What changed in this filing

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Item 1. Financial Statements

2024-08-14 compared with 2024-05-15 · 155 added, 108 removed, 223 unchanged (54% of the section changed)

5 unchanged sentences

Accounts receivable, net

Secured note receivable

Prepaid expenses

2 unchanged sentences

Property, plant and equipment, net

LIABILITIES AND STOCKHOLDERS’ EQUITY

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

Current liabilities:

4 unchanged sentences

Commitments and contingencies (Note 8)

Stockholders’ equity:

Stockholders’ equity (deficit):

Common stock:

3 unchanged sentences

250,000,000 shares

authorized and 37,823,394 shares issued at March 31, 2024

authorized and 37,823,394 shares issued at June 30, 2024

Additional paid-in capital

Accumulated deficit

Total stockholders’ equity

Total liabilities and stockholders’ equity

Total stockholders’ equity (deficit)

Total liabilities and stockholders’ equity (deficit)

See accompanying notes to the unaudited condensed interim financial statements.

2 unchanged sentences

Three Months Ended

Six Months Ended

Cost of revenues

2 unchanged sentences

General and administrative

Legal expenses

Nonoperating loss

Total operating expenses

6 unchanged sentences

HCW Biologics Inc.

Condensed Statements of Changes in Stockholders’ Equity

For the Three Months Ended March 31, 2023 and 2024

Condensed Statements of Changes in Stockholders’ Equity (Deficit)

For the Six Months Ended June 30, 2023 and 2024

Stockholders’ Equity

4 unchanged sentences

Balance, March 31, 2023

Stockholders’ Equity

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

Balance, June 30, 2023

Stockholders’ Equity (Deficit)

Stockholders’

Equity (Deficit)

Balance, December 31, 2023

3 unchanged sentences

Balance, March 31, 2024

Issuance of Common Stock upon exercise of stock options

Stock-based compensation

Balance, June 30, 2024

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:

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Accounts receivable

Deposit for interest reserve

Prepaid expenses and other assets

7 unchanged sentences

Proceeds from issuance of common stock

Proceeds from issuance of debt, net

Proceeds from issuance of debt

Debt repayment

7 unchanged sentences

Capital expenditures accrued, but not yet paid

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

See accompanying notes to the unaudited condensed interim financial statements.

7 unchanged sentences

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 the Company’s condensed interim financial statements.

In accordance with FASB Accounting Standards Codification (“ASC”) 205-40, Presentation of Financial Statements – Going Concern (“Topic 205-40”), management is required to evaluate whether there are conditions and events, considered in the aggregate that raise substantial doubt about the Company’s ability to continue as a going concern for at least 12 months from the issuance date of the Company’s condensed interim 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.

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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 financial statements are issued.

As of March 31, 2024, 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, 2024, 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 to March 31, 2024, the Com pany incurred cumulative net losses of $ 75.5 million.

As of March 31, 2024, the Company had $ 4.1 million in cash and cash equivalents.

Since inception to June 30, 2024, the Company incurred cumulative net losses o f $ 90.8 million.

As of June 30, 2024 , the Company had $ 1.2 million in cash and cash equivalents.

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 cash balance as of June 30, 2024 reflects the events reported in the Form 8-K filed on May 1, 2024 with the Securities and Exchange Commission (“SEC”), in which the Company reported that it was a victim of a criminal scheme involving the impersonation of a purchaser upon the default on a legally binding commitment to purchase $ 8.0 million of secured notes from the Company.

Further, the scheme resulted in the misdirection of approximately $ 1.3 million held in Company accounts to a fraudulent account controlled by a third party.

The Company is pursuing all available remedies to recover this loss.

Given the limited success that these efforts have had to date for the recovery of funds, the Company recognized a loss of $ 1.3 million in the three- and six-month periods ended June 30, 2024.

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

This issue was first identified as of December 31, 2023.

