What changed in this filing

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Item 1. Financial Statements

2023-08-11 compared with 2023-05-09 · 249 added, 185 removed, 401 unchanged (52% of the section changed)

10 unchanged sentences

Property, plant and equipment, net

Deposit for interest reserve

LIABILITIES AND STOCKHOLDERS’

12 unchanged sentences

250,000,000 shares

authorized and 35,886,635 shares issued at March 31, 2023

authorized and 35,926,721 shares issued at June 30, 2023

Additional paid-in capital

6 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenues

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Condensed Statements of Changes in Stockholders’

For the Three Months Ended March 31, 2022 and 2023

For the Six Months Ended June 30, 2022 and June 30, 2023

Stockholders’

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Balance, March 31, 2022

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

Balance, June 30, 2022

Stockholders’

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Balance, March 31, 2023

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

Balance, June 30, 2023

See accompanying notes to the unaudited condensed interim financial statements.

1 unchanged sentence

Condensed Statements of Cash Flows

Three Months Ended March 31,

Six Months Ended June 30,

Cash flows from operating activities:

2 unchanged sentences

Stock-based compensation

Unrealized loss on investments, net

Unrealized loss (gain) on investments, net

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

1 unchanged sentence

Accounts receivable

Deposit for interest reserve

Prepaid expenses and other assets

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

Capital expenditures accrued, but not yet paid

Purchases of property and equipment included in accounts payable and other liabilities

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

As of March 31, 2023, 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.

As of June 30, 2023, 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.

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The Company's total revenues to date have been generated solely from the Wugen License and manufacturing and supply arrangement with Wugen.

In the three months ended March 31, 2023, the Company recognized revenues of $ 41,883 fr om manufacturing and supply of materials for Wugen.

As of March 31, 2023, the Company had cash and cash equivalents of $ 18.4 millio n, and short-term investments of $ 9.8 million held in U.S.

In the three and six months ended June 30, 2023, the Company recognized revenues from manufacturing and supply of materials for Wugen o f $ 622,807 and $ 664,690 , res pectively.

As of June 30, 2023, the Company had cash and cash equivalents of $ 7.4 m illion, a deposit for interest reserve of $ 5.3 million, and short-term investments o f $ 10.0 m illion held in U.S.

government-backed securities.

Since inception to March 31, 2023 , the Company incurred cumulative net losses of $ 47.5 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.

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

Since inception to June 30, 2023, the Company incurred cumulative net loss es of $ 52.2 million.

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

The Company intends to focus its efforts to raise capital from non-dilutive funding sources.

This includes out-licensing rights to technology or regional markets, third-party collaboration funding, cooperative agreements for clinical trials, or other business development transactions.

In addition, when or if market conditions are more favorable, the Company may raise capital through additional debt or equity financings.

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.

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Unaudited Interim Financial Information

The accompanying unaudited condensed interim financial statements as of March 31, 2023 and for the three months ended March 31, 2022 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

The accompanying unaudited condensed interim financial statements as of June 30, 2023 and for the three and six months ended June 30, 2022 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”).

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These unaudited condensed interim financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows.

The results for the three months ended March 31, 2023 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period.

The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period.

The condensed balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S.

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001-40591) filed for the year ended December 31, 2022 with the Securities and Exchange Commission (the “SEC”) on March 28, 2023 and in other filings with the SEC.

Deposit for Interest Reserve

The Company agreed to establish an interest reserve account for the purpose of paying interest on outstanding debt under the Development Line of Credit Agreement which is further described in Note 8.

Commitments and Contingencies - Project Financing herein.

As of June 30, 2023, there was a balance of $ 5.3 million included in Deposit for interest reserve in noncurrent assets on the accompanying condensed balance sheet.

Revenue Recognition

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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 the three months ended March 31, 2023, the Company recogni zed $ 41,883 i n revenue related to sale of development supply materials.

The Company recognized revenue related to sale of development supply materials to its licensee, Wugen, of $ 454,000 and $ 3,571,545 , respectively, for the three and six months ended June 30, 2022;

and $ 622,807 and $ 664,690 , resp ectively, for three and six month s ended June 30, 2023.

The Company holds a minority interest in Wugen which is accounted for using the measurement alternative whereby the investment is recorded at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee.

No impairment has been recognized.

As of December 31, 2022 and March 31, 2023, the Compa ny included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheets.

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

No impairment has been recognized on the minority interest in Wugen as of June 30, 2023.

As of December 31, 2022 and June 30, 2023, the Company included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheets.

The Company invests in bills and notes issued by the U.S.

Treasury which are classified as trading securities.

As of March 31, 2023 , the Company held $ 9.8 million in U.S.

Treasury bills included in Short-term investments in the accompanying condensed balance sheet.

The Company reported a fair value of $ 9.7 million and $ 10.0 million for the fair value of investments in U.S.

Treasury bills as of December 31, 2022 and June 30, 2023, respectively, included in Short-term investments in the accompanying condensed balance sheets.

Operating Leases

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

Operating leases are included in Other assets, Accrued liabilities and other current liabilities, and Other liabilities on its balance sheets.

Operating leases are included in Other assets, Accrued liabilities and other current liabilities, and Other liabilities on the accompanying condensed balance sheets.

Operating lease Right of Use (“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.

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Accrued Liabilities and Other Current Liabilities

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

As of March 31, 2023 , the Company had a balance of $ 3.4 million in Accrued liabilities and other current liabilities in the accompanying condensed balance sheet, consisting of $ 1.3 million for legal fees, $ 850,000 for construction in progress, $ 459,000 for clinical expenses, $ 365,000 for bonus payable, $ 146,000 for short-term lease liability, and $ 53,000 for salary and benefits.

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.

As of March 31, 2023, the Company had $ 6.5 million in gross principal outstanding in a loan under the 2022 Loan Agreement.

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

As of June 30, 2023, the Company had a balance of $ 2.4 million in Accrued liabilities and other current liabilities in the accompanying condensed balance sheet, consisting primarily of the following:

$ 994,000 for legal expenses related to legal proceedings which are further described in Note 8.

