What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2022-03-01 compared with 2021-03-04 · 1370 added, 896 removed, 342 unchanged (87% of the section changed)

1 unchanged sentence

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Report of Independent Registered Public Accounting Firm

Reports of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Balance Sheets as of December 31, 2021 and 2020

Consolidated Statements of Operations for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Comprehensive Loss for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018

Consolidated Statements of Operations for the years ended

December 31, 2021, 2020 and 2019

Consolidated Statements of Comprehensive Loss for the years ended

December 31, 2021, 2020 and 2019

Consolidated Statements of Stockholders’ Deficit for the years ended

December 31, 2021, 2020 and 2019

Consolidated Statements of Cash Flows for the years ended

December 31, 2021, 2020 and 2019

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of NantKwest, Inc.

To the Stockholders and the Board of Directors of ImmunityBio, Inc.

and Subsidiaries

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of NantKwest, Inc.

(the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive loss, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).

We have audited the accompanying consolidated balance sheets of ImmunityBio, Inc.

and Subsidiaries (the Company) as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2021, and the related notes (collectively referred to as the “consolidated financial statements”).

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, in conformity with U.S.

generally accepted accounting principles.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

1 unchanged sentence

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

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

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

1 unchanged sentence

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

5 unchanged sentences

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

The communication of critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.

Related party transactions and disclosures

Description of the Matter

As discussed in Note 10 to the consolidated financial statements, the Company’s Executive Chairman of the Board of Directors and former CEO founded and has a controlling interest in NantWorks LLC, which is a collection of multiple companies in the healthcare and technology space.

Affiliates of NantWorks LLC are also affiliates of the Company due to the common control by and/or common ownership interest of the Company’s Executive Chairman of the Board of Directors and former CEO.

The Company has entered into multiple transactions with related parties, including shared services provided by/to NantWorks LLC, agreements with Immuno‑Oncology Clinic, Inc.

to conduct various clinical trials, and multiple agreements with ImmunityBio, Inc.

including a collaboration agreement with ImmunityBio, Inc.

for the joint development, manufacturing, and marketing of a vaccine/treatment for COVID‑19.

Description of the

Matter As discussed in Note 8 to the consolidated financial statements, the Company’s Executive Chairman and Global Chief Scientific and Medical Officer has a controlling interest in certain entities with which the Company has entered into material transactions including shared services agreement with NantWorks and related party notes payable with NantWorks, Nant Capital, NantMobile, and NantCancerStemCell.

Affiliates of such entities are also affiliates of the Company due to the common control of the Company’s Executive Chairman and Global Chief Scientific and Medical Officer.

Assessing the sufficiency of procedures performed to identify related parties and related party transactions and determining the identified related party transactions were properly recorded, presented and disclosed was challenging due to the nature, volume and the significance of related party transactions.

How We Addressed the Matter in Our Audit

The audit procedures we performed included, among others, testing the completeness and accuracy of the listing of significant related parties identified and related party transactions provided by management, testing the manner in which related party transactions were recorded, presented and disclosed, and performing journal entry searches of identified related parties to verify completeness and accuracy of the Company’s related party transactions.

We also inspected questionnaires received from the Company’s directors and officers, read employment and compensation contracts, proxy statements and other relevant filings with the Securities and Exchange Commission and other regulatory agencies that relate to the Company’s financial relationships and transactions with the Company’s executive officers and with other entities controlled by the Company’s Executive Chairman of the Board of Directors and former CEO.

We confirmed management fees payable to NantWorks LLC and other related party affiliates and agreed such fees to subsequent payments made by the Company.

How We Addressed

the Matter in Our

Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the Company’s related party process.

This included testing controls over management’s identification, review and disclosure of related party transactions.

We tested management’s controls over the completeness and accuracy of the related party disclosures in the consolidated financial statements.

We performed journal entry searches of identified related parties to verify completeness and accuracy of the Company’s related party transactions.

We also inspected questionnaires received from the Company’s directors and officers, read minutes of the meetings of Board of Directors and its various Committees, read employment and compensation contracts, proxy statements and other relevant filings with the Securities and Exchange Commission and other regulatory agencies that relate to the Company’s financial relationships and transactions with the Company’s executive officers and with other entities controlled by the Company’s Executive Chairman and Global Chief Scientific and Medical Officer.

We confirmed the transactions and/or balances, as applicable, with the related parties including amounts payable to NantWorks under the shared service agreement and related party notes payable to Nant Capital, NantMobile, NantWorks and NantCancerStemCell.

We also obtained the underlying agreements and assessed the associated accounting and disclosures.

We designed and executed our tests of account balances and transaction details to assess potential effects on the Company’s identified related parties and related party transactions.

We inquired of management and members of the Company’s audit committee regarding the completeness of the related party transactions identified.

We assessed the adequacy of financial statement footnote disclosure pertaining to related party transactions.

We have evaluated the Company’s related party disclosures included in Note 8 in relation to these matters.

/s/ Ernst & Young LLP

2 unchanged sentences

March 1, 2022

NantKwest, Inc.

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors of ImmunityBio, Inc.

and Subsidiaries

Opinion on Internal Control Over Financial Reporting

We have audited ImmunityBio, Inc.

and Subsidiaries’ internal control over financial reporting as of December 31, 2021, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria).

In our opinion, ImmunityBio, Inc.

and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2021 and 2020, the related consolidated statements of operations, comprehensive loss, stockholders’ deficit and cash flows for each of the three years in the period ended December 31, 2021, and the related notes and our report dated March 1, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

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

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements .

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate .

/s/ Ernst & Young LLP

Los Angeles, California

March 1, 2022

ImmunityBio, Inc.

and Subsidiaries

Consolidated Balance Sheets

3 unchanged sentences

Cash and cash equivalents $ 181,101 $ 34,915

Marketable securities 136,015 61,146

Due from related parties 1,333 2,003

Prepaid expenses and other current assets (including amounts with related parties) 15,898 13,649

Marketable debt securities, available-for-sale

Total current assets 334,347 111,713

Marketable debt securities, noncurrent

Property, plant and equipment, net (including amounts with related parties)

Marketable securities, noncurrent 822 950

Property, plant and equipment, net 82,863 72,541

Non-marketable equity investment — 7,849

Intangible asset, net 1,420 1,463

Convertible note receivable 6,379 6,129

Operating lease right-of-use assets, net (including amounts with related parties) 36,304 18,138

Equity investment

Other assets (including amounts with related parties)

LIABILITIES AND STOCKHOLDERS’ EQUITY

Investment and other assets (including amounts with related parties) 6,775 2,598

Total assets $ 468,910 $ 221,381

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:

Accounts payable $ 11,418 $ 11,510

Accrued expenses

Accrued expenses and other liabilities 51,387 36,771

Related-party notes payable 299,236 —

Due to related parties 3,943 14,838

Operating lease liabilities (including amounts with related parties) 3,011 5,015

Other current liabilities (including amounts with related parties)

Total current liabilities 368,995 68,134

Related-party notes payable, less current portion 306,349 254,353

Operating lease liabilities, less current portion (including amounts with related parties) 37,068 16,179

Deferred tax liability 162 170

Other liabilities 249 1,035

Total liabilities 712,823 339,871

Commitments and contingencies ( Note 7 )

Stockholders’ equity:

Stockholders’ deficit:

Common stock, $ 0.0001 par value;

500,000,000 shares authorized;

108,726,551 and 98,460,404 issued and outstanding as of

December 31, 2020 and December 31, 2019

397,830,044 and

382,243,142 shares issued and outstanding as of December 31, 2021 and

2020, respectively;

excluding treasury stock, 163,800 shares

outstanding as of December 31, 2021 and 2020, respectively

Additional paid-in capital 1,719,704 1,495,163

Accumulated other comprehensive loss

Accumulated deficit ( 1,961,921 ) ( 1,615,131 )

Total stockholders’ equity

Total liabilities and stockholders’ equity

Accumulated other comprehensive income 4 122

Total ImmunityBio stockholders’ deficit ( 242,173 ) ( 119,808 )

Noncontrolling interests ( 1,740 ) 1,318

Total stockholders’ deficit ( 243,913 ) ( 118,490 )

Total liabilities and stockholders’ deficit $ 468,910 $ 221,381

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

NantKwest, Inc.

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Operations

(in thousands, except share and per share amounts)

For the Year Ended December 31,

Year Ended December 31,

2021 2020 2019

Revenue $ 934 $ 605 $ 2,202

Operating expenses:

Research and development (including amounts with related parties)

Selling, general and administrative (including amounts with related parties)

Research and development (including amounts

with related parties) 195,958 139,507 111,997

Selling, general and administrative (including amounts

with related parties) 135,256 71,318 46,456

Impairment of intangible assets — 10,660 —

Total operating expenses 331,214 221,485 158,453

Loss from operations ( 330,280 ) ( 220,880 ) ( 156,251 )

Other income (expense):

Investment income, net

Other expense, net:

Interest and investment (loss) income, net ( 4,100 ) 2,435 2,442

Interest expense (including amounts with related parties) ( 14,849 ) ( 9,074 ) ( 5,920 )

Other (expense) income, net (including amounts with related parties)

Total other (expense) income

Loss before income taxes

Loss on equity method investment ( 803 ) — —

Other income (expense), net (including amounts with related parties) 193 1,486 ( 534 )

Total other expense, net ( 19,559 ) ( 5,153 ) ( 4,012 )

Loss before income taxes and noncontrolling interests ( 349,839 ) ( 226,033 ) ( 160,263 )

Income tax (expense) benefit ( 9 ) 1,846 105

Net loss per share:

Basic and diluted

Weighted-average number of shares during the period:

Basic and diluted

Net loss ( 349,848 ) ( 224,187 ) ( 160,158 )

Net loss attributable to noncontrolling interests, net of tax ( 3,058 ) ( 2,336 ) ( 2,381 )

Net loss attributable to ImmunityBio common stockholders $ ( 346,790 ) $ ( 221,851 ) $ ( 157,777 )

Net loss per ImmunityBio common share – basic $ ( 0.89 ) $ ( 0.59 ) $ ( 0.43 )

Net loss per ImmunityBio common share – diluted $ ( 0.89 ) $ ( 0.59 ) $ ( 0.43 )

Weighted-average number of common shares used in computing

net loss per share – basic and diluted 389,234,156 377,067,527 366,324,859

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

NantKwest, Inc.

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Comprehensive Loss

(in thousands)

For the Year Ended December 31,

Year Ended December 31,

2021 2020 2019

Net loss $ ( 349,848 ) $ ( 224,187 ) $ ( 160,158 )

Other comprehensive (loss) income, net of income taxes:

Net unrealized (losses) gains on available-for-sale securities ( 13 ) 140 158

Reclassification of net realized losses on available-for-sale

securities included in net loss

Reclassification of net realized losses on

available-for-sale securities included in net loss — 9 4

Foreign currency translation adjustments ( 105 ) 60 ( 35 )

Total other comprehensive (loss) income ( 118 ) 209 127

Comprehensive loss ( 349,966 ) ( 223,978 ) ( 160,031 )

Comprehensive loss attributable to noncontrolling interests ( 3,058 ) ( 2,336 ) ( 2,381 )

Comprehensive loss attributable to ImmunityBio

common stockholders $ ( 346,908 ) $ ( 221,642 ) $ ( 157,650 )

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

NantKwest, Inc.

Consolidated Statements of Stockholders’ Equity

(in thousands, except share and per share amounts)

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Stockholders’ Deficit

(in thousands, except share amounts)

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

(Loss) Income Total

Stockholders’

Equity (Deficit) Noncontrolling

Interests Total

Stockholders’

Equity (Deficit)

Shares Amount

Balance as of December 31, 2018

348,677,955 $ 35 $ 1,326,760 $ ( 1,232,320 ) $ ( 214 ) $ 94,261 $ ( 12,318 ) $ 81,943

Issuance of common stock for equity investment 2,047,500 — 30,000 — — 30,000 — 30,000

Stock-based compensation expense — — 3,421 — — 3,421 — 3,421

Exercise of warrants 19,664,050 2 41,862 — — 41,864 — 41,864

Exercise of stock options 1,995,120 — 4,086 — — 4,086 — 4,086

Vesting of restricted stock units (RSUs) 395,051 — — — — — — —

Net share settlement for RSU vesting and

warrant exercises

Net share settlement for RSUs vesting

and warrant exercises ( 124,345 ) — ( 127 ) — — ( 127 ) — ( 127 )

Repurchase of common stock ( 678,336 ) — — ( 2,501 ) — ( 2,501 ) — ( 2,501 )

Cumulative effect of the adoption of the new

revenue standard

Other comprehensive income

Cumulative effect of adoption of lease standard — — — ( 682 ) — ( 682 ) — ( 682 )

Deconsolidation of Precision Biologics — — — — — — 18,353 18,353

Other comprehensive income (loss), net of tax — — — — 127 127 — 127

Net loss — — — ( 157,777 ) — ( 157,777 ) ( 2,381 ) ( 160,158 )

Balance as of December 31, 2019

371,976,995 37 1,406,002 ( 1,393,280 ) ( 87 ) 12,672 3,654 16,326

Issuance of common stock, net of

offering costs of $ 4,373

8,521,500 1 86,301 — — 86,302 — 86,302

Stock-based compensation expense — — 2,187 — — 2,187 — 2,187

Exercise of warrants

Exercise of stock options 1,272,273 — 1,176 — — 1,176 — 1,176

Vesting of RSUs 648,336 — — — — — — —

Net share settlement for RSU vesting and

warrant exercises

Repurchase of common stock

Cumulative effect of the adoption of the new

lease standard

Other comprehensive income

Net share settlement for RSUs vesting ( 175,962 ) — ( 503 ) — — ( 503 ) — ( 503 )

Other comprehensive income (loss), net of tax — — — — 209 209 — 209

Net loss — — — ( 221,851 ) — ( 221,851 ) ( 2,336 ) ( 224,187 )

Balance as of December 31, 2020

Issuance of common stock, net of $ 4,373 in offering

382,243,142 38 1,495,163 ( 1,615,131 ) 122 ( 119,808 ) 1,318 ( 118,490 )

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

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Stockholders’ Deficit (Continued)

(in thousands, except share amounts)

Common Stock Additional

Capital Accumulated

Deficit Accumulated

Comprehensive

(Loss) Income Total

Stockholders’

Equity (Deficit) Noncontrolling

Interests Total

Stockholders’

Equity (Deficit)

Shares Amount

Issuance of common stock “at-the-market”

offering, net of commissions and

offering costs of $ 4,674

13,295,817 $ 2 $ 164,528 $ — $ — $ 164,530 $ — $ 164,530

Stock-based compensation expense — — 57,181 — — 57,181 — 57,181

1 unchanged sentence

Vesting of RSUs 873,058 — — — — — — —

Net share settlement for RSU vesting and

option exercises

Other comprehensive loss

Net share settlement for RSUs vesting ( 277,611 ) — ( 4,064 ) — — ( 4,064 ) — ( 4,064 )

Sales of assets to an entity under common control — — 1,435 — — 1,435 — 1,435

Other comprehensive income (loss), net of tax — — — — ( 118 ) ( 118 ) — ( 118 )

Net loss — — — ( 346,790 ) — ( 346,790 ) ( 3,058 ) ( 349,848 )

Balance as of December 31, 2021

397,830,044 $ 40 $ 1,719,704 $ ( 1,961,921 ) $ 4 $ ( 242,173 ) $ ( 1,740 ) $ ( 243,913 )

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

NantKwest, Inc.