To date, the Company has funded operations primarily through the sale of stock, issuance of senior secured notes 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 three months ended March 31, 2023 and 2024, the Company recognized revenues of $ 41,883 and $ 1.1 million, respectively, genera ted from the supply of clinical and research grade material to Wugen.

As of March 31, 2024, we held $ 4.1 million of cash and cash equivalents, and there was substantial doubt about the Company’s ability to continue as a going concern.

Under the guidance of Topic 205-40 for going concern assessment, we evaluated whether we mitigated substantial doubt over our ability to remain a going concern.

We considered that the Company is expecting to continue to generate losses as its products are in clinical development and will not generate commercial sales.

Subsequent to the end of the first quarter, the Company raised $ 1.6 million in additional financing, consisting of funds received from the issuance of senior secured notes (“Secured Notes”) to the Company’s Founder and Chief Executive Officer.

After considering management’s plan for financing and funds raised since year end, management concluded that substantial doubt is not alleviated.

Therefore, substantial doubt remains over whether the Company has the ability to continue as a going concern within 12 months from the date of issuance of the condensed interim financial statements.

In the second quarter of 2024, management made some reductions in costs, but in order to continue the clinical development for the Company’s lead product candidates, the Company must maintain a core group of scientists.

The Company continues to pursue a plan to obtain bridge financing through the issuance of up to $ 10.0 million in Secured Notes, $ 3.6 million of which have been issued through the date of issuance of the condensed interim financial statements.

The Company anticipates that this bridge financing, if fully subscribed, will allow the Company to reach such time as it can execute plans for business development transactions such as licenses for non-core assets and capital-raising transactions, although there can be no assurance of this outcome for many reasons, including the uncertainties regarding the Company’s ongoing arbitration proceedings with Altor/NantCell, as described in Note 8.

In addition to the bridge financing in the form of the sale of additional Secured Notes, other potential near-term financing plans may

include cooperative agreements for clinical trials and third-party collaboration funding.

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

In the three months ended June 30, 2023 and 2024, the Company recognized revenues generated from the supply of clinical and research grade material to Wugen of $ 622,807 and $ 618,854 , respectively.

In the six months ended June 30, 2023 and 2024, the Company recognized revenues generated from the supply of clinical and research grade material to Wugen of $ 664,690 and $ 1.7 million, respectively.

As of June 30, 2024, the conclusion of a going concern assessment was that there was substantial doubt about the Company’s ability to continue as a going concern.

Under the guidance of Topic 205-40 for going concern assessment, management evaluated whether there were facts or circumstances that mitigated substantial doubt over the Company’s ability to remain a going concern.

Management considered that the Company is expecting to continue to generate losses as its products are in clinical development and will not generate commercial sales.

The Company also considered the burden on resources of legal proceedings.

As reported in the Company’s Form 8-K filed on July 18, 2024 and further described in Part II, Item 1.

– “Legal Proceedings” below, as of July 13, 2024, the Company and Dr.

Wong, the Company’s Founder and Chief Executive Officer, entered into a confidential Settlement Agreement and Release (the “Settlement Agreement”) with Altor BioScience, LLC (“Altor”), NantCell, Inc.

(“NantCell”), and ImmunityBio, Inc.

(the parent of Altor and NantCell, together with Altor and NantCell, “ImmunityBio”), to resolve the previously disclosed arbitration before JAMS brought by Altor and NantCell (the “Arbitration”) as well as a complaint Altor filed against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

Wong (“Complaint”).

The Settlement Agreement includes mutual general releases by and among the parties thereto.

No party is required to make any monetary payments to any other party or person under the Settlement Agreement and each party will bear its own expenses incurred in connection with the matter.

The Company is completing procedures required to be in compliance with the terms of the Settlement Agreement.

The Settlement Agreement provides that, upon completion of these procedures, the parties will stipulate that the Arbitration and Complaint should be dismissed.