Commitments and Contingencies - Legal herein;

$ 377,000 for clinical expenses;

$ 365,000 performance-related bonus payable;

$ 115,000 for salary and benefits;

$ 79,000 for legal expenses related to the execution of the Company's patent prosecution strategy and other legal expenses incurred in the ordinary course of business;

$ 112,000 for a lease liability;

and $ 97,101 for the current portion of long-term debt.

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

As of June 30, 2023, the Company had $ 6.5 million in gross principal outstanding in a loan under the 2022 Loan Agreement.

The 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 is in compliance with all covenants as of March 31, 2023.

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

As of March 31, 2023 , the current portion of $ 67,979 is included in Accrued liabilities and other current liabilities, and the noncurrent portion of $ 6.4 million is included in Debt, net in the accompanying condensed balance sheet .

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

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

The Company is in compliance with all covenants as of June 30, 2023.

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

As of December 31, 2022, the Cogent loan consisted of a long-term portion of $ 6.5 million which is included in Debt, net on the accompanying condensed balance sheet.

As of June 30, 2023, it consisted of a curre nt portion of $ 97,101 which is included in Accrued liabilities and other current liabilities and a noncurrent portion of $ 6.4 million which is included in De bt, net in the accompanying condensed balance sheet .

Preferred Stock

At December 31, 2022 and March 31, 2023 , the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

At December 31, 2022 and June 30, 2023, the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

Net Loss Per Share

The following table summarizes the computation of the basic and diluted net loss per share:

Three Months Ended March 31,

Three Months Ended June 30,

Six Months Ended June 30,

Weighted-average common shares outstanding

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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, accrued liabilities and other current liabilities, approximate fair value due to their short-term maturities.

The balance of funds included in Deposit for interest reserve is held in a non-interest bearing account and its carrying value approximates its fair value.

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

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No transfers between levels occurred during the periods presented.

The following table presents the Company’s assets which were measured at fair value at December 31, 2022 and March 31, 2023:

The following table presents the Company’s assets which were measured at fair value at December 31, 2022 and June 30, 2023:

At December 31, 2022:

1 unchanged sentence

Treasury notes

At March 31, 2023:

At June 30, 2023:

Money market funds

1 unchanged sentence

The Company computes its quarterly income tax expense/(benefit) by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter.

The Company did no t have a provision for income taxes (current or deferred tax expense) as of December 31, 2022 and March 31, 2023.

The Company did no t have a provision for income taxes (current or deferred tax expense) as of December 31, 2022 and June 30, 2023 .

The Company will continue to maintain a 100 % valuation allowance on total deferred tax assets.

The Company believes it is more likely than not that the related deferred tax assets will not be realized.

The Company believes it is more likely than not that the related deferred tax asset will not be realized.

As a result, the Company’s effective tax rate will remain at 0.00 % because no items either estimated or discrete items would impact the tax provision.

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There are no obligations under finance leases.

The components of the lease expense for the three months ended March 31, 2023 were as follows:

The components of the lease expense for the three and six months ended June 30, 2023 were as follows:

For the Three Months

Ended March 31, 2023

Ended June 30, 2023

For the Six Months Ended June 30, 2023

Operating lease cost

Supplemental cash flow information related to lease was as follows:

For the Three Months

Ended March 31, 2023

Supplemental cash flow information related to lease for the six months ended June 30, 2023 was as follows:

For the Six Months Ended June 30, 2023

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

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Operating lease

As of March 31, 2023, the supplemental balance sheet information related to leases in the accompanying condensed balance sheet included a Right-of-Use Asset of $ 150,880 in Other assets;

the current portion of a lease liability of $ 145,702 in Accrued liabilities and other current liabilities;

and the noncurrent lease liability of $ 7,476 in Other liabilities, as follows:

As of March 31, 2023

As of June 30, 2023, the supplemental balance sheet information related to leases was as follows:

As of June 30, 2023

Operating lease right-of-use assets

Operating lease liabilities, current

Operating lease liabilities, net of current portion

Total operating lease liabilities

For the three months ended March 31, 2022 and 2023 , rent expense recognized by the Company was $ 38,883 and $ 43,950 , respectively, of which $ 19,207 and $ 22,212 , respectively, are included in research and development in the accompanying condensed statements of operations .

As of June 30, 2023, the remaining lease payments were as follows:

Total future minimum lease payments

For the three months ended June 30, 2022 and 2023, rent expense recognized by the Company was $ 49,996 and $ 40,875 , respectively, of which $ 25,149 and $ 22,212 , respectively, is included in research and development in the accompanying condensed statements of operations.

For the six months ended June 30, 2022 and 2023, rent expense recognized by the Company was $ 77,139 and $ 84,825 , respectively, of which $ 32,834 and $ 44,424 , respectively, is included in research and development in the accompanying condensed statements of operations.

Contractual Commitments

The Company entered into an agreement 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, 2022 and March 31, 2023 , future payment obligations under such agreements were $ 406,000 and $ 1.5 million, respectively.

In addition, as of December 31, 2022, the Company committed to purchase upstream processing and fluid management equipment for $ 1.6 million, and it advanced $ 495,000 for this purchase as of March 31, 2023.

At December 31, 2022 and June 30, 2023, future payment obligations under such agreements were $ 406,000 and $ 2.2 million, respectively.

Project Financing

On April 21, 2023, the Company entered into a secured Development Line of Credit Agreement (the "2023 Loan Agreement") with Prime Capital Ventures, LLC ("Prime"), pursuant to which Prime will advance loans to the Company in a principal amount not to exceed $ 26.3 million with a scheduled maturity of April 20, 2028 (the "Prime Maturity Date").

The Company has the option to prepay the balance of the loan prior to the Prime Maturity date without penalty.

The note issued pursuant to the 2023 Loan Agreement bears interest at a fixed rate equal to 7.00 % per annum, due monthly in arears on the first day of each month.

