HCW Biologics Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with (i) our unaudited condensed interim financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q and (ii) our audited financial statements and related notes and the discussion under the heading “Management's Discussion and Analysis of Financial Condition and Results of Operations” for the fiscal year ended December 31, 2023 included in the Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on May 15, 2024 (the “Annual Report”). Our historical results are not necessarily indicative of the results that may be expected for any period in the future. Unless the context requires otherwise, references in this Quarterly Report on Form 10-Q to the “Company,” “HCW Biologics,” “HCWB”, “we,” “us” and “our” refer to HCW Biologics Inc. Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, or the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. All statements other than statements of historical facts contained in this quarterly report, including statements regarding our future results of operations and financial position, business strategy, prospective products, product approvals, research and development costs, timing and likelihood of success of our clinical trials, plans and objectives of management for future operations, adequacy of our cash resources and working capital, future economic conditions or performance, and future results of anticipated products, are forward-looking statements. These statements involve known and unknown risks, uncertainties and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. In some cases, you can identify forward-looking statements by terms such as “may,” “will,” “should,” “expect,” “plan,” “anticipate,” “could,” “intend,” “target,” “project,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. The forward-looking statements in this Quarterly Report on Form 10-Q are only predictions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our business, financial condition and results of operations. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated in the forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed in this report in Part II, Item 1A -“Risk Factors,” in this Quarterly Report on Form 10-Q and in other filings we make with the SEC from time to time. The events and circumstances reflected in our forward-looking statements may not be achieved or occur and actual results could differ materially from those projected in the forward-looking statements. Moreover, we operate in an evolving environment. New risk factors and uncertainties may emerge from time to time, and it is not possible for management to predict all risk factors and uncertainties. These forward-looking statements speak only as of the date hereof. Except as required by applicable law, we do not plan to publicly update or revise any forward-looking statements contained herein, whether as a result of any new information, future events, changed circumstances or otherwise. Overview HCW Biologics Inc. 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. We believe age-related, chronic, low-grade inflammation, or “inflammaging,” is a significant contributing factor to several diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The induction and retention of low-grade inflammation in an aging human body is mainly the result of the accumulation of non-proliferative but metabolically active senescent cells, which can also be caused by persistent activation of protein complexes, known as inflammasomes, in innate immune cells. These two elements share common mechanisms in promoting secretion of proinflammatory proteins and in many cases interact to drive senescence, and thus, inflammaging. Our novel approach is to reduce senescent cells and eliminate the proinflammatory factors they secrete systemically through multiple pathways. We believe our approach has the potential to fundamentally change the treatment of age-related diseases. Accumulation of senescent cells with a senescence-associated proinflammatory factors has been implicated as a major source of chronic sterile inflammation leading to many aging-related pathologies. The key to our immunotherapeutic approach is elimination of senescent cells and the proinflammatory factors they secrete. Our most advanced product candidates include three immunotherapeutic drugs we created with the proprietary TOBI™ (Tissue factOr-Based fusIon) drug discovery platform: 14 HCW9218. This is a clinical-stage molecule currently being evaluated in a Phase 2 clinical study in patients with ovarian cancer with the University of Pittsburgh Medical Center as sponsor. For this study, HCW9218 will be administered in combination with neoadjuvant chemotherapy as a first-line treatment with neoadjuvant chemotherapy alone serving as a control arm. Subcutaneous administration of HCW9218 activates NK cells, innate lymphoid group-1, and CD8 + T cells, and neutralizes TGF-β. This is a bifunctional molecule that can impact senescence by reducing senescent cells (i.e., senescent-cell-reducing effect) and eliminating the proinflammatory factors they secrete (i.e., senomorphic effect). Our future HCW9218 program will focus on ovarian cancer for our oncology program, with the primary focus on other senescence-associated diseases and conditions beyond cancer. HCW9302. This is a molecule currently completing IND-enabling activities. Subcutaneous administration of HCW9302 is designed to activate and expand T reg cells to reduce senescence by suppressing the activity of inflammasome-bearing cells and the inflammatory factors which they secrete. HCW9302 is the basis for our autoimmune program. We expect to file our IND application at the end of the third quarter in 2024. We are also exploring the utility of HCW9302 for other aging-related diseases, such as neurodegenerative diseases, in relevant animal models. Our plan is to identify the Recommended Phase 2 Dose (“RP2D”) in patients based on a Phase 1b clinical trial to evaluate HCW9302 in an autoimmune indication, then expand to a neurodegenerative disease indication in a Phase 2 trial utilizing this RP2D. HCW9206. This preclinical molecule is beginning IND-enabling activities. It has a unique design that results in a multi-functional compound with three powerful cytokines: IL-7, IL-15, and IL-21. Subcutaneous administration of HCW9206 results in T cell proliferation and activation, enhances NK cell cytotoxicity, and improves overall immune surveillance against pathogens or tumors. HCW9206 is being considered to be the basis of our future oncology program. Ex vivo rights have been licensed to Wugen. HCW9201. This is a clinical-stage molecule currently being evaluated by Wugen in a Phase 1 clinical trial in Acute Myeloid Leukemia, as a cell-based treatment. We have not yet initiated any clinical trials to evaluate HCW9201 in other indications. We retain the rights for administration by subcutaneous injection. HCW9201 has a unique design that results in a multi-functional compound with three powerful cytokines, IL-12, IL-15, and IL-18, in a single protein complex. We are exploring intra-tumoral injection of HCW9201 for treatment of cancer. Business Highlights Implementation of Arbitration