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Item 8. Financial Statements and Supplementary Data

2023-03-28 compared with 2022-03-29 · 276 added, 282 removed, 374 unchanged (60% of the section changed)

44 unchanged sentences

Total current assets

Property and equipment, net

LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’

(DEFICIT) EQUITY

Property, plant and equipment, net

LIABILITIES AND STOCKHOLDERS’

Current liabilities:

2 unchanged sentences

Total current liabilities

Other liabilities

Total liabilities

Commitments and contingencies (Note 15)

Redeemable preferred stock:

Series A, $ 0.0001 par value;

14,738,948 shares authorized and 6,316,691

shares issued at December 31, 2020;

nil shares authorized or issued at

December 31, 2021

Series B, $ 0.0001 par value;

28,029,449 shares authorized and 12,012,617

shares issued at December 31, 2020;

nil shares authorized or issued at

December 31, 2021

Series C, $ 0.0001 par value;

18,181,818 shares authorized and 5,439,112

shares issued at December 31, 2020;

nil shares authorized or issued at

December 31, 2021

Total redeemable preferred stock

Stockholders’

(deficit) equity:

Common stock:

Class B convertible, $ 0.0001 par value;

10,000,000 shares authorized and

4,285,714 shares issued at December 31, 2020;

nil shares authorized or issued at

December 31, 2021

Common, $ 0.0001 par value;

74,950,215 shares authorized and 507,680

shares issued at December 31, 2020;

250,000,000 shares authorized

and 35,768,264 shares issued at December 31, 2021;

250,000,000 shares

authorized and 35,876,440 shares issued at December 31, 2022

Additional paid-in capital

1 unchanged sentence

Total stockholders’

(deficit) equity

Total liabilities, redeemable preferred stock and stockholders’

(deficit) equity

Total liabilities and stockholders’

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

1 unchanged sentence

State ments of Operations

Total revenues

Cost of revenues

Operating expenses:

3 unchanged sentences

Loss from operations

Interest and other income, net

cumulative preferred dividends earned in the period, net of forfeitures

Net loss available for distribution to common stockholders

Interest expense

Net loss per share, basic and diluted

6 unchanged sentences

Stockholders’

(Deficit) Equity

Stockholders’

1 unchanged sentence

Balance, December 31, 2020

Issuance of Class A

Common Stock upon

exercise of stock

Issuance of Series C

Redeemable Preferred

Stock, net of issuance

Stock-based compensation

6% cumulative dividends

on redeemable

Issuance of Class A Common Stock upon exercise of stock options

6% cumulative dividends on redeemable

preferred stock

Accretion of issuance costs

Issuance of common stock upon initial public offering, net of issuance cost

Conversion of Series A Redeemable Preferred Stock, with forfeited cumulative dividends

Conversion of Series B Redeemable Preferred Stock, with forfeited cumulative dividends

Conversion of Series C Redeemable Preferred Stock, with forfeited cumulative dividends

Stock-based compensation

Balance, December 31, 2021

Issuance of Class A

Common Stock upon

exercise of stock

6% cumulative dividends

on redeemable

preferred stock

Accretion of issuance costs

Issuance of common

stock upon initial

public offering, net of

issuance cost

Conversion of Series A

Redeemable Preferred

Stock, with forfeited

cumulative dividends

Conversion of Series B

Redeemable Preferred

Stock, with forfeited

cumulative dividends

Conversion of Series C

Redeemable Preferred

Stock, with forfeited

cumulative dividends

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

9 unchanged sentences

Gain on extinguishment of debt

Unrealized gain (loss) on investments, net

Accretion of issuance costs

Unrealized loss on investments, net

Reduction in the carrying amount of right-of-use asset

Changes in operating assets and liabilities:

2 unchanged sentences

Accounts payable and other liabilities

Operating lease liability

Net cash used in operating activities

1 unchanged sentence

Purchases of property and equipment

Proceeds for sale or maturities of short-term investments

Purchases of short-term investments

Purchases of long-term investments

Net cash used in investing activities

Net cash (used in) provided by investing activities

Cash flows from financing activities:

Proceeds from PPP loan

Proceeds from the sale of Series C Preferred Stock

Proceeds from initial public offering

1 unchanged sentence

Proceeds from issuance of common stock

Proceeds from issuance of debt, net

Offering costs

Net cash provided by financing activities

2 unchanged sentences

Cash and cash equivalents at the end of the period

Non-cash operating, investing and financing activities:

In-kind payment for license fee

Cumulative dividends earned, accrued and forfeited in the reporting period

Forfeiture of cumulative dividends, upon conversion of Preferred Stock

Supplemental disclosure of cash flow information:

Cash paid for interest

Noncash operating, investing and financing activities:

Forfeiture of cumulative dividends, upon conversion of all preferred stock

PPP loan forgiveness

Operating lease liabilities arising from obtaining right-of-use assets

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

4 unchanged sentences

HCW Biologics Inc.

(the “Company”) is a biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases.

(the “Company”) is a clinical-stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases.

The Company believes age-related low-grade chronic inflammation, or “inflammaging,”

1 unchanged sentence

The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018.

Reverse Stock Split

In June 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a 3-for-7 reverse stock split for all issued and outstanding common stock , redeemable preferred stock, and stock options, that was effective on June 25, 2021 (the “Reverse Stock Split”).

The number of authorized shares and the par values of the common stock and redeemable preferred stock were not adjusted as a result of the Reverse Stock Split.

The accompanying financial statements and notes to the financial statements give retroactive effect to the Reverse Stock Split for all periods presented.

On December 24, 2020, the Company entered into the Exclusive Worldwide License Agreement with Wugen Inc.

(“Wugen License”).

As a result of this transaction, as of December 31, 2020 and 2021, the Company holds a minority interest in Wugen Inc.

(“Wugen”) carried at $ 1.6 million, the fair value on the effective date of the Wugen License.

The underlying shares of common stock are not currently traded on any public market and thus have limited marketability.

These shares were subject to an anti-dilution provision based on the terms of a subsequent financing.

During the year ended December 31, 2021, the Company received additional shares in Wugen under the terms of the anti-dilution provision for no additional consideration.

The Company deemed the additional shares to be a similar instrument to those shares already held.

During the year ended December 31, 2021, the Company received cash payments of $ 2.5 million for amounts due under the terms of the Wugen License.

As of December 31, 2021, the Company had not generated any revenue from sales of its immunotherapeutic products.

As of December 31, 2022, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases.

In the course of its development activities, the Company has sustained operating losses and expects to continue to incur operating losses for the foreseeable future.

