HCW Biologics Inc. 10-Q

Item 1. Financial Statements. HCW Biologics Inc. Condensed Balance Sheets December 31, June 30, 2020 2021 (unaudited) ASSETS Current assets: Cash and cash equivalents $ 8,455,834 $ 5,050,851 Accounts receivable, net 2,500,000 50,000 Prepaid expenses 538,306 862,498 Deferred offering costs — 3,189,000 Other current assets 654,528 893,971 Total current assets 12,148,668 10,046,320 Investment 1,599,750 1,599,750 Property and equipment, net 1,649,668 1,387,324 Total assets $ 15,398,086 $ 13,033,394 LIABILITIES, REDEEMABLE PREFERRED STOCK AND STOCKHOLDERS’ DEFICIT Liabilities Current liabilities: Accounts payable $ 155,343 $ 996,880 Accrued liabilities and other current liabilities 845,741 3,172,545 Total current liabilities 1,001,084 4,169,425 Commitments and contingencies (Note 7) Redeemable preferred stock: Series A, $ 0.0001 par value; 14,738,948 shares authorized and 6,316,691 shares issued at December 31, 2020 and June 30, 2021 6,140,792 6,333,842 Series B, $ 0.0001 par value; 28,029,449 shares authorized and 12,012,617 shares issued at December 31, 2020 and June 30, 2021 13,680,306 14,118,483 Series C, $ 0.0001 par value; 18,181,818 shares authorized and 5,439,112 shares issued at December 31, 2020 and June 30, 2021 11,294,301 11,651,350 Total redeemable preferred stock 31,115,399 32,103,675 Stockholders’ deficit: Common stock: Class B convertible, $ 0.0001 par value; 10,000,000 shares authorized and 4,285,714 shares issued at December 31, 2020 and June 30, 2021 429 429 Class A, $ 0.0001 par value; 74,950,215 shares authorized and 507,680 shares issued at December 31, 2020; 74,950,215 shares authorized and 669,886 shares issued at June 30, 2021 51 67 Accumulated deficit ( 16,718,877 ) ( 23,240,202 ) Total stockholders’ deficit ( 16,718,397 ) ( 23,239,706 ) Total liabilities, redeemable preferred stock and stockholders’ deficit $ 15,398,086 $ 13,033,394 See accompanying notes to the unaudited condensed interim financial statements. 1 Table of Contents HCW Biologics Inc. Condensed Statements of Operations (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Operating expenses: Research and development $ 2,068,783 $ 1,673,163 $ 3,747,207 $ 4,002,976 General and administrative 711,224 1,077,830 1,429,792 2,160,190 Total operating expenses 2,780,007 2,750,993 5,176,999 6,163,166 Loss from operations ( 2,780,007 ) ( 2,750,993 ) ( 5,176,999 ) ( 6,163,166 ) Interest and other income, net 1,522 631 23,000 568,808 Net loss $ ( 2,778,485 ) $ ( 2,750,362 ) $ ( 5,153,999 ) $ ( 5,594,358 ) Less: cumulative preferred dividends earned in the period ( 279,786 ) ( 482,662 ) ( 559,573 ) ( 960,020 ) Net loss available for distribution to common stockholders $ ( 3,058,271 ) $ ( 3,233,024 ) $ ( 5,713,572 ) $ ( 6,554,378 ) Net loss per share, basic and diluted $ ( 0.65 ) $ ( 0.66 ) $ ( 1.21 ) $ ( 1.34 ) Weighted average shares outstanding, basic and diluted 4,725,083 4,921,121 4,721,313 4,880,496 See accompanying notes to the unaudited condensed interim financial statements . 2 Table of Contents HCW Biologics Inc. Condensed Statements of Changes in Redeemable Preferred Stock and Stockholders’ Deficit For the Six Months Ended June 30, 2020 and 2021 (Unaudited) Redeemable Preferred Stock Stockholders’ Deficit Series A Series B Series C Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Shares Amount Shares Amount Balance, December 31, 2019 6,316,691 $ 5,792,302 12,012,617 $ 12,883,859 — $ — 4,717,542 $ 472 $ — $ ( 9,676,766 ) $ ( 9,676,294 ) Stock-based compensation — — — — — — — 76 — 76 6% cumulative dividends on redeemable preferred stock — 86,646 — 193,140 — — — — ( 76 ) ( 279,710 ) ( 279,786 ) Accretion of issuance costs — — — 7,857 — — — — — — — Net loss — — — — — — — — — ( 2,375,514 ) ( 2,375,514 ) Balance, March 31, 2020 6,316,691 5,878,948 12,012,617 13,084,856 — — 4,717,542 472 — ( 12,331,990 ) ( 12,331,518 ) Issuance of Class A Common Stock upon exercise of stock options — — — — — — 20,742 2 2,304 — 2,306 Stock-based compensation — — — — — — — — 9,515 — 9,515 6% cumulative dividends on redeemable preferred stock — 86,646 — 193,140 — — — — ( 11,819 ) ( 267,967 ) ( 279,786 ) Accreation of issuance costs — — — 3,929 — — — — — — — Net loss — — — — — — — — — ( 2,778,485 ) ( 2,778,485 ) Balance, June 30, 2020 6,316,691 $ 5,965,594 12,012,617 $ 13,281,925 — $ — 4,738,284 $ 474 $ — $ ( 15,378,442 ) $ ( 15,377,968 ) Redeemable Preferred Stock Stockholders’ Deficit Series A Series B Series C Common Stock Additional Paid-In Capital Accumulated Deficit Total Stockholders’ Deficit Shares Amount Shares Amount Shares Amount Shares Amount Balance, December 31, 2020 6,316,691 $ 6,140,792 12,012,617 $ 13,680,306 5,439,112 $ 11,294,301 4,793,394 $ 480 $ — $ ( 16,718,877 ) $ ( 16,718,397 ) Issuance of Class A Common Stock upon exercise of stock options — — — — — — 88,706 8 13,377 — 