Settlement Agreement The Settlement Agreement among the Company, Dr. Wong, Altor, NantCell and ImmunityBio, which was entered into as of July 13, 2024, and is described in Part II, Item 1. – Legal Proceedings” below, eliminated the uncertainty of the outcome of the previously disclosed arbitration proceedings and provided clarity for the future direction and emphasis of our clinical development strategy. The settlement involved intellectual property the Company developed, including the proprietary TOBI TM drug discovery platform and its unique tissue-factor scaffold used to create protein-fusion molecules that include several elements, such as multiple protein targets, including cytokines, single-chain antibodies, and ligands, as well as proprietary TOBI TM -based molecules. The primary molecule involved in the settlement was HCW9218, a bi-functional immunotherapeutic designed to with the cytokine IL-15, known to rejuvenate the immune system and reduce senescence, as well as a “trap” or neutralize TGF-β, a powerful cytokine that drives immunosuppressive activity. HCW9218 had been evaluated in two initial-stage clinical studies in cancer indications. One of the benefits of the Settlement Agreement is that the Company now has a clear path for the future, and the TOBI TM -based product candidates and indications that will be part of our clinical development strategy. We are in the process of reassessing our clinical assets and will make some adjustments to our definition of the indications and markets that will be our core focus, but we remain committed to developing immunotherapeutic treatments for age-related diseases, especially cancer. 15 We will need to make some adjustments with respect to the development of TOBI TM -based molecules to treat cancer indications, in particular, with respect to our lead product candidate, HCW9218, and other derivative molecules designed with TGF-β traps. The TGF-β trap is designed to neutralize the immunosuppressive nature of TGF-β, but there are other approaches to do so. Under the Settlement Agreement, we retain the non-exclusive rights related to the clinical development of HCW9218 for the treatment of ovarian cancer using HCW9218 in combination with neoadjuvant chemotherapy, as well as the exclusive right to clinical development of HCW9218 for the treatment of all indications outside of oncology. We retain the rights for HCW9206, a protein-fusion molecule designed with IL-7, IL-21 and IL-15 anchored to the TOBI TM platform. We have accelerated the development of this molecule since it has shown potential for the treatment of cancer in preclinical research conducted by the Company as well as collaborators at leading research institutions. Because of its central role in the regulation of conventional T cell homeostasis, including proliferation, survival, and memory formation without eliciting autoimmunity, IL-7 has been considered from early on as a key factor in immunotherapeutics. In our preclinical studies, HCW9206 has exhibited many of the properties to reduce senescent cells and the proinflammatory factors they secrete that are characteristic of HCW9218, without relying on a TGF-β trap in its design. For our autoimmune disease program based on HCW9302, we do not foresee the need to make any significant adjustments to the current program, and we remain on track to file an IND application to evaluate HCW9302 for treatment of autoimmune disease in the third quarter of 2024. In addition, we retain unrestricted rights with respect to the creation of new compounds based on the TOBI TM discovery platform, so long as they do not include a TGF-β domain. Financing • Capital-raising activities provided $8.0 million in 2024, consisting of the following: o $2.5 million in a private placement of common stock in which we sold an aggregate of 1,785,718 shares to certain officers and members of the Company’s board of directors at a purchase price of $1.40 per share. o $5.5 million from the issuance of senior secured notes (“Secured Notes”). The Company is authorized to raise up to $10.0 million in Secured Notes and will continue to seek investors for the remaining $4.5 million of Secured Notes available for issuance. • We have launched our plans to expand our capital-raising activities, including financing through direct investment as well as business development transactions, such as licensing and collaborative agreements. • The Company is in the process of reassessing our product candidates to determine which compounds, indications and markets will be considered “core assets,” We will continue to seek business development transaction for our non-core assets through licenses for rights to certain compounds, disease indications and markets. • As of June 30, 2024, we believe that substantial doubt exists regarding our ability to continue as a going concern for at least 12 months from the date of issuance, without additional funding or financial support. After giving consideration to elements of our financing plan that were probable to occur within a year of the date of issuance, we concluded that substantial doubt was not alleviated in the going concern analysis. • We have received written notices from the Listing Qualifications Staff of the Nasdaq Stock Market LLC (“Nasdaq”) notifying us that we are not in compliance with continued listing requirements on the Nasdaq Global Market for the market value of listed securities as of June 17, 2024; minimum bid price as of August 6, 2024; and the market value of publicly held shares as of August 8, 2024. Under Nasdaq Listing Rules, the Company has a period of 180 calendar days from the date of notice in which to regain compliance. We intend to take all reasonable measures available to us to regain compliance with the continued listing requirements for the Nasdaq Global Market. Clinical Development • There is an ongoing Investigator-sponsored Phase 2 clinical trial to evaluate HCW9218 in patients with metastatic advanced stage ovarian cancer in combination with neoadjuvant chemotherapy, sponsored by the University of Pittsburgh Medical Center. (NCT05145569) • In the coming year, after finalizing the supply agreement with ImmunityBio, we intend to conduct investigative studies to evaluate HCW9218 in senescence-associated diseases and disorders beyond cancer. • We are in the final stages of completing the IND application to evaluate HCW9302 in an autoimmune disease, which we plan to submit by the end of the third quarter of 2024. There can be no assurance that the FDA will authorize us to initiate our planned clinical trials on a timely basis, or at all. In the event we do not receive feedback on a timely basis, or we are required to change the design of our clinical protocol or address other feedback, clinical development of our products would be delayed and our costs may increase. 