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

For the Year Ended December 31,

Year Ended December 31,

2021 2020 2019

Operating activities:

Net loss $ ( 349,848 ) $ ( 224,187 ) $ ( 160,158 )

Adjustments to reconcile net loss to net cash used in operating activities:

Stock-based compensation expense 57,181 2,187 3,421

Depreciation and amortization 14,238 12,739 14,042

Non-cash interest items, net (including amounts with related parties) 12,479 8,531 ( 704 )

Non-cash lease expense related to operating lease right-of-use assets 4,884 5,155 4,131

Stock-based compensation expense

Unrealized loss on equity investment

Amortization of net premiums and discounts on marketable debt

Losses (gains) on sales of marketable debt securities

Loss on disposal of assets

Non-cash interest items, net

Loss on impairment of assets

Deferred income tax benefit

Unrealized losses (gains) on equity securities 4,615 ( 2,876 ) 320

Unrealized loss on non-marketable equity investment — 1,405 —

Loss on equity method investment 803 — —

Impairment of intangible assets — 10,660 —

Impairment of fixed assets — — 1,593

Deferred tax ( 8 ) ( 2,938 ) ( 8 )

Other 349 1,240 890

Changes in operating assets and liabilities:

Prepaid expenses and other current assets ( 2,249 ) 4,208 5,837

Investment and other assets ( 3,977 ) ( 684 ) ( 4,009 )

Accounts payable ( 3,717 ) 2,570 1,188

Accrued expenses and other liabilities 5,182 12,495 ( 11,796 )

Due to related parties

Related parties ( 10,187 ) 3,378 ( 2,380 )

Operating lease liabilities ( 4,164 ) ( 5,607 ) ( 4,476 )

Deferred rent

Net cash used in operating activities ( 274,419 ) ( 171,724 ) ( 152,109 )

2 unchanged sentences

Proceeds from sales of property, plant and equipment 20,498 — 200

Purchases of debt securities, held-to-maturity

Purchases of investments in equity securities

Purchases of marketable debt securities, available-for-sale ( 141,750 ) ( 91,765 ) ( 87,189 )

Maturities of marketable debt securities

Sales of marketable debt securities

Maturities of marketable debt securities, available for sale 56,166 65,350 109,730

Proceeds from sales of marketable debt and equity securities 13,763 8,272 2,601

Payment to Precision Biologics to facilitate deconsolidation — — ( 2,500 )

Purchase of non-marketable equity investment — — ( 3 )

Net cash (used in) provided by investing activities ( 84,886 ) ( 19,812 ) 18,552

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

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(in thousands)

Year Ended December 31,

2021 2020 2019

Financing activities:

Proceeds from equity offering, net of issuance cost paid

Proceeds from equity offering, net of issuance costs paid $ 164,530 $ 86,302 $ 30,000

Proceeds from issuance of related-party promissory notes,

net of issuance costs paid 338,500 63,700 47,670

Proceeds from exercises of stock options 5,461 1,176 4,086

Sale of assets to an entity under common control 1,435 — —

Net share settlement for RSUs vesting and warrant exercise ( 4,064 ) ( 503 ) ( 127 )

Payment for contingent consideration ( 419 ) — —

Proceeds from exercises of warrants — — 35,151

Principal payments of financing obligations

Repurchases of common stock with commissions

Net share settlement for restricted stock unit vesting and warrant and

option exercises

Net cash provided by (used in) financing activities

Net decrease in cash, cash equivalents, and restricted cash

Cash, cash equivalents and restricted cash, beginning of period

Cash, cash equivalents and restricted cash, end of period

Repurchase of common stock — — ( 2,501 )

Net cash provided by financing activities 505,443 150,675 114,279

Effect of exchange rate changes on cash, cash equivalents, and

restricted cash 48 ( 25 ) ( 21 )

Net change in cash, cash equivalents, and restricted cash 146,186 ( 40,886 ) ( 19,299 )

Cash, cash equivalents, and restricted cash, beginning of year 35,094 75,980 95,279

Cash, cash equivalents, and restricted cash, end of year $ 181,280 $ 35,094 $ 75,980

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

NantKwest, Inc.

ImmunityBio, Inc.

and Subsidiaries

Consolidated Statements of Cash Flows (Continued)

(in thousands)

For the Year Ended December 31,

Reconciliation of cash, cash equivalents, and restricted cash at end of period:

Year Ended December 31,

2021 2020 2019

Reconciliation of cash, cash equivalents, and restricted cash,

Cash and cash equivalents $ 181,101 $ 34,915 $ 75,801

Restricted cash included in other assets

Cash, cash equivalents, and restricted cash, end of period

Restricted cash ( Note 2 )

Cash, cash equivalents, and restricted cash, end of year $ 181,280 $ 35,094 $ 75,980

Supplemental disclosure of cash flow information:

Cash paid during the period for:

Cash paid during the year for:

Interest $ 2,106 $ 40 $ 19

Income taxes 9 8 3

Supplemental disclosure of non-cash activities:

Right-of-use assets obtained in exchange for operating lease liabilities

Cashless exercise of stock options and warrants

Property and equipment purchases included in accounts payable, accrued

expenses, and other liabilities

Conversion of Viracta convertible notes and accrued interest into

investment in equity securities of Viracta (Note 5)

Right-of-use assets obtained in exchange for operating

lease liabilities $ 23,069 $ 2,394 $ 1,968

Property and equipment purchases included in accounts payable,

accrued expenses and due to related parties 11,654 220 662

Unrealized (losses) gains on marketable debt securities ( 13 ) ( 17 ) 258

Cashless exercise of stock options 1,035 1,233 29

Accrued investment in joint venture 1,000 — —

Issuance of equity for warrant exercise via reduction of

related-party promissory notes — — 6,713

Conversion of convertible notes and accrued interest into

non-marketable equity investment — — 751

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

NantKwest, Inc.

ImmunityBio, Inc.

and Subsidiaries

Notes to Consolidated Financial Statements

Description of Business

NantKwest, Inc., or NantKwest, was incorporated in Illinois on October 7, 2002 under the name ZelleRx Corporation.

On January 22, 2010, the company changed its name to Conkwest, Inc., and on July 10, 2015, the company changed its name to NantKwest, Inc.

In March 2014, the company redomesticated from the State of Illinois to the State of Delaware and the Illinois company ceased to exist.

We are a pioneering clinical-stage immunotherapy biotechnology company headquartered in San Diego, California with certain operations in Culver City and El Segundo, California and Woburn, Massachusetts.

In these notes, the terms “we,” “our,” “the company” and “us” refer to NantKwest.

We are focused on harnessing the power of the innate immune system by using our natural killer cells, or NK cells, to treat cancer and viral infectious diseases.

A critical aspect of our strategy is to invest significantly in innovating new therapeutic candidates, based upon our proprietary activated NK, or aNK, cell platform, and conducting clinical testing and scale manufacturing of our most promising biologic product candidates.

We hold the exclusive right to commercialize aNK cells, a commercially viable NK cell line, and a wide range of genetically modified derivatives capable of killing cancer and virally infected cells.

We own corresponding United States, or U.S., and foreign composition and methods-of-use patents and applications covering the cells, improvements, methods of expansion and manufacture and use of aNK cells and their improvements as therapeutics to treat a spectrum of clinical conditions.

On June 29, 2020, the company closed an underwritten public offering of common stock as discussed further in Note 11, Stockholders Equity .

Gross proceeds from the offering were $ 90.7 million, before deducting underwriting discounts, commissions and other offering expenses of $ 4.4 million.

As of December 31, 2020, the company had an accumulated deficit of $ 754.6 million.

We also had negative cash flow from operations of $ 70.5 million during the year ended December 31, 2020.

The company will likely need additional capital to further fund development of, and seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products.

We are currently focused primarily on the development of immunotherapeutic treatments for cancers and debilitating viral infections using targeted cancer and viral killing cell lines, and we believe such activities will result in the company’s continued incurrence of significant research and development and other expenses related to those programs.

If the clinical trials for any of the company’s product candidates fail or produce unsuccessful results and those product candidates do not gain regulatory approval, or if any of our product candidates, if approved, fail to achieve market acceptance, we may never become profitable.

Even if the company achieves profitability in the future, it may not be able to sustain profitability in subsequent periods.

We intend to cover our future operating expenses through cash and cash equivalents and marketable debt securities on hand and through a combination of equity offerings, debt financings, government or other third party funding, marketing and distribution arrangements and other collaborations, strategic alliances, and licensing arrangements.

Additional financing may not be available to us when needed and, if available, financing may not be obtained on terms favorable to the company or its stockholders.

While we expect our existing cash, and cash equivalents and marketable debt securities, together with the ability to borrow from affiliated entities, will enable us to fund operations and capital expenditure requirements for at least the next 12 months, we may not have sufficient funds to reach commercialization.

Failure to obtain adequate financing when needed may require us to delay, reduce, limit, or terminate some or all of our development programs or future commercialization efforts or grant rights to develop and market product candidates that we might otherwise prefer to develop and market ourselves, which could adversely affect our ability to operate as a going concern.

If we raise additional funds from the issuance of equity securities, substantial dilution to existing stockholders may result.

If we raise additional funds by incurring debt financing, the terms of the debt may involve significant cash payment obligations, as well as covenants and specific financial ratios that may restrict our ability to operate our business.

In these notes to the consolidated financial statements, the terms “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio and subsidiaries.

ImmunityBio, Inc.

is a clinical-stage biotechnology company developing next-generation therapies and vaccines that complement, harness, and amplify the immune system to defeat cancers and infectious diseases.

We strive to be a vertically-integrated immunotherapy company designing and manufacturing our products so they are more effective, accessible, more conveniently stored, and more easily administered to patients.

Our broad immunotherapy and cell therapy platforms are designed to attack cancer and infectious pathogens by activating both the innate immune system—natural killer (NK) cells, dendritic cells, and macrophages—and the adaptive immune system—B cells and T cells—in an orchestrated manner.

The goal of this potentially best-in-class approach is to generate immunogenic cell death thereby eliminating rogue cells from the body whether they are cancerous or virally infected and to ultimately establish an “immunological memory” that confers long-term benefit for the patient.

Although such designations may not lead to a faster development process or regulatory review and may not increase the likelihood that a product candidate will receive approval, Anktiva ™ , our novel antibody cytokine fusion protein, has received Breakthrough Therapy and Fast Track designations in combination with BCG from the U.S.

Food and Drug Administration (FDA) for bacillus Calmette-Guérin (BCG) -unresponsive non-muscle invasive bladder cancer (NMIBC) carcinoma in situ (CIS) .

B ased on the reported results of the trial, we have initiated discussions with the FDA to file a BLA for Anktiva (to be branded VesAnktiva ™ for intravesical administration) plus BCG for BCG-unresponsive NMIBC CIS.

Our platforms, which include 17 first-in-human therapeutic agents, are being studied in 26 actively recruiting clinical trials—17 of which are in Phase 2 or 3 development—across 13 indications in liquid and solid tumors, including bladder, pancreatic and lung cancers.

These are among the most frequent and lethal cancer types for which there are high failure rates for existing standards of care or, in some cases, no available effective treatment.

In infectious disease, our pipeline currently targets such pathogens as the novel strain of the coronavirus (SARS-CoV-2) and human immunodeficiency virus (HIV).

We have established Good Manufacturing Process (GMP) manufacturing capacity at scale with cutting-edge cell manufacturing expertise and ready-to-scale facilities, as well as extensive and seasoned research and development (R&D), clinical trial, and regulatory operations, and development teams.

Under the terms of the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted auto matically into a right to receive 0.8190 (the Exchange Ratio) newly issued shares of common stock, par value $ 0.0001 per share, of the company (Company Common Stock), with cash paid in lieu of any fractional shares.

At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company.

At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase NantCell common stock was converted using the Exchange Ratio into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock.

Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5 % of the outstanding shares of Company Common Stock and the stockholders of the company as of immediately prior to the Merger held approximately 28.5 % o f the outstanding shares of Company Common Stock.

As a result of the Merger and immediately following the Effective Time, Dr.

Patrick Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and his affiliates beneficially owned, in the aggregate, approxim ately 81.8 % of th e outstanding shares of Company Common Stock.

Following the consummation of the Merger, the symbol for shares of the company’s common stock was changed to “IBRX.”

We incurred costs tota ling $ 23.3 million in connection with the Merger, consisting of financial advisory, legal and other professional fees, of which $ 13.0 million and $ 10.3 million were recorded for the years ended December 31, 2021 and 2020, respectively.

Merger-related costs are reported in selling, general and administrative expense , on the consolidated statements of operations.

Accounting Treatment of the Merger

The Merger represents a business combination pursuant to Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 805-50, Mergers , which is accounted for as a transaction between entities under common control as Dr.

Soon-Shiong and his affiliates were the controlling stockholders of both the company and NantCell for all of the periods presented in this report.

As a result, all of the assets and liabilities of NantCell were combined with ours at their historical carrying amounts on the closing date of the Merger.

We have recast our prior period financial statements to reflect the conveyance of NantCell’s common shares as if the Merger had occurred as of the earliest date of the financial statements presented.

All material intercompany accounts and transactions have been eliminated in consolidation.

