What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-03-24 compared with 2022-03-29 · 257 added, 338 removed, 738 unchanged (45% of the section changed)

21 unchanged sentences

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.

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

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

Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

15 unchanged sentences

Accounts receivable

Prepaid expenses

Prepaid expenses and other current assets

Total current assets

6 unchanged sentences

$ 204,302 $ 286,533

LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS’ EQUITY (DEFICIT)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities

2 unchanged sentences

Accrued expenses

SVB loan payable, current portion 8,571 —

Finance lease obligation, current portion

Deferred payroll tax, current portion

Operating lease obligation, current portion

PPP loan payable, current portion

Deferred payroll tax

Total current liabilities

1 unchanged sentence

Contingent Earnout Liability 27,893 103,660

SVB loan payable, net of current portion 20,336 27,361

Finance lease obligation, net of current portion

18,853 21,109

SVB loan payable 27,361 —

Operating lease obligation, net of current portion

Common stock warrant liabilities 80 497

Deferred payroll tax, net of current portion

PPP loan payable, net of current portion

Total liabilities

1 unchanged sentence

Commitments and contingencies (Note 13)

Redeemable convertible preferred stock (Series A, B, C and D) $ 0.001 par value, 0 and 69,613,565 shares authorized as of December 31, 2021 and 2020, respectively, 0 and 69,613,562 shares outstanding as of December 31, 2021 and 2020, respectively;

liquidation preference of $ 0 and $ 435,579 as of December 31, 2021 and 2020, respectively

Stockholders’ equity (deficit)

Stockholders’ equity

Preferred stock, $ 0.0001 par value;

20,000,000 and 0 shares designated as of December 31, 2021 and 2020, respectively, 0 shares issued and outstanding as of December 31, 2021 and 2020

20,000,000 shares designated as of December 31, 2022 and 2021;

0 shares issued and outstanding as of December 31, 2022 and 2021

Common stock, $ 0.0001 par value;

250,000,000 and 340,216,780 shares authorized as of December 31, 2021 and 2020, respectively;

250,000,000 shares authorized as of December 31, 2022 and 2021;

103,229,013 and 103,003,646 shares issued and outstanding as of December 31, 2022 and 2021, respectively

3 unchanged sentences

( 426,538 ) ( 414,573 )

Total stockholders’ equity (deficit)

Total stockholders’ equity

116,928 122,174

Total liabilities, redeemable convertible preferred stock and stockholders’ equity (deficit)

Total liabilities and stockholders’ equity

$ 204,302 $ 286,533

3 unchanged sentences

(in thousands except for share and per share amounts)

Year Ended December 31,

Grant revenue

8 unchanged sentences

( 84,578 ) ( 81,208 )

Other income (expenses), net

Other income (expense), net

Interest income

Change in fair value of Contingent Earnout Liability 75,767 55,772

Change in fair value of common stock warrant liabilities 417 56

Gain on PPP loan forgiveness — 3,284

Interest expense

( 6,200 ) ( 4,348 )

Gain on PPP loan forgiveness 3,284 —

Change in fair value of common stock warrant liabilities 56 —

Transaction costs expensed — ( 49 )

Total other income (expenses), net

Total other income, net

72,613 54,731

18 unchanged sentences

69,613,562 420,989 5,822,396 $ 1 $ 37,778 $ ( 388,096 ) $ ( 350,317 )

Proceeds from the exercise of stock options — — 195,239 — 301 — 301

Stock-based compensation — — — — 4,694 — 4,694

Net loss — — — — — ( 66,524 ) ( 66,524 )

Balance as of December 31, 2020

69,613,562 420,989 5,822,396 $ 1 $ 37,778 $ ( 388,096 ) $ ( 350,317 )

Issuance of warrants in conjunction with debt — — — — 3,275 — 3,275

8 unchanged sentences

— — 103,003,646 $ 10 $ 536,737 $ ( 414,573 ) $ 122,174

Proceeds from the exercise of stock options — — 225,367 — 535 — 535

Stock-based compensation — — — — 6,184 — 6,184

Net loss — — — — — ( 11,965 ) ( 11,965 )

Balance as of December 31, 2022

— — 103,229,013 $ 10 $ 543,456 $ ( 426,538 ) $ 116,928

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

2 unchanged sentences

(in thousands)

Year Ended December 31,

Cash flows from operating activities

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Accounts receivable 145 ( 63 )

Prepaid expenses ( 2,174 ) ( 767 )

Prepaid expenses and other current assets 1,364 ( 2,174 )

Accounts payable ( 509 ) ( 197 )

5 unchanged sentences

Purchase of short-term investments (certificates of deposit) ( 10,107 ) ( 8,000 )

Proceeds from maturity of short-term investments (certificates of deposit) 16,000 —

Purchase of property and equipment ( 1,048 ) ( 220 )

Proceeds from sale of property and equipment — 50

Net cash used in investing activities ( 8,220 ) ( 268 )

Net cash provided by (used in) investing activities 4,845 ( 8,220 )

Cash flows from financing activities

Proceeds from the exercise of stock options 535 598

Payment of finance lease principal ( 1,981 ) ( 1,729 )

Proceeds from Merger and PIPE financing, net of offering costs paid — 242,400

Payment of transaction costs related to Merger — ( 3,945 )

Proceeds from the exercise of stock options 598 301

Proceeds from SVB loan — 29,659

Proceeds from PPP loan — 3,251

Payment of finance lease principal ( 1,729 ) ( 1,500 )

Net cash provided by financing activities 266,983 2,052

Net increase (decrease) in cash and cash equivalents 177,573 ( 53,784 )

Net cash (used in) provided by financing activities ( 1,446 ) 266,983

Net (decrease) increase in cash and cash equivalents ( 67,730 ) 177,573

Cash and cash equivalents at the beginning of the period 217,502 39,929

3 unchanged sentences

Supplemental disclosure of noncash activities:

Operating lease right-of-use assets obtained in exchange for lease obligations $ — $ 36

Purchase of property and equipment in accounts payable $ 21 $ 4

Purchase of property and equipment in accounts payable and accrued expenses $ 135 $ 21

Issuance of warrants in conjunction with debt $ — $ 3,275

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Humacyte, Inc.

and subsidiary, or the Company, is pioneering the development and manufacture of off-the-shelf, universally implantable, bioengineered human tissues designed to improve the lives of patients and transform the practice of medicine.

The Company is leveraging its technology platform to develop proprietary, bioengineered, acellular human tissues for use in the treatment of diseases and conditions across a range of anatomic locations in multiple therapeutic areas.

and subsidiary (the “Company”), is pioneering the development and manufacture of off-the-shelf, universally implantable, bioengineered human tissues, advanced tissue constructs and organ systems designed to improve the lives of patients and transform the practice of medicine.

The Company is leveraging its regenerative medicine technology platform to develop proprietary product candidates for use in the treatment of diseases and conditions across a range of anatomic locations in multiple therapeutic areas.

On August 26, 2021 (the “Closing Date”), Alpha Healthcare Acquisition Corp.

(“AHAC”) consummated a merger pursuant to that certain Business Combination Agreement, dated as of February 17, 2021 (the “Merger Agreement”), by and among Humacyte, Inc., a Delaware Corporation (“Legacy Humacyte”), AHAC and Hunter Merger Sub, Inc.

(“Merger Sub”).

(“AHAC”) consummated a merger pursuant to a Business Combination Agreement, dated as of February 17, 2021 (the “Merger Agreement”), by and among Humacyte, Inc., a Delaware Corporation (“Legacy Humacyte”), AHAC and Hunter Merger Sub, Inc.

(“Merger Sub”), a Delaware corporation and wholly owned subsidiary of AHAC.

As contemplated by the Merger Agreement, Merger Sub merged with and into Legacy Humacyte, with Legacy Humacyte continuing as the surviving corporation and as a wholly-owned subsidiary of AHAC (such transactions, the “Merger,” and, collectively with the other transactions described in the Merger Agreement, the “Reverse Recapitalization”).

As a result of the Merger, AHAC was renamed Humacyte, Inc.

(“New Humacyte”) and Legacy Humacyte was renamed Humacyte Global, Inc.

The Merger is accounted for as a reverse recapitalization in accordance with U.S.

On the Closing Date, AHAC changed its name to Humacyte, Inc.

(“New Humacyte”) and Legacy Humacyte changed its name to Humacyte Global, Inc.

The Merger is accounted for as a reverse recapitalization in accordance with accounting principles generally accepted in the United States of America (“U.S.

GAAP”), and under this method of accounting, AHAC is treated as the acquired company for financial reporting purposes and Legacy Humacyte is treated as the acquirer.

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Liquidity and Going Concern

Since its inception in 2004, the Company has generated no product revenue and has incurred net losses and negative cash flows from operations in each year.

Since its inception in 2004, the Company has generated no product revenue and has incurred operating losses and negative cash flows from operations in each year.

To date, the Company has financed its operations primarily through the sale of equity securities and convertible debt, proceeds from the Reverse Recapitalization, borrowings under loan facilities and, to a lesser extent, through governmental and other grants.

At December 31, 2022 and December 31, 2021, the Company had an accumulated deficit of $ 426.5 million and $ 414.6 million, respectively.

The Company’s net losses were $ 26.5 million and $ 66.5 million for the years ended December 31, 2021 and 2020, respectively.

The Company’s operating losses were $ 84.6 million and $ 81.2 million for the years ended December 31, 2022 and 2021, respectively.

Net cash flows used in operating activities were $ 71.1 million and $ 81.2 million during the years ended December 31, 2022 and 2021, respectively.

Substantially all of the Company’s net losses resulted from costs incurred in connection with the Company’s research and development programs and from general and administrative costs associated with the Company’s operations.

Substantially all of the Company’s operating losses resulted from costs incurred in connection with the Company’s research and development programs and from general and administrative costs associated with the Company’s operations.

The Company expects to incur substantial operating losses and negative cash flows from operations for the foreseeable future as the Company advances its product candidates.

