1. Nature of business and history

Genenta Science S.p.A. (the “Company” or “Genenta” - formerly Genenta Science S.r.l., a “società a responsabilità limitata” or “S.r.l,” which is similar to a limited liability company in the United States) converted to an Italian joint stock company (a “società per azioni” or “S.p.A.”) in June 2021, which is similar to a C corporation in the United States. The Company was founded in Milan, Italy by San Raffaele Hospital (“OSR”), Pierluigi Paracchi, Luigi Naldini and Bernhard Gentner, and was incorporated in July 2014. On May 20, 2021, the quotaholders (owners of the Company) resolved that the Company convert from an S.r.l. to an S.p.A. and determined that the outstanding quota be converted to 15 million ordinary shares at no par value. (See Note 10. Quotaholder’s and stockholder’s equity.) New Bylaws were adopted, two new Board members were appointed, and the existing Board of Directors and Board of Statutory Advisors were re-appointed. The registered office remained located in Milan, Italy. The Company’s reporting currency is Euros (“EUR” or “€”). In May 2021, the Company formed a wholly owned, Delaware incorporated subsidiary, Genenta Science, Inc., intended for future operations in the United States (“US Subsidiary”). The US Subsidiary operates in US Dollars (“USD” or “$”).

On December 15, 2021, the Company completed an initial public offering (“IPO”) of its ordinary shares and was listed on the Nasdaq Stock Capital Market (“Nasdaq”). Through the IPO, 3,120,114 new ordinary shares with no par value were issued. 720,114 ordinary shares were subscribed by the Company’s existing shareholders through a Reserved Offering, while 2,400,000 American Depository Shares (“ADSs”), each representing one of the Company’s ordinary shares, were offered to the public and listed on Nasdaq. Subsequently, on December 27, 2021, the Company’s underwriter exercised a portion of its “green shoe” allotment for an additional 96,744 ADSs. The total number of shares outstanding resulting at December 31, 2021 was 18,216,858. Through the IPO, approximately €29 million was raised net of listing costs (approximately €3.9 million).

Genenta is an early-stage company developing first-in-class cell and gene cancer therapies. The Company is initially developing its clinical leading product, Temferon™, to treat glioblastoma multiforme (“GBM”), a solid tumor affecting the brain. The Company intends to continue its clinical trials in Europe and eventually start a clinical trial in the United States to study Temferon™ in other cancers, possibly liver cancer.

The Company is subject to risks and uncertainties common to early-stage clinical companies in the life-science and biotechnology industries, including but not limited to, risks associated with completing preclinical studies and clinical trials, receiving regulatory approvals for product candidates, development by competitors of new competing products, dependence on key personnel, protection of proprietary technology, compliance with government regulations and the ability to secure additional capital to fund operations. The clinical product candidates currently under development will require significant additional research and development efforts, including regulatory approval and clinical testing prior to commercialization. These efforts require significant amounts of additional capital, adequate personnel and infrastructure and extensive compliance-reporting capabilities. Even if the Company’s product development efforts are successful, it is uncertain when, if ever, the Company will realize revenue from product sales and profit from operations.

Liquidity and risks

The Company has incurred losses since its inception, including a net loss of €2.1 million and €4.0 million for the six months ended June 30, 2022, and June 30, 2021, respectively. In addition, at June 30, 2022, the Company had an accumulated deficit of €29.1 million. The Company has primarily funded these losses through the proceeds from sales of convertible debt and equity quotas, prior to the Company’s conversion into an S.p.A., and then through the proceeds from its IPO. Although the Company has incurred recurring losses and expects to continue to incur losses for the foreseeable future, the Company expects that its existing cash and cash equivalents on hand as of June 30, 2022, of €34.7 million, will be sufficient to fund current planned operations and capital expenditure requirements for at least the next twelve months from the filing date of these consolidated financial statements. However, the future viability of the Company is dependent on its ability to raise additional capital to finance its operations. The Company’s inability to raise capital as and when needed could have a negative impact on its financial condition and ability to pursue its business strategies. There can be no assurance that the current operating plan will be achieved or that additional funding will be available on terms acceptable to the Company, or at all.

The Company has evaluated whether there are conditions and events considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s business model, typical of biotechnology companies developing new therapeutic products that have not reached a balanced income and financial position, features negative cash flows. This is due to the fact that, at this stage, costs must be borne in relation to services and personnel, directly connected to research and development activities, and return for these activities is not certain and, in any case, it is expected in future years. Based on the accounting policies adopted, requiring full recognition of research and development costs in the statement of operations and comprehensive loss in the year they are incurred, the Company has reported a loss since its inception, and expects to continue to incur significant research and development and clinical costs in the foreseeable future. There is no certainty that the Company will become profitable in the future.

The Company will require additional capital to meet its long-term operating requirements. It expects to raise additional capital through, among other things, the sale of equity or debt securities. If adequate funds are not available in the future, the Company may be forced to delay, reorganize, or cancel research and development and/or clinical programs, or to enter into financing, licensing or collaboration agreements with unfavorable conditions or waive rights to certain products which otherwise it would not have waived, resulting in negative effects on the activity and on the economic, patrimonial and /or financial situation of the Company.