Since inception, substantially all the Company’s activities have consisted of research, development, establishing large-scale cGMP production for clinical trials, and raising capital.

On July 19, 2021, the Company’s registration statement on Form S-1 for its initial public offering (“IPO”) was declared effective by the Securities and Exchange Commission (the “SEC”).

On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $ 8.00 per share, resulting in net proceeds of approximately $ 49.2 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company.

The IPO met the provisions for mandatory conversion of all shares of redeemable preferred stock according to the designations for these securities.

As a result of the conversion, the Company issued 23,768,416 shares of common stock to the former holders of redeemable preferred stock.

In addition, as a result of conditions for mandatory conversion, the Company was relieved of its obligation to pay $ 2.8 million in cumulative dividends that were accrued and unpaid on the conversion date.

As of December 31, 2021, the Company had cash and cash equivalents of $ 11.7 million, short-term investments of $ 25.0 million held in U.S.

government-backed securities, and long-term investments of $ 9.9 million held in U.S.

government-backed securities.

The Company's total revenues to date have been generated principally from its exclusive worldwide license with Wugen, Inc.

(“Wugen”), pursuant to which Wugen licensed limited rights to develop, manufacture, and commercialize cell therapy treatments for cancer based on two of our internally-developed multi-cytokine fusion protein molecules, and its manufacturing and supply arrangement with Wugen.

In the year December 31, 2022, the Company recognized revenues o f $ 6.7 million, generated from the supply of clinical and research grade material to Wugen.

There were no revenues recognized in the comparable period in the prior year.

On August 15, 2022, the Company purchased a building as its new headquarters for $ 10.1 million and entered into a loan and security agreement, which provided a $ 6.5 million five-year loan used to finance the purchase of a building.

The remainder of the purchase price was paid in cash.

See Note 6 Debt, Net.

On August 26, 2022, the Company's $ 100.0 million shelf registration statement on Form S-3, including a prospectus for the issuance and sale of up to $ 15.5 million of shares of the Company’s common stock through an at-the-market equity program, was declared effective by the Securities and Exchange Commission (“the SEC”).

As of December 31, 2022 , the Company had $ 22.3 million in cash and cash equivalents, including money market investments, and $ 9.7 million held in U.S.

government-backed securities presented in Short-term investments.

Since inception to December 31, 2022 , the Company incurred cumulative net losses of $ 42.8 million.

Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan.

The Company intends to raise capital through the issuance of additional equity financing, sale of investment, and/or third-party collaboration funding.

The Company intends to raise capital from non-dilutive funding sources such as bank financing, out-licensing rights to technology or markets, cooperative agreements for clinical trials, or other business development transactions, which may include the issuance of additional equity financing and/or third-party collaboration funding.

However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of some of its products.

The Company expects its cash and cash equivalents and current and long-term investments in government-backed securities as of December 31, 2021 will be sufficient to fund operating expenses and capital expenditure requirements for a period of at least one year from the issuance date of the financial statements.

Summary of Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying audited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”).

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The Company has not experienced any losses on its deposits of cash and cash equivalents.

Currently all of the Company's revenues are derived from the Wugen License.

For the year ended December 31, 2020, the Company recognized revenues of $ 4.1 million, $ 1.6 million of which was consideration received in the form of shares of Wugen common stock.

These shares have limited marketability, and there was no public market on which to trade these shares as of December 31, 2021.

As of December 31, 2021, the Company received cash payments of $ 1.8 million for the sale of research and clinical-grade material, which are currently recognized as deferred revenue on the accompanying balance sheet since the criteria for revenue recognition have not been met.

For the year ended December 31, 2022, the Company recognized revenues of $ 6.7 million.

A ll of the Company's revenues were derived from the supply of clinical grade material to Wugen under the supply agreement between Wugen and the Company, as contemplated in the Wugen License.

Since December 24, 2020, the Company holds a 5.8 % equity interest in shares of Wugen common stock, which were received as consideration for the Wugen License.

The Company has not been able to realize any benefit from the sale of these shares, as they are not currently traded on any public market and thus have limited marketability.

The Company is highly dependent on a third-party manufacturer to supply drug products for its research and development activities of its programs, including clinical and non-clinical studies.

1 unchanged sentence

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

Property and Equipment, Net

Property and equipment is stated at cost less accumulated depreciation.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at cost less accumulated depreciation.

Depreciation expense is calculated using the straight-line method over the estimated useful lives of the assets, which range from 3 to 39 years.

Land is not subjected to the recording of depreciation expense because it has an infinite life.

Leasehold improvements are amortized on a straight-line method over the shorter of the useful life of the leasehold improvement or the term of the lease.

Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the accompanying balance sheets and the resulting gain or loss is recorded to the statements of operations.

Construction-in-progress represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction.

Construction-in-progress is not depreciated.

Upon completion and ready for intended use, construction-in-progress is reclassified to the appropriate category within property, plant and equipment.

Upon retirement or sale of the assets, the cost and related accumulated depreciation and amortization are removed from the balance sheet in the period in which the retirement or sale occurred, and the resulting gain or loss is recognized in the statements of operations.

Repairs and maintenance are expensed as incurred.

Depreciation of property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, as follows:

Estimated Useful Lives

Laboratory equipment

Office equipment

Furniture and fixtures

Leasehold improvements

The lesser of the lease term or life of the asset

Impairment of Long-Lived Assets

7 unchanged sentences

Preferred Stock subject to mandatory redemptions was considered a liability and measured at fair value.

Conditionally redeemable preferred stock issued by the Company was considered mezzanine or temporary equity and presented outside of the equity section of the accompanying balance sheet as of December 31, 2020.

Cumulative Dividends on Preferred Stock

The Company’s Preferred Stock earned a 6 % cumulative dividend that compounded annually, whether or not declared by the Board of Directors.

The Company considered cumulative dividends a legal obligation that should be recognized and accrued until such time as the dividends were declared and paid or liquidation occurred.

If Preferred Stock was classified as other than equity, this obligation was presented within Redeemable preferred stock.

If Preferred Stock was included within equity, this obligation was treated as a long-term liability and presented within other liabilities in the accompanying balance sheet.

As of December 31, 2020, all of the Company’s Preferred Stock was classified as other than equity, or mezzanine equity.

Holders of Preferred Stock earned cumulative dividends beginning on June 7, 2019, with the original issuance of Series B Preferred Stock.

During the year ended December 31, 2020, Series A Preferred Stock earned $ 348,490 in cumulative dividends;

Series B Preferred Stock earned $ 776,804 in cumulative dividends;

and Series C Preferred Stock earned $ 146,381 in cumulative dividends.

Upon the IPO, all of the Company’s preferred stock converted to common stock.