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Impact of COVID-19

The COVID-19 pandemic, which began in December 2019 and has spread worldwide, has caused many governments to implement measures to slow the spread of the outbreak, including shelter-in-place orders and the mandatory shutdown of certain businesses.

The outbreak and government measures taken in response have had a significant impact, both direct and indirect, on the Company’s business, as supply chains have been disrupted, and facilities and production have been suspended.

The future progression of the pandemic and its effects on the Company’s business and operations are uncertain.

The COVID-19 pandemic may affect the Company’s ability to initiate and complete preclinical studies, delay its clinical trials or future clinical trials, disrupt regulatory activities, or have other adverse effects on its business and operations.

The pandemic has already caused significant disruptions in the financial markets, and may continue to cause such disruptions, which could impact the Company’s ability to raise additional funds to support its operations.

Moreover, the pandemic has significantly impacted economies worldwide and could result in adverse effects on the Company’s business and operations.

The COVID-19 outbreak and government measures taken in response have had a significant impact, both direct and indirect, on the Company’s business, as supply chains have been disrupted and enrollment in clinical trials has been delayed.

To date, there have been no material financial impacts or impairment losses in the carrying values of the Company’s assets as a result of the pandemic and the Company is not aware of any specific related event or circumstance that would require it to revise the estimates reflected in these financial statements.

The extent to which the ongoing effects of the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including current and future clinical trials and research and development costs and timelines, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the emergence of new virus variants, and the duration and intensity of the related economic impact of the pandemic.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Organization and Description of Business (continued)

To date, the COVID-19 pandemic has not resulted in material financial impacts or impairment losses in the carrying values of the Company’s assets as a result of the pandemic and the Company is not aware of any specific related event or circumstance that would require it to revise the estimates reflected in these financial statements.

The extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial condition, including current and future clinical trials and research and development costs, will depend on future developments that are highly uncertain, including as a result of new information that may emerge concerning COVID-19, the actions taken to contain or treat it, and the duration and intensity of the related economic impact of the pandemic.

NOTES TO FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Basis of Presentation

The Company has prepared the accompanying financial statements in conformity with accounting principles generally accepted in the United States of America, or U.S.

The Company has prepared the accompanying financial statements in conformity with U.S.

The Company’s consolidated financial statements reflect the operations of the Company and its wholly owned subsidiaries.

5 unchanged sentences

GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

Significant estimates in the financial statements include stock-based compensation costs, right-of-use, or ROU assets, accruals for research and development activities, contingent earnout liability, fair value of common stock warrants, redeemable convertible preferred stock and income taxes.

Significant estimates in the financial statements include stock-based compensation costs, right-of-use assets, accruals for research and development activities, contingent earnout liability, fair value of common stock warrants, redeemable convertible preferred stock and income taxes.

The Company evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate.

1 unchanged sentence

The Company operates and manages its business as one reportable and operating segment.

The Company is developing proprietary, bioengineered, acellular human tissues that are designed to be used in the treatment of diseases and conditions across a range of anatomic locations in multiple therapeutic areas.

The Company is developing proprietary, bioengineered, acellular human tissues, advanced tissue constructs and organ systems that are designed to be used in the treatment of diseases and conditions across a range of anatomic locations in multiple therapeutic areas.

The Company’s chief executive officer, who is the chief operating decision maker, reviews financial information on an aggregate basis for purposes of evaluating financial performance and allocating resources.

Comprehensive Loss

Comprehensive loss includes net loss as well as other changes in stockholders’ equity (deficit) that result from transactions and economic events other than those with stockholders.

Comprehensive loss includes net loss as well as other changes in stockholders’ equity that result from transactions and economic events other than those with stockholders.

There was no difference between net loss and comprehensive loss for the years ended December 31, 2022 and 2021.

3 unchanged sentences

Cash deposits typically exceed federally insured limits.

As of December 31, 2021, cash and cash equivalents consisted of cash on deposit with banks denominated in U.S.

As of December 31, 2022 and 2021, cash and cash equivalents consisted of cash on deposit with banks denominated in U.S.

dollars, investments in money market funds, and CDs maturing within three months of their purchase date.

At December 31, 2020, cash and cash equivalents consisted of cash on deposit with banks denominated in U.S.

dollars and investments in money market funds.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Short-term Investments

2 unchanged sentences

The type of certificates of deposit that the Company invests in are not considered debt securities under Financial Accounting Standards Board ("FASB") Accounting Standards Codification (“ASC”) 320, Investments - Debt Securities.

As of December 31, 2021, the Company had approximately $ 10.0 million in certificates of deposit.

These cash deposits are deposited at a bank that is a member of the Certificate of Deposit Account Registry Service (“CDARS”), in which large deposits are divided into smaller amounts and placed with other FDIC insured banks which are also members of the CDARS network.

As of December 31, 2022 and 2021, the Company had approximately $ 10.1 million and $ 10.0 million, respectively, in CDs.

These cash deposits are deposited at a bank that is a member of the Certificate of Deposit Account Registry Service

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(“CDARS”), in which large deposits are divided into smaller amounts and placed with other Federal Deposit Insurance Corporation (“FDIC”) insured banks which are also members of the CDARS network.

Those members issue CDs in amounts under $250,000, so that the entire deposit balance is eligible for FDIC insurance.

The Company classified $ 2.0 million as cash and cash equivalents and classified $ 8.0 million of its certificates of deposits as short-term investments on its consolidated balance sheets as of December 31, 2021.

The Company did not have any certificates of deposit as of December 31, 2020.

As of December 31, 2022, the Company classified $ 8.0 million of its CDs as cash and cash equivalents and $ 2.1 million of its CDs as short-term investments on its consolidated balance sheets.

As of December 31, 2021, the Company classified $ 2.0 million of its CDs as cash and cash equivalents and $ 8.0 million of its CDs as short-term investments on its consolidated balance sheets.

Revenue Recognition

2 unchanged sentences

The Company generates revenue primarily from government and other awarded grants that reimburse the Company for certain allowable costs related to research and development efforts.

These grants include the following terms:

The Department of Defense grants are for an award of $ 4.0 million, all of which was recognized as revenue before the program ended, for work on bioengineered blood vessels for vascular trauma, which was awarded to the Company in September 2017 and ended in February 2020, and an award of $ 7.1 million for work to support human tissue engineered blood vessels for vascular reconstruction in the injured warfighter, which was awarded to the Company in August 2017 and is ongoing.

The Company has recognized revenue of $ 1.3 million and $ 1.1 million during the year ended December 31, 2021 and 2020, respectively, for reimbursement of certain allowable costs related to these grants.

The National Institutes of Health grant is for $ 1.6 million for work to support bioengineered grafts for peripheral vascular disease, which was awarded to the Company in November 2013.

The Company recognized $ 1.6 million for the reimbursement of certain allowable costs related to the grant before this program ended in 2020.

The Company recognized $ 0.3 million during the year ended December 31, 2020, and no revenue during the year ended December 31, 2021, for reimbursement of certain allowable costs related to this grant.

The Company has determined that the grants are not within the scope of ASC 606 as they do not meet the definition of a contract with a customer.

The Company has concluded that the grants meet the definition of a contribution and are nonexchange transactions and has applied the contribution accounting model in Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition by analogy.

In August 2017, the Department of Defense (“DoD”) granted the Company a cash award for work to support human tissue engineered blood vessels for vascular reconstruction in the injured warfighter.

The final amount awarded to the Company totaled $ 6.8 million and the program ended in November 2022.

Based on the terms of the research project award agreement associated with the DoD grant, allowable costs were reimbursed to the Company based on the percentage of completion of project milestones in accordance with milestone payment schedules set forth in the agreement.

During the years ended December 31, 2022 and 2021, the Company recognized revenue of $ 1.6 million and $ 1.3 million, respectively, for reimbursement of certain allowable costs related to this grant.

Revenue related to the DoD grant is included in grant revenue in the Company’s consolidated statements of operations and comprehensive loss.

As of December 31, 2022 and 2021, there was $ 31 thousand and $ 176 thousand, respectively, of accounts receivable related to the DoD grant included in the Company’s consolidated balance sheets.

The Company has determined that the grant is not within the scope of ASC 606 as it does not meet the definition of a contract with a customer.

The Company has concluded that the grant meets the definition of a contribution and is a nonexchange transaction and has applied the contribution accounting model in Subtopic 958-605, Not-for-Profit-Entities-Revenue Recognition by analogy.

The Company recognizes funding received from grants as revenue, rather than as a reduction of research and development expenses, because the Company is the principal in conducting the research and development activities and these grants are central to the Company’s ongoing operations.

1 unchanged sentence

The related costs incurred are included in research and development expense in the Company’s consolidated statements of operations and comprehensive loss.

Revenue from grants not within the scope of ASC 606 was $ 1.3 million and $ 1.5 million for the years ending December 31, 2021 and 2020, respectively.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Revenue from Customers

9 unchanged sentences

For contracts where the period between when the Company transfers a promised good or service to the customer and when the customer pays is one year or less, the Company has elected the practical expedient to not adjust the promised amount of consideration for the effects of a significant financing component.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Concentration of Credit Risk

Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash and cash equivalents and short-term investments consisting of CDs.

Total cash balances exceeded insured balances by the Federal Deposit Insurance Corporation as of December 31, 2021 and 2020.

The company has cash equivalents that are invested in highly rated money market funds invested only in obligations of the U.S.

Total cash balances exceeded insured balances by the FDIC as of December 31, 2022 and 2021.

The Company has cash equivalents that are invested in highly rated money market funds that are invested only in obligations of the U.S.

government and its agencies.

The majority of the Company’s revenue has been derived from government grants.

The Company’s grants which represented 10% or more of the Company’s total revenue during the years ended December 31, 2021 and 2020 or accounts receivable balance as of December 31, 2021 and 2020 are as follows:

Revenue Accounts

Grant A — % — — —

Grant B — % — % 10 % —

Grant C 100 % 100 % 67 % 100 %

Grant D — — 18 % —

Total 100 % 100 % 95 % 100 %

All of the Company’s revenues were generated from grants from government and other entities located in the United States, for the years ended December 31, 2021 and 2020.