16 • In June 2024, a scientific paper authored by our scientific research team led by Dr. Wong was published in the peer-reviewed journal, Cancer Immunology, Immunotherapy, entitled, “A ‘Prime and Expand’ Strategy Using Multifunctional Fusion Proteins to Generate Memory-Like NK Cells for Cell Therapy.” The paper features HCW9206 and highlights that the “prime and expand” strategy represents a simple feeder cell-free approach to streamline manufacturing of clinical-grade Memory-Like NK cells to support multidose and off-the-shelf Adoptive Cellular Therapy. Rights to develop cell-based therapies based on HCW206 is licensed to Wugen. Trends and Uncertainties Inflationary Cost Environment, Banking Crisis, Supply Chain Disruption and the Macroeconomic Environment Our operations have been affected by many headwinds, including inflationary pressures, rising interest rates, ongoing global supply chain disruptions resulting from increased geopolitical tensions such as the war between Russia and Ukraine, the war in the Middle East, China-Taiwan relations, financial market volatility and currency movements. These headwinds, specifically the supply chain disruptions, have adversely impacted our ability to procure certain services and materials, which in some cases impacts the cost and timing of clinical trials and IND-enabling activities. In addition, we have been impacted by inflation when procuring materials required for the buildout of our new headquarters, the costs for recruiting and retaining employees and other employee-related costs. Further, rising interest rates have also increased borrowing costs. The Company uses a number of strategies to effectively navigate these issues, including product redesign, alternate sourcing, and establishing contingencies in budgeting and timelines. However, the extent and duration of such events and conditions, and resulting disruptions to our operations, are highly unpredictable. For discussion of risks related to potential impacts of supply chain, inflation, geopolitical and macroeconomic challenges on our operations, business results and financial condition, see Part II, Item 1A. - “Risk Factors” in the Company’s Annual Report. Components of our Results of Operation Revenues We have no products approved for commercial sale and have not generated any revenue from commercial product sales of internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases. The principal source of our revenues to date have been generated from our Wugen License and Master Services Agreement (the “MSA”) with Wugen. See Note 1 to our condensed interim financial statements included elsewhere in this Quarterly Report for these definitions and more information. We derive revenue from a license agreement granting rights to Wugen to further develop and commercialize products based on two of our internally-developed molecules. Consideration under our contract included a nonrefundable upfront payment, development, regulatory and commercial milestones, and royalties based on net sales of approved products. Additionally, HCW Biologics retained manufacturing rights and has agreed to provide Wugen with clinical and research grade materials for clinical development and commercialization of licensed products under separate agreements. We assessed which activities in the Wugen License should be considered distinct performance obligations that should be accounted for separately. We develop assumptions that require judgement to determine whether the license to our intellectual property is distinct from the research and development services or participation in activities under the Wugen License. Performance obligations relating to the granting a license and delivery of licensed product and R&D know-how were satisfied when transferred upon the execution of the Wugen License on December 24, 2020. The Company recognized revenue for the related consideration at a point in time. The revenue recognized from a transaction to supply clinical and research grade materials entered into under the MSA and covered by a Statement of Work, represents one performance obligation that is satisfied over time. The Company recognizes revenue generated for supply of material for clinical development 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. 17 Operating Expenses Our operating expenses are reported as research and development expenses and general and administrative expenses. Research and Development Our research and development expenses consist primarily of costs incurred for the development of our product candidates, which include: • Employee-related expenses, including salaries, benefits, and stock-based compensation expense; • Expenses related to manufacturing and materials, consisting primarily of expenses incurred primarily in connection with CMOs, which produce cGMP materials for clinical trials on our behalf; • Expenses associated with preclinical activities, including research and development and other IND-enabling activities; • Expenses incurred in connection with clinical trials; and • Other expenses, such as facilities-related expenses, direct depreciation costs for capitalized scientific equipment, and allocation for overhead. We expense research and development costs as they are incurred. Costs for contract manufacturing are recognized based on an evaluation of the progress to completion of specific tasks using information provided to us by our vendors. Payments for these activities are based on the terms of the agreement, and the pattern of payments for goods and services will change depending on the material. Nonrefundable advance payments for goods or services to be received in the future for use in research and development activities are recorded as prepaid expenses and expensed as the related goods are delivered or the services are performed. We expect research and development expenses to increase substantially for the foreseeable future as we continue the development of our product candidates. We cannot reasonably determine the nature, timing, and costs of the efforts that will be necessary to complete the development of, and obtain regulatory approval for, any of our product candidates. Product candidates in later stages of development generally have higher development costs than those in earlier stages. See “Risk Factors -- Risks Related to the Development and Clinical Testing of Our Product Candidates,” in our Annual Report for a discussion of some of the risks and uncertainties associated with the development and commercialization of our product candidates. Any changes in the outcome of any of these risks and uncertainties with respect to the development of our product candidates in preclinical and clinical development could mean a significant change in the costs and timing associated with the development of these product candidates. For example, if the FDA or another regulatory authority were to delay our planned start of clinical trials or require us to conduct clinical trials or other testing beyond those that we currently expect or if we experience significant delays in enrollment in any of our planned clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development of that product candidate. General and Administrative Expenses General and administrative expenses consist primarily of employee-related expenses, including salaries, related benefits, and stock-based compensation expense for employees in the executive, legal, finance and accounting, human resources, and other administrative functions. General and administrative expenses also include third-party costs such as insurance costs, fees for professional services, such as legal fees in the ordinary course of business, auditing and tax services, facilities administrative costs, and other expenses. We expect general and administrative expenses incurred in the normal course of business for other purposes, such as costs for recruitment and retention of personnel, service fees for consultants, advisors and accountants, as well as costs to comply with government regulations, corporate governance, internal control over financial reporting, insurance and other requirements for a public company, to continue to increase for the foreseeable future as we build our clinical programs. Legal Expenses Legal expenses consist of fees incurred by the Company in its own defense and that of officers and employees in connection with a legal matter brought against the Company and Dr. Hing C. Wong, our Founder and Chief Executive Officer, by a former employer of Dr. Wong. 18 During the period ended December 31, 2022, Altor/NantCell initiated legal proceedings against Dr. Wong and the Company. 