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Item 8. Financial Statements and Supplementary Data

2024-04-01 compared with 2023-03-28 · 216 added, 221 removed, 429 unchanged (50% of the section changed)

7 unchanged sentences

Statements of Operations

Statement of Changes in Redeemable Preferred Stock and Stockholders’

(Deficit) Equity

Statements of Changes in Stockholders’ Equity

Statements of Cash Flows

RE PORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

Board of Directors and Stockholders

HCW Biologics Inc.

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We have audited the accompanying balance sheets of HCW Biologics Inc.

(the “Company”) as of December 31, 2022 and 2021, and the related statements of operations, changes in redeemable preferred stock and stockholders’

(deficit) equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

(the “Company”) as of December 31, 2023 and 2022, the related statements of operations, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and itscash flows for each of the two years in the period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.

Liquidity and going concern

As discussed in Note 1 to the financial statements, the Company is not profitable, has recorded negative cash flows from operations, and will need substantial capital to support its ongoing operations.

Management's evaluation of the events and conditions and management’s plans to mitigate these matters are also described in Note 1.

Basis for opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S.

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

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The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.

As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.

Accordingly, we express no such opinion.

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/s/ GRANT THORNTON LLP

We have served as the Company’s auditor since 2019.

March 28, 2023

We have served as the Company’s auditor since 2019.

April 1, 2024

HCW Biologics Inc.

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Property, plant and equipment, net

LIABILITIES AND STOCKHOLDERS’

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

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Commitments and contingencies (Note 15)

Stockholders’

Stockholders’ equity:

Common stock:

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Accumulated deficit

Total stockholders’

Total liabilities and stockholders’

Total stockholders’ equity

Total liabilities and stockholders’ equity

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

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General and administrative

Reserve for credit losses

Total operating expenses

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Interest expense

Other (expense) income, net

Net loss per share, basic and diluted

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HCW Biologics Inc.

Statem ents of Changes in Redeemable Preferred Stock and Stockholders’

(Deficit) Equity

Redeemable Preferred Stock

Stockholders’

(Deficit) Equity

Stockholders’

(Deficit) Equity

Statem ents of Changes in Stockholders’ Equity

Stockholders’ Equity

Stockholders’

Balance, December 31, 2021

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

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

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Stock-based compensation

Gain on extinguishment of debt

Unrealized loss on investments, net

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

Unrealized loss (gain) on investments, net

Realized (gain) on investments

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

Reserve for credit losses

Changes in operating assets and liabilities:

Accounts receivable

Deposit for interest reserve

Prepaid expenses and other assets

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Proceeds for sale or maturities of short-term investments

Purchases of short-term investments

Purchases of long-term investments

Net cash (used in) provided by investing activities

Net cash provided by investing activities

Cash flows from financing activities:

Proceeds from initial public offering

Issuance costs of initial public offering

Proceeds from issuance of common stock

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Offering costs

Net cash provided by financing activities

Net changes in cash and cash equivalents

Debt repayment

Net cash provided by (used in) financing activities

Net increase (decrease) in cash and cash equivalents

Cash and cash equivalents at the beginning of the period

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Supplemental disclosure of cash flow information:

Cash paid for interest

Cash paid for interest, net of capitalized 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

Capital expenditures accrued, but not yet paid

Reserve for credit losses

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

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HCW Biologics Inc.

(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,”

is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases.

The Company believes age-related low-grade chronic inflammation, or “inflammaging,” is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases.

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

Liquidity and Going Concern

In accordance with ASC 205-40, Presentation of Financial Statements – Going Concern (“Topic 205-40”), we are required to evaluate whether there are conditions and events, considered in the aggregate that raise substantial doubt about our ability to continue as a going concern for at least 12 months from the issuance date of our financial statements.

This evaluation does not take into consideration the potential mitigating effect of management’s plans that have not been fully implemented or are not within control of the Company as of the date the financial statements are issued.

When substantial doubt exists under this methodology, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern.