At that time, Series A Preferred Stock forfeited $ 753,307 of cumulative dividends;

Series B Preferred Stock forfeited $ 1,550,403 of cumulative dividends;

and Series C Preferred Stock forfeited $ 518,371 of cumulative dividends.

No dividends were declared as of the conversion date.

Conditionally redeemable preferred stock issued by the Company was considered mezzanine or temporary equity and presented outside of the equity section of the balance sheet.

Collaborative Arrangements

3 unchanged sentences

Revenue Recognition

The Company recognizes revenue when its customer or collaborator obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services.

To determine revenue recognition for arrangements that are within the scope of Topic 606, it performs the following five steps:

identify the contract(s) with a customer;

identify the performance obligations in the contract;

determine the transaction price;

allocate the transaction price to the performance obligations within the contract;

recognize revenue when (or as) the entity satisfies a performance obligation.

At contract inception, once the contract is determined to be within the scope of Topic 606 and it is probable of collection, the Company assesses the goods or services promised within the contract to determine whether each promised good or service is a performance obligation.

The promised goods or services in the Company’s arrangements may consist of a license, or options to license, the Company’s intellectual property and research, development, and manufacturing services.

The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer.

Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract.

Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation.

The Company determines the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract.

Consideration may be fixed, variable, or a combination of both.

At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received.

The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved.

The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied.

For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress.

The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition.

The Company records amounts as accounts receivable when the right to consideration is deemed unconditional.

When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded as deferred revenue.

The Company accounts for revenues in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”).

To determine revenue recognition for arrangements that fall within the scope of Topic 606, the Company performs the following five steps:

(i) identify the contract(s) with a customer;

(ii) identify the performance obligations in the contract;

(iii) determine the transaction price;

(iv) allocate the transaction price to the performance obligations in the contract;

and (v) recognize revenue when (or as) the Company satisfies a performance obligation.

The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer.

At contract inception, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct.

The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.

To date, the Company's revenues have been generated exclusively from the Wugen License, which consists of licenses of intellectual property, cost reimbursements, upfront signing fees, milestone payments and royalties on future licensee’s product sales.

In addition, the Company and Wugen have an agreement for the supply of clinical and research grade materials under which the Company also recognized revenues.

License Grants:

For out-licensing arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement.

For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

Milestone and Contingent Payments:

At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method.

If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price.

At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price.

Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event.

When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation.

Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period.

The Company’s licensees will generally pay milestones payments subsequent to achievement of the triggering event.

Materials Supply:

The Company provides clinical and research grade materials so that licensees may develop products based on the licensed molecules.

The Company plans to enter into commercialization supply agreements when licensees enter the commercial stage of their company.

The amounts billed are recognized as revenue as the performance obligations are satisfied by the Company, once the Company determines that a contract exists.

On June 18, 2021, the Company entered into a master services agreement (“MSA”) with Wugen for the supply of materials for clinical development of licensed products.

The terms set forth in the MSA were not sufficient to meet all the requirements for the Company to determine that a contract existed for a transaction.

In order for a contract to exist, additional terms for each transaction require the Company to enter into a statement-of-work (“SOW”) for each purchase.

Each of these transactions represents a single performance obligation that is satisfied over time.

The Company recognizes revenue using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company’s progress toward completion.

As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgement to determine the progress towards completion.

The Company reviews its estimate of the progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period, and makes revisions to such estimates, if facts and circumstances change during each reporting period.

For each in process SOW, amounts are billed in the same quarter the costs are incurred.

Any such revisions are recorded on a cumulative catch-up basis, noting no material revisions during the year ended December 31, 2022.

On March 14, 2022, the Company entered into SOWs with Wugen for each of the then-current and historical purchases of clinical and research grade materials under the MSA.

As a result, the Company determined that all requirements were met to qualify as contracts under Topic 606 for the related transactions covered by these SOWs.

For the year ended December 31, 2022, the Company recognized revenues related to sale of development supply materials to Wugen of $ 6.7 million.

Accounts Receivable, Net

Accounts receivable is presented net of allowances for doubtful accounts.

The method for valuing doubtful accounts is based upon historical experience coupled with a review of the current status of existing receivables.

The term between invoicing and payment due dates is not significant.

There was no allowance for doubtful accounts as of December 31, 2021 or December 31, 2022.

Deferred Revenue

1 unchanged sentence

The current portion of deferred revenue represents the amount to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying performance obligations.

As December 31, 2021, current deferred revenue includes amounts of $ 1.8 million allocated to the development supply agreement performance obligation under the Wugen License that is included within Accrued liabilities and other current liabilities.

As of December 31, 2021, current deferred revenue includes amounts of $ 1.8 million allocated to the development supply agreement performance obligation under the Wugen License that is included within Accrued liabilities and other current liabilities.

In the year ended December 31, 2022, all the criteria for revenue recognition were met and the Company recognized all of this $ 1.8 million in revenue.

There was not a deferred revenue balance as of December 31, 2022.

The Company holds a minority interest in Wugen.

3 unchanged sentences

No impairment was recognized during the years ended December 31, 2021 and 2022.

The Company invests net proceeds of its IPO in bills and notes issued by the U.S.

The Company invested net proceeds of its IPO in bills and notes issued by the U.S.

Treasury which are classified as trading securities.

As of December 31, 2021, the Company holds, $ 25.0 million in U.S.

As of December 31, 2021, the Company held $ 25.0 million in U.S.

Treasury bills included in Short-term investments and $ 9.9 million in U.S.

Treasury notes included in Investments in the accompanying balance sheet.

Treasury notes included in Investments in the balance sheet included in the audited financial statements.

As of December 31, 2022, the Company held $ 9.7 million in U.S.

Treasury bills included in Short-term investments in the balance sheet included in the audited financial statements.

Operating Leases

The Company determines if an arrangement is a lease at inception.

Operating leases right of use (“ROU”) assets are included in Other assets, and operating liabilities are included in Accrued liabilities and other current liabilities, and Other liabilities on the balance sheets included in the audited financial statements.

ROU assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date.

As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments.

The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred.

The Company has a lease agreement with lease and non-lease components, which are accounted for separately.

Research and Development Expenses

1 unchanged sentence

The Company may perform research and development for its own proprietary drug candidates and technology development or for certain third parties under collaborative arrangements.

For its proprietary drug candidates and its internal technology development programs, the Company invests its own funds without reimbursement from a third party.

For its proprietary drug candidates and its own internal technology development programs, the Company invests its own funds without reimbursement from a third party.

Where the Company performs research and development activities under a clinical joint development collaboration, it records the partner’s share of collaboration expenses as a reduction to research and development expense when reimbursement amounts are due under the agreement.