The following tables provide the impact of the change in reporting entity on our unaudited condensed consolidated statements of operations for the three months ended March 31, 2021 and our consolidated statements of operations for the years ended December 31, 2020 and 2019, respectively (in thousands):

Three Months Ended

March 31, 2021

NantCell NantKwest Intercompany

Eliminations ImmunityBio,

Revenue $ 183 $ — $ ( 44 ) $ 139

Operating expenses:

Research and development (including amounts

with related parties) 21,509 19,725 ( 106 ) 41,128

Selling, general and administrative (including amounts

with related parties) 24,382 20,903 ( 10 ) 45,275

Loss from operations ( 45,708 ) ( 40,628 ) 72 ( 86,264 )

Other (expense) income, net (including amounts

with related parties) ( 848 ) 6,637 — 5,789

Income tax expense — ( 6 ) — ( 6 )

Net loss $ ( 46,556 ) $ ( 33,997 ) $ 72 $ ( 80,481 )

Year ended December 31, 2020

NantCell NantKwest Intercompany

Eliminations ImmunityBio,

Revenue $ 1,695 $ 111 $ ( 1,201 ) $ 605

Operating expenses:

Research and development (including amounts

with related parties) 75,763 64,483 ( 739 ) 139,507

Selling, general and administrative (including amounts

with related parties) 44,099 27,254 ( 35 ) 71,318

Impairment of intangible assets 10,660 — — 10,660

Loss from operations ( 128,827 ) ( 91,626 ) ( 427 ) ( 220,880 )

Other (expense) income, net (including amounts

with related parties) ( 4,401 ) ( 752 ) — ( 5,153 )

Income tax benefit (expense) 1,851 ( 5 ) — 1,846

Net loss $ ( 131,377 ) $ ( 92,383 ) $ ( 427 ) $ ( 224,187 )

Year ended December 31, 2019

NantCell NantKwest Intercompany

Eliminations ImmunityBio,

Revenue $ 2,994 $ 43 $ ( 835 ) $ 2,202

Operating expenses:

Research and development (including amounts

with related parties) 62,253 49,785 ( 41 ) 111,997

Selling, general and administrative (including amounts

with related parties) 28,391 18,065 — 46,456

Loss from operations ( 87,650 ) ( 67,807 ) ( 794 ) ( 156,251 )

Other (expense) income, net (including amounts

with related parties) ( 6,162 ) 1,921 229 ( 4,012 )

Income tax benefit 8 97 — 105

Net loss $ ( 93,804 ) $ ( 65,789 ) $ ( 565 ) $ ( 160,158 )

Summary of Significant Accounting Policies

Basis of Presentation

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America, or U.S.

The consolidated financial statements have been prepared assuming the company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of the uncertainty discussed in the Liquidity section of Note 1.

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

GAAP) and pursuant to the rules and regulations of the SEC.

The consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations.

As of December 31, 2021, the company had an accumulated deficit of $ 2.0 billion.

We also had negative cash flows from operations of $ 274.4 million for the year ended December 31, 2021.

The company will likely need additional capital to further fund the development of, and seek regulatory approvals for, our product candidates, and to begin to commercialize any approved products.

As a result of continuing anticipated operating cash outflows, we believe that substantial doubt exists regarding our ability to continue as a going concern without additional funding or financial support.

However, we believe our existing cash, cash equivalents, and investments in marketable debt securities, and our ability to borrow from affiliated entities, will be sufficient to fund operations through at least the next 12 months following the issuance date of the financial statements based primarily upon our Executive Chairman’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

However, we believe our existing cash, cash equivalents, and investments in marketable securities, together with capital to be raised through equity offerings (including but not limited to the offering, issuance and sale by us of our common stock that may be issued and sold under an “at-the-market” sales agreement with Jefferies LLC (the ATM), of which we had $ 330.8 million available for future issuance as of December 31, 2021), and our potential ability to borrow from affiliated entities, will be sufficient to fund our operations through at least the next 12 months following the issuance date of the consolidated financial statements based primarily upon our Executive Chairman and Global Chief Scientific and Medical Officer’s intent and ability to support our operations with additional funds, including loans from affiliated entities, as required, which we believe alleviates such doubt.

We may also seek to sell additional equity, through one or more follow-on public offerings, or in separate financings, or obtain a credit facility.

However, we may not be able to secure such financing in a timely manner or on favorable terms.

However, we may not be able to secure such external financing in a timely manner or on favorable terms.

Without additional funds, we may choose to delay or reduce our operating or investment expenditures.

Further, because of the risk and uncertainties associated with the commercialization of the company’s product candidates in development, we may need additional funds to meet our needs sooner than planned.

Further, because of the risk and uncertainties associated with the potential commercialization of our product candidates in development, we may need additional funds to meet our needs sooner than planned.

Principles of Consolidation

The consolidated financial statements include the accounts of NantKwest and its wholly owned subsidiaries.

All intercompany amounts have been eliminated.

We apply the variable interest model under Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 810, Consolidation , to any entity in which we hold an equity investment or to which we have the power to direct the entity's most significant economic activities and the ability to participate in the entity's economics.

If the entity is within the scope of the variable interest model and meets the definition of a variable interest entity, or VIE, we consider whether we must consolidate the VIE or provide additional disclosures regarding our involvement with the VIE.

The consolidated financial statements include the accounts of the company and its subsidiaries in which the company has a controlling financial interest.

The consolidated financial statements also include certain variable interest entities in which we are the primary beneficiary (as described in more detail below).

For consolidated entities where we have less than 100% of ownership, we record net loss attributable to noncontrolling interest on the consolidated statements of operations equal to the percentage of the ownership interest retained in such entities by the respective noncontrolling parties.

Any material intercompany transactions and balances have been eliminated upon consolidation.

If the entity is within the scope of the variable interest model and meets the definition of a variable interest entity (VIE), we consider whether we must consolidate the VIE or provide additional disclosures regarding our involvement with the VIE.

If we determine that we are the primary beneficiary of the VIE, we will consolidate the VIE.

This analysis is performed at the initial investment in the entity or upon any reconsideration event.

For entities we hold as an equity investment that are not consolidated under the VIE model, we consider whether our investment constitutes ownership of a majority of the voting interests in the entity and therefore should be considered for consolidation under the voting interest model.

Unconsolidated equity investments in the common stock or in-substance common stock of an entity under which we are able to exercise significant influence, but not control, are accounted for using the equity method.

Our ability to exercise significant influence is generally indicated by ownership of 20 to 50 percent interest in the voting securities of the entity.

All other unconsolidated equity investments on which we are not able to exercise significant influence will be subsequently measured at fair value with unrealized holding gains and losses included in other income and expense, net, on the consolidated statements of operations.

In the instance the equity investment does not have a readily determinable fair value and does not qualify for the practical expedient to estimate fair value in accordance with ASC 820, Fair Value Measurement , or ASC 820, we will apply the measurement alternative under ASC 321, Investments—Equity Securities , or ASC 321, pursuant to which we will measure the investment at its cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer.

We own non-marketable equity securities that are accounted for using the measurement alternative under ASC 321 because the preferred stock held by us is not considered in-substance common stock and such preferred stock does not have a readily determinable fair value.

All investments are reviewed for possible impairment on a regular basis.

If an investment's fair value is determined to be less than its net carrying value, the investment is written down to its fair value.

Such an evaluation is judgmental and dependent on specific facts and circumstances.

Factors considered in determining whether an impairment indicator is present include:

the investees’ earnings performance and clinical trial performance, change in the investees’ industry and geographic area in which it operates, offers to purchase or sell the security for a price less than the cost of the investment, issues that raise concerns about the investee's ability to continue as a going concern, and any other information that we may be aware of related to the investment.

Factors considered in determining whether an observable price change has occurred include:

the price at which the investee issues equity instruments similar to those of our investment and the rights and preferences of those equity instruments compared to ours.

For entities we hold as an equity investment that are not consolidated under the VIE model, we consider whether our investment constitutes a controlling financial interest in the entity and therefore should be considered for consolidation under the voting interest model.

Use of Estimates

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

On an ongoing basis, we evaluate our estimates, including those related to valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of the company’s ability to fund its operations for at least the next twelve months from the date of issuance of these financial statements.

On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these consolidated financial statements.

We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances.

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Actual results could differ from those estimates.

Risks and Uncertainties

In March 2020, the World Health Organization declared the novel strain of coronavirus disease (SARS‑CoV‑2) outbreak a pandemic.

To date, our operations have not been significantly impacted by the pandemic.

However, we cannot at this time predict the specific extent, duration, or full impact that this pandemic may have on our financial condition and results of operations, including ongoing and planned clinical trials.

More specifically, the pandemic may result in prolonged impacts that we cannot predict at this time and we expect that such uncertainties will continue to exist until such time a vaccine is broadly available and in use.

The impact of the pandemic on the financial performance of the company will depend on future developments, including the duration and spread of the outbreak and related governmental advisories and restrictions.

These developments and the impact of the ongoing pandemic on the financial markets and the overall economy are highly uncertain.

If the financial markets and/or the overall economy are impacted for an extended period, our results may be adversely affected.

Contingencies

We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.

We accrue for the best estimate of a loss within a range;

however, if no estimate in the range is better than any other, then we accrue the minimum amount in the range.

If we determine that a material loss is reasonably possible, we disclose the possible loss or range of loss, or that the amount of loss cannot be estimated at this time.

We evaluate, on a quarterly basis, developments in legal proceedings and other matters that could cause a change in the potential amount of the liability recorded or of the range of potential losses disclosed.

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Concentration of Credit Risk and Other Risks and Uncertainties

Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents and marketable debt securities.

Our cash and cash equivalents are held by one major financial institution in the U.S.

and one in Korea.

We minimize credit risk associated with our cash and cash equivalents by periodically evaluating the credit quality of our primary financial institutions.

Financial instruments that potentially subject us to concentrations of risk consist principally of cash and cash equivalents, marketable securities, and a convertible note receivable.

We attempt to minimize credit risk associated with our cash and cash equivalents by periodically evaluating the credit quality of our primary financial institutions.

Our investment portfolio is maintained in accordance with our investment policy.

While we maintain cash deposits in FDIC insured financial institutions in excess of federally insured limits, we do not believe that we are exposed to significant credit risk due to the financial position of the depository institutions in which those deposits are held.

We have not experienced any losses on such accounts.

Product candidates developed by us will require approvals or clearances from the U.S.

Food and Drug Administration, or FDA, or international regulatory agencies prior to commercial sales.

We also monitor the creditworthiness of the borrower of the convertible promissory note.

We believe that any concentration of credit risk in its convertible note receivable was mitigated in part by our ability to convert, if necessary, at the qualifying financing event or upon a payment default into shares of the senior class of equity securities of the borrower.

Product candidates developed by us will require approvals or clearances from the FDA or international regulatory agencies prior to commercial sales.

There can be no assurance that any of our product candidates will receive any of the required approvals or clearances.

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A reconciliation of cash, cash equivalents, and restricted cash is included on the consolidated statements of cash flows as of December 31, 2021, 2020 and 2019.

Marketable Securities and Other Investments

Marketable Debt Securities

We invest our excess funds in investment grade short- to intermediate-term corporate debt securities, government-sponsored securities, and foreign government bonds and classify these investments as available-for-sale.

Marketable debt securities with remaining maturities of 12 months or less are classified as short-term and marketable debt securities with remaining maturities greater than 12 months are classified as long-term.

All marketable debt securities are reported at fair value and any unrealized gains and losses are reported as a component of accumulated other comprehensive loss on the consolidated statements of stockholders’ equity, with the exception of unrealized losses believed to be other-than-temporary, which are recorded in investment income, net, on the consolidated statements of operations.

Realized gains and losses are included in investment income, net, on the consolidated statements of operations.

Marketable debt securities with remaining maturities of 12 months or less are classified as short-term and marketable securities with remaining maturities greater than 12 months are classified as long-term.

All marketable debt securities are reported at fair value and any unrealized gains and losses are reported as a component of accumulated other comprehensive loss, on the consolidated statements of stockholders’ deficit, with the exception of unrealized losses believed to be other-than-temporary, which are recorded in interest and investment income, net , on the consolidated statements of operations.

Realized gains and losses from sales of securities and the amounts, net of tax, reclassified out of accumulated other comprehensive loss , if any, are determined on a specific identification basis.

Marketable Equity Securities

Investments in mutual funds and equity securities, other than equity method investments, are recorded at fair market value, if fair value is readily determinable and any unrealized gains and losses are included in other income (expense), net, on the consolidated statements of operations.

Realized gains and losses from the sale of the securities are determined on a specific identification basis and the amounts are included in other income (expense), net, on the consolidated statement of operations.

Non-Marketable Equity Securities

Prior to March 31, 2021, we owned non-marketable equity securities that were accounted for using the measurement alternative under ASC Topic 321, Investments—Equity Securities (ASC 321), because the preferred stock held by us was not considered in-substance common stock and such preferred stock did not have a readily determinable fair value.

We measured the non-marketable equity investment at cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer, with such changes recognized on the consolidated statements of operations.

Some factors we may consider in the impairment analysis include the extent to which the security has been in an unrealized loss position, the change in the financial condition and near-term prospects of the issuer, as well as security and industry-specific economic conditions.

Evaluating Investments for Other-than-Temporary Impairments

We periodically evaluate whether declines in fair values of our investments below their book value are other-than-temporary.

This evaluation consists of several qualitative and quantitative factors regarding the severity and duration of the unrealized loss, as well as our ability and intent to hold the investment until a forecasted recovery occurs.

Additionally, we assess whether or not we have plans to sell the security or whether or not it is more likely than not we will be required to sell any investment before recovery of its amortized cost basis.

Additionally, we assess whether we have plans to sell the security or whether it is more likely than not we will be required to sell any investment before recovery of its amortized cost basis.

Factors considered include quoted market prices, recent financial results and operating trends, implied values from any recent transactions or offers of investee securities, credit quality of debt instrument issuers, other publicly available information that may affect the value of our investments, duration and severity of the decline in value, and our strategy and intentions for holding the investment.

There were no other-than-temporary impairments recorded in the years ended December 31, 2020, 2019 and 2018.

Property, Plant and Equipment

Property, plant and equipment is stated at historical cost less accumulated depreciation.

There were no other-than-temporary impairments recorded during the years ended December 31, 2021, 2020 and 2019.

Equity Method of Accounting

In circumstances where we have the ability to exercise significant influence over the operating and financial policies of a company in which we have an investment, we utilize the equity method of accounting for recording investment activity.

In assessing whether we exercise significant influence, we consider the nature and magnitude of our investment, the voting and protective rights we hold, any participation in the governance of the other company and other relevant factors such as the presence of a collaborative or other business relationship.

Under the equity method of accounting, we record our share of the income or loss of the other company as g ain (loss) on equity method investment , in our consolidated statements of operations.

Property, Plant and Equipment, Net

Property, plant and equipment are stated at historical cost less accumulated depreciation.

Historical cost includes expenditures that are directly attributable to the acquisition of the items.