The primary purpose of the loan is to provide the funding required to complete the buildout of the Company's new headquarters, including improved research laboratories and a vivarium to support the Company's pre-clinical research efforts, and a manufacturing facility to produce GMP material to support the Company's clinical development as well as produce material to support the clinical development of its licensee, Wugen.

Under the 2023 Loan Agreement, the Company was required to fund an interest reserve bank account controlled by Prime in the amount of $ 5.3 million to fund the interest payments due on outstanding principal amounts under the 2023 Loan Agreement.

The balance of the reserve account is presented in Deposit for interest reserve in noncurrent assets on the accompanying condensed balance sheet.

As of June 30, 2023, the Company had no outstanding borrowings under the 2023 Loan Agreement.

The initial advance is contingent upon the Company's receipt of all necessary permits and approvals to begin construction.

On August 10, 2023, the Company obtained construction permits required to begin the buildout of its new headquarters.

This satisfies the final condition precedent to accessing the $26.3 million line of credit.

The Company will incur $ 1.8 million in debt issuance costs in connection to the Prime loan, which will be earned and payable upon the first draw down.

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.

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On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case.

Altor/NantCell’s proceeding against the Company will now proceed in arbitration before JAMS.

Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment

Our operations have been affected by many headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war between Russia and Ukraine, Chinese aggression towards Taiwan, financial market volatility and currency movements.

These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities.

In addition, the Company may be impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs.

Further, rising interest rates would also increase borrowing costs to the extent that the Company takes on any additional debt.

Altor/NantCell’s proceeding against the Company is now proceeding in arbitration before JAMS.

Inflationary Cost Environment, Geopolitical Risks and Other Macroeconomic Factors

The operations have been affected by many headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war between Russia and Ukraine, Chinese aggression towards Taiwan, financial market volatility and currency movements.

Further, there have been lingering, long-term effects of COVID-19 that continue to directly or indirectly impact the Company’s business, results of operations and financial condition, particularly related to staffing at clinical sites.

The Company may be impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs.

The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines.

However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.

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 March 31, 2023 , the Company held $ 16.9 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 , the Fund is considered one of the most conservative investment options available to safeguard cash and cash equivalents.

Lost-Lasting Effects of COVID-19

The length of time and full extent to which the COVID-19 pandemic directly or indirectly impacts the Company’s business, results of operati ons 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.

Future developments in these and other areas present material uncertainty and risk with respect to the Company's clinical trials, IND-enabling activities, buildout of the new headquarters, as well as the Company's financial condition and results of operations.

The extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.

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.

On April 21, 2023, the Company entered into a secured Development Line of Credit Agreement (the “Agreement”) with Prime Capital Ventures, LLC, as lender (the “Lender”), pursuant to which the Lender shall advance loans to the Company in an aggregate principal amount not to exceed $ 26.3 million and a scheduled maturity date of April 20, 2028 (the “Maturity Date”).

The note issued pursuant to the Agreement bears interest at a fixed rate of 7 percent per annum, due monthly in arrears on the first day of each month, and the outstanding principal on the note shall be due and payable in full on the Maturity Date.

On April 27, 2023 in legal proceedings brought against the Company by Altor/NantCell, the Court approved the parties’

stipulation and ordered the parties to arbitration.

On May 1, 2023, Altor/NantCell filed a demand against the Company before JAMS.

On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case.

Altor/NantCell’s proceeding against the Company will now proceed in arbitration before JAMS.

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.

See Note 8 to the accompanying notes to these unaudited condensed interim financial statements for more information about the legal proceedings with Altor/NantCell.

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

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

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act.

All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success, plans and objectives of management for future operations, adequacy of our cash resources and working capital, impact of COVID-19 pandemic on our research and development activities and business operations, and future results of anticipated products, are forward-looking statements.

All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success of our clinical trials, plans and objectives of management for future operations, adequacy of our cash resources and working capital, future economic conditions or performance, lingering impact of COVID-19 pandemic on our research and development activities and business operations, and future results of anticipated products, are forward-looking statements.

These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements.

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Recent Developments

On April 27, 2023, in the legal proceedings brought by Altor BioScience, LLC and NantCell, Inc., or Altor/NantCell, the Court approved the parties’

stipulation to move to arbitration and ordered the parties to proceed in arbitration before JAMS.

On April 21, 2023, the Company entered into a $26.25 million development line of credit to refinance an existing $6.5 million mortgage and provide financing for the buildout of the Company's new headquarters and manufacturing facility.

On March 26, 2023, the Company published a pivotal scientific paper in Aging Cell entitled, “Immunotherapeutic Approach to Reduce Senescent Cells and Alleviate Senescence-Associated Secretary Phenotype in Mice,”

Wong, the Company’s Founder and CEO, as lead and corresponding author.

In a Phase 1 clinical trial to evaluate HCW9218 in the treatment of chemo-refractory/chemo-resistant solid tumors, sponsored by the Masonic Cancer Center, University of Minnesota (the "UMN study"), the first patient was dosed in the expansion phase of the trial.

There has been no dose-limiting toxicity to date.

The Company expects this trial to be completed in the second half of 2023 and intends to disclose human clinical data from this trial and the mechanism of action underlying HCW9218 anti-cancer activities at a major industry conference prior to the end of the year.

In a Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in the treatment of chemo-refractory/chemo-resistant pancreatic cancer, the trial has completed two dose escalations and has begun a third, with no dose-limiting toxicity to date.

The Company expects this trial to be completed late in 2023 or early 2024, with a human clinical data readout in the first half of 2024.

On April 21, 2023, we entered into a secured Development Line of Credit Agreement with Prime Capital Ventures, LLC, as lender, pursuant to which the Company may borrow up to $26.3 million with a scheduled maturity date of April 20, 2028.

In connection with this loan, the Company established a $5.3 million deposit for interest reserve.

Among the other uses of proceeds, we plan to refinance our existing long-term debt with some of the proceeds from this loan.