12 unchanged sentences

Such increases or decreases in cost are generally considered to be changes in estimates and will be reflected in research and development expenses in the period identified.

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the accompanying statements of operations, and expensed as incurred since recoverability of such expenditures is uncertain.

Costs related to filing and pursuing patent applications are recorded as general and administrative expenses in the statement of operations and expensed as incurred, since recoverability of such expenditures is uncertain.

Stock-based Compensation

The Company measures its stock-based awards granted to employees and directors based on the estimated fair value of the option on the date of grant (grant date fair value) and recognizes compensation expense over the vesting period.

Compensation expense is recorded as either research and development or general and administrative expenses in the accompanying statements of operations based on the function to which the related services are provided.

Compensation expense is recorded as either research and development or general and administrative expenses in the statement of operations based on the function to which the related services are provided.

Forfeitures are accounted for as they occur.

6 unchanged sentences

For stock option grants with service-based vesting, stock-based compensation expense represents the portion of the grant date fair value of employee stock option grants recognized over the requisite service period of the awards on a straight-line basis, net of estimated forfeitures.

For options that vest upon the achievement of performance milestones, the Company estimates fair value at the date of grant and compensation expense is recognized using the accelerated attribution method when it is determined that the performance criteria is probable of being met.

Deferred Offering Costs

The Company defers offering costs consisting of legal, accounting and other fees and costs directly attributable to its IPO.

The deferred offering costs will be offset against the proceeds received upon the completion of the IPO.

Deferred offering costs will be recorded under other non-current assets on the accompanying balance sheets.

In the event the IPO is terminated, all of the deferred offering costs will be expensed within the Company’s statements of operations.

As of December 31, 2020, there were no deferred offering costs recorded on the accompanying balance sheets.

As of December 31, 2021, deferred offering costs related to underwriting discounts and commissions and offering expenses of $ 6.8 million were offset against IPO proceeds upon the consummation of the IPO.

Debt issuance costs are presented in the balance sheet as a direct deduction from the carrying amount of the related debt and are amortized, using the effective interest method, as interest expense over the contractual life of the related debt.

The Company defers offering costs consisting of legal, accounting and other fees and costs directly attributable to offering costs.

For offerings expected to occur within 90 days, the deferred offering costs will be offset against the proceeds received upon the completion of the offering.

Deferred offering costs will be recorded under Other noncurrent assets on the balance sheet.

In the event an offering is terminated or the timing for completing the offering is uncertain, all of the deferred offering costs will be expensed within the Company’s statement of operations in the period in which the determination is made.

In the year ended December 31, 2021, the Company incurred $ 6.8 million of deferred offering costs in connection with its $ 56.0 million IPO which was declared effective by the SEC on July 19, 2021.

In the year ended December 31, 2022, the Company expensed $ 190,547 of deferred offering costs in connection with its $ 100.0 million shelf registration statement on Form S-3, including a prospectus for the issuance and sale of up to $ 15.5 million shares of the Company's common stock through an at-the-market program, which was declared effective by the SEC on August 26, 2022.

The Company accounts for income taxes using an asset and liability approach in accordance with applicable guidance prescribed by FASB issued ASC 740, Income Taxes (“Topic 740”).

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Tax Credit Receivable

The Company is eligible for research and development credits for its research and development activities, in accordance with Internal Revenue Code (“I.R.C.”) § 41(c).

The Company may be eligible for research and development credits for its research and development activities, in accordance with Internal Revenue Code (“I.R.C.”) § 41(c).

The credits are generally available to offset income tax liabilities.

The Company has applied approximate ly $ 250,000 o f research and development credits to offset its federal payroll tax expenses for both years ended December 31, 2020 and 2021, due to its small business status.

As of December 31, 2020 and 2021, the current portion of outstanding payroll tax receivables is recorded in Other current assets in the accompanying balance sheets and the noncurrent portion is recorded in Other noncurrent assets.

The Company has applied approximately $ 250,000 of research and development credits to offset its federal payroll tax expenses for the year ended December 31, 2021, due to its small business status.

As of December 31, 2021 and 2022 , the current portion of outstanding payroll tax receivables is included in Other current assets in the balance sheet, and the noncurrent portion is included in Other noncurrent assets.

Net Loss Per Share

5 unchanged sentences

Recently Issued Accounting Pronouncements

In June 2016, FASB issued Accounting Standards Update (“ASU”) No.

2016-13, Financial Instruments—Credit Losses:

Measurement of Credit Losses on Financial Instruments , as clarified in subsequent amendments to the initial guidance (collectively, “Topic 326”).

Topic 326 requires measurement and recognition of expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecast.

The Company adopted Topic 326 using a modified retrospective approach which requires a cumulative effect adjustment as of the beginning of the reporting period in which the guidance is adopted.

Topic 326 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted.

The Company adopted Topic 326 effective January 1, 2020.

The adoption did not have a material impact on our financial statements.

In February 2016, the FASB issued ASU No.

2016-02, Leases (“Topic 842”), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases.

The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases.

Topic 842 is effective for the Company in the fiscal years beginning after December 15, 2021, with early adoption permitted.

The Company will adopt Topic 842 for the fiscal year ended December 31, 2022.

The Company plans to use a practical expedient provided by FASB, and it will not recast comparative periods to reflect the impact of the new lease standard.

Effective March 1, 2022, the Company entered into a non-cancelable operating lease for its current location with a two-year term.

This is the only lease in scope of Topic 842.

The Company expects accounting for the new lease under Topic 842 will materially affect the reported amount of total assets and total liabilities within the balance sheet, but it does not expect a material impact to the statement of operations .

Property and Equipment, Net

Property and equipment, net consists of the following:

The Company adopted Topic 842 as of January 1, 2022.

Effective March 1, 2022, the Company entered into noncancelable operating leases for its current location with a two-year term.

These are the only leases in scope of Topic 842 or above the Company's capitalization threshold.

“Commitments and Contingencies - Operating Leases.”

Property, Plant and Equipment, Net

Property, plant and equipment, net consists of the following:

At December 31,

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Leasehold improvements

Construction in progress

Accumulated depreciation and amortization

Property and equipment, net

Property, plant and equipment, net

Construction in progress, and it represents direct costs of construction incurred for the Company’s new research lab and manufacturing facilities.

Depreciation and amortization expense for the year ended December 31, 2021 was $ 543,598 of which $ 353,388 is included in research and development expenses.

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The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, U.S.

government backed securities with maturity dates up to one year, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities.

government backed securities with maturity dates up to one year, accounts payable and accrued liabilities, are measured at approximate fair value due to their short-term maturities.