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Depreciation of property, plant and equipment is calculated using the straight-line method over the estimated useful lives of the assets, as follows:

Laboratory equipment

Furniture & fixtures

Leasehold improvements

The lesser of the lease term or the life of the asset

Upon disposal or impairment of property, plant and equipment, the cost and related accumulated depreciation is removed from the consolidated financial statements and the net amount, less any proceeds, is included in the consolidated statements of operations.

Intangible Assets

Intangible assets, which consisted of the cost of reacquiring a technology license during 2015, were amortized using the straight-line method over an estimated useful life of 4 years.

As of December 31, 2019, our intangible assets were fully amortized.

Patent costs, including related legal costs, are expensed as incurred and recorded in selling, general and administrative expenses on the consolidated statements of operations.

Long-lived assets include property, plant and equipment and intangible assets.

We review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by comparison of the carrying amount to the future net cash flows that the assets are expected to generate.

Buildings 39 years

Software 3 years

Laboratory equipment 5 to 7 years

Furniture & fixtures 5 years

IT equipment 3 years

Leasehold improvements The lesser of the lease term or life of the asset

Upon disposal of property, plant and equipment, the cost and related accumulated depreciation are removed from the consolidated financial statements and the net amount, less any proceeds, is included in other income (expense), net , on the consolidated statements of operations.

We review impairment of property, plant and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

Recoverability is measured by a comparison of the carrying amount to the future net cash flows that the assets are expected to generate.

If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected undiscounted future cash flows arising from the assets using a discount rate determined by management to be commensurate with the risk inherent to our current business model.

During the year ended December 31, 2019 , we determined that certain bioreactor laboratory equipment could no longer be utilized in the production process.

As a result, we recorded an impairment charge totaling $ 0.9 million, which is included in research and development expense on the consolidated statements of operations.

There were no impairment losses recognized during the years ended December 31, 20 20 and 2018 .

Business Combinations

Business combinations are accounted for using the acquisition method of accounting in accordance with ASC Topic 805, B usiness Combinations (ASC 805).

These standards require that the total cost of acquisition be allocated to the tangible and intangible assets acquired and liabilities assumed based on their respective fair values at the date of acquisition, with the excess purchase price recorded as goodwill.

The allocation of the purchase price is dependent upon certain valuations and other studies.

Acquisition costs are expensed as incurred.

Contingent consideration incurred in connection with a business combination are recorded at their fair values on the acquisition date and re-measured at their fair values each subsequent reporting period until the related contingencies are resolved.

The resulting changes in fair value are recorded as research and development expense, on the consolidated statements of operations and comprehensive loss.

Changes in fair value reflect changes to our assumptions regarding probabilities of successful achievement of related milestones, the timing in which the milestones are expected to be achieved, and the discount rate used to estimate the fair value of the obligation.

Common Control Transactions

Transactions between us and entities where Dr.

Soon-Shiong and his affiliates are the controlling stockholders are accounted for as common control transactions whereby the net assets acquired or transferred are accounted at their carrying value.

Any difference between the carrying value and consideration recognized is treated as a capital transaction.

Cash consideration up to the carrying value of the net assets acquired or transferred is presented as an investing activity in our consolidated statements of cash flows.

Cash consideration in excess of the carrying value of the net assets acquired or transferred is presented as a financing activity in our consolidated statements of cash flows.

Intangible Assets, Net

Intangible assets acquired in a business combination are initially recognized at their fair value on the acquisition date.

The in-process research and development (IPR&D) assets are required to be classified as indefinite-lived assets and are not amortized until they become definite-lived assets, upon the successful completion of the associated research and development effort.

At that time, we will evaluate whether recorded amounts are impaired and make any necessary adjustments, and then determine the useful life of the asset and begin amortization.

If the associated research and development effort is abandoned, the related IPR&D assets will be written-off and an impairment charge recorded.

Intangible assets are tested for impairment at least annually or more frequently if indicators of potential impairment exist.

Acquired definite-lived intangible assets are amortized using the straight-line method over their respective estimated useful lives.

Intangible assets, which consisted of the cost of reacquiring a technology license during 2015, were amortized using the straight-line method over an estimated useful life of 4 years.

As of December 31, 2019, our definite-lived intangible assets were fully amortized.

Patent costs, including related legal costs, are expensed as incurred and recorded in selling, general and administrative expense on the consolidated statements of operations.

Fair Value of Financial Instruments

The accounting standard for fair value measurements provides a framework for measuring fair value and requires disclosures regarding fair value measurements.

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, based on our principal or, in absence of a principal, most advantageous market for the specific asset or liability.

Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.

We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement.

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• Level 1 —Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at the measurement date.

Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.

Our Level 1 assets consist of bank deposits and money market funds.

Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these products does not entail a significant degree of judgment.

Our Level 1 assets consist of bank deposits, money market funds, and marketable equity securities.

• Level 2 —Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities.

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• Level 3 —Valuations based on inputs that are unobservable and significant to the overall fair value measurement.

During the years ended December 31, 2020, 2019 and 2018, no transfers were made into or out of the Level 1, 2 or 3 categories.

We will continue to review the fair value inputs on a quarterly basis.

We utilize a third-party pricing service to assist in obtaining fair value pricing for our investments in marketable debt securities.

Inputs are documented in accordance with the fair value disclosure hierarchy.

The fair values of financial instruments other than marketable securities and cash and cash equivalents are determined through a combination of management estimates and third-party valuations.

During the years ended December 31, 2021, 2020 and 2019, no transfers were made into or out of the Level 1, 2 or 3 categories.

We will continue to review the fair value inputs on a quarterly basis.

Collaboration Arrangements

We analyze our collaboration arrangements to assess whether they are within the scope of FASB ASC Topic 808, Collaborative Arrangements, or ASC 808.

We analyze our collaboration arrangements to assess whether they are within the scope of ASC Topic 808, Collaborative Arrangements (ASC 808).

A collaborative arrangement is a contractual arrangement that involves a joint operating activity.

These arrangements involve two or more parties who are active participants in the activity, and exposed to significant risks and rewards dependent on the commercial success of the activity.

These arrangements involve two or more parties who are active participants in the activity, and are exposed to significant risks and rewards dependent on the commercial success of the activity.

This assessment is performed throughout the life of the arrangement based on changes in the responsibilities of all parties in the arrangement.

To the extent the collaboration agreement is within the scope of ASC 808, we also assess whether the arrangement contains multiple elements that are within the scope of other accounting literature.

If we conclude that some or all aspects of the agreement are distinct and represent a transaction with a customer, we account for those aspects of the arrangement within the scope of FASB ASC Topic 606, Revenue from Contracts with Customers , or ASC 606.

Amounts that are owed to collaboration partners that are within the scope of ASC 808 are recognized as an offset to research and development expenses as such amounts are incurred by the collaboration partner.

Where amounts owed to a collaboration partner exceed our collaboration expenses in each quarterly period, such amounts are classified as research and development expense.

If we conclude that some or all aspects of the agreement are distinct and represent a transaction with a customer, we account for those aspects of the arrangement within the scope of ASC Topic 606, Revenue from Contracts with Customers (ASC 606).

Amounts that are owed by collaboration partners within the scope of ASC 808 are recognized as an offset to research and development expense as such amounts are incurred by the collaboration partner.

The amounts owed to a collaboration partner are classified as research and development expense.

Our collaboration arrangements require us to acquire certain equipment for exclusive use in the joint operating activities.

These equipment purchases do not have an alternative use and are therefore expensed as incurred within research and development expenses.

Our collaboration arrangements are further discussed within Note 8, Collaboration and License Agreements .

These equipment purchases do not have an alternative use and are therefore expensed as incurred within research and development expense.

Our collaboration arrangements are further discussed in Note 6 , Collaboration and License Agreements .

Preclinical and Clinical Trial Accruals

As part of the process of preparing the financial statements, we are required to estimate expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants.

As part of the process of preparing the consolidated financial statements, we are required to estimate expenses resulting from obligations under contracts with vendors, clinical research organizations and consultants.

The financial terms of these contracts vary and may result in payment flows that do not match the periods over which materials or services are provided under such contracts.

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Lease Obligations

On January 1, 2019, we adopted FASB ASC Topic 842, Leases , or ASC 842.

For contracts entered into on or after the effective date, we determine if an arrangement is, or contains, a lease at lease inception.

Our assessment is based on:

(1) whether the contract involves the use of a distinct identified asset;

(2) whether we obtain the right to substantially all of the economic benefit from the use of the asset throughout the period;

and (3) whether we have the right to direct the use of the asset.

At inception of a lease, we allocate the consideration in the contract to each lease component based on its relative stand-alone price to determine the lease payments.

Leases entered into prior to January 1, 2019, which were accounted for under ASC 840, Leases , were not reassessed as we elected the package of practical expedients permitted under the transition guidance within ASC 842, which among other things, allowed us to carry forward the historical lease classification.

We determine the lease term by assuming the exercise of renewal options that are reasonably assured.

The exercise of lease renewal options is at our sole discretion.

Several of our leases have renewal options, however, exercise of renewal is only assured for two of our current Good Manufacturing Practices, or cGMP, facilities, where we have made significant improvements or extended the lease.

For all leases at the lease commencement date, a right-of-use asset and a lease liability are recognized.

For all leases other than short-term leases, at the lease commencement date, a right-of-use asset and a lease liability are recognized and included in operating lease right-of-use assets, net , and current and non-current operating lease liabilities , respectively, on the consolidated balance sheets.

The right-of-use asset represents the right to use the leased asset for the lease term.

At lease commencement, leases are classified as either finance leases or operating leases.

A lease is classified as a finance lease if any one of the following criteria are met:

(1) the lease transfers ownership of the underlying asset by the end of the lease term;

(2) the lease contains an option to purchase the underlying asset that is reasonably certain to be exercised;

(3) the lease term is for a major part of the remaining economic life of the underlying asset;

(4) the present value of the sum of the lease payments and any guaranteed residual value that is not already included in the lease payments equals or exceeds substantially all of the fair value of the underlying asset;

or (5) the underlying asset is of such a specialized nature that it is expected to have no alternative use to the lessor at the end of the lease term.

A lease is classified as an operating lease if it does not meet any one of these criteria.

We do not currently have any leases classified as finance leases.

Our operating lease assets and liabilities are included in operating lease right-of-use assets, net, and current and long-term operating lease liabilities, respectively, on the consolidated balance sheets.

At the commencement date, operating lease right-of-use assets and operating lease liabilities are determined based on the present value of lease payments to be made over the lease term.

Leases are classified as either finance leases or operating leases.

We do not currently have any leases classified as finance leases.

As the rate implicit in lease contracts are not readily determinable, we utilize its incremental borrowing rate as a discount rate for purposes of determining the present value of lease payments, which is based on the estimated interest rate at which we could borrow on a collateralized basis the amount of the lease payments in the same currency, for a similar term, in a similar economic environment.

Prospectively, we will remeasure the lease liability at the net present value of the remaining lease payments using the same incremental borrowing rate that was in effect as of the lease commencement or transition date.

Operating lease right-of-use assets also include any rent paid prior to the commencement date, less any lease incentives received, and initial direct costs incurred.

Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.

We have elected to combine our lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) with non-lease components (e.g., common-area maintenance costs and equipment maintenance costs) and as such, we account for lease and non-lease components as a single component.

We determine the lease term by assuming the exercise of renewal options that are reasonably assured.

The exercise of lease renewal options is at our sole discretion.

Several of our leases have renewal options, however, the exercise of renewal is only assured for five of our current Good Manufacturing Practices (cGMP) facilities where we have made significant improvements or extended the lease.

We combine our lease components (e.g., fixed payments including rent, real estate taxes and insurance costs) with non-lease components (e.g., common-area maintenance costs and equipment maintenance costs) and as such, we account for lease and non-lease components as a single component.

Lease expense also includes amounts relating to variable lease payments.

Variable lease payments include amounts relating to common area maintenance and real estate taxes.

We also elected not to recognize right-of-use assets and lease liabilities for qualifying short-term leases with an initial lease term of 12 months or less at lease inception .

We do not recognize right-of-use assets and lease liabilities for qualifying short-term leases with an initial lease term of 12 months or less at lease inception.

Such leases are expensed on a straight-line basis over the lease term.

The lease term includes the non-cancellable period of the lease and any additional periods covered by either options to renew or not to terminate when the company is reasonably certain to exercise.

The depreciable life of operating right-of-use-assets and leasehold improvements is limited by the expected lease term.

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We record valuation allowances to reduce deferred tax assets to the amount we believe is more likely than not to be realized.

We recognize uncertain tax positions when the position will be more likely than not upheld on examination by the taxing authorities based solely upon the technical merits of the positions.

We recognize interest and penalties, if any, related to unrecognized income tax uncertainties in income tax expense.

We did no t have any accrued interest or penalties associated with uncertain tax positions as of December 31, 2020 and 2019.

We are subject to U.S.

federal income tax, as well as income tax in Korea, California and other states.

To date, we have not been required to pay U.S.

federal and state income taxes because of current and accumulated net operating losses.

The federal returns for tax years 2017 through 2020 remain open to examination and the state returns remain subject to examination for tax years 2016 through 2020 .

Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authority.

All other state jurisdictions remain open to examination.

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

We recognize uncertain tax positions when the position will more likely than not be upheld on examination by the taxing authorities based solely upon the technical merits of the positions.

We recognize interest and penalties, if any, related to unrecognized income tax uncertainties in income tax (expense) benefit, on the consolidated statement of operations.

We did not have any accrued interest or penalties associated with uncertain tax positions as of December 31, 2021 and 2020.

Stock Repurchases

In November 2015, the board of directors approved the 2015 Share Repurchase Program (Note 11) allowing the CEO or CFO, on behalf of the company, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $ 50.0 million of our outstanding shares of common stock, exclusive of any commissions, markups or expenses.

The timing and amounts of any purchases were and will continue to be based on market conditions and other factors, including price, regulatory requirements and other corporate considerations.

The 2015 Share Repurchase Program does not require the purchase of any minimum number of shares and may be suspended, modified or discontinued at any time without prior notice.

We have financed, and expect to continue to finance, the purchases with existing cash balances.

As it is the intent for the repurchased shares to be retired, we have elected to account for the shares repurchased under the constructive retirement method.

For shares repurchased in excess of par, we allocate the purchase price in excess of par value to accumulated deficit.

In 2015, the Board of Directors approved a share repurchase program (the 2015 Share Repurchase Program).

As it is our intent for the repurchased shares to be retired, we have elected to account for the shares repurchased using the constructive retirement method.

For shares repurchased in excess of par, we record the purchase price in excess of par value in accumulated deficit , on the consolidated balance sheet.