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. Wong. On April 27, 2023, the U.S. District Court for the Southern District of Florida (the “Court”) with jurisdiction over the lawsuit against the Company 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. Proceedings against the Company and Dr. Wong were consolidated in the arbitration before JAMS (“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. Wong. The arbitration hearing was held on May 20, 2024 to May 31, 2024, after which the parties entered into settlement negotiations. 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. Hing C. 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 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. 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. 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. Interest Expense Interest expense includes interest paid on debt. Other Income, Net Other income, net consists of interest earned on our cash, cash equivalents, unrealized gains and losses related to our investments in U.S. government-backed securities, and other income and expenses related to non-operating activities. 19 Results of Operations Three Months Ended June 30, Six Months Ended June 30, 2023 2024 2023 2024 Revenues: Revenues $ 622,807 $ 618,854 $ 664,690 $ 1,745,566 Cost of revenues (502,402 ) (438,443 ) (531,752 ) (950,408 ) Net revenues 120,405 180,411 132,938 795,158 Operating expenses: Research and development 1,616,666 2,029,186 3,872,479 4,152,470 General and administrative 1,587,861 1,594,193 3,596,739 3,160,285 Legal expenses 1,426,399 10,393,042 2,534,811 14,812,076 Nonoperating loss — 1,300,000 — 1,300,000 Total operating expenses 4,630,926 15,316,421 10,004,029 23,424,831 Loss from operations (4,510,521 ) (15,136,010 ) (9,871,091 ) (22,629,673 ) Interest expense (95,514 ) (159,666 ) (188,951 ) (159,666 ) Other (expense) income, net 301,615 15,485 684,936 41,086 Net loss $ (4,304,420 ) $ (15,280,191 ) $ (9,375,106 ) $ (22,748,253 ) Comparison of the Three Months ended June 30, 2023 and June 30, 2024 Revenues The Company recognized revenues of $662,807 and $618,854 for the three months ended June 30, 2023 and 2024, respectively. Revenues were derived exclusively from the sale of licensed molecules to Wugen. Under the terms of the supply agreement between Wugen and the Company, the Company earns an industry-standard gross margin. Occasionally, Wugen acquires product which is part of inventory we made for our own use. In these instances, we do not apply the standard costs since the cost of manufacturing these materials would have already been expensed in a prior period. Research and Development Expenses The following table summarizes our research and development expenses for the three months ended June 30, 2023 and June 30, 2024: Three Months Ended June 30, 2023 2024 $ Change % Change Salaries, benefits and related expenses $ 758,193 $ 756,646 $ (1,547 ) (0 )% Manufacturing and materials 100,387 751,770 651,383 649 % Preclinical expenses 323,695 258,476 (65,219 ) (20 )% Clinical trials 197,936 65,120 (132,816 ) (67 )% Other expenses 236,455 197,174 (39,281 ) (17 )% Total research and development expenses $ 1,616,666 $ 2,029,186 $ 412,520 26 % Research and development expenses increased by $412,250, or 26%, from $1.6 million for the three months ended June 30, 2023 to $2.0 million for the three months ended June 30, 2024. The increase was primarily due to an increase in manufacturing and materials, offset by a decline in preclinical and clinical trial expenses. Salaries, benefits, and related expenses decreased by $1,547, or less than 1%, from $758,193 for the three months ended June 30, 2023 to $756,646 for the three months ended June 30, 2024. This decrease was primarily attributable to a $15,655 increase in salaries and related taxes, offset by a $11,103 decrease in expenses recognized for stock compensation and a $6,099 decrease in expenses for employee benefits. 20 Manufacturing and materials expense increased by $651,383, or 649%, from $100,387 for the three months ended June 30, 2023 to $751,770 for the three months ended June 30, 2024. In the three months ended June 30, 2023, costs were primarily attributable to ancillary activities such as shipping, insurance and storage. Production runs to build up a 12 - 24 month supply of clinical supply of HCW9218 and HCW9302 were completed. In the three months ended June 30, 2024, costs were primarily attributable to increased costs of production and materials related to manufacturing high-producing cell line of HCW9101, an affinity ligand we use in our manufacturing process. Expenses associated with preclinical activities decreased by $65,219, or 20%, from $323,695 for the three months ended June 30, 2023 to $258,476 for the three months ended June 30, 2024. For the three months ended June 30, 2023, costs were incurred primarily for additional studies required for submission of an IND application to the FDA to request permission to conduct a clinical study to evaluate HCW9302 in an autoimmune indication. In the three months ended June 30, 2024, toxicology and other IND-enabling studies were winding down, as we prepare to submit the IND application in the third quarter of 2024. Expenses associated with clinical activities decreased by $132,816, or 67%, from $197,936 for the three months ended June 30, 2023 to $65,120 for the three months ended June 30, 2024. The decrease in costs was primarily attributable a $105,959 decrease in the expenses associated with patient fees and a $21,958 decrease in consulting and other professional fees. Subject to our ability to successfully execute our plans to obtain financing, we anticipate expenses related to clinical activities will increase substantially in the future, as we continue with a Phase 2 clinical trial to evaluate HCW9218 in ovarian cancer, as well as other indications. If we are unable to complete planned capital-raising transactions and business development transactions for out-licensing, we may have to curtail or cease operations. Other expenses, which include overhead allocations, decreased by $39,281, or 17%, from $236,455 