In February 2020, the COVID-19 pandemic commenced in Italy. Regulatory guidance was issued in March 2020 and updated in April 2020 relating to the management of clinical trials during the pandemic. As the global healthcare community continues to respond to the COVID-19 pandemic, many hospitals, including the Company’s clinical sites, temporarily paused elective medical procedures, including dosing of new patients in clinical trials of our investigational gene therapies.

While dosing of new patients and data collection from enrolled patients has resumed at clinical sites, the extent to which clinical activities continue to be delayed or interrupted will depend on future developments that remain uncertain. The Company has not experienced significant interruptions related to COVID-19 or its variants.

The Company may find it difficult to enroll patients in its clinical trials, which could delay or prevent the Company from proceeding with clinical trials of its product candidates. The Company continues to closely monitor this evolving situation and the potential impact on the Company.

Quantitative and qualitative disclosure about market risk

The Company is exposed to market risks in the ordinary course of its business. Market risk represents the risk of loss that may impact the Company’s financial position due to adverse changes in financial market prices and rates. The Company’s current investment policy is conservative due to the need to support operations and, therefore, the Company invests available cash mainly in bank deposits with reputable banks that have a credit rating of at least A-. Accordingly, a substantial majority of the Company’s cash and cash equivalents is held in deposits that bear a small amount of interest. Given the current low rates of interest the Company receives, the Company will not be adversely affected if such rates are changed. The Company’s market risk exposure is primarily a result of foreign currency exchange rates, which is discussed in detail in the following paragraph.

Foreign currency exchange risk

The Company’s results of operations and cash flow may be subject to fluctuations due to changes in foreign currency exchange rates. The Company’s liquid assets and expenses are denominated in EUR and USD. (At June 30, 2022, the Company maintained $22.7 million in cash and cash equivalents.) Changes in the USD/EUR exchange rate could increase/decrease our operating expenses, especially as more costs are incurred in the United States or, as USD are exchanged for EUR to cover European operating costs. As the Company continues to grow its business, the Company’s results of operations and cash flows might be subject to significant fluctuations due to changes in foreign currency exchange rates, which could adversely impact the Company’s results of operations.

Currently, the Company has recorded an unrealized gain from exchange rate of €1.8 million. The Company has not yet determined to realize its gain from exchange rate, nor does it currently hedge its foreign currency exchange risk. In the future, the Company may enter into formal currency hedging transactions to decrease the risk of financial exposure from fluctuations in the exchange rates of its principal operating currencies. These measures, however, may not adequately protect the Company from the material adverse effects of such fluctuations.

2. Summary of significant accounting policies

3. Research and development

Research and development costs are expensed as incurred. Research and development expenses consist of costs incurred in performing research and development activities, including salaries, share-based compensation and benefits, facilities costs, third-party license fees, and external costs of outside vendors and consultants engaged to conduct clinical development activities and clinical trials, (e.g., contract research organizations [or “CROs”]), as well as costs to develop manufacturing processes, perform analytical testing and manufacture clinical trial materials, (e.g., contract manufacturing organizations [or “CMOs”]). Non-refundable prepayments for goods or services that will be used or rendered for future research and development activities are recorded as prepaid expenses. Such amounts are recognized as an expense as the goods are delivered or the related services are performed, or until it is no longer expected that the goods will be delivered, or the services rendered. In addition, funding from research grants, if any, is recognized as an offset to research and development expense based on costs incurred on the research program.

The Company annually sustains a significant amount of research costs to meet its business objectives. The Company has various research and development contracts, and the related costs are recorded as research and development expenses as incurred. When billing terms under these contracts do not coincide with the timing of when the work is performed, the Company is required to make estimates of outstanding obligations at period end to those third parties. Any accrual estimates are based on several factors, including the Company’s knowledge of the progress towards completion of the research and development activities, invoicing to date under the contracts, communication from the research institution or other companies of any actual costs incurred during the period that have not yet been invoiced, and the costs included in the contracts. Significant judgments and estimates may be made in determining the accrued balances at the end of any reporting period. Actual results could differ from the estimates made by the Company. The historical accrual estimates made by the Company have not been materially different from the actual costs. For further details, please refer to the Related Parties disclosures in Note 12 below.

4. General and administrative

General and administrative costs consist primarily of salaries, share-based compensation, benefits and other related costs for personnel and consultants in the Company’s executive and finance functions, professional fees for legal, finance, accounting, auditing, tax and consulting services, travel expenses and facility-related expenses, which include rent and maintenance of facilities and other operating costs not otherwise included in research and development expense.