The mitigating effect of management’s plans, however, is only considered if both (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued, and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the entity’s ability to continue as a going concern within one year after the date that the consolidated financial statements are issued.

As of December 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.

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.

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, 2023, the Company incurred cumulative net losses of $ 67.8 million.

As of December 31, 2023, the Company had $ 3.6 million in cash and cash equivalents, compared to $ 22.3 million as of December 31, 2022.

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 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.

As a result of these conditions substantial doubt about the Company’s ability to continue as a going concern was raised.

To date, we have funded operations primarily through the sale of stock and revenues generated from the Company’s 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 the Company’s internally-developed multi-cytokine fusion protein molecules, and its manufacturing and supply arrangement with Wugen.

In the year ended December 31, 2022 and 2023, the Company recognized revenues of $ 6.7 million and $ 2.8 million, respectively, generated from the supply of clinical and research grade material to Wugen.

Under the Company’s policy for its going concern assessment under Topic 205-40, future receipt of potential funding from partnerships, equity or debt issuances or other transactions is considered probable if a transaction is approved by the Board of Directors and the Company has entered into legally binding agreements.

As of March 31, 2024, the Company has closed or entered into binding legal agreements for additional financings of $ 12.5 million.

On February 20, 2024, in a $ 2.5 million private placement of common stock, the Company sold an aggregate of 1,785,718 shares to certain officers and directors.

As of March 31, 2024, the Company entered into an agreement to issue $ 10.0 million of secured notes (the “Secured Notes”), of which $ 2.0 million funded prior to the issuance date of the accompanying financial statements.

The Secured Notes were sold to certain officers and directors of the Company as well as other investors.

Management plans to pursue additional sources of capital.

Future financings may be from non-dilutive funding sources such as bank or debt 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.

If the Company is not successful in raising additional capital, management has the intent and ability to streamline its business plan and reduce costs.

The Company believes that, as a result of these plans, it has sufficient liquidity and probable financing to meet the Company’s funding requirements for at least 12 months from the issuance date of the accompanying financial statements.

In implementing a streamlined business plan the Company may be forced to delay, reduce, or eliminate some of its product development programs, efforts to establish manufacturing capacity, headcount and other operating costs, as well as commercialization efforts.

Projections are based on assumptions, including the Company’s existing commitments and contingencies, that may prove to be incorrect, and the Company may use available capital sooner than expected.

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the ordinary course of business.

The financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might result from the outcome of the uncertainties described above.

Summary of Significant Accounting Policies

Basis of Presentation

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

GAAP”).

Segment Reporting

The Company has one operating segment.

The Company’s chief operating decision maker, its Chief Executive Officer, reviews financial information on an aggregate basis for allocating capital and evaluating performance.

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

Use of Estimates

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Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 820, Fair Value Measurement (“Topic 820”), establishes a fair value hierarchy for those instruments measured at fair value that distinguishes between fair value measurements based on market data (observable inputs) and those based on the Company’s own assumptions (unobservable inputs).

This hierarchy maximizes the use of observable inputs and minimizes the use of unobservable inputs.

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Fair value measurements are classified based on the lowest level of input that is significant to the measurement.

The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, which may affect the valuation of the assets and liabilities and their placement within the fair value hierarchy levels.

The determination of the fair values, as disclosed in Note 3, takes into account the market for the Company’s financial assets and liabilities, the associated credit risk, and other factors as required.

The Company considers active markets as those in which transactions for the assets or liabilities occur in sufficient frequency and volume to provide pricing information on an ongoing basis.

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Financial instruments that potentially subject the Company to concentrations of credit risk primarily consist of cash, cash equivalents, accounts receivable, and investments.

The Company’s cash and cash equivalents are deposited in accounts with financial institutions that management believes are of high credit quality.

Such deposits may, at times, exceed federally insured limits.

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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.

As of December 31, 2023, there was a balance of $ 1.5 million in accounts receivable related to sales to Wugen on the accompanying audited balance sheet, and the Company believes that collection of these amounts are probable.