Some of the proceeds of the loan will be used to recoup $3.2 million in funds advanced from the Company's operating capital while awaiting permits.

On August 10, 2023, we obtained construction permits required to begin the buildout of our new headquarters.

This satisfies the final condition precedent to accessing the $26.3 million line of credit.

On June 13, 2023, HCW Biologics was granted U.S.

11,672,826 by the United States Patent and Trademark Office which contains methods of use claims directed to administering the Company’s clinical-stage bifunctional immunotherapeutic, HCW9218, to treat cancer, including colorectal cancer, breast cancer, ovarian cancer, hepatocellular carcinoma, gastric cancer, urothelial carcinoma, and melanoma.

Trends and Uncertainties

Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment

Further, rising interest rates would also increase borrowing costs to the extent that the Company takes on any additional debt.

Inflationary Cost Environment, Geopolitical Risks and Other Macroeconomic Factors

The Company may be impacted by inflation, especially when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs.

Further, there continue to be some lingering, long-term effects of COVID-19 that directly or indirectly impacts the Company’s business, results of operations and financial condition, particularly related to staffing at clinical sites.

The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines.

However, the extent and duration of such events and conditions, and resulting disruptions to our 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 March 31, 2023, the Company held $17.0 million in a federal money market fund (the “Fund”) with an investment objective is 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.

Long-Lasting Effects of COVID-19

The spread of COVID-19, including the resurgence of cases related to the spread of new variants, has caused significant volatility in the U.S.

and international markets since March 2020.

The continuing direct and indirect impacts of the pandemic are significant and broad-based, including supply chain disruptions, and continue to represent business and financial risks.

As such, the Company is continually coordinating with third-party contract manufacturing organizations (“CMOs”), service providers and vendors that constitute the Company’s supply chain, with respect to risks and mitigating actions.

Future developments in these and other areas present material uncertainty and risk with respect to our clinical trials, IND-enabling activities, buildout of our new headquarters, business, financial condition, and results of operations.

Future developments in these and other areas, such as the Company's ongoing legal proceedings, present material uncertainty and risk with respect to the Company's clinical trials, IND-enabling activities, buildout of the new headquarters, as well as the Company's financial condition and results of operations.

The extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable.

Components of our Results of Operation

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On May 3, 2023, Altor/NantCell dismissed the federal court action without prejudice and the Court ordered the case dismissed without prejudice and closed the case.

Altor/NantCell’s proceeding against the Company will now proceed in arbitration before JAMS.

Altor/NantCell’s proceeding against the Company is now proceeding in arbitration before JAMS.

In connection with claims brought against Dr.

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however, under certain circumstances, the Company may be required to advance his legal fees.

The Company incurred legal expenses on its own behalf in the period ended March 31, 2023, and we expect to continue to incur material costs and expenses in connection with defending the Company in the foregoing legal matters for the remainder of the year.

The Company incurred legal expenses on its own behalf in the period ended June 30, 2023, and we expect to continue to incur material costs and expenses in connection with defending the Company in the foregoing legal matters for the remainder of the year.

We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, are expected to continue to increase for the foreseeable future as we scale our operations.

Interest and Other Income (Loss), Net

Interest and other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S.

government-backed securities, other income related to non-operating activities, and other non-operating expenses.

On August 15, 2022, the Company entered into a short-term, market-rate lease with the former owner of the building purchased by the Company on the same date.

The lease provides the former owner (tenant) with the right to occupy offices that comprise approximately 15,000 square feet of the building for a period of one year, ending August 14, 2023.

The lease may be terminated at any time by the tenant with 60 days’

written notice.

During the three months ended March 31, 2023, the Company reported $59,453 in rental income, which is included within Interest and other income (loss), net in the unaudited statement of operations for the three months ended March 31, 2023, included elsewhere in this Quarterly Report.

Interest Expense and Other (Expense) Income, Net

Interest expense reflects the interest paid for loans.

Other (expense) income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S.

government-backed securities, income related to non-operating activities, and miscellaneous non-operating expenses.

Income related to non-operating activities includes rent earned under a short-term, market rate lease, which the Company entered into with the former owner of the building purchased by the Company on August 15, 2022.

The lease provides the former owner with the right to occupy offices that comprise approximately 15,000 square feet of the building for a period of one year, ending August 14, 2023.

During the three and six months ended June 30, 2023, the Company reported rental income of $59,453 and $118,907, respectively, which is included within Other (expense) income, net in the interim statement of operations for the three and six months ended June 30, 2023, included elsewhere in this Quarterly Report.

Results of Operations

Three Months Ended

Six Months Ended

Cost of revenues

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Other (expense) income, net

Comparison of the Three Months ended March 31, 2022 and March 31, 2023

The Company recognized $3.1 million and $41,883 of revenues in the unaudited statements of operations that appear elsewhere is this Quarterly Report for the three months ended March 31, 2022 and 2023, respectively.

The difference in revenues for the comparative periods is primarily attributable to the recognition of deferred revenues as revenue in the three months ended March 31, 2022, upon meeting requirements for revenue recognition when the Company entered into SOWs with Wugen for current and historical purchases on March 14, 2022.

Comparison of the Three Months ended June 30, 2022 and June 30, 2023

The Company recognized $454,000 and $662,807 of revenues for the three months ended June 30, 2022 and 2023, respectively.

All revenues were generated under the development supply agreement with our licensee, Wugen.

Revenue was recognized for all transactions made under the MSA for which the Company entered a SOW, since a contract existed for these transactions and all of the other conditions for revenue recognition were met under Topic 606.

For those transactions for which revenue was not recognized because one or more of the criteria for revenue recognition had not been met, the Company records deferred revenue.

There were no deferred revenues as of March 31, 2022 and as of March 31, 2023.

There were $314,625 of short-term deferred revenues as of June 30, 2022 and no deferred revenues as of June 30, 2023.