5. Income taxes

The Company is subject to taxation in Italy, and with the addition of the Company’s wholly owned subsidiary in the United States, the Company is subject to taxation in the United States. Taxation in Italy includes the standard corporate income tax (“IRES”) and a regional business tax (“IRAP”). Taxation in the United States includes federal corporate income tax (“IRS”), as well as state and local taxes. Taxes are recorded on an accrual basis. They therefore represent the allowances for taxes paid or to be paid for the year, calculated according to the current enacted rates and applicable laws. In the future, the Company may be taxed in various other countries where it may have permanent establishments, as applicable. Due to the tax loss position reported, no income taxes were accrued for the six months ending June 30, 2022, and June 30, 2021, in Italy or the United States.

The Company uses the asset and liability method of accounting for deferred income taxes. Under this method, deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities, measured at tax rates expected to be enacted at the time of their reversals. These temporary differences primarily relate to net operating losses carried forward available to offset future taxable income.

At each reporting date, the Company considers existing evidence, both positive and negative, that could impact its view with regards to future realization of deferred tax assets. In consideration of the start-up status of the Company, a valuation allowance has been established to offset the deferred tax assets, as the related realization is currently uncertain. In the future, should the Company conclude that it is more likely than not that the deferred tax assets are partially or fully realizable, the valuation allowance will be reduced to the extent of such expected realization, and the corresponding amount will be recognized as income tax benefit in the Company’s consolidated statements of operations and comprehensive loss.

The Company recognizes tax liabilities from an uncertain tax position if it is more likely than not that the tax position will not be sustained upon examination by the taxing authorities, based on the technical merits of the tax position. There are no uncertain tax positions that have been recognized in the accompanying consolidated financial statements. The prior five years of tax returns (2017-2021) are potentially subject to audit.

At June 30, 2022 and June 30, 2021, the Company believes there were no significant differences with regards to its deferred tax assets and its relevant components, compared to the computations of the preceding periods.

In 2011, the Italian tax authorities issued a set of rules that modified the previous treatment of tax loss carryforwards. According to the DL 98/2011, at the end of 2011, all existing tax loss carryforwards will never expire but they can off-set only 80% of the taxable income of the year. The rules do not affect the tax loss carryforward that refer to the start-up period, defined as the first three (3) years of operations starting from the inception of the Company. The impact of the updated calculation of tax losses carryforward at December 31, 2021 and 2020 is deemed not significant with respect of the preceding periods.

The Company has analyzed its tax position by determining the amount of tax losses that can be carried forward indefinitely and has decided to accrue an allowance for related deferred tax assets as the Company is in a situation of pre-revenues that is destined to remain in the long run and there is no certainty of the future recoverability of such tax losses through tax relevant incomes. Future taxable profits for the Company depend on the manufacture of marketable drugs following the successful completion of the clinical trial. Since the clinical trial is still in Phase I/2a, the time frame and uncertainties regarding the outcome of the completion justify the full allowance of deferred tax assets.

6. Prepaid expenses and other current assets

Value Added Tax (“VAT”) receivables are linked to purchases. Italian VAT (Imposta sul Valore Aggiunto) applies to the supply of goods and services carried out in Italy by entrepreneurs, professionals, or artists and on imports carried out by anyone. Intra-Community acquisitions are also subject to VAT under certain situations. The Italian standard VAT rate for 2022 and 2021 is 22%. Reduced rates are provided for specifically listed supplies of goods and services. It is carried forward indefinitely and does not expire. During the six months ended June 30, 2022, the Company received a reimbursement of approximately €821,000 related to preceding periods of VAT tax credit. Based on the historical timing and amounts of VAT tax credit reimbursement received by the Company, at June 30, 2022, the VAT tax credit residual balance after the mentioned reimbursement, amounted to approximately €1.1 million and was recorded as a current asset, since it is expected to be collected from the tax agency within 12 months.

Tax credits on research and development represent a special tax relief offered to Italian companies operating in the research and development sector and can be used to offset most taxes payable. The Company has a total research and development tax credit available to be used of approximately €4.2 million at June 30, 2022, which can be carried forward indefinitely and does not expire. However, given the start-up status of the Company, and the fact that it will not be profitable in the foreseeable future (which limits the utilization of the credit), the Company recognized a receivable balance that represents the Company’s best estimate of the amount of tax credit that can be used in offsetting taxes payable by June 30, 2024. This estimate is consistent with the Company’s most updated cash budget utilization projections approved by the Board of Directors in July 2022. According to the budget approved, the Company’s available cash as of June 30, 2022, is deemed more than sufficient to cover the operating activities through at least the first half of 2024, without additional financing or other management plans.

During the six months ended June 30, 2022, the Company utilized approximately €306,000 to offset certain social contributions and taxes payable, while during the six months ended June 30, 2021, the Company utilized approximately €204,000. In addition, the recorded benefit for the six months ended June 30, 2022, and June 30, 2021, was approximately €706,000 and €204,000, respectively, to offset research and development expenses. The Company reclassified to other non-current assets a portion of the receivable, which is expected to be realized beyond 12 months. (See Note 8. Other non-current assets.)

Other current assets mainly relate to a tax credit recognized by the Italian Revenue Agency for approximately €180,000 that is expected to be collected in less than 12 months.