Since December 24, 2020, the Company holds 2,174,311 shares of Wugen common stock, which were received as consideration for the Wugen License on December 24, 2020.

Currently, these shares represent a 5.6 % equity ownership interest of Wugen, based on fully diluted, issued and outstanding shares as of December 31, 2023.

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.

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There were no impairment losses for any of the periods presented.

Redeemable Preferred Stock

The Company applied the relevant accounting standards to distinguish liabilities from equity when we assessed the classification and measurement of preferred stock.

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 balance sheet.

Collaborative Arrangements

When the Company enters into collaboration arrangements, it assesses whether the arrangements fall within the scope of FASB issued ASC 808, Collaborative Arrangements, based on whether the arrangements involve joint operating activities and whether both parties have active participation in the arrangement and are exposed to significant risks and rewards.

If the payments from the collaboration partner to the Company represent consideration from a customer, such as license fees and contract research and development activities, the Company accounts for those payments within the scope of FASB issued ASC 606, Revenue from Contracts with Customers (“Topic 606”).

However, if the Company concludes that the payments are not from a customer, for certain activities and associated payments, such as for certain collaborative research, development, manufacturing, and commercial activities, these payments are presented as a reduction of research and development expense or general and administrative expense, based on where the Company presents the underlying expense.

Revenue Recognition

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:

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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.

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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, 2023.

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

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.

For the years ended December 31, 2022 and 2023, the Company recognized revenues related to sale of development supply materials to Wugen of $ 6.7 million and $ 2.8 million, respectively.

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.

Accounts receivable is presented in accordance the current expected credit losses (“CECL”) impairment model as required under Topic 326.

The Company estimates a reserve for expected credit losses based on existing contractual payment terms, actual payment patterns of its customers, current and future economic and market conditions and individual customer circumstances.

As of December 31, 2022 or December 31, 2023 , the Company determined that a reserve for expected credit losses was not required.

No accounts were written off during the periods presented..

Deferred Revenue

Deferred revenue represents amounts billed, or in certain cases, yet to be billed to the Company’s customer for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met.

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 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.

In the year ended December 31, 2021, there was a balance of $ 1.8 million in deferred revenues in the Company's balance sheet, all of which were recognized as revenue in the year ended December 31, 2022.

There were no deferred revenue balances as of December 31, 2022 or 2023.

The Company holds a minority interest in Wugen.

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As of December 31, 2022, the Company held $ 9.7 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 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.

As of December 31, 2023, the Company had no Short-term investments.

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.

For short-term leases with a term of one year or less, the Company uses the practical expedient and does not record an ROU asset for such short-term leases.

Research and Development Expenses

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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.

The Company records an accrued expense for the estimated costs of its contract manufacturing activities performed by third parties.

The Company records an accrued expense for the estimated costs of its contract manufacturing activities performed by third parties if there is no invoice.

The financial terms of these agreements are subject to negotiation, vary from contract to contract and may result in uneven payment flows to vendors.

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If the Company considers the process to be the delivery of a good, the Company recognizes the expense when the drug product is delivered, or otherwise bears risk of loss.

If the Company considers the process to be the delivery of a service, the expense is recognized based on its best estimates of the contract manufacturer’s progress towards completion of the stages in the contracts.

The Company recognizes and amortizes upfront payments and accrues for liabilities based on the specific terms of each arrangement.

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Management will continue to assess the assumptions and methodologies used to calculate the estimated grant date fair value of stock-based compensation.

Circumstances may change and additional data may become available over time, which could result in changes to these assumptions and methodologies and materially impact the Company’s grant date fair value determination.

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 are probable of being met.

Deferred Offering Costs

Debt Issuance Costs

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.

Deferred Offering Costs

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

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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”).

Topic 740 requires that the deferred tax consequences of temporary differences between the amounts recorded in the financial statements and the amounts included in the federal and state income tax returns to be recognized in the balance sheet.