for the three months ended June 30, 2023 to $197,174 for the three months ended June 30, 2024. This decrease is primarily attributable to a $29,561 decrease in allocation of depreciation and a $6,880 decrease in travel and travel-related expenses. General and Administrative Expenses The following table summarizes our general and administrative expenses for the three months ended June 30, 2023 and June 30, 2024: Three Months Ended June 30, 2023 2024 $ Change % Change Salaries, benefits and related expenses $ 812,889 $ 714,974 $ (97,915 ) (12 )% Professional services 201,815 229,963 28,148 14 % Facilities and office expenses 141,459 204,715 63,256 45 % Depreciation 64,797 66,615 1,818 3 % Rent and occupancy expense 39,764 63,992 24,228 61 % Other expenses 327,137 313,934 (13,203 ) (4 )% Total general and administrative expenses $ 1,587,861 $ 1,594,193 $ 6,332 0 % General and administrative expenses related to the ordinary course of business were $1.6 million and $1.6 million for the three months ended June 30, 2023 and 2024, respectively, with an increase of $6,332, or 0%. Salaries, benefits and related expenses decreased by $97,915, or 12%, from $812,889 for the three months ended June 30, 2023 to $714,974 for the three months ended June 30, 2024. The decrease reflects cost cutting measures put in place in the three-month period ended June 30, 2024, which resulted in a $78,626 decrease in salaries and related taxes. In addition, there was a $12,499 decrease in expenses related to stock-based compensation. 21 Professional services increased by $28,148, or 14%, from $201,815 for the three months ended June 30, 2023 to $229,963 for the three months ended June 30, 2024. Professional services include corporate legal services, legal services for procuring patents, as well as other professional services, such as auditing and tax advisory fees. The increase is primarily attributable to a $39,850 increase in auditing and tax advisory fees, partially offset by a $11,652 decrease in legal fees for services incurred in connection with procuring patents. Facilities and office expenses increased by $63,256, or 45%, from $141,459 for the three months ended June 30, 2023 to $204,715 for the three months ended June 30, 2024, primarily due to a $73,462 increase in software and other licensing fees, offset by a $10,966 decrease in facilities expenses such as electricity and waste disposal. Other expenses decreased by $13,202, or 4%, from $327,137 for the three months ended June 30, 2023 to $313,934 for the three months ended June 30, 2024. The increase is primarily attributable to a $43,228 increase in financing expenses, offset by a $27,462 decrease in insurance-related costs and a $27,642 decrease in Delaware franchise taxes. Legal Expenses Legal expenses were $1.4 million in the three months ended June 30, 2023 and $10.4 million for the three months ended June 30, 2024. In the three months ended June 30, 2023, costs were incurred in connection with several legal proceedings which culminated by consolidating Altor/NantCell’s action against the Company with the Altor/NantCell arbitration demand against Dr. Wong. Thereafter, proceedings against the Company and Dr. Wong were consolidated in the arbitration before JAMS. In the three months ended June 30, 2024, the arbitration hearing was held from May 20, 2024 to May 31, 2024. The Company incurred legal fees for a large team of lawyers require to represent the Company; Dr. Wong; Dr. Peter Rhode, our Chief Scientific Officer and Vice President of Clinical Affairs and an officer of the Company; as well as other employees. The hearing was followed by an extended period of intense negotiations which culminated in a Settlement Agreement entered into by the Company and Dr. Wong as of July 13, 2024 with Altor/NantCell and its parent, ImmunityBio. While the Company has relief from the future burden of ongoing legal expenses related to these proceedings, we incurred significant legal expenses for our defense and for the defense of officers and employees. We require a reasonable payment plan to prevent these expenses from overwhelming the Company’s resources. We are engaged in discussions with the law firms involved with this matter. Interest Expense On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property we acquired on that same date. We borrowed $6.5 million under this agreement. Amounts outstanding on the loan accrue interest at a rate per annum equal to 5.75%. We were obligated to make interest-only payments on this loan from September 2022 through August 2023 and principal and interest payments in 47 equal monthly installments, based on a 25-year maturity schedule, commencing September 15, 2023. We paid $93,438 and $93,789 in cash for interest for the three months ended June 30, 2023 and 2024, respectively. For the three months ended June 30, 2023, interest was expensed. For the three months ended June 30, 2024, interest was capitalized. Other Income, Net Other income, net decreased from $301,615 for the three months ended June 30, 2023 to $15,485 for the three months ended June 30, 2024. The decrease is primarily attributable to a decrease in interest earned for money market deposits and unrealized gains for investments in U.S. government-backed securities. In addition, for the three months ended June 30, 2023, Other income included rental income. On August 15, 2022, the Company entered into a short-term, market-rate lease with the former owner of the building we purchased on the same date, which terminated in the year ended December 31, 2023. We received rental income of $59,453 for the three months ended June 30, 2023. Comparison of the Six Months ended June 30, 2023 and June 30, 2024 Revenues The Company recognized $664,690 and $1.7 million of revenues for the six months ended June 30, 2023 and 2024, respectively. Revenues were derived exclusively from the sale of licensed molecules to Wugen. Under the terms of the supply agreement between Wugen and the Company, the Company earns an industry-standard gross margin. Occasionally, Wugen acquires product which is part of inventory we made for our own use. In these instances, we do not apply the standard costs since the cost of manufacturing these materials would have already been expensed in a prior period. 