During the years ended December 31, 2022 and 2021 , 100 % of the Company’s total revenue relates to the award it received from the DoD in August 2017.

As of December 31, 2022 and 2021 , 100 % of the Company’s accounts receivable relates to the DoD grant.

Net Loss per Share Attributable to Common Stockholders

4 unchanged sentences

Basic net loss per share attributable to common stockholders is computed by dividing net loss attributable to common stockholders by the weighted-average number of common shares outstanding during the period without consideration of potentially dilutive common stock.

Diluted net loss per share attributable to common stockholders reflects the potential

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company unless inclusion of such shares would be anti-dilutive.

As the Company has only incurred losses, basic and diluted net loss per share is the same.

Diluted net loss per share attributable to common stockholders reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company unless inclusion of such shares would be anti-dilutive.

As the Company has incurred losses for the years ended December 31, 2022 and 2021, basic and diluted net loss per share is the same for each period.

The potential shares of common stock that were excluded from the computation of diluted net loss per share for each period because including them would have had an antidilutive effect were as follows:

Shares issuable upon conversion of Series A redeemable convertible preferred stock — 18,421,897

Shares issuable upon conversion of Series B redeemable convertible preferred stock — 24,137,647

Shares issuable upon conversion of Series C redeemable convertible preferred stock — 11,241,283

Shares issuable upon conversion of Series D redeemable convertible preferred stock — 15,812,735

Year Ended December 31,

Exercise of options under stock plan 7,203,874 6,711,192

Warrants to purchase common stock 5,588,506 5,588,506

The 15,000,000 Contingent Earnout shares are excluded from the anti-dilutive table for all the periods presented as such shares are contingently issuable until the share price of the Company exceeds specified thresholds that have not yet been achieved, or upon the occurrence of a change in control.

The 15,000,000 Contingent Earnout Shares, as defined in Note 3, are excluded from the anti-dilutive table for all periods presented, as such shares are contingently issuable until the share price of the Company exceeds specified thresholds that have not yet been achieved, or upon the occurrence of a change in control.

Fair Value of Financial Instruments

3 unchanged sentences

• Level 1 — Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

• Level 2 — Inputs other than quoted prices included in Level 1 that are observable for the asset or liability, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

6 unchanged sentences

When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the balance sheet accounts and any resulting gain or loss is included in the results of operations for the respective period.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

Depreciation is calculated using the straight-line method over the estimated useful lives of the related assets.

17 unchanged sentences

The Company applies the accounting guidance for uncertainties in income taxes, which prescribes a recognition threshold and measurement process for recording uncertain tax positions taken, or expected to be taken, in a tax return in the financial statements.

Additionally, the guidance also prescribes the treatment for derecognition, classification, accounting in interim periods and disclosure requirements for uncertain tax positions.

Additionally, the guidance also prescribes the treatment for derecognition, classification,

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

accounting in interim periods and disclosure requirements for uncertain tax positions.

The Company accrues for the estimated amount of taxes for uncertain tax positions if it is more likely than not that the Company would be required to pay such additional taxes.

6 unchanged sentences

As of December 31, 2022 and 2021, the Company has determined that no uncertain tax positions would have a material impact on the financials statements of the Company.

The Company is no longer subject to Federal, state, and local tax examinations by tax authorities for years before 2018

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

although carry-forward attributes that were generated prior to 2018 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.

The Company is no longer subject to Federal, state, and local tax examinations by tax authorities for years before 2019 although carry-forward attributes that were generated prior to 2019 may still be adjusted upon examination by the taxing authorities if they either have been or will be used in a future period.

No income tax returns are currently under examination by taxing authorities.

17 unchanged sentences

• license fees related to in-licensed technologies.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accrued Research and Development

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The Company measures the fair value of awards granted using the Black-Scholes option pricing model and recognizes the expense over the requisite service period using the straight-line method.

Option valuation

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

models, including the Black-Scholes option-pricing model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award.

Option valuation models, including the Black-Scholes option-pricing model, require the input of highly subjective assumptions, and changes in the assumptions used can materially affect the grant-date fair value of an award.

These assumptions include the risk-free rate of interest, expected dividend yield, expected volatility, the expected term of the award, and the fair value of the underlying common stock on the date of grant.

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The agreement provides that in the event of a tender or exchange offer made to and accepted by holders of more than 50 % of the outstanding shares of the Company’s common shares, all holders of the Common Stock Warrants (both the Public Warrants and the Private Placement Warrants) would be entitled to receive cash for all of their Common Stock Warrants.

As the Company has a single class of common stock, a qualifying cash tender offer of more than 50 % of the Company’s common stock will always result in a change-in-control and would not preclude permanent equity classification of the Public Warrants.

As the Company has a single class of common stock, a qualifying cash tender offer of more than 50 % of the Company’s common stock will

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

always result in a change-in-control and would not preclude permanent equity classification of the Public Warrants.

Based on this evaluation, the Company concluded that the Public Warrants meet the criteria to be classified within stockholders’ equity.

1 unchanged sentence

In connection with the Reverse Recapitalization and pursuant to the Merger Agreement, Legacy Humacyte equity holders are entitled to receive as additional merger consideration of up to 15,000,000 shares of the Company’s Common Stock (the “Contingent Earnout Shares”), comprised of two separate tranches of 7,500,000 shares per tranche, for no consideration upon the occurrence of certain triggering events, including a change of control event that is not solely indexed to the common stock.

In accordance with ASC 815-40, as the earnout shares were not indexed to the common stock, they were accounted for as a liability at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other (expense) income, net in the consolidated statements of operations and comprehensive loss.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

The estimated fair value of the Contingent Earnout Shares was determined using a Monte Carlo simulation using a distribution of potential outcomes on a monthly basis over a ten -year period prioritizing the most reliable information available.

In accordance with ASC 815-40, as the earnout shares were not indexed to the common stock, they were accounted for as a liability at the Reverse Recapitalization date and subsequently remeasured at each reporting date with changes in fair value recorded as a component of other income (expense), net in the consolidated statements of operations and comprehensive loss.

The estimated fair value of the Contingent Earnout Shares was determined using a Monte Carlo simulation using a distribution of potential outcomes on a monthly basis over a 10 -year period prioritizing the most reliable information available.

The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Company common stock price, expected volatility, risk-free rate, expected term and expected dividend yield.

The Contingent Earnout Shares are categorized as a Level 3 fair value measurement (see “Fair Value of Financial Instruments” accounting policy described above) because the Company estimated projections over a ten -year period utilizing unobservable inputs.

Contingent earnout payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

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Lease liabilities are increased by interest and reduced by payments each period, and the right of use asset is amortized over the lease term.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In calculating the right-of-use assets and lease liabilities, the Company has elected to combine lease and non-lease components for all asset classes.

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Other Risks and Uncertainties

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

the availability of third-party coverage and reimbursement, development by competitors of new technological innovations, the ability to manufacture HAVs and other product candidates in sufficient quantities, expectations regarding the Company’s strategic partnerships, dependence on third parties, key personnel and the ability to attract and retain qualified employees, protection of proprietary technology and confidentiality of trade secrets, compliance with governmental regulations, the impact of the COVID-19 pandemic, the Company’s implementation and maintenance of effective internal controls, and the ability to secure additional capital to fund operations and commercial success of its product candidates.

The Company is subject to risks and uncertainties common to early-stage companies in the biotechnology industry, including, but not limited to, successful discovery and development of its product candidates, the success of clinical trials and other studies for its product candidates, including for its ongoing V005 Phase 2/3 clinical trial and V007 Phase 3 clinical trial, the regulatory approval and commercialization of its HAVs and other product candidates, the expected size of the target populations for the Company’s product candidates, the degree of market acceptance of the HAVs, if approved, the availability of third-party coverage and reimbursement, development by competitors of new technological innovations, the ability to manufacture HAVs and other product candidates in sufficient quantities, expectations regarding the Company’s strategic partnerships, dependence on third parties, key personnel and the ability to attract and retain qualified employees, protection of proprietary technology and confidentiality of trade secrets, compliance with governmental regulations, the impact of the COVID-19 pandemic, the Company’s implementation and maintenance of effective internal controls, and the ability to secure additional capital to fund operations and commercial success of its product candidates.

Product candidates currently under development will require extensive preclinical and clinical testing and regulatory approval prior to commercialization.

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Recently Adopted Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12 “Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes” (“ASU 2019-12”).

The FASB issued this update to remove certain exceptions to the general principles in the Accounting Standards Codification (“ASC”) Topic 740 and to improve consistent application of and simplify U.S.

GAAP for other areas of ASC Topic 740 by clarifying and amending existing guidance.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

The Company adopted ASU 2019-12 as of January 1, 2021.

The adoption of the new guidance did not have a material impact on the Company’s financial statements and related disclosures.

In August 2020, the FASB issued ASU No.

2020-06, “Debt-Debt with Conversion and Other Options (Subtopic 470 – 20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815–40):

Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current U.S.

The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas.

Either a modified retrospective method of transition or a fully retrospective method of transition is permissible for the adoption of this standard.

This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021, with early adoption permitted.

The Company adopted ASU 2020-06 as of January 1, 2021.

The adoption of this ASU had no impact on the Company’s financial statements and related disclosures.

Recently Issued Accounting Pronouncements

In May 2021, the FASB issued ASU No.

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An entity should apply the amendments prospectively to modifications or exchanges occurring after the effective date of the amendments.

The Company plans to adopt the standard effective January 1, 2022 and does not expect a material impact to its consolidated financial statements or disclosures.

The Company adopted ASU 2021-04 as of January 1, 2022.

The adoption of this ASU had no impact on the Company’s consolidated financial statements and disclosures.

In November 2021, the FASB issued ASU No.

2021-10, “Government Assistance (Topic 832):

Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”) to improve financial reporting by requiring disclosures that increase the transparency of transactions with a government accounted for by applying a grant or contribution model by analogy, including (i) the types of transactions, (ii) an entity’s accounting for those transactions, and (iii) the effect of those transactions on an entity’s financial statements.