Research and Development Expenses

The following table summarizes our research and development expenses for the three months ended March 31, 2022 and March 31, 2023:

The following table summarizes our research and development expenses for the three months ended June 30, 2022 and June 30, 2023:

Three Months Ended

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Total research and development expenses

Research and development expenses increased by $466,135, or 26%, from $1.8 million for the three months ended March 31, 2022 to $2.3 million for the three months ended March 31, 2023.

The increase was primarily due to an increase in preclinical expenses and clinical expenses.

Salaries, benefits, and related expenses decreased by $28,484, or 4%, from $772,949 for the three months ended March 31, 2022 to $744,465 for the three months ended March 31, 2023.

This decrease was primarily attributable to a $59,000 increase in the amount of reimbursement for certain expenses incurred under the terms of the Wugen License as well as a $11,381 decrease in performance-based bonuses.

These decreases were partially offset by an increase of $43,410 in salaries and wages, benefits, and stock-based compensation expenses.

Manufacturing and materials expense increased by $65,867, or 30%, from $219,038 for the three months ended March 31, 2022 to $284,905 for the three months ended March 31, 2023.

In the three months ended March 31, 2022, costs were primarily from HCW9302 technology transfer and development process closeout through finalization of reports and the project initiation of a 1000L run for HCW9218.

In the three months ended March 31, 2023, costs were primarily costs associated with a 200L cGMP run of HCW9302.

Looking ahead for the remainder of 2023, costs will primarily be associated with restoring supply of HCW9101, which is the internally-developed affinity ligand used in our proprietary manufacturing processes in the production of all of our molecules.

Expenses associated with preclinical activities increased by $224,569, or 44%, from $513,117 for the three months ended March 31, 2022 to $737,686 for the three months ended March 31, 2023.

Expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for Phase 1b/2 clinical trial to evaluate HCW9302 in an autoimmune indication.

We expect to complete the toxicology study in the first half of 2023.

Expenses associated with clinical activities increased by $136,991, or 125%, from $109,367 for the three months ended March 31, 2022 to $246,358 for the three months ended March 31, 2023 related to the two ongoing clinical trials to evaluate HCW9218 in chemo-resistant/chemo-refractory solid tumors.

The Investigator-sponsored Phase 1 clinical trial at the Masonic Cancer Center, University of Minnesota is designed as a dose escalation study of HCW9218 to identify the maximum tolerated dose for future evaluation.

Research and development expenses decreased by $353,216, or 18%, from $2.0 million for the three months ended June 30, 2022 to $1.6 million for the three months ended June 30, 2023.

This decrease was primarily due to a decline in expenses for manufacturing and preclinical activities, offset by an increase in expenses for clinical trials.

Salaries, benefits, and related expenses decreased by $43,840, or 5%, from $802,033 for the three months ended June 30, 2022 to $758,193 for the three months ended June 30, 2023.

This decrease was primarily attributable to a decrease of $53,109 in salaries, including the impact of the reimbursement for certain expenses provided for under the Wugen license, partially offset by a $8,913 increase in expenses related to employee benefits.

Manufacturing and materials expense decreased by $203,942, or 67%, from $304,329 for the three months ended June 30, 2022 to $100,387 for the three months ended June 30, 2023.

In the three months ended June 30, 2022, costs were primarily attributable to a 1000L GMP manufacturing run for HCW9218.

By June 30, 2023, the Company anticipated that adequate supply of clinical development material for the Company's two lead molecules, HCW9218 and HCW9302, had been put in place for clinical development activities planned for the next 24 months.

In the three months ended June 30, 2023, costs were primarily for ancillary activities such as shipping, insurance and storage.

Expenses associated with preclinical activities decreased by $275,825, or 46%, from $599,520 for the three months ended June 30, 2021 to $323,695 for the three months ended June 30, 2022.

In the three months ended June 30, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

In the three months ended June 30, 2023, costs were incurred primarily for additional studies required for submission of an IND to request permission to conduct a clinical study to evaluate HCW9302 in an autoimmune indication.

Expenses associated with clinical activities increased by $113,997, or 136%, from $83,939 for the three months ended June 30, 2022 to $197,936 for the three months ended June 30, 2023.

In the three months ended June 30, 2022, the Company incurred clinical trial expenses as a result of the UMN study.

This study is designed as a dose escalation study of HCW9218 to identify the maximum tolerated dose for future evaluation.

The primary objectives are to determine safety, maximum tolerated dose, and the recommended Phase 2 dose.

The Company expects this phase of the study to be complete in the first half of 2023.

The Company-sponsored, multi-center Phase 1b/2 clinical trial to evaluate HCW9218 in advanced pancreatic cancer was initiated in October 2022.

There are currently four clinical sites participating in this trial, including the NCI Center for Cancer Research, Medical University of South Carolina (an NCI-designated Comprehensive Cancer Center), Washington University in St.

Louis (an NCI-designated Comprehensive Cancer Center), and HonorHealth Research Institute.

A preliminary human data readout is expected in the first half of 2023.

We expect to complete the Phase 1b portion of this study in 2023.

Other expenses, which include overhead allocations, increased by $67,191, or 38%, from $175,207 for the three months ended March 31, 2022 to $242,399 for the three months ended March 31, 2023.

The increase in other expenses is due primarily to an increase of $55,773 in the allocation for depreciation.

Depreciation increased in the third quarter of 2022, when the Company purchased a property to buildout for a new headquarters and manufacturing facility.

In the three months ended June 30, 2023, there were two ongoing clinical studies.

In the UMN study, the first patient was dosed in the expansion phase of the trial.

The Company expects the UMN study to be complete in the second half of 2023.

Once completed, it is our intention to disclose human clinical data from this trial at a major industry conference by the end of the year, which we expect will include results from additional studies based on biopsies and other studies and data on the mechanism of action of HCW9218 in anti-cancer activities.

During this period, clinical trial expenses also include expenses incurred in connection with a Company-sponsored, multi-center Phase 1b/2 clinical trial to evaluate HCW9218 in advanced pancreatic cancer.