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Generally, cumulative loss in recent years is a significant piece of negative evidence that is difficult to overcome in determining that a valuation allowance is not needed.

The Company’s tax positions may be subject to income tax audits.

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 examination by the taxing authority, based on the technical merits.

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The provision for income taxes includes the effects of any accruals that the Company believes are appropriate, as well as the related net interest and penalties.

The Company had no accrual for interest or penalties on its balance sheets as of December 31, 2022 and 2023, and has no t recognized interest or penalties in its statements of operations for the years ended December 31, 2022 and 2023.

Tax Credit Receivable

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 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.

As of December 31, 2022 and 2023 , the outstanding payroll tax receivables is included in Other current assets in the balance sheet.

Net Loss Per Share

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Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is anti-dilutive.

The Company’s potentially dilutive securities, which include convertible redeemable preferred stock and outstanding stock options under the 2019 Equity Incentive Plan (“2019 Plan”) and the 2021 Equity Incentive Plan (“2021 Plan”), have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share.

For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position.

Recently Issued Accounting Pronouncements

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 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.”

In June 2016 the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments (Topic 326).

It requires the use of the current expected credit losses (CECL) impairment model for a broad scope of financial instruments, including financial assets measured at amortized cost (which includes loans, held-to-maturity debt securities and trade receivables), net investments in leases, and certain off-balance sheet credit exposures.

The CECL model requires the immediate recognition of estimated expected credit losses over the life of the financial instrument.

The estimate of expected credit losses considers not only historical information, but also current and future economic conditions and events.

For accounts receivable, the Company estimates a reserve for expected credit losses based on existing contractual payment terms, actual payment patterns of its customers, current and future economic and market conditions and individual customer circumstances.

For other asses, the measurement approach used by the Company may be based on the probability-of-default method, under which expected credit losses are determined by multiplying the probability of default (i.e., the probability the asset will default within the given time frame) by the loss given default (the percentage of the asset not expected to be collected because of default).

The Company adopted CECL on January 1, 2023 on a prospective basis and it had no impact on the Company’s financial statements.

In November 2023, the FASB issued ASU No.

2023-07, Improvements to Reportable Segment Disclosures (ASU 2023-07) which is intended to improve reportable segment disclosures primarily through enhanced disclosure of reportable segment expenses and requires that a public entity that has a single reportable segment provide all the disclosures required by ASU 2023-07 and all existing segment disclosures in Topic 280.

The new guidance is required to be applied retrospectively to all prior periods presented in the financial statements and is effective for the Company for fiscal periods beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

The Company has one reportable segment and is evaluating the impact of the standard on the Company’s financial statements.

In December 2023, the FASB issued ASU No.

2023-09, Income Taxes (Topic 740):

Improvements to Income Tax Disclosures which requires significant disclosures about income taxes, primarily focused on the disclosure of income taxes paid and the rate reconciliation table.

The new guidance will be applied prospectively and is effective for the Company for fiscal periods beginning after December 15, 2024.

The Company is evaluating the impact of the standard on the Company’s financial statements.

Property, Plant and Equipment, Net

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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.

Construction in progress of $ 10.4 million represents direct costs of construction and equipment incurred for the Company’s new research lab and manufacturing facilities, that are not ready for their intended use.

Depreciation and amortization expense for the year ended December 31, 2022 was $ 589,608 , of which $ 441,698 is included in research and development expenses.

Depreciation and amortization expense for the year ended December 31, 2023 was $ 794,619 , of which $ 541,679 is included in research and development expenses.

During the year ended December 31, 2023, the Company capitalized interest expense of $ 95,627 , into Construction in progress.

Fair Value of Financial Instruments

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, are measured at approximate fair value due to their short-term maturities.

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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, 2021 and 2022:

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

At December 31, 2022:

Money market funds

Treasury bills

Treasury notes

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Money market funds

Treasury notes

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.