ASU 2021-10 is effective for all entities within their scope for

Disclosures by Business Entities about Government Assistance” (“ASU 2021-10”) to improve financial reporting by requiring disclosures that increase the transparency of transactions with a government accounted for by applying a grant or contribution model by analogy (for example, guidance on contributions for not-for-profit-entities in ASC 958-605).

For transactions within the scope, ASU 2021-10 requires the disclosure of (i) the types of transactions, (ii) an entity’s accounting for those transactions, and (iii) the effect of those transactions on an entity’s financial statements.

ASU 2021-10 is effective for all entities within their scope for financial statements issued for annual periods beginning after December 15, 2021.

The Company adopted ASU 2021-10 effective January 1, 2022 and elected to apply the amendments prospectively to all transactions within the scope of the amendment that are reflected in the financial statements at the date of adoption.

The adoption did not have a material impact to the Company’s consolidated financial statements or disclosures.

See the above section titled “Grant Revenue” for disclosure related to the Company’s government grants.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies (continued)

financial statements issued for annual periods beginning after December 15, 2021.

Early adoption is permitted and an entity can elect to apply the amendments in this guidance prospectively or retrospectively.

The Company plans to adopt this standard effective January 1, 2022 and does not expect a material impact to its consolidated financial statements or disclosures.

NOTES TO FINANCIAL STATEMENTS

Reverse Recapitalization

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At the effective time of the Merger:

• each outstanding share of Legacy Humacyte common stock was converted into approximately 0.26260 shares of the Company’s common stock;

• each outstanding share of preferred stock of Legacy Humacyte was cancelled and converted into the aggregate number of shares of New Humacyte’s common stock that would be issued upon conversion of the shares of Legacy Humacyte preferred stock based on the applicable conversion ratio immediately prior to the effective time, multiplied by approximately 0.26260 ;

• each outstanding option or warrant to purchase Legacy Humacyte common stock was converted into an option or warrant, as applicable, to purchase a number of shares of the Company’s common stock equal to the number of shares of Legacy Humacyte common stock subject to such option or warrant multiplied by approximately 0.26260 , at an exercise price per share equal to the current exercise price per share for such option or warrant divided by approximately 0.26260 ;

• each outstanding share of Legacy Humacyte common stock was converted into approximately 0.26260 shares of Common Stock;

• each outstanding share of preferred stock of Legacy Humacyte was cancelled and converted into the aggregate number of shares of Common Stock that would be issued upon conversion of the shares of Legacy Humacyte preferred stock based on the applicable conversion ratio immediately prior to the effective time, multiplied by approximately 0.26260 ;

• each outstanding option or warrant to purchase Legacy Humacyte common stock was converted into an option or warrant, as applicable, to purchase a number of shares of Common Stock equal to the number of shares of Legacy Humacyte common stock subject to such option or warrant multiplied by approximately 0.26260 , at an exercise price per share equal to the current exercise price per share for such option or warrant divided by approximately 0.26260 ;

in each case, rounded down to the nearest whole share.

In addition, upon the closing of the merger (the “Closing”), 2,500,000 Class B shares of AHAC (Founder Shares) automatically converted into shares of the Company’s common stock, on a one -for- one basis.

Former holders of the Legacy Humacyte common stock and Legacy Humacyte preferred stock are eligible to receive up to an aggregate of 15,000,000 additional shares of the Company’s common stock (the “Contingent Earnout Shares”) in the aggregate in two equal tranches of 7,500,000 shares if the volume-weighted average closing sale price of the common stock is greater than or equal to $ 15.00 and $ 20.00 , respectively, for any 20 trading days within any 30 consecutive trading day period.

At the Closing on August 26, 2021, the Company recorded a liability (“Contingent Earnout Liability”) of $ 159.4 million, based on the estimated fair value of the 15 million Contingent Earnout Shares with a corresponding reduction of additional paid-in capital in the equity section of the Company’s consolidated balance sheet.

In addition, upon the closing of the Merger (the “Closing”), 2,500,000 Class B shares of AHAC (the “Founder Shares”) automatically converted into shares of Common Stock, on a one -for- one basis.

Former holders of the Legacy Humacyte common stock and Legacy Humacyte preferred stock are eligible to receive up to an aggregate of 15,000,000 additional shares of Common Stock (the “Contingent Earnout Shares”) in the aggregate, comprised of two equal tranches of 7,500,000 shares per tranche if the volume-weighted average closing sale price of the Common Stock is greater than or equal to $ 15.00 and $ 20.00 , respectively, for any 20 trading days within any 30 consecutive trading day period.

At the Closing on August 26, 2021, the Company recorded a liability (“Contingent Earnout Liability”) of $ 159.4 million, based on the estimated fair value of the 15,000,000 Contingent Earnout Shares with a corresponding reduction of additional paid-in capital in the equity section of the Company’s consolidated balance sheet.

Concurrently with the execution of the Merger Agreement, AHAC entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”).

Pursuant to the Subscription Agreements, the PIPE Investors purchased an aggregate of 17,500,000 shares of the Company’s common stock (the “PIPE Shares”) in a private placement at a price of $ 10.00 per share for an aggregate purchase price of $ 175 million (the “PIPE Financing”).

Pursuant to the Subscription Agreements, the PIPE Investors purchased an aggregate of 17,500,000 shares of Common Stock (the “PIPE Shares”) in a private placement at a price of $ 10.00 per share for an aggregate purchase price of $ 175 million (the “PIPE Financing”).

The PIPE Financing was consummated in connection with the Closing.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Reverse Recapitalization (continued)

The number of shares of the Company’s common stock outstanding immediately following the consummation of the Merger was:

The number of shares of Common Stock outstanding immediately following the consummation of the Merger was:

Common stock of AHAC, outstanding prior to Merger 10,355,000

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(1) Includes 69,613,562 shares of Common Stock issued upon conversion of Legacy Humacyte’s redeemable convertible preferred stock.

The Merger is accounted for as a reverse recapitalization in accordance with U.S.

Under this method of accounting, AHAC is treated as the acquired company for financial reporting purposes and Legacy Humacyte is treated as the acquirer.

This determination is primarily based on the fact that subsequent to the Merger, the Legacy Humacyte stockholders hold a majority of the voting rights of the combined company, Legacy Humacyte comprises all of the ongoing operations of the combined company, Legacy Humacyte comprises a majority of the carryover governing body of the combined company, and Legacy Humacyte’s senior management comprises all of the senior management of the combined company.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Merger was accounted for as a reverse recapitalization in accordance with U.S.

Under this method of accounting, AHAC was treated as the acquired company for financial reporting purposes and Legacy Humacyte was treated as the acquirer.

This determination was primarily based on the fact that subsequent to the Merger, the Legacy Humacyte stockholders held a majority of the voting rights of the combined company, Legacy Humacyte comprised all of the ongoing operations of the combined company, Legacy Humacyte comprised a majority of the governing body of the combined company, and Legacy Humacyte’s senior management comprised all of the senior management of the combined company.

Accordingly, for accounting purposes, the Merger was treated as the equivalent of Legacy Humacyte issuing shares for the net assets of AHAC, accompanied by a recapitalization.

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Legacy Humacyte assumed $ 15.2 million of liabilities, including PIPE Financing fees and legal fees, and $ 0.1 million of assets from AHAC.

Of the $ 15.2 million of liabilities assumed from AHAC, as of December 31, 2021, $ 0.1 million was included in accrued expenses.

HUMACYTE, INC.

NOTES TO FINANCIAL STATEMENTS

Of the $ 15.2 million of liabilities assumed from AHAC, $ 0.1 million was included in accrued expenses as of December 31, 2021, and there were no unpaid liabilities as of December 31, 2022.

Fair Value Measurements

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Contingent Earnout Liability $ — $ — $ 27,893 $ 27,893

Common stock warrant liabilities (Private Placement Warrants) — — 497 497

Private Placement Warrants liability — — 80 80

Total financial liabilities $ — $ — $ 27,973 $ 27,973

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Cash equivalents (money market funds) $ 208,821 $ — $ — $ 208,821

Cash equivalents (certificates of deposit) — 2,000 — 2,000

Short-term investments (certificates of deposit) — 8,000 — 8,000

Total financial assets $ 208,821 $ 10,000 $ — $ 218,821

The following table presents a summary of the changes in the fair value of the Company’s Level 3 financial instruments:

($ in thousands) Contingent

Earnout Liability Private Placement

Fair value as of December 31, 2020

Private placement warrant liability acquired as part of the merger — ( 553 )

Contingent earnout liability recognized upon the closing of the reverse recapitalization ( 159,432 ) —

Change in fair value included in other (expense) income 55,772 56

Fair value as of December 31, 2021

$ ( 103,660 ) $ ( 497 )

The fair value of the Contingent Earnout Liability and Private Placement Warrants liability are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

In determining the fair value of the Contingent Earnout Liability, the Company used the Monte Carlo simulation value model using a distribution of potential outcomes on a monthly basis over a 10 -year period prioritizing the most reliable information available.

In determining the fair value of the Private Placement Warrants liability, the Company used the Monte Carlo simulation valuation model to estimate the fair value utilizing assumption including the current Company stock price, expected volatility, risk-free rate, expected term and expected dividend yield (see Note 9).

Contingent Earnout Liability $ — $ — $ 103,660 $ 103,660

Private Placement Warrants liability — — 497 497

Total financial liabilities $ — $ — $ 104,157 $ 104,157

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value Measurements (continued)

The following tables present a summary of the changes in the fair value of the Company’s Level 3 financial instruments:

Contingent Earnout Liability

Year Ended December 31,

($ in thousands) 2022 2021

Fair value as of beginning of period $ ( 103,660 ) $ —

Contingent Earnout Liability recognized upon the closing of the reverse recapitalization — ( 159,432 )

Change in fair value included in other income, net 75,767 55,772

Fair value as of end of period $ ( 27,893 ) $ ( 103,660 )

Private Placement Warrants

Year Ended December 31,

($ in thousands) 2022 2021

Fair value as of beginning of period $ ( 497 ) $ —

Private Placement Warrants liability acquired as part of the Merger — ( 553 )

Change in fair value included in other income, net 417 56

Fair value as of end of period $ ( 80 ) $ ( 497 )

The fair value of the Contingent Earnout Liability and Private Placement Warrants (as defined in Note 9 — Stockholders’ Equity (Deficit)) liability are based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy.