13,385 Stock-based compensation — — — — — — — — 641 — 641 6% cumulative dividends on redeemable preferred stock — 95,992 — 213,971 — 167,395 — — ( 14,018 ) ( 463,340 ) ( 477,358 ) Accretion of issuance costs — — — 3,929 — 10,200 — — — — — Net loss — — — — — — — — — ( 2,843,996 ) ( 2,843,996 ) Balance, March 31, 2021 6,316,691 6,236,784 12,012,617 13,898,206 5,439,112 11,471,896 4,882,100 488 — ( 20,026,213 ) ( 20,025,725 ) Issuance of Class A Common Stock upon exercise of stock options — — — — — — 73,500 8 9,457 — 9,465 Stock-based compensation — — — — — — — — 9,578 — 9,578 6% cumulative dividends on redeemable preferred stock — 97,058 — 216,348 — 169,256 — — ( 19,035 ) ( 463,627 ) ( 482,662 ) Accreation of issuance costs — — — 3,929 — 10,198 — — — — — Net loss — — — — — — — — — ( 2,750,362 ) ( 2,750,362 ) Balance, June 30, 2021 6,316,691 $ 6,333,842 12,012,617 $ 14,118,483 5,439,112 $ 11,651,350 4,955,600 $ 496 $ — $ ( 23,240,202 ) $ ( 23,239,706 ) See accompanying notes to the unaudited condensed interim financial statements. 3 Table of Contents HCW Biologics Inc. Condensed Statements of Cash Flows (Unaudited) Six Months Ended June 30, 2020 2021 Cash flows from operating activities: Net loss $ ( 5,153,999 ) $ ( 5,594,358 ) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 306,011 323,897 Gain on extinguishment of debt — ( 567,311 ) Changes in operating assets and liabilities: Accounts receivable — 2,450,000 Prepaid expenses and other assets 215,081 ( 563,436 ) Accounts payable and other liabilities 488,273 1,470,966 Net cash used in operating activities ( 4,144,634 ) ( 2,480,242 ) Cash flows from investing activities: Purchases of property and equipment ( 45,076 ) ( 23,279 ) Net cash used in investing activities ( 45,076 ) ( 23,279 ) Cash flows from financing activities: Proceeds from issuance of common stock 2,306 22,850 Offering costs — ( 924,312 ) Net cash provided by (used in) financing activities 2,306 ( 901,462 ) Net changes in cash and cash equivalents ( 4,187,404 ) ( 3,404,983 ) Cash and cash equivalents at the beginning of the period 7,355,834 8,455,834 Cash and cash equivalents at the end of the period $ 3,168,430 $ 5,050,851 Non-cash operating, investing and financing activities: Purchases of property and equipment included in accounts payable and accrued liabilities $ 88,579 $ — Cumulative dividends earned and accrued in the reporting period $ 559,573 $ 960,020 PPP loan forgiveness $ — $ 567,311 Offering costs $ — $ 2,264,688 See accompanying notes to the unaudited condensed interim financial statements. 4 Table of Contents HCW Biologics Inc. Notes to Condensed Financial Statements ( Unaudited ) 1. Organization and Summary of Significant Accounting Policies Organization HCW Biologics Inc. (the “Company”) is a preclinical stage biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen health span by disrupting the link between chronic, low-grade inflammation and age-related diseases. The Company believes age-related low-grade chronic inflammation, or “inflammaging,” is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018. Reverse Stock Split In June 2021, the Company’s board of directors and stockholders approved an amendment to the Company’s certificate of incorporation to effect a 3-for-7 reverse stock split for all issued and outstanding common stock, redeemable preferred stock, and stock options, that was effective on June 25, 2021 (the “Reverse Stock Split”). The number of authorized shares and the par values of the common stock and redeemable preferred stock were not adjusted as a result of the Reverse Stock Split. The accompanying condensed interim financial statements and notes to the condensed interim financial statements give retroactive effect to the Reverse Stock Split for all periods presented. Liquidity On December 24, 2020, the Company entered into the Exclusive Worldwide License Agreement with Wugen Inc. (“Wugen License”). As a result of this transaction, as of June 30, 2021, the Company holds a minority interest in Wugen carried at $ 1.6 million, the fair value on the effective date of the Wugen License. The underlying shares of common stock is not currently traded on any public market and thus has limited marketability. During the six-month period ended June 30, 2021, the Company received payments of $ 2.5 million due for payment under the terms of the Wugen License for performance obligations completed on the effective date. As of June 30, 2021, the Company had not generated any revenue from sales of its immunotherapeutic products. In the course of its development activities, the Company has sustained operating losses and expects to continue to incur operating losses for the foreseeable future. Since inception, substantially all the Company’s activities have consisted of research, development, establishing large-scale cGMP production for clinical trials, and raising capital. As of June 30, 2021 , the Company had cash and cash equivalents of $ 5.1 million. Since inception to June 30, 2021, the Company incurred cumulative net losses of $ 20.7 million. Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan. HCW Biologics intends to raise capital through the issuance of additional equity financing and/or third-party collaboration funding. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of some of its products. Summary of Significant Accounting Policies Basis of Presentation Unaudited Interim Financial Information The accompanying unaudited condensed interim financial statements as of June 30, 2021 and for the three months and six months ended June 30, 2020 and 2021 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”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed 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 and six months ended June 30, 2021 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed balance sheet at December 31, 2020 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of 5 Table of Contents the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed 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, 2020 which appear in the Company’s registration statement on Form S-1 (File No. 333-256510) for its initial public offering (“IPO”) which was declared effective on July 19, 2021. Revenue Recognition The Company recognizes revenue when its customer or collaborator obtains control of promised goods or services, in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that are within the scope of Topic 606, it performs the following five steps: i. identify the contract(s) with a customer; ii. identify the performance obligations in the contract; iii. determine the transaction price; iv. allocate the transaction price to the performance obligations within the contract; and v. recognize revenue when (or as) the entity satisfies a performance obligation. At contract inception, once the contract is determined to be within the scope of Topic 606 and it is probable of collection, the Company assesses the goods or services promised within the contract to determine whether each promised good or service is a performance obligation. The promised goods or services in the Company’s arrangements may consist of a license, or options to license, the Company’s intellectual property and research, development, and manufacturing services. The Company may provide options to additional items in such arrangements, which are accounted for as separate contracts when the customer elects to exercise such options, unless the option provides a material right to the customer. Performance obligations are promises in a contract to transfer a distinct good or service to the customer that (i) the customer can benefit from on its own or together with other readily available resources, and (ii) is separately identifiable from other promises in the contract. Goods or services that are not individually distinct performance obligations are combined with other promised goods or services until such combined group of promises meet the requirements of a performance obligation. The Company determines the transaction price based on the amount of consideration the Company expects to receive for transferring the promised goods or services in the contract. Consideration may be fixed, variable, or a combination of both. At contract inception for arrangements that include variable consideration, the Company estimates the probability and extent of consideration it expects to receive under the contract utilizing either the most likely amount method or expected amount method, whichever best estimates the amount expected to be received. The Company then considers any constraints on the variable consideration and includes in the transaction price variable consideration to the extent it is deemed probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. The Company then allocates the transaction price to each performance obligation based on the relative standalone selling price and recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) control is transferred to the customer and the performance obligation is satisfied. For performance obligations which consist of licenses and other promises, the Company utilizes judgment to assess the nature of the combined performance obligation to determine whether the combined performance obligation is satisfied over time or at a point in time and, if over time, the appropriate method of measuring progress. The Company evaluates the measure of progress each reporting period and, if necessary, adjusts the measure of performance and related revenue recognition. The Company records amounts as accounts receivable when the right to consideration is deemed unconditional. When consideration is received, or such