Money market funds included in cash and cash equivalents and U.S.

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Money market funds

Investment in Wugen

Treasury bills

Treasury notes

At December 31, 2022:

Money market funds

Treasury bills

Treasury notes

As of December 31, 2020, Investments consisted of a balance of $ 1.6 million.

In December 2020, the Company entered into the Wugen License for limited rights to develop, manufacture and commercialize cellular therapy products based on two of the Company’s fusion protein molecules.

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So long as there continues to be no public market for these securities, the Company will classify this asset as a cost method investment, recorded at cost less impairment adjusted for observable market changes.

As of December 31, 2021, Investments had a balance of $ 11.5 million in the accompanying balance sheet, consisting of $ 1.6 million for the investment in Wugen, which the Company continues to carry at cost since no public market exists for these securities, and no impairment adjusted was necessary.

In addition, Investments include $ 9.9 million in U.S.

Treasury notes as of December 31, 2021.

As of December 31, 2021, Investments had a balance of $ 11.5 million in the balance sheet included in the audited financial statements, consisting of $ 1.6 million for the investment in Wugen, which the Company continues to carry at cost, since no public market exists for these securities, and no impairment adjusted was necessary, and $ 9.9 million in U.S.

Treasury notes .

These securities are classified as trading securities.

Related Party Transactions

As of December 31, 2020, related parties held capital stock in the Company.

The Company's Founder and Chief Executive Officer, Hing C.

Wong, PhD., held all Class B Common Stock and Series A Preferred Stock issued by the Company.

In addition, Dr.

Wong purchased shares of Series B Preferred Stock and Series C Preferred Stock on the same terms and conditions for third-party investors.

All shares of Preferred Shares held by Dr.

Wong earned cumulative dividends.

During the year ended December 31, 2021, all shares purchased by Dr.

Wong prior to the IPO were converted to common stock, and the Company was relieved of its obligation to pay cumulative dividends on Preferred Shares that were accrued and unpaid as of the conversion date.

Wong purchased additional shares of the Company's common stock in the IPO and in the open market post IPO, in compliance with SEC regulations and the Company's insider trading policies.

As of December 31, 2022, Investments had a balance of $ 1.6 million, reflecting the investment in Wugen, whic h the Company continues to carry at cost since no public market exists for these securities and no impairment adjustments have been necessary since the acquisition date.

Accrued Liabilities and Other Current Liabilities

In May 2020, the Company received an SBA Paycheck Protection Loan (“PPP loan”) in the principal amount of $ 563,590 .

As of December 31, 2020, the Company had $ 845,741 of Accrued liabilities and other current liabilities, primarily consisting of the PPP loan of $ 567,311 , including principal and accrued but unpaid interest, and accrued liabilities of $ 273,907 .

As of December 31, 2021, the Company had a balance of $ 2.1 million in Accrued liabilities and other current liabilities, consisting of $ 1.8 million related to deferred revenue, $ 48,750 related to manufacturing materials, $ 51,000 related to legal fees, and $ 50,000 for other expenses.

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The Company accounted for the PPP loan as debt, and the loan forgiveness was accounted for as a debt extinguishment.

The amount of loan and interest forgiven is recognized as a gain upon debt extinguishment and is reported within Interest and other income, net in the accompanying statement of operations for the year ended December 31, 2021.

The amount of loan and interest forgiven is recognized as a gain upon debt extinguishment and is reported within Other income, net in the statement of operations included in the audited financial statements for the year ended December 31, 2021.

As of December 31, 2022, the Company had a bala nce of $ 1.7 million included in Accrued liabilities and other current liabilities in the balance sheet included in the audited financial statements, consisting of $ 416,000 for legal expenses, $ 277,500 for clinical expenses, $ 524,000 in bonus expenses, $ 134,000 in salary expenses, and $ 178,000 in lease liability.

On August 15, 2022, the Company entered into a loan and security agreement (the “2022 Loan Agreement”) with Cogent Bank (“Cogent”), pursuant to which it received $ 6.5 million in gross proceeds to purchase a building that will become the Company's new headquarters.

The loan is secured by a first priority lien on the building.

The Company is in compliance with all covenants as of December 31, 2022.

As of December 31, 2022, the Company had $ 6.5 million in gross principal outstanding in a loan under the 2022 Loan Agreement.

An interest-only period is one year followed by 48 months of equal payments of principal and interest beginning on September 15, 2023 based on a 25-year amortization rate.

The unamortized balance is due on August 15, 2027 (the “Maturity Date”), and bears interest at a fixed per annum rate equal to 5.75 %.

Upon the Maturity Date, a final payment of unamortized principal will be due.

The Company has the op tion to prepay the outstanding balance of the loan prior to the Maturity Date without penalty.

As of December 31, 2022, the current portion of $ 38,273 is included in Accrued liabilities and other current liabilities, and the noncurrent portion of $ 6.4 million is included in Debt, net in the balance sheet included in the audited financial statements.

The Company classifies the total undiscounted contractual payments that are due in the next 12 months as current.

The loan was initially measured on a present value basis.

An amortization schedule is used to determine how much of each payment is applied to interest and principal each period.

The payment is first applied to interest, and the remainder reduces the principal balance.

The table below shows the amount of maturities for each of the five years following the date of the latest balance sheet:

Maturities per Year

License Agreement

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The term of the agreement will expire on a product-by-product and country-by-country basis, upon the later of (i) ten years from the first commercial sale of the product or (ii) the expiration of the last-to-expire valid patent claim of such product.

The Company retained regulatory T cell-based cellular therapy, injectable rights, and manufacturing rights, not granted to Wugen under the terms of the Wugen License.

The Company and Wugen will enter into two supply agreements under industry-standard terms, under which the Company will provide cGMP and non-cGMP grade materials, including a development supply agreement and a commercial supply agreement.

According to the terms of the agreement, Wugen will fund all future clinical development and commercialization activities for cellular therapy treatments for any indications utilizing the licensed fusion protein molecules covered by the Wugen License.

In January 2021, two Phase 2 clinical trials related to treatment for relapsed / refractory acute myeloid leukemia based on one of the licensed molecules were initiated by the School of Medicine at Washington University in St.

Louis and supported by Wugen.

The Company concluded that Wugen is a customer and the Wugen License is a functional license under the provisions of Topic 606.

The Company identified the following performance obligations at the inception of the agreement:

Provide Wugen with exclusive worldwide license rights for certain fusion proteins.

Sell vials of HCW9201 clinical grade product available immediately.

Transfer R&D know-how.

Supply of cGMP and non-cGMP grade materials for development.