The assumptions utilized in the calculation were based on the achievement of certain stock price milestones, including the current Common Stock price, expected volatility, risk-free rate, expected term and expected dividend yield (see Note 9 — Stockholders’ Equity (Deficit)).

Contingent earnout payments involve certain assumptions requiring significant judgment and actual results can differ from assumed and estimated amounts.

In determining the fair value of the Private Placement Warrants liability, the Company used the Monte Carlo simulation valuation model to estimate the fair value utilizing assumptions including the current Company stock price, expected volatility, risk-free rate, expected term and expected dividend yield (see Note 9 — Stockholders’ Equity (Deficit)).

The Company’s money market funds are classified within Level 1 of the fair value hierarchy because they are valued using quoted market prices.

Certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheet, which approximates their fair value based on Level 2 inputs.

Certificates of deposit are carried at amortized cost in the Company’s consolidated balance sheets, which approximates their fair value based on Level 2 inputs.

The carrying values of other receivables, accounts payable and accrued expenses as of December 31, 2022 and 2021 approximated their fair values due to the short-term nature of these items.

HUMACYTE, INC.

NOTES TO FINANCIAL STATEMENTS

Property and Equipment, Net

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26,355 26,355

Construction in progress 680 —

56,220 55,474

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___________________________

(1) Includes $ 3.6 million and $ 3.5 million for the years ended December 31, 2021 and 2020, respectively, related to scientific equipment not placed into service and therefore not being depreciated.

Depreciation expense totaled $ 6.2 million and $ 6.3 million for the years ended December 31, 2021 and 2020, respectively.

(1) As of December 31, 2021, includes $ 3.6 million related to scientific equipment not depreciated until being placed into service during the third quarter of 2022.

Depreciation expense totaled $ 6.2 million for each of the years ended December 31, 2022 and 2021.

All long-lived assets are maintained in the United States.

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$ 7,108 $ 6,757

On April 30, 2020, the Company received loan proceeds in the amount of approximately $ 3.3 million under the Paycheck Protection Program (“PPP”).

All or portion of this loan and any accrued interest was eligible to be forgiven after a twenty four week period as long as the borrower used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintains its payroll levels.

The amount of the loan forgiven was to be reduced if the borrower terminated employees or reduced salaries during the twenty four week period.

The unforgiven portion of the PPP loan was to be payable over two years at an interest rate of 1%, with a deferral of payments for the first ten months.

On May 25, 2021, the PPP loan was forgiven and the Company recognized a gain from loan extinguishment in the amount of $ 3.3 million during the year ended December 31, 2021.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt (continued)

On March 30, 2021, the Company entered into a term loan agreement with Silicon Valley Bank and SVB Innovation Credit Fund VIII, L.P., as amended in June and September 2021, which provides a term loan facility of up to $ 50.0 million with a maturity date of March 1, 2025, or the Loan Agreement.

On March 30, 2021, the Company entered into a term loan agreement with Silicon Valley Bank (“SVB”) and SVB Innovation Credit Fund VIII, L.P., as amended in June 2021 and September 2021 (the “Loan Agreement”), which provides a term loan facility of up to $ 50.0 million with a maturity date of March 1, 2025, or the Loan Agreement.

The Company’s obligations under the Loan Agreement are secured by substantially all of its assets except for its intellectual property.

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Borrowings under the Loan Agreement are accounted for net of issuance costs which are being accreted to interest expense over the term of the loan using the effective interest method.

As of December 31, 2021, two subsequent $ 10.0 million term loan tranches were eligible to be disbursed at the request of the Company during specified draw periods between now and 2023 if certain business milestones and other requirements are met by the dates specified in the Loan Agreement.

As of December 31, 2022, two subsequent $ 10.0 million term loan tranches will be eligible to be drawn at the request of the Company during specified draw periods prior to May 15, 2023, the first tranche subject to submission by the Company of its first Biologics License

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Application (“BLA”) to the FDA for its HAV prior to March 31, 2023, and the second tranche subject to the first approval from the FDA of any BLA for the HAV prior to March 31, 2023 and the Company having borrowed the first remaining tranche.

Borrowings bear interest at the greater of 7.5 % or the Wall Street Journal Prime Rate plus 4.25 % ( 11.75 % as of December 31, 2022).

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Repayment of principal may begin as soon as July 1, 2023 under the level of borrowing outstanding at December 31, 2022, and no later than April 1, 2024 if the remaining two loan tranches are drawn.

The term loans may only be prepaid in full, and such prepayment requires 30 days’ advance notice and is subject to a prepayment fee of 3.00 % (with a step down to 2.00 % after March 30, 2022, and a further step down to 1.00 % after March 30, 2023).

The term loans may only be prepaid in full, and such prepayment requires 30 days’ advance notice and was subject initially to a prepayment fee of 3.00 % (that was decreased to 2.00 % after March 30, 2022 (with a further decrease to 1.00 % after March 30, 2023).

The Company is not obligated to pay a prepayment fee if the Company makes a prepayment after March 30, 2024.

In connection with the Loan Agreement, the Company granted warrants to the lenders to purchase shares of Common Stock at an exercise price of $ 10.28 per share, of which 287,704 warrants were immediately exercisable.

The warrants are classified within stockholders’ equity as the settlement of the warrants is indexed to the Company’s own stock.

The warrants are classified within stockholders’ equity as the settlement of the warrants is indexed to the Common Stock.

The Company recognized the fair value of the warrants immediately exercisable within stockholders’ equity using a Black-Scholes valuation model at issuance.

At issuance, the Company initially determined that the funding of an additional tranche was not probable, and therefore no value was ascribed to the remaining 123,302 warrants that were only exercisable upon the funding of the additional tranche.

As a result of the Company’s additional $ 10.0 million borrowings under the Loan Agreement on October 13, 2021, the warrants to purchase the additional 123,302 shares of the Company’s common stock became exercisable at an exercise price of $ 10.28 per share and the value of the warrants was recorded as of that date.

The additional warrants are classified within stockholders’ equity using a Black-Scholes valuation model, as the settlement of the warrants is indexed to the Company’s own stock.

As a result of the Company’s additional $ 10.0 million borrowings under the Loan Agreement on October 13, 2021, the warrants to purchase the additional 123,302 shares of Common Stock became exercisable at an exercise price of $ 10.28 per share and the value of the warrants was recorded as of that date.

The additional warrants are classified within stockholders’ equity using a Black-Scholes valuation model, as the settlement of the warrants is indexed to the Common Stock.

As of December 31, 2022, the fair value of warrants ($ 3.3 million), a 5 % final payment fee ($ 1.5 million) and debt issuance costs ($ 0.3 million) are being accreted to interest expense over the term of the loan using the effective interest method.

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SVB loan payable, noncurrent portion

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Debt (continued)

Future minimum payments of principal on the Company’s outstanding variable rate borrowings as of December 31, 2022 are as follows:

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Total future payments

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On April 30, 2020, the Company received loan proceeds in the amount of approximately $ 3.3 million under the Paycheck Protection Program (“PPP”).

The loan and accrued interest were forgivable after a 24-week period as long as the Company used the loan proceeds for eligible purposes, including payroll, benefits, rent and utilities, and maintained its payroll levels.

On May 25, 2021, the PPP loan was forgiven and the Company recognized a gain from loan extinguishment in the amount of $ 3.3 million during the year ended December 31, 2021.

The Company’s finance lease relates to its headquarters, which was substantially completed in June 2018 and leased through May 2033, and its operating lease relates to the land lease associated with its headquarters.

During 2020 the Company had an operating lease for laboratory and office space in Ohio.

In March 2020, the Company terminated this lease, effective September 30, 2020, and paid termination fees of less than $ 0.1 million.

At December 31, 2022 and 2021, the Company had finance lease liabilities of $ 21.1 million and $ 23.1 million, respectively, and right-of-use assets of $ 19.4 million and $ 21.4 million, respectively, and operating lease liabilities of $ 0.7 million and $ 0.7 million, respectively, and right-of-use assets of $ 0.7 million and $ 0.7 million, respectively, all of which were included in the consolidated balance sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Leases (continued)

As of December 31, 2022, the maturities of the Company’s lease liabilities were as follows:

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Redeemable Convertible Preferred Stock

As of December 31, 2020 and immediately prior to the Merger, Legacy Humacyte had outstanding series A redeemable convertible preferred stock, series B redeemable convertible preferred stock, series C redeemable convertible preferred stock and series D redeemable convertible preferred stock, which are collectively referred to as “redeemable convertible preferred stock.”

As of December 31, 2020, redeemable convertible preferred stock consisted of the following (in thousands, except share amounts):

Authorized Redeemable

Preferred Stock

Outstanding Carrying Value Liquidation

Preference Issuance

Series A redeemable convertible preferred stock 18,421,897 18,421,897 $ 74,079 $ 74,079 $ 4.0212

Series B redeemable convertible preferred stock 24,137,647 24,137,647 127,358 136,500 $ 5.6550

Series C redeemable convertible preferred stock 11,241,286 11,241,283 70,704 75,000 $ 6.6717

Series D redeemable convertible preferred stock 15,812,735 15,812,735 148,848 150,000 $ 9.4859

69,613,565 69,613,562 $ 420,989 $ 435,579

In connection with the Merger, all previously issued and outstanding redeemable convertible preferred stock was converted into an equivalent number of shares of common stock of the Company on a one-for-one basis, then multiplied by the Exchange Ratio pursuant to the Merger Agreement.

Immediately prior to the Merger, Legacy Humacyte had outstanding series A redeemable convertible preferred stock, series B redeemable convertible preferred stock, series C redeemable convertible preferred stock and series D redeemable convertible preferred stock, which are collectively referred to as “redeemable convertible preferred stock.”