consideration is unconditionally due, from a customer prior to transferring goods or services to the customer under the terms of a contract, a contract liability is recorded as deferred revenue. The Company did no t recognize any revenues for the three or six months ended June 30, 2020 or June 30, 2021. Deferred Revenue Deferred revenue represents amounts billed, or in certain cases, yet to be billed to the Company’s customer for which the related revenues have not been recognized because one or more of the revenue recognition criteria have not been met. The current portion of deferred revenue represents the amount to be recognized within one year from the balance sheet date based on the estimated performance period of the underlying performance obligations. The long-term portion of deferred revenue represents amounts to be recognized after one year. 6 Table of Contents As of June 30, 2021, current deferred revenue includes amounts of $ 696,625 allocated to the development supply agreement performance obligation under the Wugen License that is included within Accrued liabilities and other current liabilities. There was no long-term deferred revenue as of June 30, 2021. Investment The Company holds a minority interest in Wugen. The underlying shares of common stock is not traded on any public market and thus has limited marketability. The Company does not have significant influence over the operating and financial policies of Wugen. As a result, the Company has accounted for this investment 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 was recognized as of June 30, 2021. Deferred Offering Costs The Company defers offering costs consisting of legal, accounting and other fees and costs directly attributable to its initial public offering (“IPO”). The deferred offering costs will be offset against the proceeds received upon the completion of the IPO. Deferred offering costs will be classified as current or long term, depending on whether an IPO is expected to be completed within a one-year period. If offering expenses are paid prior to the completion of an IPO, they will be recorded in prepaid assets on the balance sheets until such time an IPO is completed. If an obligation is incurred but not settled prior to the IPO, the Company will recognize deferred offering costs as an accrued liability. In the event the IPO is terminated, all of the deferred offering costs will be expensed within the Company’s statements of operations. As of June 30, 2021, there were approximately $ 3.2 million of current deferred offering costs, $ 924,312 of which are included within Prepaid expenses, $ 307,312 of which are included within Accounts p ayable, and $ 2.0 million of which are included within Accrued liabilities and other current liabilities on the accompanying condensed balance sheet. There were no long-term deferred offering costs as of June 30, 2021. Net Loss Per Share Basic net loss per share is calculated by dividing the net loss attributable to common stockholders, including both Class A and Class B common stock, by the weighted-average number of common shares outstanding for the period, without consideration of potential dilutive securities. Diluted net loss per share is computed by dividing the net loss attributable to common stockholders by the sum of the weighted average number of common shares plus the potential dilutive effects of potential dilutive securities outstanding during the period. Potential dilutive securities are excluded from diluted earnings or loss per share if the effect of such inclusion is anti-dilutive. The Company’s potentially dilutive securities, which include convertible redeemable preferred stock and outstanding stock options under the 2019 Equity Incentive Plan (“2019 Plan”), have been excluded from the computation of diluted net loss per share as they would be anti-dilutive to the net loss per share. For all periods presented, there is no difference in the number of shares used to calculate basic and diluted shares outstanding due to the Company’s net loss position. Recently Issued Accounting Pronouncements In February 2016, the FASB issued ASU No. 2016-02, Leases (“Topic 842”), which requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases. The ASU will also require new qualitative and quantitative disclosures to help investors and other financial statement users better understand the amount, timing, and uncertainty of cash flows arising from leases. Topic 842 is effective for the Company in the fiscal years beginning after December 15, 2021, with early adoption permitted. The Company is currently in the process of evaluating the impact of the adoption of Topic 842 on the Company’s financial statements and related disclosures. 