There are currently five clinical sites participating in this trial, including the National Cancer Institute's Center for Cancer Research, Medical University of South Carolina (an NCI-designated Comprehensive Cancer Center), Washington University in St.

Louis (an NCI-designated Comprehensive Cancer Center), Cleveland Clinic in Cleveland, Ohio (an NCI-designated Comprehensive Cancer Center), and HonorHealth Research Institute.

We expect to complete Phase 1b portion of the pancreatic cancer study in late 2023 or early 2024, followed by a human data readout of clinical data in the first half of 2024.

There has been no dose-limiting toxicity in either study to date.

Other expenses, which include overhead allocations, increased by $56,394, or 31%, from $180,061 for the three months ended June 30, 2022 to $236,455 for the three months ended June 30, 2023.

The increase in other expenses is due primarily to an increase of $43,633 in the allocation for depreciation arising from the acquisition of a property in the third quarter of 2022, an increase of $11,919 in the allocation of rent and occupancy expense, and an increase of $12,324 for office-related equipment and repairs, offset by a decrease of $13,549 in travel-related expenses.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the three months ended March 31, 2022 and March 31, 2023:

The following table summarizes our general and administrative expenses for the three months ended June 30, 2022 and June 30, 2023:

Three Months Ended

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Total general and administrative expenses

General and administrative expenses increased $1.2 million, or 66%, from $1.9 million for the three months ended March 31, 2022 to $3.1 million for the three months ended March 31, 2023.

The increase was primarily due to an increase in professional fees, which includes legal fees associated with the proceedings brought against the Company by Altor/NantCell.

Other increases included a $105,492 increase in salaries, benefits and related expenses due to an annual adjustments made in April 2022 and new hires.

Depreciation increased by $33,608, or 94%, from $35,605 for the three months ended March 31, 2022 to $69,213 for the three months ended March 31, 2023.

In the third quarter of 2022, the Company purchased a property to buildout for its new headquarters and manufacturing facility.

As a result depreciation expense allocated to general and administrative expenses for the three months ended March 31, 2023 reflects depreciation of that acquisition.

Professional services increased $1.2 million, or 272%, from $459,164 for the three months ended March 31, 2022 to $1.7 million for the three months ended March 31, 2023.

General and administrative expenses increased by $1.3 million, or 76%, from $1.7 million for the three months ended June 30, 2022 to $3.0 million for the three months ended June 30, 2023.

The increase was primarily due to an increase in professional fees, which includes legal fees associated with the proceedings brought against the Company by Altor/NantCell, partially offset by a decrease in other expenses, mainly insurance premiums.

Professional services increased by $1.3 million, or 467%, from $287,199 for the three months ended June 30, 2022 to $1.6 million for the three months ended June 30, 2023.

Professional services include corporate legal services, expenses related to legal actions brought by Altor/NantCell, and other professional services, such as auditing and tax advisory fees.

For the three months ended March 31, 2023, the Company incurred $1.1 million for legal fees in connection with the Altor/NantCell matter, $359,754 for legal fees in connection to patents, and $233,007 in fees associated with other professional services such as audit fees and tax advisory services.

For the three months ended June 30, 2023, the Company incurred $1.2 million for legal fees in connection with the Altor/NantCell matter, $154,806 for legal fees in connection to the execution of the prosecution of our patent strategy, and $47,009 in fees associated with other professional services such as audit fees and tax advisory services.

Depreciation allocation to general and administrative expenses increased by $47,857, or 283%, from $16,940 for the three months ended June 30, 2022 to $64,797 for the three months ended June 30, 2023.

The increase in the depreciation allocation to general and administrative expenses reflects the Company's acquisition of a property to buildout for its new headquarters and manufacturing facility in the third quarter of 2022.

Other expenses decreased by $184,325, or 36%, from $511,462 for the three months ended June 30, 2022 to $327,137 for the three months ended June 30, 2023.

The decrease consists primarily of a $232,283 decrease in insurance premiums, partially offset by a $43,633 increase in the depreciation allocation and a $49,219 increase in taxes.

Comparison of the Six Months ended June 30, 2022 and June 30, 2023

The Company recognized $3.6 million and $644,690 of revenues for the six months ended June 30, 2022 and 2023, respectively.

All revenues were generated under the development supply agreement with Wugen.

The decline in revenue is attributed to a change in Wugen's clinical development plan, a delay in the ramp up of its manufacturing process, as well as transactions for which not all of the elements for revenue recognition were met.

The revenue recognized in the six months ended June 30, 2022 reflects recognition of revenues that had previously been classified as deferred revenue.

Revenue may be recognized for all transactions made under the MSA for which the Company entered SOWs, since both of these elements must be in place for a contract to exist and to fulfill all of the other conditions for revenue recognition under Topic 606.

For those transactions for which revenues were not recognized because one or more of the criteria for revenue recognition had not been met under Topic 606, the Company records deferred revenue.

There were $314,625 of short-term deferred revenues as of June 30, 2022 and no deferred revenues as of June 30, 2023.

Research and Development Expenses

The following table summarizes our research and development expenses for the six months ended June 30, 2022 and June 30, 2023:

Six Months Ended

Salaries, benefits and related expenses

Manufacturing and materials

Preclinical expenses

Clinical trials

Other expenses

Total research and development expenses

Research and development expenses increased by $112,921, or 3%, from $3.8 million for the six months ended June 30, 2022 to $3.9 million for the six months ended June 30, 2023.

This increase was primarily due to an increase in clinical trial expenses and the allocation of depreciation, offset by a decrease in salaries and benefits, manufacturing and preclinical expenses.

Salaries, benefits, and related expenses decreased by $72,323, or 5%, from $1.6 million for the six months ended June 30, 2022 to $1.5 million for the six months ended June 30, 2023.

This decrease was primarily attributable to a decrease of $108,849 in salaries and performance-based bonus compensation, including the impact of the reimbursement of expenses provided for under the Wugen license, partially offset by a $19,059 increase in payroll taxes and a $14,460 increase in employee benefits expenses.