Supply of cGMP grade materials for commercialization.

For the year ended December 31, 2020 the Company recognized $ 4.1 million for performance obligations satisfied in the period.

This is the first time the Company has entered into an out-license arrangement and the first time the Company has established prices for its goods and services.

Accordingly, the standalone selling price of the various performance obligations is uncertain, and the Company determined that an observable standalone selling price is not available for the identified performance obligations under the Wugen License.

Where a standalone selling price is not directly observable, then the Company estimates the standalone selling price considering marketing conditions, entity-specific factors, and information about the customer that is reasonably available.

The process for determining a standalone selling price involves significant judgment and includes consideration of multiple factors, including assumptions related to the market opportunity and the time needed to commercialize a product candidate pursuant to the relevant license, estimated direct expenses and other costs.

The Company first determined the standalone selling price of $ 2.5 million for the vials of HCW9201 and the R&D know-how.

The price was determined based on the cost of developing the know-how and the costs incurred in producing the vials.

The standalone selling price for the license was determined using the residual approach and was priced at $ 1.6 million.

As of December 31, 2020, the Company and Wugen had not finalized the development supply agreement.

Therefore, there was no contract for purchase of materials during Wugen's development phase.

The Company will defer recognition of revenues and costs for supply of materials during development until a contract is in place.

The commercial supply agreement will be entered into in the future, pursuant to the terms of the Wugen License.

For the year ended December 31, 2021, the Company entered into a master services agreement with Wugen related to the development supply agreement to provide cGMP and non-cGMP grade licensed material based on industry-standard terms.

However, as of December 31, 2021, the Company and Wugen have not finalized any statements of work under the master services agreement, thus no contract exists.

Until such time that the Company enters statements of work for Wugen orders related to licensed material for clinical development, the Company will defer recognition of revenues.

The Wugen License includes milestone payments and royalties.

However, as of December 31, 2021, the Company and Wugen did not finalize any statements of work under the master services agreement, thus no contract exists.

In addition to upfront fees and revenues from other transactions that took place upon entering the Wugen License, the Wugen License includes milestone payments and royalties.

The Company uses judgment to determine whether milestones or other variable consideration should be included in the transaction price.

For revenue-based royalties, including milestone payments based on the level of sales, the Company will include royalties in the transaction price at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalty is allocated has been satisfied (or partially satisfied).

As part of management’s evaluation of the transaction price, the Company considers numerous factors, including whether the achievement of the milestones is outside of our control, contingent upon the efforts of others or subject to scientific risks of success.

For revenue-based royalties, including milestone payments based on the level of sales, the Company will include royalties in the transaction price at the later of (i) when the related sales occur, or (ii) when the performance obligation to which some or all of the royalties are allocated has been satisfied (or partially satisfied).

As part of management’s evaluation of the transaction price, the Company considers numerous factors, including whether the achievement of the milestones is outside of its control, contingent upon the efforts of others or subject to scientific risks of success.

If the Company concludes it is probable that a significant revenue reversal would not occur, the associated milestone payment is included in the transaction price.

Milestone payments that are not within our control, such as regulatory approvals, are generally not considered probable until those milestones are achieved.

Milestone payments that are not within its control, such as regulatory approvals, are generally not considered probable until those milestones are achieved.

The Company reevaluates the transaction price, including estimated variable consideration included in the transaction price and all constrained amounts, in each reporting period and as uncertain events are resolved or other changes in circumstances occur.

As of December 31, 2022, the estimated revenue expected to be recognized in the future related to performance obligations that are partially unsatisfied as of December 31, 2022 is approximately $ 1.8 million.

The Company expects to recognize this amount within the next 12 months .

Redeemable Preferred Stock

In a series of closings which took place in 2020, the Company completed the private placement of Series C Preferred Stock.

The terms of the redeemable preferred stock provided for an adjustment to the conversion price upon the occurrence of certain transactions or events, such as stock splits, split-up, certain dividends, or distributions.

Cumulative dividends accrued whether or not declared by the Board of Directors.

Giving effect to the Reverse Stock Split, a total of 5,439,112 shares of Series C Preferred Stock were issued at $ 2.05 per share, for $ 11.2 million, net of offering costs.

The Company’s Series C Preferred Stock was convertible into shares of Class A common stock and earned cumulative dividends at a rate of 6% per annum and compound annually until converted or redeemed.

On July 22, 2021, the Company closed on its IPO, and the requirements for mandatory conversion were met.

All outstanding shares of Series A, Series B, and Series C Preferred Stock converted into an equal number of shares of common stock.

As a result, the rights, preferences, and terms ascribed to these shares are no longer applicable.

Cumulative dividends of $ 2.8 million accrued as of the conversion date were forfeited and such forfeiture was recognized through Additional paid-in capital.

At December 31, 2021, the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

Upon the IPO on July 19, 2021, all of the Company’s outstanding preferred stock converted to common stock.

Cumulative dividends of $ 2.8 million accrued as of the conversion date were forfeited and such forfeiture was recognized through Additional paid-in capital in the statements of changes in redeemable preferred stock and stockholders' (deficit) equity included in the audited financial statements.

No dividends were declared from inception to the date of the conversion.

At December 31, 2021 and December 31, 2022, the Company had 10,000,000 shares of preferred stock authorized and no shares issued.

Net Loss Per Share

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Years Ended December 31,

cumulative preferred dividends earned in the

period, net of forfeitures

Net loss available for distribution to common stock

Weighted-average common shares outstanding

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The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

As of December 31,

Redeemable Preferred Stock

At December 31,

Common stock options

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Under the 2021 Plan, the Company continues to have a policy to grant options with an exercise price equal to the fair value of a share of common stock, as determined by the closing price on NASDAQ on the grant date.

The following summarizes the Company’s stock option activity for the year ended December 31, 2021:

The following summarizes the Company’s stock option activity for the years ended December 31, 2021 and 2022:

Weighted Average

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Exercisable at December 31, 2022

The aggregate intrinsic value is calculated based on the difference between the exercise price of the underlying stock options and the fair value of the Company’s common stock for stock options as of the reporting date.

The intrinsic value of stock options exercised during the years ended December 31, 2021 and 2022 was $ 447,115 and $ 231,301 , respectively.

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In determining the grant date fair value of the stock-based awards, the Company uses the Black-Scholes option-pricing model and assumptions discussed below.

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Since the completion of our initial public offering on July 19, 2021, the fair value of each share of common stock underlying stock option grants is based the quoted market price on the primary stock exchange on which our common stock is traded on the day the stock award or option is granted.