2. Accrued Liabilities and Other Current Liabilities In May 2020, HCW Biologics Inc. received an SBA Paycheck Protection Loan (“PPP loan”) in the principal amount of $ 563,590 . As of December 31, 2020, the Company had $ 845,741 of Accrued liabilities and other current liabilities, primarily consisting of the PPP loan of $ 567,311 , including principal and accrued but unpaid interest, and accrued liabilities of $ 273,907 . On January 8, 2021, the Company received full loan forgiveness of $ 567,311 for obligations related to the PPP loan. The Company accounted for the PPP loan as debt, and the loan forgiveness was accounted for as a debt extinguishment. The amount of loan and interest forgiven is recognized as a gain upon debt extinguishment and is reported within Interest and other income, net in the accompanying condensed statement of operations for the six months ended June 30, 2021. 7 Table of Contents As of June 30, 2021, the Company had a balance of $ 3.2 million in Accrued liabilities and other current liabilities, consisting primarily of $ 2.0 million related to deferred offering costs for the Company’s IPO, $ 696,625 related to deferred revenue, and $ 315,855 in compensation-related accruals, including an accrual for a performance bonus related to the completion of the IPO. 3. Redeemable Preferred Stock The Company’s redeemable preferred stock is convertible into shares of Class A common stock and earns cumulative dividends at a rate of 6% per annum and compound annually. The terms of the redeemable preferred stock provide for an adjustment to the conversion price upon the occurrence of certain transactions or events, such as stock splits, split-up, certain dividends, or distributions. Cumulative dividends accrue whether or not declared by the Board of Directors. Upon conversion, any accrued and unpaid dividends are forfeited. For the six months ended June 30, 2021, the Company accrued cumulative dividends of $ 960,020 which is included in the amounts reported for redeemable preferred stock in the accompanying condensed balance sheet as of June 30, 2021. No dividends have been declared or paid as of June 30, 2021. 4. Net Loss Per Share The following table summarizes the computation of the basic and diluted net loss per share: Three Months Ended June 30, Six Months Ended June 30, 2020 2021 2020 2021 Numerator: Net loss $ ( 2,778,485 ) $ ( 2,750,362 ) $ ( 5,153,999 ) $ ( 5,594,358 ) Less: cumulative preferred dividends earned in the period ( 279,786 ) ( 482,662 ) ( 559,573 ) ( 960,020 ) Net loss available for distribution to common stock holders $ ( 3,058,271 ) ( 3,233,024 ) $ ( 5,713,572 ) ( 6,554,378 ) Denominator: Weighted-average common shares outstanding 4,725,083 4,921,121 4,721,313 4,880,496 Net loss per share, basic and diluted $ ( 0.65 ) $ ( 0.66 ) $ ( 1.21 ) $ ( 1.34 ) The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive: At June 30, 2020 2021 Redeemable Preferred stock 18,329,308 23,768,420 Common stock options 569,400 579,858 Potentially diluted securities 18,898,708 24,348,278 5. Fair Value of Financial Instruments The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, accounts payable and accrued liabilities, approximate fair value due to their short-term maturities. 8 Table of Contents Money market funds included in cash and cash equivalents that are measured at fair value based on quoted prices that are derived from observable market data are classified as Level 1 inputs. 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, 2020 and June 30 , 2021: At December 31, 2020: Level 1 Level 2 Level 3 Total Assets: Money market funds $ 6,752,266 $ — $ — $ 6,752,266 Total $ 6,752,266 $ — $ — $ 6,752,266 At June 30, 2021: Level 1 Level 2 Level 3 Total Assets: Money market funds $ 3,379,887 $ — $ — $ 3,379,887 Total $ 3,379,887 $ — $ — $ 3,379,887 6. Income Taxes 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 June 30, 2021 and December 31, 2020. The Company will continue to maintain a 100 % valuation allowance on total deferred tax assets. The Company believes it is more likely than not that the related deferred tax asset will not be realized. As a result, the Company’s effective tax rate will remain at 0.00 % because no items that are either estimated or discrete items would impact the tax provision. 