22 Research and Development Expenses The following table summarizes our research and development expenses for the six months ended June 30, 2023 and June 30, 2024: Six Months Ended June 30, 2023 2024 $ Change % Change Salaries, benefits and related expenses $ 1,502,658 $ 1,536,393 $ 33,735 2 % Manufacturing and materials 385,293 1,328,072 942,779 245 % Preclinical expenses 1,061,381 543,567 (517,814 ) (49 )% Clinical trials 444,295 331,758 (112,537 ) (25 )% Other expenses 478,852 412,680 (66,172 ) (14 )% Total research and development expenses $ 3,872,479 $ 4,152,470 $ 279,991 7 % Research and development expenses increased by $279,991, or 7%, from $3.9 million for the six months ended June 30, 2023 to $4.2 million for the six months ended June 30, 2024. This increase was primarily attributable to an increase in expenses related to manufacturing and materials, partially offset by a decrease in preclinical and clinical trials expenses. Salaries, benefits, and related expenses increased by $33,375, or 2%, from $1.5 million for the six months ended June 30, 2023 to $1.5 million for the six months ended June 30, 2024. This increase was primarily attributable to a $42,888 increase in salaries and related taxes, partially offset by a $9,766 decrease in expenses related to stock-based compensation. Manufacturing and materials expense increased by $942,779, or 245%, from $385,293 for the six months ended June 30, 2023 to $1.3 million for the six months ended June 30, 2024. In the six months ended June 30, 2023, costs were primarily attributable to production activities associated with a 200L cGMP manufacturing run of HCW9302 and ancillary activities such as shipping, insurance and storage. In the six months ended June 30, 2024, costs were primarily attributable to the costs of production and materials related to manufacturing the high producing cell-line of HCW9101. Expenses associated with preclinical activities decreased by $517,814, or 49%, from $1.1 million for the six months ended June 30, 2023 to $543,567 for the six months ended June 30, 2024. In the six months ended June 30, 2023, costs were incurred to complete the toxicology study and for additional studies required for submission of an IND application to the FDA to request permission to conduct a clinical study to evaluate HCW9302 in an autoimmune indication. In the six months ended June 30, 2024, toxicology and other IND-enabling studies were winding down, as we prepare to submit the IND application late in the third quarter of 2024. Expenses associated with clinical activities decreased by $112,537, or 25%, from $444,295 for the six months ended June 30, 2023 to $331,758 for the six months ended June 30, 2024. The decrease was primarily attributable to a $170,973 decrease in patient fees, partially offset by a $60,091 increase costs for post-clinical studies that we conducted through collaborations. In the six months ended June 30, 2023, in addition to the University of Minnesota study which initiated in May 2022, the Company incurred costs related to an ongoing Company-sponsored Phase 1b clinical trial to evaluate HCW9218 in chemo-refractory/chemo-resistant pancreatic cancer which initiated in October 2022. In the six months ended June 30, 2024, we completed enrollment in the Phase 1/1b clinical trials and the majority of our activities were focused on post-clinical correlative studies which we conducted through collaborations. As a result of the Settlement Agreement, ImmunityBio has the exclusive right to the use of HCW9218 in the treatment of pancreatic cancer. We will continue to evaluate HCW9218 in combination with neoadjuvant chemotherapy in the treatment of ovarian cancer. Other expenses, which include overhead allocations, decreased by $66,172, or 14%, from $478,852 for the six months ended June 30, 2023 to $412,680 for the six months ended June 30, 2024. The decrease in other expenses is primarily attributable to a $60,089 decrease in the allocation of depreciation and a $9,911 decrease in travel-related expenses. General and Administrative Expenses The following table summarizes our general and administrative expenses for the six months ended June 30, 2023 and June 30, 2024: 23 Six Months Ended June 30, 2023 2024 $ Change % Change Salaries, benefits and related expenses $ 1,632,665 $ 1,236,585 $ (396,080 ) (24 )% Professional services 800,992 583,769 (217,223 ) (27 )% Facilities and office expenses 263,681 408,314 144,633 55 % Depreciation 134,010 133,694 (316 ) (0 )% Rent expense 81,924 106,708 24,784 30 % Other expenses 683,467 691,215 7,748 1 % Total general and administrative expenses $ 3,596,739 $ 3,160,285 $ (436,454 ) (12 )% General and administrative expenses related to the ordinary course of business decreased by $436,454, or 12%, from $3.6 million for the six months ended June 30, 2023 to $3.2 million for the six months ended June 30, 2024. The decrease is primarily attributable to a decrease in expenses as a result of cost-cutting measures put in place in the six months ended June 30, 2024, and a decrease in legal fees incurred in connection with procuring patents, partially offset by an increase in software licensing fees. Salaries, benefits and related expenses decreased by $396,080, or 24%, from $1.6 million for the six months ended June 30, 2023 to $1.2 million for the six months ended June 30, 2024. The decrease reflects cost cutting measures put in place in the six month period ended June 30, 2024, which resulted in a $54,525 decrease in salaries and $304,174 decrease resulting from the waiver of deferred bonus payments due to officers of the Company. In addition, there was a $28,357 decrease in expenses related to stock-based compensation. Professional services decreased by $217,223, or 27%, from $800,992 for the six months ended June 30, 2023 to $583,769 for the six months ended June 30, 2024. Professional services include corporate legal services, legal services for procuring patents, as well as other professional services, such as auditing and tax advisory fees. The decrease is primarily attributable to a $203,062 decrease in legal fees incurred in connection with procuring patents. Facilities and office expenses increased by 144,633, or 55%, from $263,681 for the six months ended June 30, 2023 to $408,314 for the six months ended June 30, 2024, primarily due to a $140,980 increase in software and other licensing fees and a $23,756 increase in costs for waste disposal, offset by a $20,808 decrease in facilities expenses such as office supplies and services. Other expenses decreased by $7,748, or 1%, from $683,467 for the six months ended June 30, 2023 to $691,215 for the six months ended June 30, 2024. The increase is primarily attributable to a $190,585 increase in financing expenses primarily related to our search for a lender to complete the construction of the Company’s new headquarters, partially offset by a $84,680 decrease in insurance-related costs and a $99,514 decrease in Delaware franchise taxes. Legal Expenses Legal expenses were $2.5 million in the six months ended June 30, 2023 and $14.8 million for the six months ended June 30, 2024. In the six months ended June 30, 2023, costs were incurred in connection with several legal proceedings which culminated by consolidating Altor/NantCell’s action against the Company with the Altor/NantCell arbitration demand against Dr. Wong. Thereafter, proceedings against the Company and Dr. Wong were consolidated in the arbitration before JAMS. In the six months ended June 30, 2024, preparations for the arbitration were taking place with witness preparation and depositions. The arbitration hearing was held from May 20, 2024 to May 31, 2024, which required a large team of lawyers to represent the Company; Dr. Wong; Dr. Peter Rhode, our Chief Scientific Officer and Vice President of Clinical Affairs and an officer of the Company; as well as other employees. The hearing was followed by an extended period of intense negotiations which culminated in a Settlement Agreement entered into by the Company and Dr. Wong as of July 13, 2024 with Altor/NantCell and its parent, ImmunityBio. While the Company has relief from the future burden of ongoing legal expenses related to these proceedings, we incurred significant legal expenses for our defense and for the defense of officers and employees. We require a reasonable payment plan to prevent these expenses from overwhelming the Company’s resources. We are engaged in discussions with the law firms involved with this matter. 