At June 30, 2022, Other prepaid expenses mainly relate to: i) the directors and officers (“D&O”) insurance policy paid in January 2022 of approximately €582,000; ii) the prepayment of Nasdaq registration fees for one year (from January 1, 2022 for €20,000); and, iii) prepaid expenses of €30,000 recorded to adjust the manufacturing expenses accrued during the six months ended June 30, 2022, for the actual statement of work confirmed by the manufacturer. Other prepaid expenses as of June 30, 2021, were comprised of miscellaneous minor prepaid expenses.

7. Property and equipment, net

Property and equipment consist of computers, an auto, and furniture and fixtures of our office space in Milan, Italy. There were no disposals, nor impairments during the periods. Depreciation has been calculated by taking into consideration the use, purpose, and financial-technical duration of the assets, based on their estimated economic lives. No significant purchases occurred during the six months ended June 30, 2022.

Depreciation expense for the six months ending June 30, 2022, and June 30, 2021, were €2,813 and €2,086, respectively.

8. Other non-current assets

VAT tax credit at June 30, 2022 is recorded in other current assets. (See Note 6. Prepaid expenses and other current assets.)

The research and development tax credit increased due to the increase in the utilization rate. (See Note 6. Prepaid expenses and other current assets.)

Other non-current assets - related party includes a security deposit of €3,350 paid to OSR - San Raffaele Hospital as security guarantee for the office lease contract. (See Note 13. Commitments and contingencies.)

9. Retirement benefit obligation

Employees in Italy are entitled to Trattamento di Fine Rapporto (“TFR”), commonly referred to as an employee leaving indemnity, which represents deferred compensation for employees in the private sector. Under Italian law, an entity is obligated to accrue for TFR on an individual employee basis payable to each individual upon termination of employment (including both voluntary and involuntary dismissal). The annual accrual is approximately 7% of total pay, with no ceiling, and is revalued each year by applying a pre-established rate of return of 1.50%, plus 75% of the Consumer Price Index, and is recorded by a book reserve. TFR is an unfunded plan. The costs of the retirement benefit obligation are accounted for under the provisions of ASC 715, Compensation – Retirement Benefits. The amount of the obligation at June 30, 2022 and December 31, 2021 was €55,192 and €30,618, respectively.

10. Stockholders’ equity

The Company was an S.r.l., which is an Italian limited liability company similar to a limited liability company in the United States. The Articles of Incorporation, Shareholders’ Agreement and the By-laws of the Company provided for different quotas, which represented the Company’s corporate capital, rather than shares of stock as ownership corporate capital. As an S.r.l., the Company’s ownership was called “corporate capital” and “quotas” rather than shares, stock, or units.

The Company had five (5) quotas:

During the six months ended June 30, 2022, no significant events occurred; however, the Company granted a nonqualified fully vested stock option on April 26, 2022, to its chairman at a price based on a sub-plan called “2021-2025 Chairman Sub-Plan. The expense was recorded in the statement of operations and comprehensive loss for the six months ended June 30, 2022, in the amount of €240,043. (See Note 2. Summary of significant accounting policies & Note 11. Share-based compensation.)

11. Share-based compensation

The Company granted options on its corporate capital to certain directors, officers, employees, and consultants, as an incentive and as additional compensation prior to the Company’s conversion to an S.p.A. All options converted into Quota B when vested and exercised. All options had an exercise price of €1.00 per quota. Options generally vested over a one-to-three-year period and have been exercised when vested.

In April 2021, €172 of quota B shares were repurchased, cancelled, and allocated to the option plan as available for grant. The Board of Directors approved new option grants on €169 of quota B and accelerated the vesting of options on €546 quota B and all options were exercised. The total of €715 quota B were issued and exercised in April 2021 with no options remaining outstanding at that time.

In May 2021, in context of the corporate conversion from a limited liability company (società a responsabilità limitata, or S.r.l.) to a joint stock company (società per azioni, or an S.p.A.), the quotaholders approved a capital increase to allow for issuance of up to 2.7 million ordinary shares, or 10% of the total outstanding ordinary shares of the Company after the IPO, in the service of a four-year employees’ share option plan, “Equity Incentive Plan 2021–2025,” (the “Plan”) that was adopted by the board of directors. The Plan is administered by the Board of Directors in consultation with the Compensation, Nomination and Governance Committee.

At June 18, 2021, the date of the Company’s conversion to an S.p.A., all stock options were granted, fully vested, exercised and converted into ordinary shares with no par value. At June 30, 2021, there were no outstanding stock options.

On April 26, 2022, 147,783 NSOs were granted to Dr. Squinto, Chairman of the Company at that time, and were fully vested and priced based on a sub-plan called “2021-2025 Chairman Sub-Plan” attached to the Plan. Total recognized expense was €240,043.

For the periods ended June 30, 2022, and June 30, 2021, the Company recorded €240,043 and €497,104, respectively, as the fair value of the stock options granted. There was no amount of unrecognized expense at June 30, 2022 and June 30, 2021, since the options vested immediately and all expense was recognized during the period. The weighted average fair value of the options granted during the six months ended June 30, 2022 and June 30, 2021 was € 1.62 per share and €1,088 per quota B respectively.