Revenue Recognition

On January 1, 2018, we adopted the provisions of FASB ASC Topic 606, Revenue from Contracts with Customers , or ASC 606.

This guidance requires that entities recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

We adopted ASC 606 on January 1, 2018 by recording the cumulative effect of the adoption to accumulated deficit.

We applied the new guidance to contracts that were not complete as of January 1, 2018.

Implementation of ASC 606 did not have a material impact on our consolidated financial statements.

We derive substantially all of our revenue from non-exclusive license agreements with a limited number of pharmaceutical and biotechnology companies granting them the right to use our cell lines and intellectual property for non-clinical use.

We have primarily generated revenues from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables and grant programs.

The nonexclusive license agreements with a limited number of pharmaceutical and biotechnology companies grant them the right to use our cell lines and intellectual property for non-clinical use.

These agreements generally include upfront fees and annual research license fees for such use, as well as commercial license fees for sales of the licensee products developed or manufactured using our intellectual property and cell lines.

We have generated revenues from product sales of our proprietary GMP-in-a-Box bioreactors and related consumables to related parties.

Additionally, we also generated revenues from grant programs.

A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in ASC 606.

A contract’s transaction price is allocated to each distinct performance obligation based on relative standalone selling price and recognized as revenue when, or as, the performance obligation is satisfied.

Under the company’s license agreements with customers, the company typically promises to provide a license to use certain cell lines and related patents, the related know-how, and future research and development data that affect the license.

Under our license agreements with customers, we typically promise to provide a license to use certain cell lines and related patents, the related know-how, and future research and development data that affect the license.

We have concluded that these promises represent one performance obligation due to the highly interrelated nature of the promises.

We provide the cell lines and know-how immediately upon entering into the contracts.

The research and development data is provided throughout the term of the contract when and if available.

Our license agreement with Precigen (Note 8) included a nonrefundable upfront payment of $ 0.4 million, received when we entered into the contract in 2010.

In this instance, we determined that under ASC 606 it would be appropriate to recognize the initial milestone payment at a point in time, when we transferred the license.

In this case, the intellectual property provided under the contract is functional intellectual property under ASC 606 and was determined to be a distinct performance obligation in the context of the arrangement.

Prior to adoption, the upfront payment had been initially recorded as deferred revenue and was being recognized into revenue on a straight-line basis.

As a result, upon adoption of ASC 606, we adjusted our accumulated deficit for the effects of recognizing revenue upfront for the initial milestone.

The adjustment to accumulated deficit upon adoption was not material.

The license agreements may include nonrefundable upfront payments, event-based milestone payments, sales-based royalty payments, or some combination of these.

Research and development data are provided throughout the term of the contract when and if available.

The license agreements may include non-refundable upfront payments, event-based milestone payments, sales-based royalty payments, or some combination of these.

The event-based milestone payments represent variable consideration and we use the most likely amount method to estimate this variable consideration.

Given the high degree of uncertainly around achievement of these milestones, we do not recognize revenue from these milestone payments until the uncertainty associated with these payments is resolved.

Given the high degree of uncertainly around the achievement of these milestones, we do not recognize revenue from these milestone payments until the uncertainty associated with these payments is resolved.

We currently estimate variable consideration related to milestone payments to be zero and, as such, no revenue has been recognized for milestone payments.

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On a quarterly basis, we re-evaluate our estimate of milestone variable consideration to determine whether any amount should be included in the transaction price and recorded in revenue prospectively.

Upon adoption, we changed our accounting policy from accounting for milestones payments under the milestone method to accounting for variable consideration as discussed above.

The change in accounting policy did not change any amounts in the financial statements because of the significant uncertainty surrounding the estimate of variable consideration for milestone payments.

To date, we have generated minimal revenue related to the non-clinical use of our cell lines and intellectual property.

We have no products approved for commercial sale and we have not generated any revenue from product sales.

If we fail to complete the development of our product candidates in a timely manner or fail to obtain regulatory approval for them, we may never be able to generate substantial future revenue.

We also have sold our proprietary GMP-in-a-Box bioreactors and related consumables to affiliated companies.

The arrangements typically include delivery of bioreactors, consumables, and providing installation service and perpetual software licenses for using the equipment.

We recognize revenue when customers obtain control and can benefit from the promised goods or services, generally upon installation of the bioreactors, in an amount that reflects the consideration that we expect to receive in exchange for those goods or services.

Upfront payments and fees are recorded as deferred revenue upon receipt and recognized as revenue when we satisfy our performance obligations under these arrangements.

Grant revenue is typically paid for reimbursable costs incurred over the duration of the associated research project or clinical trial and is recognized when expenses reimbursable under the grants have been incurred and payments under the grants become contractually due.

From inception through December 31, 2021, we have generated minimal revenue from non-exclusive license agreements related to our cell lines, the sale of our bioreactors and related consumables, and grant programs.

We have no clinical products approved for commercial sale and have not generated any revenue from therapeutic and vaccine product candidates that are under development.

Research and Development Costs

Major components of research and development costs include cash compensation and other personnel-related expenses, stock-based compensation, depreciation and amortization expense on research and development property and equipment and intangible assets, costs of preclinical studies, clinical trials and related clinical manufacturing, costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf.

Major components of research and development costs include cash compensation and other personnel-related expenses, stock-based compensation, depreciation and amortization expense on research and development property and equipment and intangible assets, costs of preclinical studies, clinical trials costs, including contract research organizations (CROs) and related clinical manufacturing, including contract manufacturing organizations (CMOs), costs of drug development, costs of materials and supplies, facilities cost, overhead costs, regulatory and compliance costs, and fees paid to consultants and other entities that conduct certain research and development activities on our behalf.

Costs incurred in research and development are expensed as incurred.

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We record accruals for estimated costs under these contracts.

When evaluating the adequacy of the accrued liabilities, we analyze the progress of the studies or clinical trials, including the phase or completion of events, invoices received, contracted costs and purchase orders.

When evaluating the adequacy of the accrued liabilities, we analyze the progress of the preclinical studies or clinical trials, including the phase or completion of events, invoices received, contracted costs and purchase orders.

Significant judgments and estimates are made in determining the accrued balances at the end of any reporting period based on the facts and circumstances known at that time.

Although we do not expect the estimates to be materially different from the amounts actually incurred, if the estimates of the status and timing of services performed differs from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.

Although we do not expect the estimates to be materially different from the amounts actually incurred, if the estimates of the status and timing of services performed differ from the actual status and timing of services performed, we may report amounts that are too high or too low in any particular period.

Actual results could differ from our estimates.

We adjust the accruals in the period when actual costs become known.

Stock-Based Compensation

We account for stock-based compensation under the provisions of FASB ASC Topic 718, Compensation—Stock Compensation , or ASC 718, which applies to share-based payments issued to employees and nonemployees in exchange for goods or services.

Under ASC 718, the fair value of an equity-classified award is estimated on the grant date without regard to service or performance conditions.

The grant date fair values for options and warrants are estimated using the Black-Scholes-Merton option pricing model, and the grant date fair values for restricted stock units, or RSUs, are based upon the closing market price of our common stock on the date of grant.

We use the straight-line method to recognize stock-based compensation expense for our outstanding share awards that do not contain a performance condition.

For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period commencing once management believes the performance criteria is probable of being met.

We account for stock-based compensation under the provisions of ASC Topic 718, Compensation—Stock Compensation (ASC 718).

We estimate fair value of each stock option award on the date of grant using the Black-Scholes option pricing model.

The Black-Scholes model requires the use of highly subjective assumptions, including, but not limited to, expected stock price volatility over the term of the awards and the expected term of the stock options.

We measure the fair value of an equity-classified award at the grant date and recognize the stock-based compensation expense over the period of vesting on the straight-line basis for our outstanding share awards that do not contain a performance condition.

For awards subject to performance-based vesting conditions, we assess the probability of the individual milestones under the award being achieved and stock-based compensation expense is recognized over the service period using the graded vesting method once management believes the performance criteria is probable of being met.

For awards with service or performance conditions, we recognize the effect of forfeitures in compensation cost in the period that the award was forfeited.

Litigation Costs

We expense legal fees as they are incurred.

See Note 10 , Stock-Based Compensation .

Sale-Leaseback Transaction

A sale-leaseback transaction occurs when an entity sells an asset it owns and immediately leases the asset back from the buyer.

The seller then becomes the lessee and the buyer becomes the lessor.

When entering into a sale-leaseback transaction as a seller-lessee, the requirements in ASC Topic 606, Revenue from Contracts with Customers , and all related accounting standards updates to such Topic are applied in determining whether the transfer of an asset shall be accounted for as a sale of the asset by assessing whether it satisfies a performance obligation under the contract by transferring control of an asset.

If the company transfers control of an asset to the buyer-lessor, the transfer is accounted for as a sale and the company derecognizes the transferred asset.

The subsequent leaseback of the asset is accounted for in accordance with ASC Topic 842, Leases , in the same manner as any third-party lease.

If the company does not transfer control of an asset to the buyer-lessor, the sale-leaseback transaction is accounted for as a financing arrangement.

In September 2021, we entered into a sale transaction with Nant Capital, LLC (Nant Capital), a related party, for a building located at 557 South Douglas Street, El Segundo, California.

We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods.

There is no purchase option at the end of the lease term.

Since we transferred the legal title and all benefits and risks incidental to the ownership of the property to Nant Capital, we accounted for the transfer as a sale.

We have classified the leaseback of the building as an operating lease and accordingly, a right-of-use asset and an operating lease liability were established on the lease commencement date that will be amortized through the end of the lease term.

See Note 8 , Related-Party Agreements , for further information.

Comprehensive Income (Loss)

Comprehensive income or loss is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income (loss) is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources.

Comprehensive income or loss is composed of net income (loss) and other comprehensive income (loss).

Our other comprehensive income or loss consists of unrealized gains and losses on marketable debt securities classified as available-for-sale, net of income taxes.

Our other comprehensive income or loss consists of net unrealized gains (losses) on marketable debt securities classified as available-for-sale, net of income taxes.

and foreign currency translation adjustments.

Noncontrolling Interests

Noncontrolling interests are recorded for the entities that we consolidate but are not wholly-owned by the company.

Noncontrolling interests are classified as a separate component of equity on the consolidated balance sheets and consolidated statements of stockholders’ deficit.

Additionally, net loss attributable to noncontrolling interests is reflected separately from consolidated net loss on the consolidated statements of operations and the consolidated statements of stockholders’ deficit.

We record the noncontrolling interests’ share of loss based on the percentage of ownership interest retained by the respective noncontrolling interest holders.

Noncontrolling interests recorded on the consolidated financial statements result from the company’s share of GlobeImmune, Inc.

(GlobeImmune), of which we controlled 69.1 %, and Immunotherapy NANTibody, LLC (NANTibody), of which we controlled 60.0 % as of December 31, 2021, 2020 and 2019.

Noncontrolling interest stockholders are common stockholders.

GlobeImmune was determined to be a VIE as it does not have sufficient equity investment at risk to finance its operations without additional subordinated financial support and we are deemed the primary beneficiary of GlobeImmune and, accordingly, consolidates GlobeImmune into the consolidated financial statements under the VIE model.

The company also supports GlobeImmune through a promissory note agreement, in which the company provides advances to GlobeImmune from time to time up to $ 6.0 million with a per annum interest rate of five percent ( 5 %).

As of December 31, 2021 and 2020, there were no outstanding advances due from GlobeImmune under the promissory note agreement.

GlobeImmune recognized $ 0.2 million of revenues for the year ended December 31, 2019, and recognized $ 0.7 million, $ 2.0 million and $ 7.7 million of operating expenses for the years ended December 31, 2021, 2020 and 2019, respectively.

The consolidated balance sheets include approximately $ 0.8 million and $ 0.5 million of total assets and $ 0.0 million and $ 0.3 million of total liabilities as of December 31, 2021 and 2020, respectively, related to GlobeImmune.

In addition, the company held a 68.5 % ownership interest in Precision Biologics, Inc.

(Precision) arising from a preferred stock investment.

The company ended its investment in Precision pursuant to a final settlement agreement approved by the court in 2019.

Under the terms of the settlement agreement, the company deconsolidated the related assets, liabilities and noncontrolling interests of Precision.

The disposition of this investment resulted in a reduction of $ 18.4 million in noncontrolling interests for the year ended December 31, 2019.

See Note 7 , Commitments and Contingencies—Litigation , for additional information.

Foreign Currencies

We have operations and holds assets in Italy and South Korea.

The functional currency of the subsidiary in Italy is the Euro, based on the nature of the transactions occurring within this entity, and accordingly, assets and liabilities of this subsidiary are translated into U.S.

dollars at exchange rates prevailing as of the balance sheet dates, while the operating results are translated into U.S.

dollars using the average exchange rates for the period correlating with those operating results.

Adjustments resulting from translating the financial statements of the foreign subsidiary into U.S.

dollars are recorded as a component of other comprehensive income (loss) , on the consolidated statements of comprehensive loss.

Transaction gains and losses are recorded in other income (expense), net, on the consolidated statements of operations.

Basic and Diluted Net Loss per Share of Common Stock

Basic net loss per share is calculated by dividing the net loss by the weighted-average number of common shares outstanding for the period.

Diluted loss per share is computed similarly to basic loss per share except that the denominator is increased to include the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

Basic net loss per share is calculated by dividing the net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares outstanding for the period.

Diluted loss per share is computed by dividing net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares, including the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.

For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive.

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As of December 31,

Outstanding options

2021 2020 2019

Outstanding stock options 4,124,930 4,996,284 6,080,483

Outstanding RSUs 6,515,889 466,842 1,155,808

Outstanding warrants

Amounts in the table above reflect the common stock equivalents of the noted instruments.

Outstanding related-party warrants 1,638,000 1,638,000 1,638,000

Total 12,278,819 7,101,126 8,874,291

Amounts in the table above reflect the common stock equivalents of the noted instruments, including awards issued under the NantKwest 2015 Equity Incentive Plan (the 2015 Plan), the NantKwest 2014 Equity Incentive Plan (the 2014 Plan), and awards issued under the NantCell, Inc.

2015 Stock Incentive Plan (the NC 2015 Plan) that, in the case of December 31, 2021, were outstanding immediately prior to the Effective Time of the Merger and in the case of December 31, 2020 and 2019 have been adjusted to include the combined NC 2015 Plan and NantCell warrants then outstanding (in both cases adjusted using the Exchange Ratio of 0.8190 ).

See Note 10 , Stock-Based Compensation , for further information.