As part of the consideration received for the Wugen License, the Company received shares of Wugen common stock, which were recognized at $ 1.6 million, the fair value of the securities as of December 24, 2020, the effective date for the Wugen License.

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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 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.

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.

As of December 31, 2022 and 2023, 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

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.

On January 8, 2021, the Company received full loan forgiveness of $ 567,311 for obligations related to the PPP loan.

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 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.

As of December 31, 2023, the Company had a balance of $ 2.6 million included in Accrued liabilities and other current liabilities in the balance sheet included in the audited financing statements, consisting of $ 392,000 for construction expenses, $ 105,000 for manufacturing expenses, $ 1.1 million for legal expenses, $ 262,000 for clinical expenses, $ 365,000 in bonus expense, $ 160,000 for salary expenses, $ 119,000 for the current portion of long-term debt, $ 28,500 in lease liability and $ 68,500 of other liabilities.

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

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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.

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License Agreement

On December 24, 2020, the Company entered into the Wugen License transferring rights to Wugen to develop, manufacture, and commercialize certain cellular therapy products based on two of the Company’s fusion protein molecules.

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

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 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.

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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.

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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

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.

Preferred Stock

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

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Common stock options

Potentially diluted securities

Potentially dilutive securities

Stock-based Compensation

On June 21, 2021, the 2021 Plan was adopted by the Company’s board of directors and approved by the Company’s stockholders.

As of the adoption date, the 2019 Plan was terminated.

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All of the options granted under the 2019 Plan had an exercise price equal to the fair value of a share of common stock on the date of the grant, according to Company policy.

The 2021 Plan permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights, restricted stock, restricted stock units, and stock bonus awards.

The 2021 Plan permits the grant of incentive stock options, nonstatutory stock options, stock a ppreciation rights, restricted stock, restricted stock units, and stock bonus awards.

The 2021 Plan initially reserved 3,444,343 shares of Common Stock, including the transfer of remaining shares reserved under the 2019 Plan.

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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 years ended December 31, 2021 and 2022:

The following summarizes the Company’s stock option activity for the years ended December 31, 2022 and 2023:

Weighted Average

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Exercisable at December 31, 2023

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 rep orting date.

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, 2022 and 2023 was $ 231,301 and $ 202,917 , respectively.

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Each of these inputs is subjective and its determination generally requires significant judgment.

Fair Value of Common Stock —Prior to our initial public offering, the estimated fair value of our common stock was determined by our board of directors as of the date of each option grant, with input from management, considering our most recently available third-party valuation of our common stock as well as our board of directors’

assessment of additional objective and subjective factors that it believed were relevant and which may have changed from the date of the most recent third-party valuation to the date of the grant.

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.

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.

Expected volatility —We have limited information on the income volatility of our stock as shares of our common stock were not actively traded on any public markets prior to July 19, 2021.

The expected volatility was derived from the historical stock volatilities of comparable peer public companies within our industry.

Risk-free interest rate —The risk-free interest rate is based on the U.S.

Fair Value of Common Stock —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.

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.

Expected volatility —The expected volatility was derived from the historical stock volatilities of comparable peer public companies within our industry.

Risk-free interest rate —The risk-free interest rate is based on the U.S.

Treasury Bond in effect at the time of grant for periods corresponding with the expected term.

Dividend yield —The expected dividend yield is 0 % because the Company has not historically paid, and does not expect, for the foreseeable future, to pay a dividend on its common stock.

For the years ended December 31, 2022 and 2023, the fair value of employee and director stock option awards was estimated at the date of grant using a Black-Scholes option-pricing model with the following assumptions:

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Fair value underlying common stock

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 statem ent of operations included in the audited financial statements.

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.

For the year ended December 31, 2023 , for options with service-based vesting conditions, the Company recognized $ 65,941 of employee stock-based compensation expense in research and development expenses and $ 937,808 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, 2023 , the Company had an aggregate of $ 1.8 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 1.62 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

The Company offers a defined contribution savings plan (the “Benefit Plan”) under Section 401 of the Internal Revenue Code for all eligible employees.