Manufacturing and materials expense decreased by $136,664, or 26%, from $521,957 for the six months ended June 30, 2022 to $385,293 for the six months ended June 30, 2023.

In the six months ended June 30, 2022, costs were primarily attributable to HCW9302 technology transfer and development process closeout through finalization of reports and the project initiation and production costs for a 1000L GMP manufacturing run for HCW9218.

In the six months ended June 30, 2023, costs were incurred primarily for production activities associated with a 200L cGMP manufacturing run of HCW9302 and ancillary activities such as shipping, insurance and storage.

Expenses associated with preclinical activities decreased by $51,256, or 5%, from $1.1 million for the six months ended June 30, 2022 to $1.1 million for the six months ended June 30, 2023.

In the six months ended June 30, 2022, expenses were related primarily to the cost of toxicology studies and experimental materials related to IND-enabling activities required to prepare our IND for clinical trials to evaluate HCW9302 in an autoimmune indication, alopecia areata.

In the six months ended June 30, 2023, costs were incurred to complete the toxicology study and for additional studies required for submission of an IND to request permission to conduct a clinical study to evaluate HCW9302 in an autoimmune indication.

Expenses associated with clinical activities increased by $249,579, or 128%, from $194,716 for the six months ended June 30, 2022 to $444,295 for the six months ended June 30, 2023.

In the six months ended June 30, 2022, there was one ongoing clinical trial at the University of Minnesota.

In the six months ended June 30, 2023, in addition to the UMN study, the Company incurred costs related to an ongoing Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in chemo-refractory/chemo-resistant pancreatic cancer which initiated in October 2022.

Other expenses, which include overhead allocations, increased by $123,585, or 35%, from $355,267 for the six months ended June 30, 2022 to $478,852 for the six months ended June 30, 2023.

The increase in other expenses is due primarily to an increase of $99,406 in the allocation for depreciation, reflecting the Company's acquisition of a property to buildout for its new headquarters and manufacturing facility in the third quarter of 2022.

In addition, there was a $13,090 increase in the allocation for rent and occupancy expenses, offset by a $8,125 decrease in travel-related expenses.

General and Administrative Expenses

The following table summarizes our general and administrative expenses for the six months ended June 30, 2022 and June 30, 2023:

Six Months Ended

Salaries, benefits and related expenses

Professional services

Facilities and office expenses

Other expenses

Total general and administrative expenses

General and administrative expenses increased by $2.5 million, or 71%, from $3.6 million for the six months ended June 30, 2022 to $6.1 million for the six months ended June 30, 2023.

The increase was primarily due to a $2.6 million increase in professional fees, consisting of a $2.3 million increase in legal fees associated with the proceedings brought against the Company by Altor/NantCell, $514,560 in legal fees arising from the execution of the prosecution of our patent strategy, and $280,016 for other professional services such as audit fees and tax advisory fees.

Depreciation allocation to general and administrative expenses increased by $81,465, or 155%, from $52,545 for the six months ended June 30, 2022 to $134,010 for the six months ended June 30, 2023.

Other expenses decreased by $368,884, or 35%, from $1.1 million for the six months ended June 30, 2022 to $683,467 for the six months ended June 30, 2023.

The decrease consists primarily of a $446,724 decrease in the insurance premiums offset by a $81,552 increase in taxes.

Liquidity and Capital Resources

Sources of Liquidity

As of March 31, 2023, our principal source of liquidity was $18.4 million in cash and cash equivalents, including money market investments, and $9.8 million held in U.S.

As of June 30, 2023, our principal source of liquidity was $7.4 million in cash and cash equivalents, a $5.3 million deposit for interest reserve, and $10.0 million held in U.S.

government-backed securities presented in Short-term investments.

These funds were provided primarily from the $49.2 million of net proceeds from our IPO and to a lesser extent the Wugen License.

On April 21, 2023, the Company entered into a $26.3 million development line of credit agreement.

We expect our principal sources of liquidity will continue to be our cash and cash equivalents, the development line of credit, out-licensing agreements, and any additional capital we may obtain through debt or equity offerings.

Our principal source of liquidity has been $49.2 million in net proceeds from our initial public offering, a $6.5 million bank loan, and a $26.3 million loan for project financing.

For future capital needs, the Company intends to focus our efforts on non-dilutive funding sources.

This includes out-licensing rights to technology or regional markets, third-party collaboration funding, cooperative agreements for clinical trials, or other business development transactions.

If market conditions become more favorable, the Company may raise capital through additional debt or equity financings.

On August 15, 2022, we purchased a 36,000 square foot building located in Miramar, Florida for approximately $10.1 million, including transaction costs.

A portion of the acquisition cost was funded with a $6.5 million five-year loan obtained from the Cogent Bank (“Cogent Loan”) and is secured by the building.

As of March 31, 2023, the Company owed $6.5 million on the Cogent Loan and was in compliance with all covenants under the Cogent Loan agreement and related documents.

The Company obtained a $26.25 million development line of credit on April 21, 2023.

We intend to repay the Cogent Loan with part of the proceeds from the development line of credit at the time we draw our first advance under the new loan agreement.

We will not incur any prepayment penalties.

We believe that our cash and cash equivalents and short-term investments as of March 31, 2023 will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months.

As of June 30, 2023, the Company owed $6.5 million on the Cogent Loan and was in compliance with all covenants under the 2022 Loan agreement and related documents.

On April 21, 2023, the Company entered into the 2023 Loan Agreement with Prime Capital Ventures, LLC (“Prime”), pursuant to which Prime shall advance loans to the Company in a principal amount not to exceed $26.3 million with a scheduled maturity of April 20, 2028 (the “Prime Maturity Date”).

The Company has the option to terminate the 2023 Loan Agreement prior to the Prime Maturity Date.

The note issued pursuant to the 2023 Loan Agreement bears interest at a fixed per annum rate equal to 7.00%, due monthly in arears on the first day of each month.