24 Interest Expense On August 15, 2022, we entered into a loan and security agreement with Cogent Bank to partially fund our purchase of the property we acquired on that same date. We borrowed $6.5 million under this agreement. Amounts outstanding on the loan accrue interest at a rate per annum equal to 5.75%. We were obligated to make interest-only payments on this loan from September 2022 through August 2023 and principal and interest payments in 47 equal monthly installments, based on a 25-year maturity schedule, commencing September 15, 2023. We paid $93,438 and $93,789 in cash for interest for the six months ended June 30, 2023 and 2024, respectively. For the six months ended June 30, 2023, interest was expensed. For the six months ended June 30, 2024,three months interest was capitalized and three months interest was expensed. Other Income, Net Other income, net decreased from $684,936 for the six months ended June 30, 2023, to $41,086 for the six months ended June 30, 2024. The decrease is primarily attributable to a decrease interest earned for money market deposits and unrealized gains for investments in U.S. government-backed securities. Other income included rental income for the six months ended June 30, 2023. On August 15, 2022, the Company entered into a short-term, market-rate lease with the former owner of the building we purchased on the same date, which terminated in the year ended December 31, 2023. We received rental income of $118,907 for the six months ended June 30, 2023. Liquidity and Capital Resources Sources of Liquidity As of June 30, 2024, our principal source of liquidity was $1.2 million in cash and cash equivalents, and there is substantial doubt over as to whether the Company has sufficient capital to operate for the next 12 months from the issuance date of this Quarterly Report based on this liquidity. We considered elements of our financing plan that were probable and likely to be implemented within the next year, and we concluded such financing plans were not sufficient to mitigate the substantial doubt in our going concern analysis. On August 15, 2022, we purchased a 36,000 square foot building located in Miramar, Florida for approximately $10.1 million, including transaction costs. A portion of the acquisition cost was funded with a $6.5 million five-year loan, secured by the building. The remainder of the purchase price was funded with cash. Amounts borrowed under the term facility have a fixed interest rate of 5.75%, with interest only payments required for the first year and 25-year amortization thereafter. There is no prepayment penalty. As of June 30, 2024, a balance of $6.4 million remains due for this obligation, $6.3 million of which is classified as a noncurrent liability included in Debt, net in the balance sheet included in the condensed interim financial statements included elsewhere in this Quarterly Report. As of June 30, 2024, we were in compliance with all covenants under the loan agreement and related documents. Since the year end, we raised $8.0 million in financings. On February 20, 2024, we completed a $2.5 million private placement of common stock in which we sold an aggregate of 1,785,718 shares to certain of our officers and directors, at a purchase price of $1.40 per share. As of June 30, 2024, we received $3.7 million from the issuance of Secured Notes, which were issued to certain of our officers and members of the Board of Directors, as well as other investors. On June 30, 2024, the Company issued $100,000 in Secured Notes including $90,000 invested by the Chairman of the Company’s board of directors and $10,000 from another member of the board of directors. Subsequent to the reporting period, the Company issued an additional $1.8 million in Secured Notes, including an investment of $75,000 from the Company’s Founder and Chief Executive Officer, $25,000 from a member of the board of directors, and $25,000 from an officer of the Company. The Company and Dr. Wong, our Founder and Chief Executive Officer, entered into a Settlement Agreement and Release on a previously reported Arbitration as of July 13, 2024. See Part II., Item 1. - “Legal Proceedings.” While the Settlement Agreement has resolved uncertainty regarding the outcome of these proceedings and the ongoing legal expenses, the Company incurred significant legal expenses in the period leading up to the Settlement Agreement. As of June 30, 2024, we 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 in the accompany condensed balance sheet. In order not to overwhelm the Company’s resources, a reasonable payment plan will be required. The Company is engaged in discussions with the law firms involved with this matter. 25 We have emerged from the Settlement Agreement with a strong portfolio of TOBI-based molecules, but we may need to make some adjustment to our clinical development plan as a result of rights transferred to ImmunityBio, particularly related to clinical development of HCW9218 in cancer indications. We are in the process of reassessing our clinical assets and will make some adjustments to our definition of the indications and markets that will be our core focus, but we remain committed to developing immunotherapeutic treatments for age-related diseases, especially cancer. Management has made some reductions in costs and there may be further reductions or restructuring in the future after we complete the reassessment of our clinical development strategy. The Company continues to pursue bridge financing 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 Settlement Agreement and imminent dismissal of the Arbitration and other claims, 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 intends to pursue the issuance of secured notes as well as other capital-raising activities. We have developed and are implementing our financing plan involving equity and equity-like financings which we intend to close by year-end. In addition, near-term financing plans may include cooperative agreements for clinical trials and third-party collaboration funding. Longer term, we plan to continue to pursue business development transactions such as licenses for non-core assets, although there can be no assurance of our success in doing so. If we are not successful in raising additional capital, we have the ability to revise our business plan and reduce costs. If such revisions are insufficient, we may have to curtail or cease operations. 