In May 2020, the Company was awarded a grant by the Puglia region of Italy as an incentive to manufacture and carry out research and development activities in Italy (“PIA 1 Grant”), The Company recognized grant income of $0.4 million and $0.4 million in other income, net, on the accompanying condensed consolidated statements of operations during the six months ended June 30, 2022 and 2021, respectively, related to the PIA 1 Grant, of which less than $0.1 million and $0.4 million was attributable to research and development expenses and investments in facilities and equipment, respectively, during the six months ended June 30, 2022 and less than $0.2 million was attributable to both research and development expenses and investments in facilities and equipment, respectively, during the six months ended June 30, 2021. The Company recorded $5.5 million and $6.4 million of deferred income in the accompanying condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively, of which $0.8 million and $0.9 million was recorded as a current liability, respectively, as it is expected to be recognized within one year of the date of the accompanying condensed consolidated balance sheets. The Company collected zero proceeds from the PIA 1 Grant during the six months ended June 30, 2022, and recorded a grant receivable of $5.0 million and $5.4 million in the accompanying condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively.

In November 2020, the Company was awarded a second grant by the Puglia region of Italy as an incentive to manufacture and carry out research and development activities in Italy (“PIA 2 Grant”), The Company recognized grant income of $1.0 million and $1.0 million in other income, net, on the accompanying condensed consolidated statements of operations during the six months ended June 30, 2022, and 2021, respectively, related to the PIA 2 Grant, which was entirely attributable to research and development expenses. The Company has recorded $3.4 million and $3.7 million of deferred income in the accompanying condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively, of which $0.2 million and $0.4 million was recorded as a current liability, respectively, as it is expected to be recognized within one year of the date of the accompanying condensed consolidated balance sheets. The Company collected zero proceeds from the PIA 2 Grant during the six months ended June 30, 2022, and has recorded a grant receivable of $4.4 million and $3.6 in the accompanying condensed consolidated balance sheets at June 30, 2022 and December 31, 2021, respectively.

In June 2019, the Company amended and restated an existing master agreement with One (the “2019 One Amendment”), the original inventor of the Company’s core patents and a related party to the Company (see Notes 19 and 20). Under the amended and restated master agreement following this transaction, the Company eliminated certain future commercial milestone obligations and received a reduction in the percentage of royalties the Company was required to pay on future net sales. In return, One received additional consideration consisting of new future milestones upon the commercial success of new medical indications and a contingently issuable warrant for redeemable convertible preferred stock. Additionally, the Company acquired a 10% equity interest in One in exchange for cash consideration.

The Company accounted for the reduction in royalties the Company is required to pay on future net revenues that resulted from the 2019 One Amendment as an intangible asset under ASC 350, Intangibles – Goodwill and Other, which shall be amortized over its useful life, which was determined to be the earliest expiration of patents related to the underlying intellectual property in November 2028. The Company accounted for the acquisition of the 10% equity interest in One under ASC 323, Investments – Equity Method and Joint Ventures.

In connection with the acquisition of the 10% equity interest in One, the Company made a payment of $2.9 million to One shareholders during the six months ended June 30, 2022. The Company had remaining undiscounted payments of €2.5 million and €5.0 million due to One at June 30, 2022 and December 31, 2021, respectively (approximately $2.6 million and $5.7 million due to One at June 30, 2022 and December 31, 2021, respectively). The remaining payments at June 30, 2022 were recorded in accrued

expenses in the accompanying condensed consolidated balance sheets as it is expected to be settled within the next twelve months. None of the future milestones under the amended and restated master agreement, have been met, or are deemed to be probable of being met, at the transaction date or at June 30, 2022 and December 31, 2021, respectively.

A summary of the intangible asset activity that resulted from this transaction during the six months ended June 30, 2022 is as follows (in thousands):


	Intangible Assets
Intangible asset at relative fair value	$	15,564
Adjustment to record deferred tax liability		5,783
Carrying value of intangible asset at June 2019 acquisition date	$	21,347
Cumulative amortization expense		(5,667	)
Balance at December 31, 2021	$	15,680
Period amortization expense		(1,133	)
Balance at June 30, 2022	$	14,547

In October 2020, the Company further amended the terms of the agreement with One to cancels its obligation to issue a warrant for redeemable convertible preferred stock in the 2019 One Amendment for additional commercial milestone consideration and a warrant to purchase common stock. Additionally, the Company granted One a contingent call option to buy back the 10% ownership that the Company acquired in the 2019 One Amendment at an exercise price of €6.0 million (approximately $6.3 million at June 30, 2022). The call option is only exercisable upon (1) a change of control or a deemed liquidation event by the Company, as defined, in the Company’s Restated Certification of Incorporation (2) the date in which the Company’s current Chief Executive Officer is no longer affiliated with the Company in his capacity as either an executive officer or a member of the board of directors.

The One S.r.l. call option was recorded as a liability held at fair value at the date of issuance and is remeasured at each subsequent reporting date with changes in fair value recorded in other income (expense) in the accompanying condensed consolidated statements of operations. Fair value is determined using a Black-Scholes option pricing model. The significant inputs used in estimating the fair value of call option liability include the estimated fair value of the underlying stock price, expected term, risk free interest rate, and expected volatility.

The following represents a summary of the changes to Company’s One S.r.l. call option liability during the six months ended June 30, 2022 (in thousands):


Balance at December 31, 2021	$	2,416
Change in fair value		865
Foreign currency translation gain		(219	)
Balance at June 30, 2022	$	3,062

The following weighted average assumptions were used to determine the fair value of the One S.r.l. call option liability at June 30, 2022 and December 31, 2021:


	June 30,			December 31,
	2022			2021
Expected term	4.0 years			2.0 years
Expected volatility		64.0	%		62.0	%
Expected dividend yield		0.0	%	0.0%
Risk free interest rate		3.0	%		0.70	%
Estimated fair value of ownership interest	$	6,097		$	6,922
Exercise price of call option	$	6,270		$	6,806

In August 2020, the Gelesis S.r.l. entered into a loan and equity agreement with RIF, an investment fund out of the EU, whereby Gelesis S.r.l. received €10.0 million (approximately $10.4 million at June 30, 2022) from RIF as an equity investment and €15.0 million (approximately $15.7 million at June 30, 2022) as a loan with a fixed interest rate of 6.35% per annum (see Note 12). The equity investment can be called by the Company, beginning in December 2023 and ending in December 2026, by paying the investment plus 15% percent annual interest. If the Company does not exercise this call option, beginning in January 2027 and ending in December 2027, RIF may put the investment to the Company at a cost of the investment amount plus 3.175% percent annual interest. The loan has a termination date of December 31, 2030 and is repayable over 8 years starting 24 months subsequent to its issuance. Any unpaid principal and interest must be repaid upon exercise of the call option by the Company, or subsequent exercise of a put option by RIF. At June 30, 2022, RIF holds approximately 20% of the equity of Gelesis S.r.l.

The Company recorded accretion of $0.2 million and foreign currency translation gain of $0.9 million to the noncontrolling interest during the six months ended June 30, 2022. The noncontrolling interest balance was $11.1 million and $11.9 million at June 30, 2022 and December 31, 2021, respectively, in the accompanying condensed consolidated balance sheets.