Segment and Geographic Information

Operating segments are defined as components of an enterprise (business activity from which it earns revenue and incurs expenses) for which discrete financial information is available and regularly reviewed by the chief operating decision maker in deciding how to allocate resources and in assessing performance.

Our chief operating decision maker is the company’s CEO.

We view our operations and manage our business as a single operating and reporting segment.

As of December 31, 2020 and 2019, the majority of our assets were held in the U.S.

For the years ended December 31, 2020, 2019 and 2018, all of our revenue was derived in the U.S.

We operate in one reporting segment focused on creating the next generation of immunotherapies to address serious unmet needs within oncology and infectious diseases.

Our chief executive officer (CEO) is the chief operating decision-maker (CODM) of the company, and manages and allocates resources to our operations on a company-wide basis.

Consistent with this decision-making process, our CEO uses consolidated, single-segment financial information for purposes of evaluating performance, forecasting future-period financial results, allocating resources and setting incentive targets.

We generate a portion of its revenues from outside of the U.S.

Information about our revenues from the different geographic regions is as follows (in thousands):

Year Ended December 31,

2021 2020 2019

United States $ 373 $ 513 $ 1,997

Europe 561 92 205

Total segment revenue $ 934 $ 605 $ 2,202

Recent Accounting Pronouncements

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2018-18, Collaborative Arrangements (Topic 808):

Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18).

ASU 2018-18 clarifies when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606.

It also specifically addresses when the participant should be considered a customer in the context of a unit of account;

adds unit of account guidance in ASC 808 to align with guidance in ASC 606;

and precludes presenting revenue from a collaborative arrangement together with revenue recognized under ASC 606 if the collaborative arrangement participant is not a customer.

This standard is effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years with early adoption permitted.

We adopted ASU 2018-18, as required, in the quarter ended March 31, 2020.

We are a party to several collaboration arrangements as further described in Note 8, Collaboration and License Agreements , however, adoption of ASU 2018-18 did not have an impact on our consolidated financial statements because the counterparties to our collaboration agreements do not meet the definition of a customer.

Clarifying the Interaction between Topic 808 and Topic 606 (ASU 2018-18), which clarifies when certain transactions between collaborative arrangement participants should be accounted for as revenue under Topic 606, “ Revenue from Contracts with Customers” when the counterparty is a customer.

In addition, the update precludes an entity from presenting consideration from a transaction in a collaborative arrangement as customer revenue if the counterparty is not a customer for that transaction.

We adopted ASU 2018-18 in the quarter ended March 31, 2020 on a prospective basis.

The adoption did not have an impact on our consolidated financial statements.

In December 2019, the FASB issued ASU 2019‑12, Simplifying the Accounting for Income Taxes, or ASU 2019‑12.

The amendments in ASU 2019 ‑12 include removing the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (e.g., discontinued operations or other comprehensive income), and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

The amendments removed the exception to the incremental approach for intraperiod tax allocation when there is a loss from continuing operations and income or a gain from other items (e.g., discontinued operations or other comprehensive income), and the exception to the general methodology for calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year.

ASU 2019‑12 also amends other aspects of accounting for income taxes to help simplify and promote consistent application of U.S.

The guidance is effective for interim and annual periods beginning after December 15, 2020, with early adoption permitted.

We early adopted ASU 2019‑12 effective January 1, 2020, and it did not have a material impact on our consolidated financial statements

Although our adoption of ASU 2019 ‑12 did not have a material impact on our consolidated financial statements during the year ended December 31, 2020, it may have a material impact on our consolidated financial statements in future periods due to the removal of the exceptions discussed above.

The amendments related to intraperiod tax allocation and the amendment related to calculating income taxes in an interim period when a year-to-date loss exceeds the anticipated loss for the year were applied prospectively.

In June 2016, the FASB issued Accounting Standards Update (ASU) 2016‑13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (ASU 2016-13), which requires credit losses on most financial instruments measured at amortized cost and certain other financial instruments be measured using an expected credit loss model.

Under this model, entities are required to estimate credit losses over the entire contractual term of the financial instrument from the date of initial recognition of the instrument.

The company adopted this guidance on the first day of the company’s fourth quarter of fiscal 2021.

The adoption of ASU 2016-13 did not have any impact on our consolidated financial statements.

Application of New or Revised Accounting Standards – Not Yet Adopted

In June 2016, the FASB issued ASU 2016‑13, Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments .

The FASB subsequently issued amendments to ASU 2016‑13, which have the same effective date and transition dates as described below.

The new guidance supersedes existing U.S.

GAAP for measuring and recording of credit losses on financial assets measured at amortized cost by replacing the incurred-loss model with an expected-loss model.

Accordingly, these financial assets will be presented at the net amount expected to be collected.

This new standard also requires that credit losses related to available-for-sale debt securities be recorded as an allowance through net income rather than reducing the carrying amount under the current, other-than-temporary-impairment model.

For public business entities that meet the definition of a Securities and Exchange Commission, or SEC, filer, except entities that are eligible to be a smaller reporting company as defined by the SEC, the standard is effective for annual periods beginning after December 15, 2019, and interim periods therein.

For all other entities, the standard is effective for annual periods beginning after December 15, 2022, and interim periods therein.

Early adoption is permitted for all entities for annual periods beginning after December 15, 2018.

With certain exceptions, adjustments are to be applied using a modified-retrospective approach by reflecting adjustments through a cumulative-effect impact on retained earnings as of the beginning of the fiscal year of adoption.

We continue to evaluate the impact that this new standard and its related amendments will have on our consolidated financial statements and we do not intend to early adopt this new standard.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the Securities and Exchange Commission during the three months ended December 31, 2020 did not, or are not expected to, have a material effect on our consolidated financial statements.

In August 2020, the FASB issued ASU 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 , which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts in an entity’s own equity.

Among other changes, ASU 2020-06 removes the separation models for convertible instruments with cash or beneficial conversion features.

Instead, entities will account for convertible debt instruments wholly as debt, unless certain other conditions are met.

ASU 2020-06 is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.

The adoption of the new standard is not expected to have a material impact on the company’s financial position or results of operations upon adoption.

Other recent authoritative guidance issued by the FASB (including technical corrections to the ASC), the American Institute of Certified Public Accountants, and the SEC during the three months ended December 31, 2021 did not, or are not expected to, have a material effect on our consolidated financial statements.

Financial Statement Details

Prepaid expenses and other current assets

As of December 31, 2020 and 2019, prepaid expenses and other current assets consist of (in thousands):

As of December 31,

Prepaid preclinical and clinical trial services - with

related party (Note 10)

Insurance premium financing asset

Prepaid insurance

Prepaid services

Interest receivable - marketable debt securities

Prepaid supplies - with related party (Note 10)

Prepaid equipment maintenance

Prepaid license fees

Laboratory equipment deposit

Due from related parties

Insurance claim receivables

Property, Plant and Equipment, Net

As of December 31, 2020 and 2019, property, plant and equipment, net, consist of (in thousands):

Property, plant and equipment, net, consist of the following (in thousands):

As of December 31,

Leasehold improvements $ 62,482 $ 52,251

Equipment 54,284 34,738

Construction in progress 16,575 1,333

Software 1,544 2,376

Furniture & fixtures 1,052 1,015

Accumulated depreciation

Depreciation expense related to property, plant and equipment was $ 9.1 million, $ 8.4 million and $ 7.3 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Building — 22,690

Gross property, plant and equipment 135,937 114,403

Accumulated depreciation and amortization 53,074 41,862

Property, plant and equipment, net $ 82,863 $ 72,541

In September 2021, we entered into a sale transaction with Nant Capital, a related party, for a building located at 557 South Douglas Street, El Segundo, California.

We subsequently leased back the building for an initial seven-year lease term with an option to extend the lease for two additional seven-year periods.

The net proceeds from the transaction totaled $ 21.9 million and the net carrying value of the building was $ 20.5 million at the time of the transaction.

See Note 8 , Related-Party Agreements , for further information.

Depreciation and amortization expense related to property, plant and equipment totaled $ 14.2 million, $ 12.7 million and $ 14.0 million for the years ended December 31, 2021, 2020 and 2019, respectively.

Intangible Assets, Net

Our intangible assets were fully amortized as of March 31, 2019.

Amortization expense was $ 0.6 million and $ 2.3 million for the years ended December 31, 2019 and 2018, respectively, and is included in research and development expense on the consolidated statements of operations.

As of December 31, 2020 and 2019, other assets consist of (in thousands):

As of December 31,

Security deposits

Prepaid software license fees

Restricted cash

Prepaid preclinical and clinical trial services - with

related party (Note 10)

Due from related party

Restricted cash is comprised of a certificate of deposit that serves as collateral for a letter of credit required by our landlord as a security deposit related to our facility in San Diego, California.

Accrued expenses

As of December 31, 2020 and 2019, accrued expenses consist of (in thousands):

As of December 31, 2021 and 2020, the company only had indefinite-lived IPR&D intangible assets, which were obtained from business acquisitions.

During 2020, we determined to discontinue the LMP1 and LMP/IPS programs based on the results gathered from the preclinical data during the third quarter of 2020.

As a result, the carrying value of the IPR&D relating to the LMP1 and LMP/IPS program was written down to zero and we recorded an impairment charge of $ 10.7 million on the consolidated statement of operations.

No such charges were recorded during the years ended December 31, 2021 and 2019.

Convertible Note Receivable

In 2016, we executed a convertible promissory note with Riptide Bioscience, Inc., or Riptide, and advanced Riptide a principal amount of $ 5.0 million.

The note bears interest at a per annum rate of five percent ( 5 %).

The original term of the promissory note requires that the entire unpaid principal amount and all unpaid accrued interest shall become fully due and payable upon the earlier of (i) the three (3) year anniversary of the issuance date, and (ii) when we accelerate the maturity of the note upon the occurrence of an event of default.

In the event of qualified financing, the outstanding principal amount and unpaid accrued interest automatically convert into the most senior class of preferred stock sold in such qualified financing at a 25% discount to the price per share paid for such preferred stock.

In addition, in the event of a change in control, we have the option to be paid in cash or to convert, immediately prior to the closing of such transaction, the outstanding indebtedness into Riptide’s most senior class of equity securities at a 25% discount to the price per share paid for such equity securities in such transaction.

Concurrent with the transaction, we entered into an exclusive license agreement with Riptide to obtain worldwide exclusive rights, with the right to sublicense, certain know-how related to RP-182, RP-233 and RP-183.

We are required to pay a single-digit royalty on net sales of the licensed products on a country-by-country basis.

Pursuant to the license agreement, we are also required to make cash milestone payments upon successful completion of certain clinical, regulatory and commercial milestones up to an aggregate amount of $ 47.0 million for the first three indications of the licensed product with a maximum payment amount of $ 100.0 million.

In 2019, we and Riptide entered into a first amendment to the convertible promissory note.

Under the agreement, we extended the maturity of the promissory note to the earlier of, a) the later of, i) the completion of non-clinical IND enabling studies by the company, or ii) December 31, 2020;

and b) when we accelerate the maturity of the note upon the occurrence of an event of default.

No other terms and conditions of the promissory note were modified.

Concurrently, we also entered into a first amendment to the exclusive license agreement with Riptide and extended the achievement dates for certain clinical trial milestones related to the licensed products.

This option for receiving a 25% discount was determined to have an immaterial value at inception and life to date of the note, as the probability of a future qualifying event is remote.

All other terms and conditions of the license agreement continued in full force and effect.

This promissory note is still outstanding as of December 31, 2021.

The convertible note receivable balance was $ 6.4 million and $ 6.1 million, which included accrued interest of $ 1.4 million and $ 1.1 million as of December 31, 2021 and 2020, respectively

Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

As of December 31,

Accrued professional and service fees

Accrued bonus $ 8,316 $ 5,288

Accrued compensation

Accrued laboratory equipment and supplies

Accrued construction costs 8,145 —

Accrued dissenting shares ( Note 7 )

Accrued professional and service fees 6,909 7,668

Accrued preclinical and clinical trial costs 5,842 4,339

Accrued capital expenditures

Accrued franchise, sales/use and property taxes

Other current liabilities

As of December 31, 2020 and 2019, other current liabilities consist of (in thousands):

As of December 31,

Financing obligation - current portion

Investment income, net

Net investment income included the following for the years ended December 31, 2020, 2019 and 2018 (in thousands):

For the Year Ended December 31,

Accrued compensation 5,613 3,891

Other 9,444 8,816

Accrued expenses and other liabilities $ 51,387 $ 36,771

Interest and Investment (Loss) Income, Net

Interest and investment (loss) income, net consists of the following (in thousands):

Year Ended December 31,

2021 2020 2019

Unrealized (losses) gains from equity securities $ ( 4,615 ) $ 1,577 $ ( 321 )

Interest income 836 1,725 2,764

Investment (amortization expense) accretion income, net ( 488 ) ( 858 ) 3

Net realized (losses) gains on investments

Interest income includes interest from marketable debt securities, notes receivable, other assets, and interest from bank deposits.

We did no t recognize an impairment loss on any investments during the years ended December 31, 2020, 2019 and 2018.

Agreement and Plan of Merger with ImmunityBio

On December 21, 2020 , NantKwest and ImmunityBio, Inc.

(ImmunityBio) entered into an Agreement and Plan of Merger (the Merger Agreement), pursuant to which NantKwest and ImmunityBio agreed to combine their businesses.

The Merger Agreement provides that a wholly owned subsidiary of NantKwest will merge with and into ImmunityBio (the Merger), with ImmunityBio continuing as the surviving company and being renamed NantCell, Inc., upon the terms and subject to the conditions therein.

At the effective time of the Merger (the Effective Time), NantKwest’s name, as the parent of NantCell, Inc., will be changed to “ImmunityBio, Inc.”

At the Effective Time, each share of ImmunityBio common stock issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, will be converted automatically into a right to receive 0.8190 shares of NantKwest common stock.

At the Effective Time, each share of NantKwest common stock issued and outstanding immediately prior to the Effective Time, will remain an issued and outstanding share of the combined company.

At the Effective Time, each outstanding option, warrant or restricted stock unit to purchase ImmunityBio common stock will be converted (using the merger exchange ratio of 0.8190 ) into an option, warrant or restricted stock unit, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of common stock of the combined company.

Upon consummation of the Merger, on a fully-diluted basis, ImmunityBio stockholders and NantKwest stockholders will own approximately 72 % and 28 %, respectively, of the outstanding shares of common stock of the combined company.

It is estimated that, immediately following the closing date, Dr.

Patrick Soon-Shiong, our Executive Chairman and principal stockholder, and his affiliates will beneficially own, in the aggregate, approximately 82 % of the common stock of the combined company.