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. The Company believes that substantial doubt exists regarding its ability to continue as a going concern for at least 12 months from the date of issuance of the Company’s condensed interim financial statements, without additional funding or financial support. After considering management’s plan for financing and funds raised that are probable to occur within one year, as well as that the Company expects to continue to incur losses from operations for the foreseeable future, management concluded that the substantial doubt that existed in its going concern analysis was not alleviated. A benefit of reaching a Settlement Agreement and concluding the Arbitration is a release from restrictions related to protection of privileged information, which hampered investor ability to conduct due diligence. As a result, we believe that other avenues of financing are now available to us, namely, capital-raising activities for equity and equity-like investments. Because of the numerous risks and uncertainties associated with the clinical development and commercialization of immunotherapeutics, we are unable to estimate the exact amount of capital requirements to pursue these activities. Our funding requirements will depend on many factors, including, but not limited to: • timing, progress, costs, and results of our ongoing preclinical studies and clinical trials of our immunotherapeutic products; • costs, timing, and outcome of regulatory review of our product candidates; • number of trials required for regulatory approval; • whether we enter into any cooperative, collaboration or co-development agreements and the terms of such agreements; • whether we raise additional funding through bank loan facilities, other debt arrangements, out-licensing or joint ventures, cooperative agreements or strategic collaborations; • effect of competing technology and market developments; • cost of maintaining, expanding, and enforcing our intellectual property rights; • impact of arbitration, litigation, regulatory inquiries, or investigations, as well as costs to indemnify our officers and directors against third-party claims related to our patents and other intellectual property: • cost and timing of buildout of new headquarters, including risks of cost overruns and delays, and ability to obtain additional financing, if needed; and • costs and timing of future commercialization activities, including product manufacturing, marketing, sales, and distribution, for any of our product candidates for which we receive regulatory approval. A change in the outcome of any of these or other factors with respect to the clinical development and commercialization of our product candidates could significantly change the costs and timing associated with the development of that product candidate. Further, our operating plan may change, and we may need additional funds to meet operational needs and capital requirements for clinical trials and other research and development expenditures. 26 Comparison of the Cash Flows for the Six Months Ended June 30, 2023 and June 30, 2024 The following table summarizes our cash flows for the six months ended June 30, 2023 and June 30, 2024: Six Months Ended June 30, 2023 2024 Cash used in operating activities $ (13,030,059 ) $ (8,466,076 ) Cash used in investing activities (1,856,900 ) (111,142 ) Cash provided by financing activities 9,613 6,143,431 Net (decrease) increase in cash and cash equivalents $ (14,877,346 ) $ (2,433,787 ) Operating Activities Net cash used in operating activities were $13.0 million for the six months ended June 30, 2023 and $8.5 million for the six months ended June 30, 2024. Cash used in operating activities for the six months ended June 30, 2023 consisted primarily of a net loss of $9.4 million, as well as a deposit $5.3 million used to establish an interest reserve for future interest payments, as required under the terms of the 2023 Loan Agreement with Prime Capital Ventures. In addition, an increase in accounts receivable used $289,516 of cash and an increase in accounts payable and other liabilities provided $1.2 million of cash. There was $881,951 of cash provided by net non-cash adjustments, consisting of $583,180 of cash provided by an adjustment for depreciation and amortization, $522,629 of cash provided by an adjustment for stock-based compensation, partially offset by $223,440 of cash used by an adjustment for unrealized gains on investments. Cash used in operating activities for the six months ended June 30, 2024 consisted primarily of net loss for the period of $22.7 million, partially offset by cash from a $11.9 million increase in accounts payable primarily related to legal fees incurred in connection with the Arbitration and Settlement Agreement, a $880,784 decrease in accounts receivable, and a $703,805 decrease in prepaid expenses and other assets, as well as cash provided by non-cash adjustments, consisting of $373,433 of cash provided for adjustment for depreciation and amortization and $484,506 of cash provided for adjustment for stock-based compensation. Investing Activities Cash used by investment activities for the six months ended June 30, 2023 consisted of $1.9 million arising from the purchase of property and equipment. Cash used by investment activities for the six months ended June 30, 2024 consisted of $111,142 used for purchases of property and equipment. Financing Activities During the six months ended June 30, 2023, cash provided by financing activities was due to issuance of common stock upon exercise of vested employee stock options. During the six months ended June 30, 2024, cash provided by financing activities consisted of a $2.5 million private placement of the Company’s common stock and $3.7 million from the issuance of Secured Notes, partially offset by $58,829 of cash used for debt repayment. Critical Accounting Policies, Significant Judgements and Use of Estimates Our management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed interim financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported expenses incurred during the reporting periods. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgements about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgements and estimates. 27 Revenue Recognition We recognize revenue under the guidance of Topic 606. To determine the appropriate amount of revenue to be recognized for arrangements determined to be within the scope of Topic 606, we perform the following five steps: (i) identification of the contract(s) with the customer, (ii) identification of the promised goods or services in the contract and determination of whether the promised goods or services are performance obligations, (iii) measurement of the transaction price, (iv) allocation of the transaction price to the performance obligations, and (v) recognition of revenue when (or as) we satisfy each performance obligation. We only apply the five-step model to contracts when it is probable that we will collect the consideration we are entitled to in exchange for the goods or services we transfer to our customer. See Note 1 to our condensed interim financial statements appearing elsewhere in this Quarterly Report on Form 10-Q for more information. Other than the above, there have been no material changes to our critical accounting policies and estimates from those described under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations— Critical Accounting Policies, Significant Judgements and Use of Estimates” in our Annual Report. Recent Accounting Pronouncements See Note 1 to our Annual Report.