In accordance with 17 CFR 229.601 (Item 601), the Company intends to include the Settlement Agreement in the Company’s third quarter report on Form 10-Q.

The Company entered into the Settlement Agreement to avoid the costs, disruption and distraction of further litigation.

In the accompanying condensed balance sheet as of June 30, 2024, the Company reported a balance of $ 10.0 million for legal fees incurred but not yet paid that were included within accounts payable and an accrual of $ 4.8 million for accrued legal fees within accrued liabilities and other current liabilities.

The Company is engaged in discussions with the law firms involved with this matter to arrange a reasonable payment plan with respect to those legal fees.

The Company continues to pursue bridge f inancing through the issuance of up to $ 10.0 million in Secured Notes.

Subsequent to the end of the second quarter of 2024, the Company issued an additional $ 1.8 million in Secured Notes, bringing the total issuance of Secured Notes to $ 5.5 million.

With the S ettlement Agreement and imminent dismissal of the Arbitration, the attendant uncertainties for the outcome and additional complexities, as well as on-going legal costs of the dispute have been lifted.

As a result, management believes that in addition to the secured note financing, other avenues of financing are now available to the Company.

The Company has developed and is implementing its financing plan involving other capital-raising activities for equity investments which it intends to close by year-end.

Management anticipates that the capital obtained through these financings will allow the Company to fund operations through to execution of its plans for business development transactions such as licenses, although there can be no assurance of this outcome.

In addition, near-term financing plans may include cooperative agreements for clinical trials and third-party collaboration funding.

If the Company is not successful in raising additional capital, management intends to revise its business plan and reduce costs.

If such revisions are insufficient, the Company may have to curtail or cease operations.

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 accompanying interim 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.

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Unaudited Interim Financial Information

The accompanying unaudited condensed interim financial statements as of March 31, 2024 and for the three-month periods ended March 31, 2023 and 2024 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, 2024 and for the three- and six-month periods ended June 30, 2023 and 2024 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-month period ended March 31, 2024 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-month periods ended June 30, 2024 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period.

The condensed interim balance sheet at December 31, 2023 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S.

1 unchanged sentence

Because all of the disclosures required by U.S.

GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023 which appear in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 filed with the Securities and Exchange Commission (the “SEC”) on May 15, 2024 (the “Annual Report”) and in other filings with the SEC.

GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2023, which appear in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on May 15, 2024 (the “Annual Report”) and in other filings with the SEC.

Reclassification of Prior Period Presentation of Legal Expenses

Certain prior period amounts have been reclassified to distinguish between General and administrative expenses in the ordinary course of business and legal expenses incurred in connection with the arbitration and Settlement Agreement described in Notes 1.

Reclassification of legal expenses incurred in connection with legal proceedings impacts the consolidated interim statements of operations.

There is no effect on reporting results of operations from prior periods.

Revenue Recognition

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

The Company accounts for revenues in accordance with ASC 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 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”) for the supply of materials for clinical development of licensed products.

On March 14, 2022, the Company entered into statements-of-work (“SOWs”) contemplated under the MSA for all current and historical purchases of clinical and research grade materials.

The Company determined that upon entering into the SOWs all requirements were met to qualify as a contract under Topic 606.

The manufacturing of the clinical and research materials supplied by the Company each represents a single performance obligation that is satisfied over time.

On June 18, 2021, the Company entered into a master services agreement for the supply of materials for clinical development of licensed products.

To meet all the criteria to qualify as a contract under Topic 606, the Company must enter into statements-of-work for purchases of clinical and research grade materials.

The Company has determined that the manufacturing of the clinical and research materials supplied by the Company each 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.

1 unchanged sentence

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, 2024, the Company recogni zed $ 1.1 million in re venue related to sale of development supply materials.

For the three and six months ended June 30, 2023, the Company recognized $ 622,807 and $ 664,690 in revenue related to the sale of development supply materials to Wugen, respectively.