Six months ended June 30, 2022, NSOs Chairman Sub Plan - Valuation

At the Board of Directors meeting on April 26, 2022, the Company granted options on 147,783 shares to its Chairman, Dr. Squinto. The terms and conditions of this grant are as follows:

The Company calculated the stock compensation expense for the options granted to Dr. Squinto by utilizing the Black Scholes method with the following inputs:

Using the assumptions described above, the estimated fair value of options granted to Dr. Squinto on April 26, 2022 was approximately €1.62 per share.

Therefore, the expense for the fully vested shares was €240,043 ($256,222) and was recorded in the six months ended June 30, 2022.

Six months ended June 30, 2021 - Quota B Valuations

The fair value of the Quota B underlying the Company’s stock-based compensation grants had historically been determined by the Company’s board of directors, with input from management and third-party valuations. The Company believes that the board of directors has the relevant experience and expertise to determine the fair value of its Quota B, when also securing third-party assistance. Given the absence of a public trading market of the Company’s equity, and in accordance with the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately- Held Company Equity Securities Issued as Compensation, the board of directors exercised reasonable judgment and considered numerous objective and subjective factors to determine the best estimate of the fair value of the Company’s equity at each grant date. These factors include:

In valuing the Company’s Quota B class of options, the board of directors determined the equity value of the Company’s business using various valuation methods. The board of directors engaged a third-party valuation firm who performed analyses in accordance with the guidance outlined in the American Institute of Certified Public Accountants’ Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation. The Company’s option valuations were prepared using an option pricing method (“OPM”), which used market approaches to estimate the Company’s enterprise value.

The OPM treats each equity class as a call option on the total equity value of a company, with exercise prices (i.e., breakpoints) based on the value thresholds at which the allocation among the various holders of a company’s securities changes. A discount was considered for Lack of Marketability (“DLOM”), which is an amount or percentage that is deducted from the value in order to reflect the absence of a viable market. The DLOM was then applied to arrive at an indication of value for the option. Also, considered in the valuation was volatility and the fact that the Quota B class of equity did not carry voting rights. The expected volatility used in the OPM is based upon the historical volatility of a number of publicly traded companies in similar stages of clinical development.

The weighted average fair value of the options granted during 2021 was €1,088.

Weighted average shares

The calculation was performed by taking the number of shares outstanding during a given period and weighting them for the number of days that number of shares were outstanding. For the six months ended June 30, 2022, and June 30, 2021, respectively, there was a weighted average of €18,216,858 and €14,772,610 shares of the Company’s ordinary shares, no par value.

12. Related parties

Research and development expenses mainly refer to LVV (Lentiviral Vector for Gene therapy) production activities and to preclinical and clinical activities mainly at the San Raffaele Hospital in Milan. Specifically, the related party research and development expenses refer to the costs of preclinical and clinical activities charged by San Raffaele Hospital.

The increase in San Raffaele Hospital (OSR) account payables balance and accrued expenses compared to December 31, 2021, was due to a delay in the invoicing process by OSR.

The Company has identified the following related parties:

These parties could exercise significant influence on the Company’s strategic decisions, behavior, and future plans.

The following is a description of the nature of the transactions between the Company and these related parties:

Pierluigi Paracchi

Mr. Pierluigi Paracchi, President and Chairman of the Company prior to the conversion, is the current Chief Executive Officer, Vice-Chairman, as well as co-founder. His annual compensation, until December 16, 2021, amounted to €250,000 per year plus an annual performance bonus of €50,000, which was earned in the period July-June of each year payable after Board of Director’s approval. On December 17, 2021, his arrangement with the Company was changed and he became employed by the Company as chief executive officer (aka general manager in Italy), with an annual gross salary of €420,000 plus a 20% annual bonus subject to Board of Director’s approval. Mr. Paracchi also has use of a company car, for which the Company entered an operating leasing agreement in February 2022.

In April 2022, Mr. Paracchi received a bonus of €50,000 (gross amount), of which €23,000 related to the activity performed in the second half of 2021 and €37,000 related to the activity performed in the first few months of 2022.

For the six months ended June 30, 2022, the Company expensed €248,242 and €150,000, respectively, for Mr. Paracchi’s compensation.

For the six months ended June 30, 2022, the Company accrued approximately €14,000 for the retirement benefit obligation of Mr. Paracchi, as it is provided by the new employment agreement he has as an executive.

Luigi Naldini/Bernard Rudolph Gentner

Drs. Naldini and Gentner are co-founders of Genenta and part of the SAB – Scientific Advisory Board, with Dr. Naldini as Chairman, and Dr. Gentner as a member. Dr. Naldini has an advisory agreement approved by the Board of Directors and performs the pre-clinical studies for the Company. In particular, the pre-clinical experiments are in solid tumor indications. The agreement with Dr. Naldini, signed in 2019, in place during the six months ended June 30, 2022, provided for an annual fee of €50,000, and the Company expensed and paid €25,000 as of June 30, 2022, and June 30, 2021, respectively.