Expec t ed term —The expected term of stock options is determined using the “simplified”

Expected term —The expected term of stock options is determined using the “simplified”

method, whereby the expected life equals the arithmetic average of the vesting term and the original contractual term of the option due to the Company’s lack of sufficient historical data.

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Fair value underlying common stock

For the year ended December 31, 2020, for options with service-based vesting conditions, the Company recognized $ 9,590 of employee stock-based compensation expense in research and development expenses and $ 12,285 of employee stock-based compensation in general and administrative expenses in the accompanying statements of operations.

For the year ended December 31, 2021, for options with service-based vesting conditions, the Company recognized $ 25,239 of employee stock-based compensation expense in research and development expenses and $ 335,736 of employee stock-based compensation in general and administrative expenses in the accompanying statements of operations.

As of December 31, 2020, the Company had an aggregate of $ 103,045 of unrecognized employee stock-based compensation cost for options with service-based vesting, which is expected to be recognized over a weighted average vesting period of 5.12 years.

As of December 31, 2020 and 2021, there was no unrecognized employee stock-based compensation cost for options with performance-based vesting conditions, as no performance-based options were unvested.

For the years ended December 31, 2020 and 2021, the Company recognized an aggregate of $ 6,750 and nil of employee stock-based compensation cost, respectively, for options with performance-based vesting conditions which vested immediately upon achieving the performance target, respectively.

For the year ended December 31, 2022, for options with service-based vesting conditions, the Company recognized $ 62,473 of employee stock-based compensation expense in research and development expenses and $ 1,057,718 of employee stock-based compensation in general and administrative expenses in the statement of operations included in the audited financial statements.

As of December 31, 2022 , the Company had an aggregate of $ 2.7 million of unrecognized employee stock-based compensation cost for options with service-based vesting, which is expected to be recognized over a weighted average vesting period of 2.51 years.

As of December 31, 2021 and 2022 , there was no unrecognized employee stock-based compens ation cost for options with performance-based vesting conditions, as no performance-based options were unvested.

For the years ended December 31, 2021 and 2022 , the Company did no t recognize any employee stock-based compensation cost for options with performance-based vesting for which vesting had occurred.

Employee Benefit Plan

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State net operating loss carryforward

Capitalized section 174 R&D expenses

Accrued expenses

Capitalized legal fees for patents

Stock-based compensation

Charitable Contributions

Deferred rent

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Deferred revenue

Net deferred tax assets

Deferred tax liabilities:

Depreciable assets

Net deferred tax liabilities

Net deferred tax assets

valuation allowance

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During the year ended December 31, 2022 , the valuation allowance increased by $ 4.2 million.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security (“CARES”) Act was enacted and signed into law.

Certain provisions of the CARES Act could impact the 2019 income tax provision computations of the Company and will be reflected in the period of enactment (tax year 2020).

The CARES Act, among other things, contains modifications on the limitation of business interest expense under Section 163(j), allow for net operating loss ("NOL") carryovers and carrybacks to offset 100 % of taxable income for taxable years before 2021, and includes a technical correction to the TCJA with respect to Qualified Improvement Property ("QIP") where such property has a 15-year recovery period for purposes of the general depreciation system of Section 168(a).

The Company is currently evaluating the impact of the CARES Act, and aside from the 15-year QIP technical correction, it believes that none of other modifications or tax law changes will result in any material benefit or apply.

As of December 31, 2020 and 2021, the Company had available federal NOL carryforwards of $ 14.8 million and $ 26.1 million.

As of December 31, 2021 and 2022 , the Company had available federal NOL carryforwards of $ 26.1 million and $ 31.3 million, respectively.

The Company also has available state NOLs carryforwards of approximately $ 26.8 million and $ 32.5 million, as of December 31, 2021 and 2022 , respectively.

The federal and state NOLs will carry forward indefinitely and be available to offset up to 100 % of taxable income for taxable years before 2021 and 80 % of taxable years staring after 2020.

In addition, the Company had federal research and development credits carryforwards of $ 133,015 and $ 218,015 , as of Decem ber 31, 2020 and 2021, respectively, to reduce future federal income taxes, if any.

The federal and state NOLs will carry forward indefinitely.

The Federal NOLs are available to offset 80 % of taxable income.

In addition, the Company had federal research and development credits carryforwards of

$ 218,015 and $ 720,165 , as of December 31, 2021 and 2022 , respectively, to reduce future federal income taxes, if any.

These carryforwards expire from 2038 through 2042 and are subject to review and possible adjustment.

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Such annual limitations could affect the utilization of NOL and tax credit carryforwards in the future.

Effective for tax years beginning after December 31, 2021, Section 174 requires that research and experimental expenses (“R&E”) be capitalized and amortized.

The amortization period is five years for domestic expenses and 15 years for foreign expenses.

Since the Company has a significant amount of expenses that fall under the definition of R&E expenses, the change can materially affect the Company's tax provision.

During the year ended December 31, 2022, the Company analyzed its expenses and determined that expenses of $ 9.2 million fell within the definition of Section 174.

Accordingly, these expenditures were capitalized and amortized for tax purposes.

As of December 31, 2022, the Company had $ 864,179 of amortization expense related to Section 174 capitalized R&E costs .

The Company’s tax returns remain subject to examination by tax authorities beginning with the tax year ended December 31, 2019.

However, due to NOLs and credits carried forward from prior tax years, substantially all tax years may also be subject to examination.

The Company recognizes the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon review by the taxing authorities based on the technical merits.

The Company recognizes interest accrued and penalties for unrecognized tax benefits in its tax provision.

As of December 31, 2021, and 2022, the Company had no t recognized any expense related to uncertain tax position in its statement of operations.

Related Party Transactions

The Company's Founder and Chief Executive Officer, Hing C.

Wong, PhD., held all Class B Common Stock and Series A Preferred Stock issued by the Company.

In addition, Dr.

Wong purchased shares of Series B Preferred Stock and Series C Preferred Stock on the same terms and conditions for third-party investors.

All shares of Preferred Shares held by Dr.

Wong earned cumulative dividends.

During the year ended December 31, 2021, all shares purchased by Dr.

Wong purchased additional shares of the Company's common stock in the IPO and in the open market post IPO, in compliance with SEC regulations and the Company's insider trading policies.

Commitments and Contingencies

The Company leases its operating facilities in Miramar, Florida under non-cancelable operating lease agreements and a short-term sublease agreement for additional office space.

Rent expense is recognized for leases with increasing annual rents on a straight-line basis over the term of the lease.

The amount of rent expense in excess of cash payments is classified as deferred rent.

Lease incentives received are deferred and amortized over the term of the lease.