For the three and six months ended June 30, 2024, the Company recogni zed $ 618,854 and $ 1.7 million in re venue related to sale of development supply materials to Wugen, respectively.

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 March 31, 2024 and December 31, 2023, the Compa ny included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed interim balance sheets.

As of June 30, 2024 and December 31, 2023, the Compa ny included $ 1.6 million for the investment in Wugen in Investments in the accompanying condensed interim balance sheets.

The Company used its equity interest in Wugen to collateralize the Secured Notes.

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

Treasury which are classified as trading securities.

As of December 31, 2023 and March 31, 2024 , the Company had no Short-term investments.

Operating Leases

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

As of March 31, 2024 , the Company had a balance of $ 2.9 million included in Accrued liabilities and other current liabilities in the accompanying condensed interim balance sheet, consisting of $ 1.6 million for legal fees, $ 874,000 for construction in progress, $ 202,000 for clinical expenses, $ 57,000 for bonus payable, $ 122,152 for the current portion of long-term debt and $ 102,000 for salary and benefits.

As of June 30, 2024 , the Company had a balance of $ 6.3 million included in Accrued liabilities and other current liabilities in the accompanying condensed interim balance sheet, consisting of $ 4.8 million for legal fees, $ 422,000 for construction in progress, $ 500,000 for manufacturing expenses, $ 139,000 for clinical expenses, $ 57,000 for bonus payable, $ 124,000 for the current portion of long-term debt and $ 152,000 for salary and benefits.

Cogent Bank Loan

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

As of March 31, 2024, the Company had $ 6.4 million in principal outstanding in a loan under the 2022 Loan Agreement.

As of June 30, 2024, the Company had $ 6.3 million in principal outstanding in a loan under the 2022 Loan Agreement.

The interest-only period was 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.

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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, 2024.

The Company is in compliance with all covenants as of June 30, 2024.

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

As of March 31, 2024, the current portion of $ 122,152 is included in Accrued liabilities and other current liabilities, and the noncurrent portion of $ 6.4 million is included in Debt, net in the accompan y ing condensed interim balance sheet.

As of June 30, 2024 , the current portion of $ 123,956 is included in Accrued liabilities and other current liabilities, and the noncurrent portion of $ 6.3 million is included in Debt, net in the accompan y ing condensed interim balance sheet.

Senior Secured Notes

On March 28, 2024, the Company entered into the Note Purchase Agreement with the Purchasers (as defined in the Note Purchase Agreement), pursuant to which the Company may issue Secured Notes up to an aggregate principal amount up to $ 10.0 million, and issued $ 2.0 million of Secured Notes to certain accredited investors.

Secured Notes were issued to the following investors:

Wong, Founder and Chief Executive Officer, who invested $ 620,000 ;

On March 31, 2024, the Company entered into a Note Purchase Agreement with the Purchasers (as defined in the Note Purchase Agreement), pursuant to which the Company may issue secured notes up to an aggregate principal amount up to $ 10.0 million (“Secured Notes”).

As of June 30, 2024, the Company received $ 3.7 million in funding from the issuance of Secured Notes, which is included within Debt, Net on the accompanying condensed interim balance sheet.

Investors included Dr.

Wong, Founder and Chief Executive Officer, who invested $ 2.2 million;

Rebecca Byam, Chief Financial Officer, who invested $ 220,000 ;

Winer, member of our Board of Directors, who invested $ 50,000 , as well as unrelated parties.

As of March 31, 2024, the Company received $ 1.8 million in cash payments for the Secured Notes.

A check payment of $ 250,000 , that has since cleared, is included in Secured note receivable in the accompanying condensed interim balance sheet.

The Note Purchase Agreement sets forth the terms and conditions, including representations and warranties, for our issuance and sale of the Secured Notes to the Purchasers.