The primary use for borrowings under the 2023 Loan Agreement is to obtain the funding required to complete the buildout of the Company's new headquarters, including improved research laboratories, a vivarium, and manufacturing facilities.

Under the 2023 Loan Agreement, the Company was required to fund a reserve bank account controlled by Prime in the amount of $5.3 million, with the purpose to fund the interest due on outstanding amounts under the 2023 Loan Agreement.

The balance of the reserve account is presented in Deposit for interest reserve in noncurrent assets on the accompanying condensed balance sheet.

As of June 30, 2023, the Company had no borrowings under the 2023 Loan Agreement.

The initial advance under the terms of the 2023 Loan Agreement is contingent upon the Company's receipt of all necessary permits and approvals to begin construction.

On August 10, 2023, we obtained construction permits required to begin the buildout of our new headquarters.

This satisfies the final condition precedent to accessing the $26.3 million line of credit.

The Company incurred $1.8 million in debt issuance costs in connection to with the loan, which will be earned and payable upon the first draw down.

Some of the proceeds of the loan will be used to recoup $3.2 million in funds advanced from the Company's operating capital while awaiting permits.

We intend to repay the Cogent Loan with part of the proceeds from borrowings under the 2023 Loan Agreement.

We will not incur any prepayment penalties as a result of prepayment.

We believe that our cash and cash equivalents and short-term investments as of June 30, 2023 will be sufficient to meet our capital requirements and fund our operations for at least the next 12 months.

We have based our projections of operation expenses requirements on assumptions, including our existing commitments and contingencies, that may prove to be incorrect, and we may use all of our available capital sooner than we expect.

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costs, timing, and outcome of regulatory review of our product candidates;

number of trials required for regulatory approval;

number of clinical trials required for regulatory approval;

whether we enter into any cooperative, collaboration or co-development agreements and the terms of such agreements;

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Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures.

Comparison of the Cash Flows for the Three Months Ended March 31, 2022 and March 31, 2023

The following table summarizes our cash flows for the three months ended March 31, 2022 and March 31, 2023:

Three Months Ended

Comparison of the Cash Flows for the Six Months Ended June 30, 2022 and June 30, 2023

The following table summarizes our cash flows for the six months ended June 30, 2022 and June 30, 2023:

Six Months Ended

Cash used in operating activities

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Operating Activities

Net cash used in operating activities were $1.6 million for the three months ended March 31, 2022, compared with net cash used by operating activities of $3.6 million for the three months ended March 31, 2023.

The difference was primarily due to an increase in net loss from $2.1 million for the three months ended March 31, 2022 to $5.1 million for the three months ended March 31, 2023.

Cash used in operating activities for the three months ended March 31, 2022 consisted primarily of net loss for the period of $2.1 million, $420,000 due to an increase in accounts receivable arising from billed but unpaid amounts that were recognized in revenue for delivery of clinical development materials purchased by Wugen, and $1.1 million due to a decrease in accounts payable and other liabilities.

Cash provided by operations consisted primarily of a decrease of $1.4 million in prepaid expenses and other assets.

In addition, there were adjustments for non-cash transactions that increased cash provided by operating activities primarily arising from $185,122 for net unrealized loss on investments, $142,785 for depreciation and amortization expense, and $260,348 for compensation expense due to stock-based compensation.

Cash used in operating activities for the three months ended March 31, 2023 consisted primarily of net loss for the period of $5.1 million and $112,500 unrealized loss on investments, net.

These amounts were offset by cash provided by operations arising from a $718,675 increase from accounts payable and other liabilities, $164,967 resulting from a decrease in accounts receivable, and $182,294 resulting from a decrease in prepaid expenses and other assets.

Further offsets were provided by noncash adjustments arising from addbacks of $298,847 from depreciation and amortization and $259,206 from stock-based compensation.

Cash used in operating activities for the six months ended June 30, 2022 consisted primarily of a net loss of $5.6 million, as well as $1.5 million of cash used in operations, resulting from a $1.3 million decrease in accounts payable and other liabilities and a $213,934 increase in accounts receivable.

Cash provided by operations consisted primarily of $1.9 million arising from a decrease in prepaid expenses and other assets and adjustments for noncash charges, including $292,363 for depreciation and amortization and $531,683 for compensation expense related to stock-based compensation.

Cash used in operating activities for the six months ended June 30, 2023 consisted primarily of a net loss of $9.4 million, as well as a deposit $5.3 million used to establish an interest reserve for future interest payments, as required under the terms of the 2023 Loan Agreement.

In addition, an increase in accounts receivable used $289,516 of cash and an increase in accounts payable and other liabilities provided $1.2 million of cash.

There was $881,951 of cash provided by net non-cash adjustments, consisting of $583,180 of cash provided by an adjustment for depreciation and amortization, $522,629 of cash provided by an adjustment for stock-based compensation, partially offset by a $223,440 use of cash for an adjustment for unrealized gains on investments.

Investing Activities

Cash provided by investing activities for the three months ended March 31, 2022 consisted of $8.0 million of cash provided when short-term investments reached maturity, offset by $23,554 of cash used to purchase equipment.

Cash used by investment activities for the three months ended March 31, 2023 consisted of $300,385 used for purchases of property and equipment.

Cash provided by investing activities for the six months ended June 30, 2022, consisted of $8.0 million of cash provided when short-term investments reached maturity, offset by $36,461 of cash used to purchase equipment.

Cash used by investing activities for the six months ended June 30, 2023, consisted of $1.9 million arising from the purchase of property and equipment.

Financing Activities

During the three months ended March 31, 2022 and 2023, cash provided by financing activities is due to issuance of common stock upon exercise of vested employee stock options.

During the six months ended June 30, 2022 and 2023, cash provided by financing activities is due to issuance of common stock upon exercise of vested employee stock options.

Critical Accounting Policies, Significant Judgements and Use of Estimates

16 unchanged sentences

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-Q

Item 1. Financial Statements