Dr. Gentner, like Dr. Naldini, oversees pre-clinical research related to the Company’s platform technology. In addition, he analyzes clinical biological data. The last agreement with Dr. Gentner, which is still in force, was signed in 2017. His annual fee is €30,000. For the six months ended June 30, 2022, and June 30, 2021, the Company expensed and paid €15,000, respectively.

XDG Biomed LLC/Carlo Russo

XDG Biomed is the LLC of Dr. Carlo Russo. Dr. Russo has a single contract signed by XDG and the Company that was approved by the Board of Directors and was subject to multiple amendments. In particular, Dr. Russo, via XDG, served as the Company’s Chief Medical Officer and Head of Development pre-IPO. Dr. Russo is responsible for the clinical development of Temferon™, the Company’s gene therapy platform. The recurring fee for Dr. Russo’s services until the IPO date (i.e., December 15, 2021) was €300,000 per year, plus a performance bonus of €50,000 for the period July-June of each year and payable after Board of Directors approval. From the IPO date, Dr. Russo has been employed by the US Subsidiary with the same title, role and responsibilities under a new employment agreement. The annual gross salary of Dr. Russo as an employee of the Company amounts to $500,000 per year, plus a 30% annual bonus subject to Board of Director approval.

For the six months ended June 30, 2022, and June 30, 2021, the Company expensed €215,761 and €175,000, respectively, related to Dr. Russo as an employee and XDG Biomed LCC as an advisor, respectively.

In April 2021, Dr. Russo was awarded a stock option grant, which was immediately vested and exercised, with a value accrued in the Consolidated Statement of Operations and Comprehensive Loss of €179,480.

At December 31, 2021, €25,000 was accrued as a bonus for the six months ended June 30, 2021, based on the agreement in place with XDG Biomed LLC, but subsequently during the six months ended June 30, 2022, the bonus was not approved by the Board of Directors; and therefore, reversed in the Company’s Consolidated Statement of Operations and Comprehensive Loss.

Richard Slansky

Mr. Richard Slansky is the Chief Financial Officer of the Company. He was engaged in late 2020 by the Company to assist with financial, accounting and audit support under an advisory agreement until the end of October 2021. On November 1, 2021, he joined the Company full time and has been employed as Chief Financial Officer.

During the six months ended June 30, 2021, by the advisory agreement, Mr. Slansky invoiced Genenta for €42,224.

In April 2021, Mr. Slansky was awarded a stock option grant, which was immediately vested and exercised, with value accrued in the Company’s Consolidated Statement of Operations and Comprehensive Loss of €54,388.

At December 31, 2021, a bonus was accrued, after the success of the IPO, in the amount of $50,000 and paid in early 2022.

Under the new employment agreement, which started on November 1, 2021, Mr. Slansky is entitled to receive a gross annual compensation of $300,000 per year, plus a 30% annual bonus subject to Board of Director approval.

During the six months ended June 30, 2022, the Company recorded a total cost for Mr. Slansky amounting to €173,317.

Spafid SpA

Spafid is a Genenta shareholder with an ownership greater than 5%. Spafid is also a service provider to Genenta. The engagement started on May 20, 2021, and relates to several services concerning corporate governance activities as shareholders book and shareholders meeting management, shares dematerialization and centralization, etc.

For the six months ended June 30, 2022, Spafid invoiced the Company €3,525, which was recorded in the Company’s Consolidated Statements of Operations and Comprehensive Loss as a general & administrative expense. No expenses were incurred in the six months ended June 30, 2021.

OSR – San Raffaele Hospital

OSR - San Raffaele Hospital is a co-founder of the Company and a shareholder with an ownership greater than 5%, and the Company is a corporate and research spin-off of OSR. OSR is one of the leading biomedical research institutions in Italy and Europe, with a 45-year history of developing innovative therapies and procedures. The Company has agreements to license technology, to perform research, pre-clinical and clinical activities, as well as to lease facilities and obtain certain other support functions. The Company’s headquarters is currently in an OSR facility.

License Agreement

The Company has a License Agreement with OSR entered in December 2014, for the exclusive use of different patents. In particular, OSR granted the Company an exclusive, world-wide, royalty bearing license under certain technology to conduct research and develop, make, use, import and sell licensed products. The License Agreement covers patents and patent applications, as well as proprietary technologies. The Company’s rights to use these patents and patent applications and to utilize the inventions claimed in these licensed patents are subject to the continuation of, and the Company’s compliance with, the terms of the license agreement.

Based on the preclinical studies conducted by OSR, in particular by its SR-TIGET Institute (San Raffaele Telethon Institute for Gene Therapy), on a specific gene therapy strategy with respect to lympho-hematopoietic indication and/or solid cancer indication, the Company decided to develop a new therapy to treat cancer through a cell and gene therapy strategy. The “Field of Use” as defined in the License Agreement is:

The agreement provided for an upfront fee of €250,000 (which was paid in 2015), future option fees are as follows:

¹ The Company later amended the License Agreement focusing on GBM options. The TEM-MM option fee has never been exercised and instead the related research was abandoned in early 2021.

