonomy Extension Schema With Embedded Linkbase Documents

104*	Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

* Filed herewith.

+ Furnished herewith and not deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

SIGNATURE

Pursuant to the requirements of Section 13 or 15(d) of The Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Los Angeles, State of California, on the 8th day of August 2025.

     Turnstone Biologics Corp.

    

     /s/ Wendy Worcester

    

     Wendy Worcester

    

     Principal Financial and Accounting Officer

    