The future minimum payments for the lease and sublease agreements at December 31, 2021 are as follows:

2022 (remaining 2 months)

For the year ended December 31, 2020 and 2021, rental expense, including common area maintenance costs, recognized by the Company was $ 183,943 and $ 208,348 , of which $ 82,971 and $ 100,457 , respectively, are included in Research and development, in the accompanying statements of operations.

Operating Leases

The Company has operating leases for approximately 12,250 square feet of space located in Miramar, Florida.

The leases have a two-year term which commenced on March 1, 2022 and will terminate on February 29, 2024 .

Upon the commencement of the leases, the Company used its incremental borrowing rate of 6.0 % to determine the amounts to recognize for a ROU asset and a lease liability.

There are no obligations under finance leases.

The components of the lease expense for the year ended December 31, 2022 were as follows:

For the Year Ended December 31, 2022

Operating lease cost

Supplemental cash flow information related to lease for the twelve months ended December 31, 2022 was as follows:

For the Years Ended December 31, 2022

Cash paid for amounts included in the measurement of lease liabilities:

Operating cash flows

Right-of-use assets obtained in exchange for lease obligations:

Operating lease

As of December 31, 2022, the supplemental balance sheet information related to leases was as follows:

As of December 31, 2022

Operating lease right-of-use assets

Other current liabilities

Operating lease liabilities, net of current portion

Total operating lease liabilities

As of December 31, 2022, the remaining lease payments were as follows:

Total future minimum lease payments

For the years ended December 31, 2021 and 2022 , rent expense recognized by the Company was $ 208,300 and $ 187,600 , respectively, of which $ 108,000 and $ 86,000 , respectively, is included in research and development in the statements of operations included in the audited financial statements.

Certain comparative figures have been reclassified to conform to the current year presentation under Topic 842 for rent expense.

Contractual Commitments

During the year ended December 31, 2021, the Company entered into several agreements with a third-party global contract development and manufacturer of biologics for the manufacture of the Company’s proprietary molecules for use in clinical trials.

At December 31, 2020, the future minimum payments under such agreements were $ 3.9 million.

The Company entered into several agreements with a third-party global contract development and manufacturer of biologics for the manufacture of the Company’s proprietary molecules for use in clinical trials.

At December 31, 2021, future payment obligations under such agreements were $ 2.5 million of which approximately $ 181,600 was paid in January 2022.

Management has no knowledge of any pending or unasserted claims against the Company.

In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and the world.

The spread of COVID-19 has caused significant volatility in the U.S.

and international markets.

There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S.

and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations.

Future payment obligations of $ 406,000 under such agreements will be paid by the year ending December 31, 2023.

On December 30, 2022, the Company committed to purchase upstream processing and fluid management equipment for $ 1.6 million.

Legal Matters

From time to time, the Company is a party to or otherwise involved in legal proceedings, including suits, assessments, regulatory actions and investigations generally arising out of the normal course of business.

In addition, the Company enters into agreements that may include indemnification provisions, pursuant to which the Company agrees to indemnify, hold harmless and defend the indemnified parties for losses suffered or incurred by the indemnified party.

When the Company believes that the outcome of such a matter will result in a liability that is probable to be incurred and result in a potential loss, or range of loss, that can be reasonably estimated, the Company will accrue a liability and make the appropriate disclosure in the footnotes to the financial statements.

On December 23, 2022, Altor BioScience, LLC and NantCell, Inc.

initiated an arbitration against Dr.

Wong, the Company’s Founder and Chief Executive Officer, in California alleging breach of contract and fiduciary duty, among other claims.

On that same date, Altor/NantCell filed a lawsuit against the Company in federal court alleging misappropriation of trade secrets, inducement of breach of contract and breach of fiduciary duty, among other claims against the Company.

On January 31, 2023, the Company filed a motion to compel arbitration, a motion for the stay of the litigation, and a motion to dismiss the complaint (“motion to compel”), which are currently pending before the Court.

On March 10, 2023, the Company filed a motion to temporarily stay discovery pending the Company’s motion to compel, which the Court granted on March 13, 2023.

Although adverse decisions (or settlements) may occur in the lawsuit described above, it is not possible to reasonably estimate the possible loss or range of loss, if any, associated therewith at this time.

As such, no accrual for these matters has been recorded within the financial statements.

The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts the Company’s business, results of operations and financial condition, including but not limited to the supply chain, manufacturing, clinical trials, research and development costs and employee-related costs, depends on future developments that are highly uncertain, subject to change and are difficult to predict.

Additionally, the ongoing geopolitical tensions related to Chinese aggression toward Taiwan, the conflict in Ukraine, and the related sanctions and other penalties imposed, in addition to other financial pressures from inflation and higher interest rates, are creating substantial uncertainty in the global economy.

The Company encountered some delays in the commencement of clinical trials as a result of clinical sites experiencing COVID-related delays due to staffing shortages and supply chain issues.

In addition, the Company encountered some delays in the completion of studies required by the U.S.

Federal Drug Administration to support Investigational New Drug Applications (“IND”) due to government-mandated measures taken as a result of COVID outbreaks.

The Company expects to be impacted by inflation, especially for materials required for the buildout of the Company’s new headquarters and employee-related costs.

These headwinds may have an adverse impact on the Company’s ability to conduct clinical trials as well as IND-enabling activities, causing delays in our clinical development timeline.

The Company uses a number of strategies to effectively navigate these issues, but the extent and duration of such events and conditions, and resulting disruptions to the Company's operations, are highly unpredictable.

On March 12, 2023, the U.S.

government took extraordinary steps to stop a potential banking crisis after the historic failure of Silicon Valley Bank, assuring all depositors at the failed institution that they could access all their money quickly, even as another major bank was shut down.

The Company had no exposure to a failed bank.

The Company averts risks associated with such a crisis by holding minimum cash balances required for uninterrupted operations, federal funds money market fund, and U.S.

government-backed securities.

As of December 31, 2022, the Company held $ 20.0 million in a federal money market fund (the “Fund”) with an investment objective to seek to provide current income while maintaining liquidity and a stable share price of $ 1 .

The Fund invests at least 99.5 % of its total assets in cash, U.S.

government securities, and/or repurchase agreements that are collateralized solely by U.S.

government securities or cash (collectively, government securities).

As such it is considered one of the most conservative investment options offered.

Subsequent Events

Subsequent events have been evaluated through the date the financial statements were issued.

As of such date, there were no material subsequent events identified that required recognition or disclosure other than as disclosed below or in the footnotes herein.

Effective March 1, 2022, the Company entered into a non-cancelable operating lease agreement for its current location with a two-year term and future minimum payments of $ 339,300 .

Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure .

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data