The indebtedness for the Secured Notes is included in Debt, net in the accompanying condensed interim balance sheet.

The Senior Notes bear interest at a rate of 9 % per annum, payable quarterly in arrears, and mature on March 27, 2026 (the “Maturity Date”), on which date the principal balance and accrued but unpaid interest under the Secured Notes shall be due and payable.

If the Company elects to prepay the Senior Notes prior to the Maturity Date, there is a 5 % prepayment penalty.

As security for the Secured Notes, the Company pledged its equity ownership interest in Wugen, which was equivalent to a 5.6 % ownership stake in that company as of March 31, 2024 (“Pledged Collateral”).

Garrett, the Chairman of the Company’s board of directors, who invested $ 90,000 ;

Winer, a member of our board of directors, who invested $ 60,000 , as well as unrelated parties.

As of June 30, 2024, existing investors in Secured Notes unanimously agreed to an Amended and Restated Note Purchase Agreement and related documents (“Amended and Restated Note Purchase Agreement”).

Under the terms of the Amended and Restated Note Purchase Agreement, the Secured Notes continu e to bear interest at a rate of 9 % per annum , payable quarterly in arrears.

The Secured Notes will mature on August 30, 2026 (the “Maturity Date”), on which date the principal balance, accrued but unpaid interest and other amounts owed under the terms of the Amended and Restated Note Purchase Agreement shall be due and payable.

The Company pledged its equity ownership interest in Wugen, which was equivalent to a 5.6 % ownership stake in that company as of June 30, 2024 (“Pledged Collateral”).

The Pledged Collateral will be held and released according to the terms of the Escrow Agreement, as security for the Secured Notes.

The Secured Notes have a Mandatory Prepayment provision, according to which the Company is required to prepay the Secured Notes under certain circumstances.

The Note Purchase Agreement also contains default provisions, according to which the

Company shall be required to distribute the Pledged Collateral to the Purchasers on a pro rata basis, in full satisfaction of the indebtedness evidenced by the Secured Notes.

If the Company elects to prepay the Senior Notes on or before December 31, 2024, there is a 5 % prepayment penalty.

The Secured Notes have a Mandatory Prepayment provision, according to which the Company is required to prepay the Secured Notes before the Maturity Date under certain circumstances.

In the event of a Mandatory Prepayment, Secured Notes may receive a bonus payment based on the gross proceeds of the sale of the Pledged Collateral.

If a bonus payment is paid, then there is no prepayment penalty.

The Amended and Restated Note Purchase Agreement also contains default provisions, according to which, following an event of default, the Company may be required to distribute the Pledged Collateral to the Purchasers on a pro rata basis based on a $ 10.0 million issuance of Secured Notes, in full satisfaction of the indebtedness evidenced by the Secured Notes.

Amended terms of the Amended and Restated Note Purchase Agreement include a conversion feature, which gives the holder a right to convert the outstanding indebtedness to shares of the Company’s common stock under certain conditions, subject to final documentation.

The holders of the Secured Notes have no obligation to exercise the conversion option, however, if the holders of the majority of principal of Secured Notes outstanding choose to do so, then all the holders of Secured Notes must do so.

Preferred Stock

As of December 31, 2023 and March 31, 2024 , the Company had 10,000,000 shares of preferred stock authorized and no shares issued.

As of December 31, 2023 and June 30, 2024 , the Company had 10,000,000 shares of preferred stock authorized and no such 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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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, 2023 and March 31, 2024:

The following table presents the Company’s assets, which were measured at fair value at December 31, 2023 and June 30, 2024:

At December 31, 2023:

Money market funds

At March 31, 2024:

At June 30, 2024:

Money market funds

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, 2023 and March 31, 2024.

The Company did no t have a provision for income taxes (current or deferred tax expense) as of December 31, 2023 and June 30, 2024.