The Benefit Plan allows for discretionary contributions which are limited to the maximum allowable for federal tax purposes.

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Collaborative Arrangements

In March 2020, the Company entered into two collaborative arrangements relating to IND-enabling activities which continued in 2022.

Pursuant to these agreements, the Company supplied materials for the studies and reimbursed the collaboration partner costs in connection with the projects.

In turn, the partner will provide written reports and a body of scientific data for the results of the projects.

The Company did no t have a provision for income taxes (current or deferred tax expense) for tax years ended December 31, 2021 and 2022.

The Company has certain contract research agreements with contractors that were entered during the two years ended December 31, 2023 for the (i) hybridoma development, (ii) cell line improvement, and (iii) research to support pre-clinical studies.

We own all rights to the resulting intellectual property, including the antibodies, sequences, and data.

For certain contractors, the Company is obligated to pay one future milestone payment upon filing and acceptance of an IND for each respective human antibody or protein from cell line;

however no additional future development or financial obligations are due under these contract research agreements as of December 31, 2022 or 2023.

The Company di d no t have a provision for income taxes (current or deferred tax expense) for tax years ended December 31, 2022 and 2023.

The following table summarizes the differences between the statutory federal income tax rate and the Company's effective income tax rate (percent data):

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Capitalized section 174 R&D expenses

Reserve for credit losses

Accrued expenses

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Charitable contributions

Deferred rent

Unrealized gain/loss

Deferred revenue

Depreciable assets

Net deferred tax assets

Total deferred tax assets

Deferred tax Liabilities:

Unrealized gain/loss

Depreciable assets

Deferred revenue/costs

Total deferred tax liability

Net deferred tax asset

valuation allowance

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The Company also has available state NOLs carryforwards of approximately $ 32.5 million and $ 40.0 million, as of December 31, 2022 and 2023 , respectively.

The federal and state NOLs will carry forward indefinitely.

The federal and state NOLs will carryforward 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.

In addition, the Company had federal research and development credits carryforwards of $ 720,165 and $ 1.3 million, as of December 31, 2022 and 2023 , respectively, to reduce future federal income taxes, if any.

These carryforwards expire from 2038 through 2043 and are subject to review and possible adjustment.

Under Sections 382 and 383 of the Internal Revenue Code of 1986, as amended, (the Code), substantial changes in the Company’s ownership may limit the amount of net operating loss and research and development credit carryforwards that could be used annually in the future to offset taxable income.

A formal Section 382 study has not been completed to determine if an ownership change has occurred and if its net operating losses are subject to an annual limitation.

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.

During the year ended December 31, 2022 and 2023, the Company analyzed its expenses and determined that expenses of $ 9.2 million and $ 9.8 million, respectively, 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.

As of December 31, 2022 and 2023, the Company had $ 864,179 and $ 2.6 million, respectively, 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, 2020.

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

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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 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.

See Note 16 for disclosure of related party transactions which occurred after the balance sheet reporting date.

Commitments and Contingencies

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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 .

The leases have a two-year term which commenced on March 1, 2022 and terminated 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.

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Supplemental cash flow information related to lease for the twelve months ended December 31, 2023 was as follows:

For the Years Ended December 31, 2022

For the Year Ended December 31, 2023

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

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Operating lease right-of-use assets

Other current liabilities

Operating lease liabilities, net of current portion

Total operating lease liabilities

Operating lease liabilities, current

As of December 31, 2023, the remaining lease payments were as follows:

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For the years ended December 31, 2022 and 2023 , rent expense recognized by the Company was $ 187,600 and $ 169,700 , respectively, of which $ 86,000 and $ 88,800 , 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

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.

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.

The Company has commitments with a third-party manufacturing organization to supply us with clinical grade materials.

As of December 31, 2023, we are under contract for obligations of $ 1.2 million that we expect to pay during the year ending December 31, 2024.