Following consummation of the Merger, shares of common stock of the combined company are expected to be listed on the Nasdaq Global Select Market under the symbol “IBRX”.

Under the terms and subject to the conditions set forth in the Merger Agreement, the closing of the Merger depends on a number of conditions being satisfied, including approval of the Merger by holders of a majority of the outstanding shares of NantKwest common stock as of the NantKwest record date (excluding all shares of NantKwest common stock beneficially owned by Dr.

Patrick Soon‑Shiong and his affiliates Cambridge Equities, LP and Chan Soon‑Shiong Family Foundation or any of their respective controlled affiliates or any of the directors or executive officers of NantKwest or ImmunityBio).

On February 1, 2021, our Registration Statement on Form S-4, which was filed with the Securities and Exchange Commission (SEC) in connection with the Merger, was declared effective by the SEC.

A special meeting of the stockholders of NantKwest will be held on March 8 , 2021 to consider and vot e on a proposal to approve the issuance of shares of common stock of NantKwest to security holders of ImmunityBio , and to consider and vote on a proposal to approve the M erger.

Only holders of record of NantKwest common stock at the close of January 29, 2021, will be entitled to notice of and to vote at the special meeting.

We expect the Merger to close in the first quarter of 2021, subject to receipt of the requisite stockholder approvals and satisfaction of other customary closing conditions.

The Merger is expected to be accounted for as a transaction between entities under common control as Dr.

Patrick Soon-Shiong is the controlling stockholder of each of NantKwest and ImmunityBio.

Upon the closing of the Merger, the net assets of ImmunityBio will be combined with those of NantKwest at their historical carrying amounts and the companies will be presented on a combined basis for all historical periods presented.

For the year ended December 31, 2020, we incurred costs of $ 6.2 million in connection with our proposed merger with ImmunityBio, consisting of financial advisory, legal and other professional fees.

Viracta Investment

In March 2017, we participated in a Series B convertible preferred stock financing and invested $ 8.5 million in Viracta Therapeutics, Inc., or Viracta, a clinical stage drug development company, which was initially recorded at cost.

In May 2017, we executed an exclusive worldwide license with Viracta to develop and commercialize Viracta’s proprietary histone deacetylase inhibitor drug candidate for use in combination with natural killer cell therapy and possibly additional therapies.

See Note 8, Collaboration and License Agreements – Royalties and In-licensing Agreements – Viracta License Agreement , for further information.

In June 2018, Viracta executed a 2018 Note and Warrant Purchase Agreement with existing and new investors, including us.

The initial closing under the Purchase Agreement occurred in June 2018, at which point we purchased a convertible note for $ 0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common shares.

The convertible note accrued interest at 8 % and had a one-year maturity date.

In September 2018, a milestone closing under the Purchase Agreement occurred, at which point we purchased an additional convertible note for $ 0.4 million, which under certain circumstances was convertible into preferred stock of Viracta, and a warrant to purchase Viracta’s common shares.

The convertible note accrued interest at 8 % and had a one-year maturity date.

We classified the convertible notes as held-to-maturity notes receivable on the consolidated balance sheets.

Effective January 31, 2019, the notes, together with accrued interest then outstanding, were converted to Series B preferred stock resulting in an increase to our investment in Viracta’s Series B convertible preferred stock of $ 0.8 million.

In May 2019, we exercised warrants to acquire 253,120 shares of Viracta common stock.

Based on the level of equity investment at risk, Viracta is not a VIE and therefore is not consolidated under the VIE model.

In addition, we do not hold a controlling financial interest in Viracta, and therefore we do not consolidate Viracta under the voting interest model.

As the preferred stock is not considered in-substance common stock, the investment is not within the scope of accounting for the investment under the equity method.

As the preferred stock does not have a readily determinable fair value and does not qualify for the practical expedient to estimate fair value in accordance with ASC 820, we have elected to apply the measurement alternative under ASC 321, pursuant to which we measure our investment in Viracta at cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer, with such changes recognized in the consolidated statements of operations.

At December 31, 2020, our fair value assessment indicated that the recent offering of Viracta’s Series E preferred shares, at a lower offering price per share than the per share carrying amount of our investment in Viracta, is a directional indicator representing an observable price change in an orderly transaction for a similar investment.

On December 31, 2020, we reduced the carrying value by $ 1.4 million due to the observable price change, which has been included in other income and expense, net, on the consolidated statements of operations.

On a cumulative basis, we have recognized a reduction in carrying value of $ 1.4 million.

At December 31, 2020, the carrying value of our investment in Viracta, which is reflected in equity investment on the consolidated balance sheets, totaled $ 7.8 million.

Financial Instruments – Investments in Marketable Debt Securities

At December 31, 2020, our investments in available-for-sale debt securities consist of (in thousands):

Net realized gains (losses) on investments 167 ( 9 ) ( 4 )

Interest and investment (loss) income, net $ ( 4,100 ) $ 2,435 $ 2,442

Interest income includes interest from marketable securities, convertible notes receivable, other assets, and on bank deposits.

Financial Instruments

Investments in Marketable Debt Securities

As of December 31, 2021, the weighted-average remaining contractual life, amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands):

December 31, 2021

Contractual Life

(in years) Amortized

Corporate debt securities 0.5 $ 129,190 $ 10 $ ( 36 ) $ 129,164

Foreign bonds 0.4 116 — ( 1 ) 115

Mutual funds 35 3 — 38

Current portion 129,341 13 ( 37 ) 129,317

At December 31, 2019, our investments in available-for-sale debt securities consist of (in thousands):

Foreign bonds 5.0 719 103 — 822

Noncurrent portion 719 103 — 822

Total $ 130,060 $ 116 $ ( 37 ) $ 130,139

As of December 31, 2020, the amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands):

December 31, 2020

Corporate debt securities $ 54,789 $ 2 $ ( 19 ) $ 54,772

Foreign government bonds

Government sponsored securities

Mutual funds 35 2 — 37

Current portion 54,824 4 ( 19 ) 54,809

Corporate debt securities

Foreign bonds 861 89 — 950

Noncurrent portion 861 89 — 950

Accumulated unrealized losses on debt securities classified as available-for-sale that have been in a continuous loss position for less than 12 months and for more than 12 months at December 31, 2020 and 2019, were as follows (in thousands):

Total $ 55,685 $ 93 $ ( 19 ) $ 55,759

Accumulated unrealized losses on marketable debt securities that have been in a continuous loss position for less than 12 months and more than 12 months were as follows (in thousands):

December 31, 2021

Less than 12 months

More than 12 months

Estimated Fair

Gross Unrealized

Estimated Fair

Gross Unrealized

Less than 12 months More than 12 months

Losses Estimated

Corporate debt securities $ 86,158 $ ( 36 ) $ — $ —

Mutual funds — — 34 ( 2 )

Foreign bonds 115 ( 1 ) 113 ( 1 )

Total $ 86,273 $ ( 37 ) $ 147 $ ( 3 )

December 31, 2020

Less than 12 months

More than 12 months

Estimated Fair

Gross Unrealized

Estimated Fair

Gross Unrealized

Less than 12 months More than 12 months

Losses Estimated

Corporate debt securities $ 42,762 $ ( 19 ) $ — $ —

Government sponsored securities

At December 31, 2020, 34 of the securities were in an unrealized loss position.

We evaluated our securities for other-than-temporary impairment and concluded that the decline in value was primarily caused by current economic and market conditions.

We do not intend to sell the investments and it is not more likely than not that we will be required to sell the investments before recovery of their amortized cost bases.

Therefore, we did not recognize any other-than-temporary impairment loss during the years ended December 31, 2020, 2019 and 2018.

We recognized realized gains and losses on sales of available-for-sale debt securities as follows (in thousands):

Gains (Losses)

Total $ 42,762 $ ( 19 ) $ — $ —

We evaluated our securities for other-than-temporary impairment, and we did not recognize any other-than-temporary impairment losses for the years ended December 31, 2021, 2020 and 2019.

Realized gains and losses on sales of available-for-sale marketable debt securities were not significant for the years ended December 31, 2021, 2020 and 2019.

Marketable Equity Securities

We held investments in marketable equity securities with readily determinable fair values of $ 6.7 million and $ 6.3 million as of December 31, 2021 and 2020, respectively.

Unrealized losses recorded on these securities totaled $ 4.6 million and $ 0.3 million for the years ended December 31, 2021 and 2019, and an unrealized gain recorded on these securities totaled $ 1.6 million for the year ended December 31, 2020, respectively, in interest and investment (loss) income, net , on the consolidated statements of operations.

We recorded a realized gain totaling $ 0.2 million from sales of marketable equity securities in interest and investment (loss) income, net , on the consolidated statement of operations for the year ended December 31, 2021.

Non-Marketable Equity Securities

In 2017, we participated in a Series B convertible preferred stock financing and invested $ 8.5 million in Viracta Therapeutics, Inc.

(Viracta), a clinical-stage drug development company with whom we have an exclusive worldwide license to develop and commercialize one of their proprietary drug candidates, which was initially recorded at cost.

In 2018, we purchased additional convertibles notes totaling $ 0.7 million, which could be converted into preferred stock of Viracta under certain circumstances.

Effective in early 2019, the notes, together with accrued interest then outstanding, were converted to Series B preferred stock resulting in an increase to our investment in Viracta’s Series B convertible preferred stock of $ 0.8 million.

In 2019, we exercised warrants to acquire 253,120 shares of Viracta common stock.

We have elected to apply the measurement alternative under ASC 321, pursuant to which we measure our investment in Viracta at cost, less impairment, adjusted for observable price changes in an orderly market for an identical or similar investment of the same issuer, with such changes recognized on the consolidated statements of operations.

On December 31, 2020, we reduced the carrying value by $ 1.4 million due to the observable price change, which was included in other income (expense), net , on the consolidated statements of operations.

As of December 31, 2020, the carrying value of our investment in Viracta, which is reflected in non-marketable equity investment, on the consolidated balance sheets, totaled $ 7.8 million.

In February 2021, Viracta merged with Sunesis Pharmaceuticals, Inc.

(Sunesis), a public company.

In connection with this transaction, our preferred stock investment in Viracta was converted into 1,562,604 shares of Viracta common stock effective February 25, 2021.

The fair value of investment is accounted as marketable equity securities and is reflected in marketable securities, on the consolidated balance sheets, totaled $ 5.7 million as of December 31, 2021.

Fair Value Measurements

Authoritative guidance establishes a three-level hierarchy for disclosure that is based on the extent and level of judgment used to estimate the fair value of assets and liabilities.

Recurring Valuations

Financial assets and liabilities measured at fair value on a recurring basis are summarized below at December 31, 2020 and 2019 (in thousands):

Fair Value Measurements as of December 31, 2020

Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands):

Fair Value Measurements at December 31, 2021

Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 181,101 (1) $ 51,421 $ 129,680 $ —

Equity securities 6,698 (2) 6,698 — —

Corporate debt securities 129,164 — 129,164 —

Foreign bonds 115 115 — —

Mutual funds 38 38 — —

Foreign bonds 822 822 — —

Total assets measured at fair value $ 317,938 $ 59,094 $ 258,844 $ —

Fair Value Measurements as of December 31, 2019

Contingent consideration $ ( 409 ) (3) $ ( 388 ) $ — $ ( 21 )

Fair Value Measurements at December 31, 2020

Total Level 1 Level 2 Level 3

Cash and cash equivalents $ 34,915 $ 34,915 $ — $ —

Corporate debt securities 54,772 — 54,772 —

Foreign government bonds

Government sponsored securities

Corporate debt securities

Equity securities 6,337 6,337 — —

Mutual funds 37 37 — —

Foreign bonds 950 950 — —

Total assets measured at fair value $ 97,011 $ 42,239 $ 54,772 $ —

Contingent consideration $ ( 972 ) (3) $ — $ — $ ( 972 )

_______________

(1) Amounts shown as a Level 2 measurement include government-sponsored securities of $ 75.0 million, corporate debt securities of $ 54.2 million, and commercial paper of $ 0.5 million with original maturities of less than 90 days.

(2) Our equity securities include a $ 5.7 million investment in Viracta.

As of December 31, 2020, the carrying value of our investment in Viracta, which was reflected in non-marketable equity investment , on the consolidated balance sheets, was $ 7.8 million.

(3) Contingent consideration is recorded at estimated fair value and revalued each reporting period until the related contingency is resolved.

The fair value measurement is based on inputs that are unobservable and significant to the overall fair value measurement (i.e., a Level 3 measurement within the fair value hierarchy) and are reviewed periodically by management.

See Note 7 , Commitments and Contingencies—Contingent Consideration Related to Business Combinations, for further information.

Changes in the carrying amount of contingent consideration were as follows (in thousands):

For the Year Ended December 31,

2021 2020 2019

Fair value, beginning of year $ ( 972 ) $ ( 1,725 ) $ ( 1,004 )

Consideration paid 419 — ( 786 )

Net decrease in fair value 144 753 65

Fair value, end of year $ ( 409 ) $ ( 972 ) $ ( 1,725 )

Non-Recurring Valuations

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Collaboration and License Agreements

Collaborative Arrangements

A collaborative arrangement is a contractual arrangement that involves a joint operating activity.

These arrangements involve two or more parties who are (i) active participants in the activity, and (ii) exposed to significant risks and rewards dependent on the commercial success of the activity.

We have entered into the following collaborative arrangements with ImmunityBio , Inc., ImmunityBio , as described below.

ImmunityBio is a related party, as it is controlled by our Executive Chairman and principal stockholder, Dr.

Patrick Soon-Shiong ( Note 10 ) .

Joint COVID‑19 Collaboration Agreement

On August 21, 2020, we entered into a definitive agreement, which we refer to as the Collaboration Agreement, with ImmunityBio to pursue collaborative joint development, manufacturing and marketing of certain COVID‑19 therapeutics and vaccines.

The terms of the Collaboration Agreement supersede and replace the terms of the binding term sheet executed on May 22, 2020.

Through their efforts, the parties agreed to jointly develop ceNK, haNK, mesenchymal stem cells (MSC), adenovirus constructs (hAd5), and N‑803, a novel IL‑15 superagonist fusion protein, for the prevention and treatment of SARS‑CoV‑2 viral infections and associated conditions in humans, including without limitation, COVID‑19.

Pursuant to the Collaboration Agreement, we have contributed our ceNK, haNK, and MSC product candidates and certain of our manufacturing capabilities, and ImmunityBio has contributed their hAd5 and N‑803 product candidates.

hAd5 has been developed as a vaccine, and ceNK, haNK, MSC and N‑803 have each been developed as therapeutics for treating COVID‑19 at various stages of infection.