In connection with the Merger, all previously issued and outstanding redeemable convertible preferred stock was converted into an equivalent number of shares of Common Stock of the Company on a one-for-one basis, then multiplied by the exchange ratio pursuant to the Merger Agreement and the amounts were reclassified as additional paid-in capital.

On August 26, 2021, the Merger and related PIPE Financing was consummated and the Company issued 27,346,449 shares of Common Stock for proceeds of $ 242.4 million.

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Legacy Humacyte assumed $ 15.2 million of liabilities, including PIPE Financing fees and legal fees, and $ 0.1 million of assets from AHAC.

Immediately following the Merger, there were 103,003,384 shares of common stock outstanding with a par value of $ 0.0001 .

As of December 31, 2021, the Company’s Second Amended and Restated Certificate of Incorporation authorized the Company to issue 250,000,000 shares of common stock at a par value of $ 0.0001 per share.

The number of authorized

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity (Deficit) (continued)

shares of common stock may be increased or decreased (but not below the number of shares thereof then outstanding or reserved for issuance) by the affirmative vote of the holders of a majority of the capital stock of the Company entitled to vote and may require a separate class vote of the common stock.

Immediately following the Merger, there were 103,003,384 shares of Common Stock outstanding with a par value of $ 0.0001 per share.

As of December 31, 2022, the Company’s Second Amended and Restated Certificate of Incorporation authorized the Company to issue 250,000,000 shares of Common Stock.

The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares then outstanding or reserved for issuance) by the affirmative vote of the holders of a majority of the capital stock of the Company entitled to vote and may require a separate class vote of the Common Stock.

The holders of Common Stock are entitled to receive dividends from time to time as may be declared by the Company’s board of directors.

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In the event of a reorganization of the Company, after payment to the preferred stockholders of their liquidation preferences, holders of Common Stock are entitled to share ratably in all remaining assets of the Company.

At December 31, 2021 and 2020, the Company had reserved common stock for future issuances as follows:

Conversion of Series A redeemable convertible preferred stock

Conversion of Series B redeemable convertible preferred stock

Conversion of Series C redeemable convertible preferred stock

Conversion of Series D redeemable convertible preferred stock

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2022 and 2021, the Company had reserved Common Stock for future issuances as follows:

Common stock reserved for Contingent Earnout Shares 15,000,000 15,000,000

7 unchanged sentences

35,523,301 35,748,668

Upon the Closing on August 26, 2021, all of the outstanding redeemable convertible preferred stock was converted to Common Stock pursuant to the conversion rate effective immediately prior to the Merger and the Exchange Ratio and the remaining amount was reclassified to additional paid-in capital.

Preferred Stock

The Company’s Second Amended and Restated Certificate of Incorporation provides the Company’s board of directors with the authority to issue $ 0.0001 par value preferred stock in one more series and to establish from time to time the number of shares to be included in each such series, by adopting a resolution and filing a certification of designations.

The Company’s Second Amended and Restated Certificate of Incorporation provides the Company’s board of directors with the authority to issue preferred stock, par value $ 0.0001 per share, in one more series and to establish from time to time the number of shares to be included in each such series, by adopting a resolution and filing a certification of designations.

Voting powers, designations, powers, preferences and relative, participating, optional, special and other rights shall be stated and expressed in such resolutions.

There were 20,000,000 shares designated as preferred stock and none were outstanding as of December 31, 2021.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity (Deficit) (continued)

Activity of warrants for the year ended December 31, 2021 is set forth below:

Private Placement

There were 20,000,000 shares designated as preferred stock and none were outstanding as of December 31, 2022 and 2021.

The Company had the following common stock warrants outstanding as of December 31, 2022 and 2021:

Common Stock Warrants Outstanding

Legacy Humacyte Common Stock Warrants

Private Placement Warrants

Public Warrants 5,000,000

Stock Warrants

Outstanding as of December 31, 2020

32,961 — — 32,961

Common Stock Warrants issued to SVB 411,006 — — 411,006

Common Stock Warrants as part of the Merger — 177,500 5,000,000 5,177,500

Warrants exercised ( 32,961 ) — — ( 32,961 )

Outstanding as of December 31, 2021

411,006 177,500 5,000,000 5,588,506

In conjunction with a long-term debt agreement entered into on March 15, 2006 and paid in full during 2011, the Company issued a warrant that gave the holder the right to purchase 32,961 shares of the Company’s common stock at an exercise price of $ 1.14 per share, which was outstanding as of December 31, 2020.

The warrant was fully exercised on March 4, 2021.

There was no activity for the warrant during the year ended December 31, 2020.

See Note 7 — Debt for a discussion of warrants issued in conjunction with the Company’s Loan Agreement.

Total Common Stock Warrants

See Note 7 — Debt for a discussion of common stock warrants issued in conjunction with the Company’s Loan Agreement in 2021 (such warrants, “Legacy Humacyte Common Stock Warrants”).

There were no issuances, exercises or expirations of warrants during the year ended December 31, 2022 .

During the year ended December 31, 2021, there were 32,961 warrants exercised that were issued in conjunction with a long-term debt agreement repaid in a prior reporting period.

There were no expirations of warrants during the year ended December 31, 2021 .

Private Placement Warrants

The Private Placement Warrants were initially recognized as a liability on the Closing Date, at a fair value of $ 0.6 million, and the Private Placement Warrant liability was remeasured to fair value as of December 31, 2021, resulting in a gain of $ 0.1 million for the year ended December 31, 2021, classified within Change in fair value of common stock warrant liabilities in the consolidated statements of operations and comprehensive loss.

The Private Placement Warrants were initially recognized as a liability on the Closing Date, at a fair value of $ 0.6 million, and the liability was remeasured to an estimated fair value of $ 0.5 million as of December 31, 2021.

See Note 4 — Fair Value Measurements for a summary of the change in the fair value of the Private Placement Warrants during the years ended December 31, 2022 and 2021.

The remeasurement of the Private Placement Warrant liability to a fair value of $ 0.1 million as of December 31, 2022 resulted in a non-cash gain of $ 0.4 million for the year ended December 31, 2022, compared to a non-cash gain of $ 0.1 million for the year ended December 31, 2021.

The remeasurement of the Private Placement Warrant liability is classified within Change in fair value of common stock warrant liabilities in the consolidated statements of operations and comprehensive loss.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Private Placement Warrants were valued using the following assumptions under the Monte Carlo simulation value model:

2021 August 26,

As of December 31,

Market price of public stock

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Contingent Earnout Liability

Following the Closing, former holders of Legacy Humacyte common and preferred shares may receive up to 15,000,000 additional shares of the Company’s common stock in the aggregate, in two equal tranches of 7,500,000 shares of common stock per tranche.

The first and second tranches are issuable if the closing volume weighted average price

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stockholders’ Equity (Deficit) (continued)

(“VWAP”) per share of common stock quoted on the Nasdaq (or the exchange on which the shares of common stock are then listed) is greater or equal to $ 15.00 and $ 20.00 , respectively, over any 20 trading days within any 30 consecutive trading day period.

Upon the Closing, the contingent obligation to issue Contingent Earnout Shares was accounted for as a liability because the triggering events that determine the number of Contingent Earnout Shares required to be issued include events that are not solely indexed to the common stock of Humacyte.

The estimated fair value of the total Contingent Earnout Shares at the Closing on August 26, 2021, was $ 159.4 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over a ten -year period using the most reliable information available.

The Contingent Earnout Liability was remeasured to fair value as of December 31, 2021, resulting in the recording of a non-cash gain of $ 55.8 million for the year ended December 31, 2021, classified within Change in fair value of contingent earnout liability in the consolidated statements of operations and comprehensive loss.

Following the Closing, former holders of Legacy Humacyte common and preferred shares may receive up to 15,000,000 additional shares of Common Stock in the aggregate, in two equal tranches of 7,500,000 shares of Common Stock per tranche.

The first and second tranches are issuable if the closing volume weighted average price (“VWAP”) per share of Common Stock quoted on Nasdaq (or the exchange on which the shares of Common Stock are then listed) is greater or equal to $ 15.00 and $ 20.00 , respectively, over any 20 trading days within any 30 consecutive trading day period.

The estimated fair value of the total Contingent Earnout Shares at the Closing on August 26, 2021 was $ 159.4 million based on a Monte Carlo simulation valuation model using a distribution of potential outcomes on a monthly basis over a 10 -year period using the most reliable information available.

The estimated fair value of the total Contingent Earnout Shares at December 31, 2021 was $ 103.7 million.

See Note 4 — Fair Value Measurements for a summary of the change in the fair value of the Contingent Earnout Liability during the years ended December 31, 2022 and 2021.

The remeasurement of the Contingent Earnout Liability to a fair value of $ 27.9 million as of December 31, 2022, resulted in a non-cash gain of $ 75.8 million for the year ended December 31, 2022, compared to a non-cash gain of $ 55.8 million for the year ended December 31, 2021.

The remeasurement of the Contingent Earnout Liability is classified within Change in fair value of Contingent Earnout Liability in the consolidated statements of operations and comprehensive loss.

Assumptions used in the valuations are described below:

2021 August 26,

As of December 31,

Current stock price $ 2.11 $ 7.25

3 unchanged sentences

Expected term (years) 10.00 10.00

HUMACYTE, INC.

NOTES TO FINANCIAL STATEMENTS

Stock-based Compensation

At Closing, the 2021 Long-Term Incentive Plan, or the 2021 Plan, and the 2021 Employee Stock Purchase Plan, or the ESPP, became effective.

At Closing, the 2021 Long-Term Incentive Plan, (the “2021 Plan”), and the 2021 Employee Stock Purchase Plan, (the “ESPP”), became effective.

As of December 31, 2022, 6,700,888 and 1,030,033 shares of Common Stock were available under the 2021 Plan and ESPP, respectively.