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

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Operating Leases

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

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

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

The Company entered a new one-year lease for approximately 12,250 square feet of space located in Miramar, Florida, which was covered by two prior operating leases that had a two-year term that commenced on March 1, 2022 and ended on February 29, 2024 .

Upon the commencement of those 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.

The new lease commenced on March 1, 2024 and terminates on February 28, 2025.

If a lease has a term that is 12 months or less in duration, the lease qualifies for a short-term lease exemption under ASC 842-20-25-2.

The Company elected to take advantage of this exemption, and it will 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 resul t.

The remaining lease payments under the new short-term lease are $ 183,216 .

The Company has no obligations under finance leases.

The components of the lease expense for the three months ended March 31, 2024 were as follows:

For the Three Months

Ended March 31, 2024

Operating lease cost

Supplemental cash flow information related to the Company’s operating lease was as follows:

For the Three Months

Ended March 31, 2024

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

Operating cash flows

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

Operating lease

For the three months ended March 31, 2023 and 2024 , rent expense recognized by the Company was $ 43,950 and $ 47,838 , respectively, of which $ 22,212 and $ 23,453 , respectively, are included in research and development in the accompanying condensed interim statements of operations .

The Company has no obligations under financing leases.

For the three months ended June 30, 2023 and 2024 , rent expense recognized by the Company was $ 40,875 and $ 49,524 , respectively, of which $ 22,212 and $ 25,936 , respectively, are included in research and development in the accompanying condensed interim statements of operations.

For the six months ended June 30, 2023 and 2024, rent expense recognized by the Company was $ 84,825 and $ 96,907 , respectively, of which $ 44,424 and $ 49,389 , respectively are included in research and development in the accompanying condensed interim statements of operations.

Contractual Commitments

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

As of March 31, 2024 , it is under contract for obligations of $ 649,517 it expects to pay during the year ending December 31, 2024.

As of December 31, 2023 and March 31, 2024, the Company had commitments to fund $ 4.4 million and $ 2.8 million, respectively, in construction costs related to the buildout of its new headquarters and manufacturing facility.

As of June 30, 2024, it is under contract for obligations of $ 163,750 it expects to pay during the year ending December 31, 2024.

As of December 31, 2023 and June 30, 2024, the Company had commitments to fund $ 4.4 million and $ 2.6 million, respectively, in construction costs related to the buildout of its new headquarters and manufacturing facility.

Project Financing

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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.

In the three months ended March 31, 2024, 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.

However, 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.

Nonoperating Loss

As reported in the Company’s Form 8-K filed on May 1, 2024 with the SEC, the Company became aware that it was the victim of a criminal scheme involving the impersonation of a purchaser upon the default on a legally binding commitment to purchase $ 8.0 million of secured notes from the Company.

The scheme resulted in the misdirection of approximately $ 1.3 million held in Company accounts to a fraudulent account controlled by a third party.

The Company is pursuing all available remedies to recover this loss.

Given the limited success that these efforts have had to date for the recovery of funds, the Company recognized a loss of $ 1.3 million in the three- and six-month periods ended June 30, 2024.

Legal Proceedings

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

Arbitration, Settlement and General Release

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

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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”).

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 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.

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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 is now proceeding in arbitration before JAMS and is consolidated with the arbitration Altor/NantCell initiated against Dr.

The arbitration hearing is scheduled to begin on May 20, 2024.

In addition, on March 26, 2024, Altor/NantCell filed 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.

Wong’s legal 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.

Altor/NantCell’s proceeding against the Company proceeded in arbitration before JAMS and consolidated with the arbitration Altor/NantCell initiated against Dr.

Wong (the “Arbitration”).

On March 26, 2024, Altor/NantCell filed 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.

As reported in the Company’s Form 8-K filed on July 18, 2024 and described in Part II, Item 1.

– “Legal Proceedings” below, as of July 13, 2024, the Company and Dr.

(“NantCell”), and ImmunityBio, Inc.