In addition, the Company is obligated make payments on milestones depending on the Field of Use (as defined in the agreement) and pay royalties of 4% of net sales of each Licensed Product (as defined in the License Agreement).

In connection to the License Agreement, the Company engaged OSR to provide certain research activities regarding the Licensed Products in the Field of Use, based on a mutually agreed study plan and utilizing the extensive resources at OSR. (See Note 13. Commitments and contingencies.) In consideration of the research activities provided by OSR, the Company agreed to pay scientific collaboration research fees in advance. In December 2014, the Company and OSR signed a Scientific Collaboration Agreement and subsequently modified the Agreement with Research Addenda 1, 2 and 3 in 2016, 2017 and 2018, respectively. During the six months ended June 30, 2022 and June 30, 2021, there were no costs incurred for the above activities.

The protocol TEM-GBM_001 received approval by national Competent Authorities in September 2018 and recruited the first patient in April 2019.

License Agreement Amendment #2

In February 2019, the Company and OSR entered into Amendment #2 of the License Agreement to conduct a clinical trial according to the protocol TEM-GBM_001 and EudraCT 2018-001404-11 entitled: “A phase I/IIa dose escalation study evaluating the safety and efficacy of autologous CD34+ enriched hematopoietic progenitor cells genetically modified with a lentiviral vector encoding for the human interferon-α2 in patients with GBM who have an unmethylated O-6-methylguanine-DNA methyltransferase gene promoter.” In Amendment #2, the Company and OSR also revised the license fee requirement for the first Solid Cancer indication (GBM). In relation to the GBM trial, the Company and OSR agreed that the Company would be obligated to pay OSR the €1.0 million Option Fee only in the event that the Company was able to dose its tenth patient. Under this Amendment, the Company is also obligated to pay for the costs of the study-related procedures performed on the patients recruited in the trial, according to periodic study reports delivered by OSR. The first GBM patient was recruited in April 2019 and related clinical activity costs were recorded by the Company. During the six months ended June 30, 2022 and June 30, 2021, the comparable costs incurred and expensed for the GBM program were approximately €0.3 million and €0.8 million, respectively.

Under Amendment #2, the Company is obligated to cover the costs of the study-related procedures performed on the patients recruited in the Trial, according to periodic study reports delivered by OSR.

License Agreement Amendment #3

In December 2020, the Company and OSR entered into Amendment #3 of the License Agreement: The initial €1.0 million payment in the event of the tenth patient dosed in the GBM trial was reduced to €0.5 million, in exchange for the Company’s agreement to exercise a second option for an additional Solid Cancer indication (possibly Liver Cancer) and an agreement to execute a Sponsored Research Agreement in February 2021. Note: If the Company was not able to obtain approval from the competent authorities to initiate a human clinical trial on or before September 30, 2021, the Company had the right, at no additional costs, to convert this second solid cancer option to an “Alternate Indication,” i.e., an indication other than liver cancer. This right was updated in License Agreement Amendment #4 (see below).

In summary, the Amendment #3 formalized the new arrangement as follows:

At June 30, 2022, no milestones were achieved related to any indication, as provided by License Agreement and subsequent amendments; therefore, no such payments were due to OSR. The Company paid €1.25 million to OSR, since inception under the License Agreement. No events have occurred or have been achieved (and none are considered probable) to trigger any contingent payments under the License Agreement during the six months ended June 30, 2022. For information relating to the contingency payments or future milestones for these indications, please refer to Note 13 - Commitments and Contingencies.

OSR may terminate the Company’s rights as to certain fields of use for the Company’s failure to develop (a) with respect to a solid cancer indication, upon third anniversary of the date the Company exercised such option, if the Company has not filed an IND with respect to such optioned solid cancer indication specifically, as to GBM, the Company is required to file an IND regarding Temferon for GBM prior to February 2022, or (b) with respect to a lympho-hematopoietic indication, on the earlier of (i) the fifth anniversary of the initiation (first patient dosed) of the first human clinical trial for a licensed product in any lympho hematopoietic indication or solid cancer indication if a patient has not been dosed with a licensed product in a Phase 3 clinical trial, or (ii) September 1, 2025.

License Agreement Amendment #4

On September 28, 2021, the fourth amendment to the License Agreement was signed with the aim to extend the deadline for the definition of the second Solid Cancer Indication. If the Company is not able to obtain approval of the Regulatory Authorities to initiate a human clinical trial in any country with respect to solid liver cancer on or before September 30, 2022, then the Company shall have the right, at no additional cost, to convert the option exercise for the second Solid Cancer Indication to an indication (the “Alternate Indication”) other than solid liver cancer, upon written notice to OSR, such notice is to be delivered to OSR within September 30, 2022. Under the amendment, the Company will be entitled to exercise the Option set forth above with respect to any other Solid Cancer Indication for the remainder of the Option Period that will expire on December 23, 2022, and shall not be subject to further extensions.