As of December 31, 2023, the Company had commitments to fund $ 6.9 million in construction costs, related to the buildout of its new headquarters and manufacturing facility.

Project Financing

On January 10, 2024, the Company exercised its right to terminate its credit agreement (the “Credit Agreement”), dated April 21, 2023, with Prime Capital Ventures, LLC (the "Lender"), as permitted under the terms of the Credit Agreement.

The termination followed repeated delays in funding and related concerns.

There are no borrowings under the Credit Agreement, and the Company will not incur any penalties as a result of such termination under the terms of the Agreement.

Upon exercising its right to terminate the Agreement, the Company was entitled to receive the return of the $ 5.3 million that the Company placed on deposit to establish an interest reserve account with the Lender.

Subsequent to the year ended December 31, 2023, the Lender defaulted on its obligation to return the interest reserve deposit.

Given the uncertainty of when or if funds will be recovered from the Lender, the Company recognized a reserve for a credit loss for $ 5.3 million as of December 31, 2023.

The Company intends to pursue all available remedies to recover these funds, including legal actions, receivership and insurance.

Legal Matters

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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.

(“Altor/NantCell”) 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.

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”).

On April 18, 2023, the U.S.

District Court for the Southern District of Florida (the “Court”) heard oral argument on the Company’s motion to compel and ordered the parties to provide supplemental briefing by April 28, 2023.

Before the Court ruled on the Company’s motion to compel, on April 26, 2023, the parties stipulated that Altor/NantCell’s action against the Company would be consolidated with the Altor/NantCell arbitration demand against Dr.

On April 27, 2023, 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 is now proceeding in arbitration before JAMS, with an arbitration hearing scheduled for May 20, 2024.

In addition, on March 26, 2024, Altor/NantCell gave notice that they are filing a complaint (the “Complaint”) against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

Wong, our founder and chief executive officer, in connection with the arbitration discussed above.

Prior to the filing of the Complaint, Altor/NantCell had previously sought advancement from the Company and the Company agreed to advance 50 % of Dr.

fees going forward from December 2023.

On January 8, 2024, Altor/NantCell reserved their right to pursue contribution against the Company for 50 % of the amount Altor/NantCell sent for advancement of expenses for Dr.

In the Complaint, Altor/NantCell seek 50 % of the fees they have already advanced to Dr.

Wong, a declaration that the Company has an obligation to contribute 50 % of the advancement of Dr.

Wong’s expenses including 50 % of Dr.

Wong’s expenses incurred in connection with the arbitration through final resolution of the matter, and costs and fees in bringing this action.

Inflationary Cost Environment, Geopolitical Risks and Other Macroeconomic Factors

The Company’s 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 in the Middle East, the conflict between Russia and Ukraine, China-Taiwan relations, financial market volatility and currency movements.

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

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

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.

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

In addition to the required recognition or disclosure disclosed in the footnotes herein, there were also the following subsequent events after the reporting date:

On February 29, 2024, the lease on the Company's current location reached the end of its term.

The Company entered a new one-year lease for the same location which commenced on March 1, 2024 and terminates on February 28, 2025.

As a lease of 12 months or less in duration and qualifies for a short-term lease exemption under ASC 842-20-25-2.

The Company elects to account for this lease on a straight-line basis over the lease term and will not recognize a ROU asset and a lease liability as a result.

The remaining lease payments under the new short-term lease are $ 274,823 .

On February 20, 2024, the Company completed a $ 2.5 million private placement of shares of common stock with certain of its officers and directors at a price of $ 1.40 per share.

The Company issued 1,785,718 shares of common stock in connection with the offering.

The shares have not been registered and will not be sold or transferred except as permitted under law and pursuant to registration or exemption therefrom.

The Board of Directors and Audit Committee of the Board of Directors reviewed the transaction under the policy for Related Party Transactions and determined that the transaction was in compliance with the Company's policy.

As of March 31, 2024, the Company agreed to issue $ 10.0 million in secured notes to investors, including certain officers and directors.

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