(the parent of Altor and NantCell, together with Altor and NantCell, “ImmunityBio”), to resolve the previously disclosed Arbitration before JAMS brought by Altor and NantCell as well as the Complaint Altor filed against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

The Settlement Agreement includes mutual general releases by and among the parties thereto.

No party is required to make any monetary payments to any other party or person under the Settlement Agreement and each party will bear its own expenses incurred in connection with the matter.

The Company is completing procedures required to be in compliance with the terms of the Settlement Agreement.

The Settlement Agreement provides that, upon completion of these procedures, the parties will stipulate that the Arbitration and Complaint should be dismissed.

In accordance with 17 CFR 229.601 (Item 601), the Company intends to include the Settlement Agreement in the Company’s third quarter report on Form 10-Q.

Other Matters

Prior to the date of issuance, certain subcontractors filed mechanics liens related to unpaid invoices issued in connection with the Company’s construction of its new manufacturing facilities and upgraded research laboratories.

The Company continues to seek a lender to provide financing to complete this project.

As of June 30, 2024, certain subcontractors filed mechanics liens related to unpaid invoices issued in connection with the Company’s construction of its new manufacturing facilities and upgraded research laboratories.

The Company continues to seek the financing required to complete the construction project.

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

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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 May 13, 2024, the Company’s Founder and Chief Executive Officer purchased an additional $ 1.6 million in Secured Notes, bringing his total purchases of Secured Not es to $ 2.2 million.

The Board of Directors and the Audit Committee of the Board of Directors reviewed the transaction under the Company’s policy for Related Party Transactions (the “Policy”) and determined that the transaction was in compliance with the Policy.

Subsequent to the end of the second quarter of 2024, the Company issued an additional $ 1.8 million in Secured Notes.

On July 2, 2024, the Company issued an additional $ 1.5 million in Secured Notes.

As of August 5, 2024, the Company issued $ 250,000 in Secured Notes, including an investment of $ 75,000 from Dr.

$ 50,000 from Mr.

$ 25,000 from Rick S.

Greene, a member of the board of directors;

and $ 25,000 from Lee Flowers, Senior Vice President of Business Development.

As reported in the Company’s Form 8-K filed on July 18, 2024 and further described in Part II, Item 1.

– “Legal Proceedings,” as of July 13, 2024, the Company and Dr.

Wong, the Company’s Founder and Chief Executive Officer, entered into a confidential Settlement Agreement and Release with Altor BioScience, LLC (“Altor”), NantCell, Inc.

(“NantCell”), and ImmunityBio, Inc.

(the parent of Altor and NantCell, to resolve the previously disclosed arbitration before JAMS brought by Altor and NantCell as well as a complaint Altor filed against the Company in the Chancery Court of the State of Delaware for the contribution of legal fees and expenses advanced to Dr.

Wong (“Complaint”).

In accordance with 17 CFR 229.601 (Item 601), the Company intends to include the Settlement Agreement in the Company’s third quarter report on Form 10-Q.

As reported on the Company’s Form 8-K filed on August 12, 2024, the Company received written notices from the Listing Qualifications Staff (“Staff”) of the Nasdaq Stock Market LLC (“Nasdaq”) notifying the Company that it is not in compliance with Nasdaq Listing Rules.

The notifications from Nasdaq do not impact the listing of the Company’s common stock at this time.

The Company received a notice that it was not in compliance with Nasdaq Listing Rules for the $ 50.0 million market value listed securities requirement as of June 17, 2024;

the minimum bid price as of August 6, 2024;

and the $ 15.0 million market value of publicly held shares requirement as of August 8, 2024.

The Company has 180 days from the respective date of notice to address each deficiency.

While the Company is exercising diligent efforts to maintain the listing of its common stock on Nasdaq, there can be no assurance that the Company will be able to regain or maintain compliance with the applicable continued listing standards set forth in the Nasdaq Listing Rules.

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