At June 30, 2022, the cumulative total amount of expenses for the OSR clinical trial activity from inception amounted to approximately €9.0 million and it includes the cost for the exercise of the first and the second Solid Cancer indication Option fee of €1.0 million.

License Agreement Amendment #5

On January 22, 2022, the fifth amendment to the License Agreement was signed with the aim to clarify certain terms. It has been stated that solely with respect to GBM, “IND” means an investigational new drug application (including any amendment or supplement thereto) submitted to the FDA pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations. IND shall include any comparable filing(s) outside the United States of America for the investigation of any product in any other country or group of countries (such as a Clinical Trial Application, or CTA, in the European Union).

In addition, with respect to Licensed Products for GBM, Genenta commits to carry out a Phase III Clinical Trial also in US.

With respect to GBM, Genenta shall pay to OSR an additional Milestone Payment equal to €350,000 upon the first patient being dosed in a Phase III Clinical Trial in US with respect to a Licensed Product for GBM.

Moreover with regards to termination rights, if Genenta has not filed an IND with respect to such Solid Cancer Indication within three (3) years from the date of the exercise of the option (or, in relation to GBM, has not dosed the first patient with a Licensed Product for GBM in a Phase III Clinical Trial started in the US within 72 months from the first patient being dosed in the first human clinical trial of such applicable Licensed Product for GBM), the termination rights shall be limited to such Licensed Product in the Terminated Solid Cancer Indication. Any further activity on such Licensed Product in the Terminated Solid Cancer Indication shall be immediately discontinued by Genenta.

As of June 30, 2022, no milestones were achieved related to any indication, as provided by the License Agreement; therefore, no payments were due to OSR, nor other contingencies exist

Research Funding Agreement

In March 2019, the Company and OSR entered a Research Funding Agreement to conduct a clinical trial according to the multiple myeloma protocol, TEM-MM-101 and EudraCT 2018-001741-14, entitled “A Phase I/II dose escalation study evaluating safety and activity of autologous CD34+ enriched hematopoietic progenitor cells genetically modified with a lentiviral vector encoding for the human interferon-α2 in multiple myeloma patients with early relapse after intensive front-line therapy.” This agreement required OSR to perform certain clinical procedures and exploratory analyses on the study population, as per the protocol approved by the relevant competent authorities. The Company was required to fund the costs of the study-related procedures performed on patients recruited in the Trial, according to periodic study reports delivered by OSR. TEM-MM-101 received approval by national Competent Authorities in November 2018 and the first TEM-MM-101 trial patient was enrolled in August 2019.

The Company discontinued the multiple myeloma program in early 2021 due to the relatively small number of eligible patients, and the highly competitive MM landscape. (See Note 13.)

Sponsor Research Agreement (SRA)

As stated above, in exchange for a reduction in the first Solid Cancer indication option fee from €1.0 million to €0.5 million, the Company agreed to enter into a Sponsored Research Agreement (SRA). The Company and OSR executed the agreement in February 2021. Under the SRA, sponsored research activities will be conducted for between €0.5 million and €1.0 million (minimum commitment €0.5 million). The activities relate to:

For the six months ended June 30, 2022, and June 30, 2021, the Company paid and expensed €375,000 and €500,000, respectively, related to the SRA. The last tranche of activities is expected to be completed and invoiced before the end of 2022.

Amendment #01 to the Agreement of March 2, 2019

On April 27, 2022 OSR and Genenta signed this Amendment #01 as an amendment to the Agreement for Clinical Trials called: “Phase I/IIa clinical trial to assess the safety and efficacy of increasing doses of autologous CD34+ hematopoietic stem cells genetically modified with a lentiviral vector encoding for the human interferon-alpha2 gene in patients with Glioblastoma Multiforme with unmethylated MGMT gene promoter” (“Clinical Trial”) relating to protocol number TEMGBM_001; EudraCT 2018-001404-11. The Agreement will have to be updated to allocate to the TEM-GBM study the fee for the personnel shares not yet accrued and originally allocated to the TEM-MM study. Specifically, the different items and their amounts are:

During the six months ended June 30, 2022, the Company recorded expenses of €105,551 in the Consolidated Statement of Operations and Comprehensive Loss.

Operating leases

The Company entered into a non-cancelable lease agreement for office space in January 2020. (See Note 13. Commitments and contingencies.)

13. Commitments and contingencies

The Company exercises considerable judgment in determining the exposure to risks and recognizing provisions or providing disclosure for contingent liabilities related to pending litigations or other outstanding claims and liabilities. Judgment is necessary in assessing the likelihood that a pending claim will succeed, or a liability will arise and to quantify the possible range of the final settlement. Provisions are recorded for liabilities when losses are considered probable and can be reasonably estimated. Because of the inherent uncertainties in making such judgments, actual losses may be different from the originally estimated provision. Estimates are subject to change as new information becomes available, primarily with the support of internal specialists or outside consultants, such as actuaries or legal counsel. Adjustments to provisions may significantly affect future operating results.