The 2021 Plan and ESPP provide that on January 1 of each year commencing January 1, 2022, the 2021 Plan and the ESPP reserve will automatically increase in an amount equal to the lesser of (a) 5 % and 1 %, respectively, of the number of shares of the Company’s Common Stock outstanding on December 31 of the preceding year and (b) a number of shares of Common Stock determined by the Company’s board of directors.

In December 2021, the Company’s board of directors determined that there would be no automatic increase in the number of shares reserved under the 2021 Plan or the ESPP on January 1, 2022.

Under the 2021 Plan, the Company can grant non-statutory stock options, or NSOs, incentive stock options, or ISOs, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance awards and other forms of awards.

Under the ESPP, eligible employees are permitted to purchase shares of the Company’s common stock at the lower of 85 % of the closing trading price per share of the Company’s common stock on the first day of the offering or 85 % of the closing trading price per share on the exercise date, which will occur on the last day of each offering.

Prior to the Closing, Legacy Humacyte had two equity incentive plans, the 2015 Omnibus Incentive Plan, as amended, or the 2015 Plan, and the 2005 Stock Option Plan, or the 2005 Plan.

In both December 2021 and 2022, the Company’s board of directors determined that there would be no automatic increase in the number of shares reserved under the 2021 Plan or the ESPP on either January 1, 2022 or January 1, 2023.

Under the 2021 Plan, the Company can grant non-statutory stock options, (“NSOs”), incentive stock options, ISOs, stock appreciation rights, restricted stock, restricted stock units, unrestricted stock, performance awards and other forms of awards.

Under the ESPP, when and if implemented, eligible employees will be permitted to purchase shares of the Company’s Common Stock at the lower of 85 % of the closing trading price per share of the Company’s Common Stock on the first day of the offering or 85 % of the closing trading price per share on the exercise date, which will occur on the last day of each offering.

Prior to the Closing, Legacy Humacyte had two equity incentive plans, the 2015 Omnibus Incentive Plan, as amended, (the “2015 Plan”), and the 2005 Stock Option Plan (the “2005 Plan”).

As a result of the Merger, no further awards may be granted under either the 2015 plan or the 2005 Plan.

All awards previously granted and outstanding as of the effective date of the Merger, which totaled 5,886,706 and 518,432 shares of common stock reserved for options issued under the 2015 Plan and 2005 Plan, respectively, were adjusted to reflect the impact of the Merger as set forth in the Merger Agreement, but otherwise remain in effect pursuant to their original terms.

All awards previously granted and outstanding as of the effective date of the Merger were adjusted to reflect the impact of the Merger as set forth in the Merger Agreement, but otherwise remain in effect pursuant to their original terms.

The shares underlying any award granted under the 2021 Plan or the 2015 Plan that are forfeited, cancelled or reacquired by the Company prior to vesting, that expire or that are paid out in cash rather than shares will become available for grant and issuance under the 2021 Plan.

The Company ’ s stock option plans allow for the grant of awards that the Company believes aid in aligning the interests of these persons with those of its stockholders.

The Company ’ s board of directors determines the specific terms of equity incentive grants, including the exercise price per share and vesting period for option awards.

As of December 31, 2022, 3,632,237 and 484,562 shares of Common Stock remain reserved for outstanding options issued under the 2015 Plan and 2005 Plan, respectively.

The Company’s stock option plans allow for the grant of awards that the Company believes aid in aligning the interests of award recipients with those of its stockholders.

The Company’s board of directors or compensation committee determines the specific terms of equity incentive grants, including the exercise price per share and vesting period for option awards.

Option awards are granted with an exercise price equal to the fair market value of the Company’s Common Stock at the date of grant.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based Compensation (continued)

The Company has granted options that include either a service-based or performance-based vesting condition, or both, and a 10-year contractual term.

8 unchanged sentences

Additionally, the Company’s board of directors may, in its sole discretion, accelerate the vesting of any unvested stock options in the event of a corporate transaction.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Company estimated the fair value of the stock options on the date of grant using the following assumptions in the Black-Scholes option-pricing model:

4 unchanged sentences

0.78 % ( 0.62 % to 1.32 %)

Expected term of options (in years) (weighted average and range, if applicable) 6.05 ( 6.00 to 6.25 )

Expected term of options (in years) (weighted average and range, if applicable) 6.25

6.05 ( 6.00 to 6.25 )

• Fair Value of Common Stock.

As the Company’s common stock was not publicly traded prior to the Merger, the fair value of the shares of its common stock underlying the options has historically been determined by the Company’s board of directors with input from management, after considering independent third-party valuation reports.

Prior to the Merger, as the Company’s common stock was not publicly traded, the fair value of the shares of its common stock underlying the options was determined by the Company’s board of directors with input from management, after considering independent third-party valuation reports.

Subsequent to the Merger, the fair value of the Common Stock has been determined based on the closing price of the shares on Nasdaq.

• Expected Term.

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• Expected Volatility.

The expected volatility was based on the historical share volatility of several publicly traded peer companies over a period of time equal to the expected term of the options, as the Company has a limited trading history to use the volatility of its common stock.

The expected volatility was determined based on a blended approach using the historical share volatility of the Company’s Common Stock and that of several publicly traded peer companies over a period of time equal to the expected term of the options, as the Company has a limited trading history.

For purposes of identifying these peer companies, the Company considered the industry, stage of development, size and financial leverage of potential comparable companies.

2 unchanged sentences

Treasury zero-coupon securities with maturities similar in duration to the expected term of the options.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-based Compensation (continued)

• Expected Dividend Yield.

2 unchanged sentences

At December 31, 2022, there were 6,700,888 options remaining available for grant under the 2021 Plan.

The Company has sufficient authorized and unissued shares to make all issuances currently available under the 2021 Plan.

The following tables show a summary of stock-based compensation expense included in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2021 and 2020, and remaining unrecognized cost as of December 31, 2021 and 2020:

The Company has sufficient authorized and unissued shares to issue Common Stock in satisfaction of any awards available for grant under the 2021 Plan.

The following table shows a summary of stock-based compensation expense included in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021:

($ in thousands) 2022 2021

3 unchanged sentences

$ 6,184 $ 10,146

As of December 31,

($ in thousands) 2021 2020

Unrecognized share-based compensation cost $ 13,346 $ 5,789

Expected weighted average period compensation costs to be recognized (years) 2.3 1.7

A summary of option activity under the Company’s stock option plans during the years ended December 31, 2021 and 2020 is presented below:

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

A summary of option activity under the Company’s stock option plans during the year ended December 31, 2022 is presented below:

Shares Weighted

11 unchanged sentences

7,203,874 $ 5.90 7.5 $ 429

The total intrinsic value of options exercised during the years ended December 31, 2021 and 2020 was $ 1.4 million and $ 1.4 million, respectively.

The weighted-average grant-date fair value per share of options granted during the years ended December 31, 2022 and 2021 was $ 2.70 and $ 7.63 , respectively.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The total intrinsic value of options exercised during the years ended December 31, 2022 and 2021 was $ 0.3 million and $ 1.4 million, respectively.

As of December 31, 2022, unrecognized stock-based compensation cost for options was $ 13.3 million and is expected to be recognized over a weighted-average period of 2.4 years.

The Company did not record any income tax expense or benefit during the years ended December 31, 2022 and 2021.

1 unchanged sentence

All losses before income taxes arose in the U.S.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

23 unchanged sentences

Therefore, the Company has reduced its North Carolina deferred tax assets, including the net operating losses, to zero , as no benefit is expected to be realized from these deferred tax assets prior to 2030 when there would be no income tax in North Carolina.

The reduction in the value of the deferred tax assets resulted in $ 6.9 million of tax expense, which was offset fully by the reduction in the corresponding valuation allowance.

The reduction in the value of the deferred tax assets resulted in $ 6.9 million of tax expense in 2021, which was offset fully by the reduction in the corresponding valuation allowance.

If the Company becomes profitable prior to 2030, the Company will recognize an income tax benefit related to the portion of its North Carolina deferred tax assets utilized.

1 unchanged sentence

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

The reasons for the difference between the actual income tax benefit for the years ended December 31, 2022 and 2021, and the amount computed by applying the statutory Federal income tax rate to losses before income taxes are as follows:

10 unchanged sentences

___________________________

(1) The deferred tax true-up for 2021 primarily relates to executive compensation subject to IRC Section 162(m) limitations.

(1) The deferred tax true-up for 2022 and 2021 primarily relates to executive compensation subject to IRC Section 162(m) limitations and t he 2021 research and development and net operating loss carryforwards were adjusted due to application of the employee retention credit determined in 2022.

As of December 31, 2022 the Company had approximately $ 322.4 million and $ 323.9 million of Federal and state net operating losses, respectively.

10 unchanged sentences

A section 382 study will be performed at a time when forthcoming profitability is reasonably anticipated.

On March 27, 2020, the CARES Act was passed by the U.S.

Congress and signed into United States law.

The CARES Act, among other things, includes certain provisions for individuals and corporations (including a suspension on the application of the 80% limitation described above for taxable years beginning prior to January 1, 2021);

however, these benefits did not materially impact the Company’s income tax provision in the periods presented.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Retirement Plan

3 unchanged sentences

The Company matches an employee’s contribution up to 4 % of the employee’s compensation.

Contributions to the plans by the Company totaled $ 0.6 million for each of the years ended December 31, 2021 and 2020.

Contributions to the plans by the Company totaled $ 0.7 million and $ 0.6 million for the years ended December 31, 2022 and 2021, respectively.

HUMACYTE, INC.

NOTES TO FINANCIAL STATEMENTS

Commitments and Contingencies

1 unchanged sentence

Duke University

In March 2006, the Company entered into a license agreement with Duke University, or Duke, which was subsequently amended in 2011, 2014, 2015, 2018, 2019 and January 2022.

In March 2006, the Company entered into a license agreement with Duke University (“Duke”), which was subsequently amended in 2011, 2014, 2015, 2018, 2019 and January 2022.

Under this license agreement, Duke granted the Company a worldwide, exclusive, sublicensable license to certain patents related to decellularized tissue engineering, referred to as the patent rights, as well as a non-exclusive license to use and practice certain know-how related to the patent rights.