7. Commitments and Contingencies Leases The Company leases its operating facilities in Miramar, Florida under non-cancelable operating lease agreements and a short-term sublease agreement for additional office space. Rent expense is recognized for leases with increasing annual rents on a straight-line basis over the term of the lease. The amount of rent expense in excess of cash payments is classified as deferred rent. Lease incentives received are deferred and amortized over the term of the lease. The future minimum payments for the lease and sublease agreements at June 30, 2021 were as follows: 2021 (remaining 6 months) $ 106,000 2022 36,000 Total future minimum lease payments $ 142,000 Rental expense, including common area maintenance costs, recognized by the Company was $ 46,182 of which $ 20,949 is included in research and development and $ 53,430 of which $ 28,607 is included in research and development for the three months ended June 30, 2020 and 2021, respectively, in the accompanying condensed statements of operations. Rental expense, including common area maintenance costs, recognized by the Company was $ 92,073 of which $ 41,608 is included in research and development and $ 101,570 of which $ 51,752 is included in research and development for the six months ended June 30, 2020 and 2021, respectively, in the accompanying condensed statements of operations. Manufacturing Commitment The Company entered into an agreement with a third-party global contract development and manufacturer of biologics for the manufacture of the Company’s proprietary molecules for use in its clinical trials. At June 30, 2020 and June 30, 2021, future payment obligations under statements-of-work agreements were nil and $ 1.3 million, respectively. In the three months ended June 30, 2020, 9 Table of Contents the Company was winding up several manufacturing activities that were started earlier in the year, including master cell bank production and characterization reports, analytical method qualification of product, multiple cGMP production runs, and some fill and finish for vials of clinical materials. In the three months ended June 30, 2021, the manufacturing of two molecules was ongoing. As of June 30, 2021, the Company retains the payment obligation for upcoming activities yet to be performed for some molecules, including cGMP production runs of different quantities, initiation of master cell bank production, and initiation of the fill/finish process. Legal As of August 13, 2021, management has no knowledge of any pending or unasserted claims against the Company. Other In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (COVID-19) as a pandemic, which continues to spread throughout the United States and the world. The spread of COVID-19 has caused significant volatility in the U.S. and international markets. There is significant uncertainty around the breadth and duration of business disruptions related to COVID-19, as well as its impact on the U.S. and international economies and, as such, the Company is unable to determine if it will have a material impact to its operations. 8. Subsequent Events Subsequent events have been evaluated through the date the financial statements were available to be issued. As of such date, there were no material subsequent events identified that required recognition or disclosure other than as disclosed below or in the footnotes herein. Initial Public Offering On July 19, 2021, the Company’s registration statement on Form S-1 for its IPO was declared effective by the Securities and Exchange Commission (the “SEC”). On July 22, 2021, the Company closed its IPO with the sale of 7,000,000 shares of common stock, at a public offering price of $ 8.00 per share, resulting in net proceeds of approximately $ 49.0 million, after deducting underwriting discounts and commissions and estimated offering expenses paid by the Company. In addition, in connection with the closing of the IPO, all of the Company’s outstanding shares of redeemable preferred stock w as automatically converted into shares of common stock. As a result, there are no longer any shares of redeemable preferred stock outstanding. Accrued but unpaid cumulative dividends were forfeited upon conversion. No dividends had been paid as of July 19, 2021. 2021 Equity Incentive Plan In June 2021, the Company’s board of directors and stockholders approved the 2021 Equity Incentive Plan (the “2021 Plan”), to be effective the day prior to the effectiveness of the registration statement for an IPO. On July 18, 2021, the 2021 Plan became effective. The 2021 Plan permits the grant of incentive stock options, nonstatutory stock options, stock appreciation rights (“SARs”), restricted stock, restricted stock units (“RSUs”) and stock bonus awards (all such awards collectively, “stock awards”). A total of 2,400,000 new shares of common stock were approved to be initially reserved for issuance under the 2021 Plan. The number of shares reserved that are remaining in the 2019 Plan as of the effective date of the 2021 Plan will be added to the shares initially reserved under the 2021 Plan upon the effective date. In addition, the number of shares of common stock available for issuance under the 2021 Plan will automatically increase on January 1 of each calendar year, starting on January 1, 2022 , in an amount equal to 2 % of the outstanding shares of common stock on the last day of the prior fiscal year, or such number of shares determined by the Company’s board of directors. 10 Table of Contents