19 unchanged sentences

In February 2014, the Company entered into a license agreement with Yale University (“Yale”) that granted the Company a worldwide license to the patents related to coatings for small-diameter vessels to inhibit clotting.

The license granted under the agreement is exclusive in the field of engineered vascular tissues and tissues and extracellular matrix-

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

based implants used for vascular repair, reconstruction and replacement (provided that all uses are vascular tissues within the range of 1 – 12mm in diameter), except that it is subject to Yale’s non-exclusive right, on behalf of itself and all other non-profit academic institutions, to use the licensed products for research, teaching, and other non-commercial purposes.

The license granted under the agreement is exclusive in the field of engineered vascular tissues and tissues and extracellular matrix-based implants used for vascular repair, reconstruction and replacement (provided that all uses are vascular tissues within the range of 1 – 12mm in diameter), except that it is subject to Yale’s non-exclusive right, on behalf of itself and all other non-profit academic institutions, to use the licensed products for research, teaching, and other non-commercial purposes.

The Company has agreed to pay to Yale an annual maintenance fee, increasing between the first and fourth anniversaries of the agreement up to a maximum of less than $ 0.1 million per year for this license.

In December 2022, in accordance with the terms of the agreement, the Company provided Yale with 90 days written notice of termination, effective March 21, 2023.

In August 2019, the Company entered into a license agreement with Yale that granted the Company a worldwide license to the patents related to Bioartificial Vascular Pancreas (“BVP”).

The license granted under the agreement is exclusive in the field of engineered vascular tissues that deliver pancreatic islet cells to patients, except that it is subject to Yale’s non-exclusive right, on behalf of itself and all other non-profit academic institutions, to use the licensed products for research, teaching, and other non-commercial purposes.

The license granted under the agreement is exclusive in the field of engineered vascular tissues that deliver pancreatic islet cells to patients, except that it is subject to

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Yale’s non-exclusive right, on behalf of itself and all other non-profit academic institutions, to use the licensed products for research, teaching, and other non-commercial purposes.

7 unchanged sentences

The Company has also agreed to pay Yale:

• annual maintenance fees, increasing between the first anniversary of the agreement until the fifth anniversary for the coating and BVP licenses and until the fourth anniversary for the tubular prostheses license up to a maximum of less than $ 0.1 million per year;

• milestone payments upon achievement of certain regulatory and commercial milestones of $ 0.2 million and $ 0.6 million ;

• annual maintenance fees, increasing between the first anniversary of the agreement until the fifth anniversary for the coating (see above) and BVP licenses and until the fourth anniversary for the tubular prostheses license up to a maximum of less than $ 0.1 million per year;

• milestone payments upon achievement of certain regulatory and commercial milestones of $ 0.2 million and $ 0.6 million, respectively ;

• a low single-digit percentage royalty on worldwide net sales, subject to reductions for third-party license fees;

5 unchanged sentences

Yale may also terminate for the Company’s non-payment, uncured material breach, failure to obtain adequate insurance, bringing or assisting in bringing of a patent challenge against Yale, abandonment of the research and development of the Company’s products or insolvency.

The Company may terminate the license agreements (i) on 90 days’ prior written notice to Yale, provided the Company is not in breach of the license agreements and has made all

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Commitments and Contingencies (continued)

required payments to Yale thereunder and (ii) on written notice to Yale following an uncured material breach.

The Company may terminate the license agreements (i) on 90 days’ prior written notice to Yale, provided the Company is not in breach of the license agreements and has made all required payments to Yale thereunder and (ii) on written notice to Yale following an uncured material breach.

With respect to the license agreements related to small-diameter vessels and BVP, the Company’s rights under the license agreements will also terminate automatically with respect to a patent application or patent within the licensed patents in a specified country if, upon receipt of written notice from Yale, the Company does not agree to pay the patent filing, prosecution and maintenance fees incurred by Yale for such patent applications or patents in the specified country.

2 unchanged sentences

Payments to Yale under the license agreement were immaterial during the periods presented.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Legal Matters

9 unchanged sentences

In June 2018, the Company completed a $ 150 million financing transaction pursuant to which Fresenius Medical Care purchased shares of series D redeemable convertible preferred stock that at the Closing of the Merger converted into 15,812,735 shares of the Company’s common stock.

In August 2021, Fresenius Medical Care invested $ 25 million as part of the PIPE Financing and received 2.5 million shares of the Company ’ s common stock.

In addition, the Company entered into a distribution agreement with Fresenius Medical Care in June 2018 which, as amended as of February 16, 2021, granted Fresenius Medical Care and its affiliates exclusive rights to develop outside the United States and EU and commercialize outside of the United States the Company’s 6 millimeter x 42 centimeter HAV and all improvements thereto, and modifications and derivatives thereof (including any changes to the length, diameter or configuration of the foregoing), for use in vascular creation, repair, replacement or construction, including renal replacement therapy for dialysis access, the treatment of peripheral arterial disease, and the treatment of vascular trauma, but excluding coronary artery bypass graft, pediatric heart surgery, or adhering pancreatic islet cells onto the outer surface of the distribution product for use in diabetic patients.

In August 2021, Fresenius Medical Care invested $ 25 million as part of the PIPE Financing and received an additional 2.5 million shares of the Company’s common stock.

In addition, the Company entered into a distribution agreement with Fresenius Medical Care in June 2018 which, as amended as of February 16, 2021, granted Fresenius Medical Care and its affiliates exclusive rights to develop outside the United States and EU and commercialize outside of the United States the Company’s 6 millimeter x 42 centimeter HAV and all improvements thereto, and modifications and derivatives thereof (including any changes to the length, diameter or configuration of the foregoing), for use in vascular creation, repair, replacement or construction, including renal replacement therapy for dialysis access, the treatment of peripheral artery disease, and the treatment of vascular trauma, but excluding coronary artery bypass graft, pediatric heart surgery, or adhering pancreatic islet cells onto the outer surface of the distribution product for use in diabetic patients.

Within the United States, Fresenius Medical Care will collaborate with the Company in its commercialization of the product in the field, including adoption of the distribution product as a standard of care in patients for which such use is supported by clinical results and health economic analyses.

2 unchanged sentences

For the EU, once such criteria have been satisfied for the applicable country, or if the parties otherwise mutually agree to obtain regulatory approval for the distribution product in the field in the applicable country, the Company agreed to use commercially reasonable efforts to obtain such regulatory approval (other than pricing approval), and Fresenius Medical Care agreed to use commercially reasonable efforts to obtain the corresponding pricing approval.

For the rest of the world

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions (continued)

(i.e., outside the United States and the EU), once such criteria have been satisfied for the applicable country, or if the parties otherwise mutually agree to obtain regulatory and pricing approval for the distribution product in the field in the applicable country, Fresenius Medical Care agreed to use commercially reasonable efforts to obtain such approvals, and the Company agreed to use commercially reasonable efforts to support Fresenius Medical Care in its efforts.

For the rest of the world (i.e., outside the United States and the EU), once such criteria have been satisfied for the applicable country, or if the parties otherwise mutually agree to obtain regulatory and pricing approval for the distribution product in the field in the applicable country, Fresenius Medical Care agreed to use commercially reasonable efforts to obtain such approvals, and the Company agreed to use commercially reasonable efforts to support Fresenius Medical Care in its efforts.

Under the distribution agreement, the Company grants an exclusive, sublicensable license to Fresenius Medical Care under the patents, know-how and regulatory materials controlled by the Company during the term to commercialize the distribution product in the field outside the United States, subject to the Company’s retained rights to carry out its obligations under the distribution agreement.

The Company also grants a non-exclusive, sublicensable license to Fresenius Medical Care under the patents, know-how and regulatory materials controlled by the Company during the term to develop the distribution product in accordance with the terms of the distribution agreement.

In addition, the Company grants to Fresenius Medical Care, among other things, a perpetual, irrevocable, non-exclusive sublicensable license under the patents and know-how that primarily relate to the distribution product or its manufacture and that were created, conceived or developed solely or jointly by or on behalf of Fresenius Medical Care in the performance of its activities under the distribution agreement.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

developed solely or jointly by or on behalf of Fresenius Medical Care in the performance of its activities under the distribution agreement.

The distribution agreement provides that the Company will own all know-how and patents that primarily relate to the distribution product or its manufacture that are created, conceived or developed by or on behalf of either party in the performance of activities under the distribution agreement.

11 unchanged sentences

Each party is required to indemnify one another for certain third-party claims.

Arrangements with Dr.

Niklason and Yale University

In September 2016, the Company entered into a Memorandum of Understanding Regarding Scientific and Operational Leadership, or MOU, with Dr.

Niklason in connection with her performance of various consulting activities for the Company.

The MOU provided for the Company to make a payment each year through 2023 to the academic institution with which Dr.

Niklason was then affiliated, up to an aggregate amount of $ 2.5 million for 2018 through 2023, and to pay Dr.

HUMACYTE, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Related Party Transactions (continued)

Niklason reasonable consulting fees in consideration of the services she performed for the Company.

For the year ended December 31, 2020, the Company made payments under the MOU of $ 0.5 million, to, or on behalf of, Yale University, where Dr.

Niklason serves as an Adjunct Professor in Anesthesia.

The MOU was terminated effective November 9, 2020.

Arrangements with Yale University

Niklason serves as an Adjunct Professor in Anesthesia at Yale University.

As of December 31, 2022 and 2021, the Company was a party to license agreements with Yale University, as described in Note 13 — Commitments and Contingencies above.

The following table shows a summary of related party expenses included in the statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021:

($ in thousands) 2022 2021

Expenses under MOU $ — $ 500

License expenses 100 85

Total $ 119 $ 176

As of December 31, 2021 and December 31, 2020, the Company was a party to license agreements with Yale University, as described in Note 13 — Commitments and Contingencies above.

T here was $ 50 thousand of license expenses payable to Yale University included in accounts payable on the Company’s consolidated balance sheets, as of December 31, 2022 .

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data