From and after the effective date of the Collaboration Agreement, the parties will share equally in all costs relating to developing and manufacturing of the product candidates globally with the exception of certain laboratory equipment purchases that will be borne solely by us.

With the exception of N‑803, we will be primarily responsible for the manufacture of each product.

Each party will be responsible for the regulatory affairs and the commercialization relating to its contributed products.

The global net profits from the collaboration products will be shared 60 %/ 40 % in favor of the party contributing the product on which the sales are based except if the parties mutually agree because of certain circumstances.

All net profits from sales of combined collaboration products will be shared equally.

This collaboration is supervised by a joint steering committee, which is comprised of an equal number of representatives from both parties.

The term of the agreement will be five years and it is renewable for an additional five year period upon mutual agreement.

Each party will also have a right to terminate in the event of material breach, bankruptcy, or insolvency.

For the year ended December 31, 2020, joint research activity under the Collaboration Agreement totaled $ 8.4 million, which has been included in research and development expense on the consolidated statements of operations.

Expenses incurred during the year ended December 31, 2020 were primarily related to purchases of equipment of $ 5.0 million to be utilized in the manufacture of the hAd5 COVID‑19 vaccine candidate, and net program related costs of $ 3.4 million, after applying the eligible cost sharing under the Collaboration Agreement.

Certain equipment purchases made by us during the year ended December 31, 2020, which are necessary for us to fulfil our manufacturing obligations related to the COVID‑19 program, were borne solely by us.

The equipment purchases do not have an alternative use and were therefore expensed as incurred within research and development expenses.

Prior to the effective date of the Collaboration Agreement, COVID‑19 related program costs incurred by us and ImmunityBio, including expenditures related to property, plant and equipment, were the responsibility of each party and not subject to the equal cost sharing.

As of December 31, 2020, we owed ImmunityBio $ 3.3 million for net costs incurred under the Collaboration Agreement, which has been included in due to related parties on the consolidated balance sheets.

Cost Sharing Agreement

In January 2020, but effective on October 1, 2019, we entered into a Cost Allocation Agreement with ImmunityBio and its subsidiaries to co-sponsor and conduct certain combination clinical trials (each a Joint Study) pursuant to clinical trial protocols wherein at least one investigational agent is a proprietary therapeutic drug candidate owned or controlled by NantKwest and at least one other investigational agent is a proprietary therapeutic drug candidate owned or controlled by ImmunityBio.

Prior to initiating any activities for a Joint Study the parties agreed to enter into written work orders describing, amongst other things, development and management responsibilities, allocation of Joint Study costs and expenses, regulatory responsibilities, and any other matters relating to the Joint Study.

Under the Cost Allocation Agreement, each of ImmunityBio and the company will receive exclusive rights to any new intellectual property developed that relates solely to its respective study drug, and the parties will have joint co-equal rights in any other intellectual property.

The Cost Allocation Agreement expires on June 22, 2022 with the option to renew for additional successive one-year terms, but work orders for any joint studies still in process at the time of termination will continue until the applicable study is completed.

We and ImmunityBio are splitting certain costs related to these joint studies equally in accordance with the terms of the Cost Allocation Agreement and related work orders.

Shared Joint Study costs include cost related to conducting the Joint Study development activities, such as personnel related costs, as well as all costs associated with regulatory matters.

Costs and expenses incurred in connection with the development, manufacturing, supply, delivery, and pre-patient administration dosing mechanism of each party’s study drug, are excluded from the shared Joint Study costs.

In January 2020, but effective on October 1, 2019, we executed Work Order Number One with ImmunityBio, pursuant to the Cost Allocation Agreement.

Under Work Order Number One, the parties are conduct ing a clinical trial pursuant to the protocol titled QUILT 3.063:

A phase 2 study of combination therapy with an IL ‑ 15 superagonist (N ‑803), off-the-shelf CD16 ‑targeted natural killer cells (haNK), and avelumab without cytotoxic chemotherapy in subjects with Merkel Cell Carcinoma (MCC) that has progressed on or after treatment with a checkpoint inhibitor .

The ImmunityBio study drug included in th is J oint S tudy is ImmunityBio’s proprietary IL ‑ 15 superagonist known as N ‑ 803 , and our study drug is our proprietary “ off-the-shelf ” CD16-targeted natural kil ler cell therapy known as haNK.

We are the sponsor of this J oint S tudy for purposes of regulatory matters, including submissions, correspondence, and communications.

Additionally, we are designated as the contracting party to execute agreements with third and related part ies relating to the Joint Study .

In July 2020, but effective on June 22, 2020, we executed Work Order Number Two with ImmunityBio, pursuant to the Cost Allocation Agreement.

Under Work Order Number Two, the parties are conducting a clinical trial pursuant to the protocol titled QUILT 88:

Open-label, randomized, comparative phase 2 study of combination immunotherapy with standard-of-care chemotherapy versus standard-of-care chemotherapy for first and second line treatment of locally or advanced metastatic pancreatic cancer .

The ImmunityBio study drugs included in the joint study are ImmunityBio’s proprietary IL‑15 superagonist (N‑803) and Aldoxorubicin Hydrochloride (Aldoxorubicin), and our study drug is PD‑L1.t‑haNK.

ImmunityBio is the sponsor of this Joint Study for purposes of regulatory matters, including submissions, correspondence, and communications with the FDA.

Additionally, ImmunityBio is designated as the contracting party to execute agreements with third and related parties relating to this Joint Study.

During the years ended December 31, 2020 and 2019, we incurred net costs of $ 1.1 million and $ 35,700 , respectively, after applying the eligible costs sharing under the Cost Allocation Agreement, which have been recognized in research and development expense on the consolidated statements of operations.

As of December 31, 2020, we owed ImmunityBio $ 0.3 million related to the Cost Allocation Agreement.

As of December 31, 2019, no balances were due between the parties with respect to the Cost Allocation Agreement.

Royalties and In-licensing Agreements

Collaboration Agreements

National Cancer Institute

2015 NCI CRADA

In May 2015, Etubics Corporation (Etubics) entered into a Cooperative Research and Development Agreement (CRADA) with the U.S.

Department of Health and Human Services (HHS) as represented by the National Cancer Institute (NCI) of the National Institutes of Health (NIH) to collaborate on the preclinical and clinical development of an adenovirus technology expressing tumor-associated antigens for cancer immunotherapy.

In January 2016, we acquired all of the outstanding equity interests in Etubics and Etubics became a wholly-owned subsidiary.

Effective January 2018, our subsidiary NantCell assumed the CRADA and it was amended to cover a collaboration for the preclinical and clinical development of our proprietary yeast-based Tarmogens expressing tumor-associated antigens and proprietary adenovirus technology expressing tumor-associated antigens for cancer immunotherapy.

Pursuant to the CRADA, the NCI provides scientific staff and other support necessary to conduct research and related activities as described in the CRADA.

During the term of the CRADA, we were required to make annual payments of $ 0.6 million to the NCI for support of research activities.

We made payments of $ 0.6 million in each of the years ended December 31, 2021 and 2020, respectively, and recorded $ 0.6 million in research and development expense , on the consolidated statements of operations for the years ended December 31, 2021 and 2020.

In November 2021, NantCell entered into a third amendment to the CRADA, which was effective as of March 16, 2021.

The principal changes effected by the third amendment are the following:

(i) assignment of the CRADA from NantCell to ImmunityBio;

(ii) modification of the research plan;

(iii) extension of the CRADA term through May 2026;

and (iv) an increase in funding for a total of $ 1.3 million per year, payable in semi-annual installments from 2022 through 2025.

Pursuant to the updated CRADA research plan, NCI and ImmunityBio will collaborate on the preclinical and clinical development of ImmunityBio’s proprietary adenovirus platform expressing tumor-associated antigens;

proprietary yeast platform expressing tumor-associated antigens;

proprietary agent Anktiva and derivatives, agent N-808 and derivatives, and/or TxM product candidates;

proprietary recombinant NK cells and mAbs;

proprietary RNA vaccines and adjuvants;

and other proprietary agents owned or controlled by ImmunityBio as contemplated in the research plan, for cancer immunotherapy.

In accordance with the terms of the amended CRADA, the company is required to make an additional $ 0.7 million payment within 30 days of the execution date in addition to a $ 0.6 million payment to the NCI for support of research activities during 2021.

We made a payment of $ 0.7 million and recorded an additional $ 0.5 million for the third amendment in research and development expense , on the consolidated statement of operations for the year ended December 31, 2021.

National Institute of Deafness and Communication Disorders

2021 NIDCD CRADA

In February 2021, we entered into a CRADA with HHS as represented by the National Institute of Deafness and Communication Disorders (NIDCD) of the NIH to conduct collaborative analysis of human clinical trial samples from clinical trials using our proprietary recombinant NK cells and/or mAbs for preclinical development in monotherapy and in combination immunotherapies.

The CRADA has a two-year term commencing on February 22, 2021 and expiring on February 22, 2023.

During the term of the agreement, we are required to provide $ 0.1 million per year to the NIDCD for support of the research activities.

We made a payment of $ 0.1 million during the year ended December 31, 2021.

Under any of the CRADAs, any party may unilaterally terminate the agreement by providing timely advance written notice to the other party before the desired termination date.

Pursuant to the terms of the CRADAs, we have an option to elect to negotiate an exclusive or non-exclusive commercialization license to any inventions discovered in the performance of any of the CRADAs.

The parties jointly own any inventions and materials that are jointly produced by employees of both parties in the course of performing activities under the CRADAs.

Amyris Joint Venture

In December 2021, ImmunityBio and Amyris, Inc.

(Amyris) entered into a 50:50 joint venture arrangement and formed a new limited liability company to conduct the business of the joint venture, to accelerate the commercialization of a next-generation COVID-19 vaccine utilizing IDRI’s RNA vaccine platform to which Amyris holds a license.

As part of the limited liability agreement, we agreed to contribute $ 1.0 million in cash and priority access to our manufacturing capacity for the joint venture product.

Amyris contributed $ 1.0 million in cash and rights to its license agreement with IDRI for the IDRI RNA platform for the field of COVID-19.

The value of the manufacturing access right and the license right was determined by the board of directors of the joint venture to be $ 9.0 million, respectively.

Both parties agreed to enter into a separate manufacturing and supply agreement and a sublicense agreement within 90 days of the execution of the joint venture agreement.

Both parties agreed to make additional capital contributions in cash, in proportion to their respective interests, as determined by the board of directors of the joint venture (two members appointed by us and two members appointed by Amyris).

The joint venture agreement stipulates the initial terms for equal representation in the management of the newly-formed joint venture.

We considered the joint venture entity as a VIE and determined that we are not the primary beneficiary of the VIE.

We accounted for the joint venture using the equity method of accounting, and recorded our 50 % share of the net loss from the joint venture totaling $ 0.8 million in other expense, net , on the consolidated statement of operations for the year ended December 31, 2021.

License Agreements

EnGeneIC Licensing Agreement

During the fourth quarter of 2021, we signed a binding term sheet with EnGeneIC for an exclusive, worldwide license to develop, manufacture and commercialize their patented EDV nanocell technology as a single agent in certain cancer fields and with respect to the treatment and prevention of COVID-19 and in combination with our COVID-19 vaccine and anti-cancer drugs in a more broadly defined field of use.

The companies have agreed to a 50:50 split of the net profit from worldwide sales of EDV-based products, and we have agreed to pay certain periodic license fees.

Infectious Disease Research Institute

In May 2021, we entered into two license agreements with the Infectious Disease Research Institute (IDRI) pursuant to which we received a license to certain patents and know-how relating to IDRI’s (i) adjuvant formulations for the treatment, prevention and/or diagnosis of SARS-CoV-2 (the IDRI Adjuvant Formulation License Agreement) and (ii) RNA vaccine platform as further described below (the IDRI RNA License Agreement).

Under both agreements, we were obligated to pay one-time, non-creditable, non-refundable upfront cash payments totaling $ 2.0 million.

In addition, under the IDRI Adjuvant Formulation License Agreement we owe IDRI milestone payments to a total of up to $ 2.5 million based on the achievement of certain development and regulatory milestones for the first licensed product and royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low-single digit percentage, subject to certain royalty-reduction provisions.

Under these agreements, we made a $ 2.0 million upfront payment and recognized $ 2.0 million in research and development expense , on the consolidated statement of operations, and no milestone fees were incurred for the year ended December 31, 2021.

In September 2021, we amended and restated the IDRI RNA License Agreement, pursuant to which IDRI granted us an exclusive, worldwide, sublicensable license to IDRI’s rights to an RNA vaccine platform for the development and commercialization of certain therapeutic, diagnostic or prophylactic products for the prevention, treatment or diagnosis of any indication, other than those subject to pre-existing third-party license grants, including, without limitation, SARS-CoV-2.

Pursuant to the terms of the amended and restated IDRI RNA License Agreement, we were required to make an additional one-time, non-creditable, non-refundable, upfront payment to IDRI of $ 1.5 million.

The company is also required to pay license maintenance fees to IDRI as follows:

$ 3.0 million in 2022 and $ 5.5 million annually from 2023 through 2030.

The company may terminate the restated agreement without cause by paying IDRI a $ 10.0 million one-time early termination fee.

In addition, the milestone payments to IDRI based on the achievement of certain development and regulatory milestones for the first licensed product were amended to a total of up to $ 4.0 million.

We are required to pay royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low to mid-single digit percentage.

We made a payment of $ 1.5 million and recorded in research and development expense , on the consolidated statement of operations for the year ended December 31, 2021.

In connection with the license agreements, in May 2021 we also entered into a sponsored research agreement (SRA) with IDRI pursuant to which we will fund continued research of at least $ 2.0 million per year, payable in four equal quarterly installments each year until May 2024, or such year of earlier termination.

For the year ended December 31, 2021, we recorded $ 1.2 million in research and development expense , on the consolidated statement of operations related to the SRA.

Viracta License Agreement

In May 2017, we entered into an agreement with Viracta under which we were granted exclusive worldwide rights to Viracta’s phase II drug candidate, VRx‑3996, for use in combination with our platform of NK cell therapies.

In consideration for the license, we are obligated to pay to Viracta (i) mid-single digit percentage royalties of net sales of licensed products for therapeutic use;

and (ii) milestone payments ranging from $ 10.0 million to $ 25.0 million for various regulatory approvals and cumulative net sales levels.

In 2017, we entered into an agreement with Viracta under which we were granted exclusive worldwide rights to Viracta’s Phase 2 drug candidate, VRx-3996 (nanatinostat), for use in combination with our platform of NK cell therapies.

In consideration for the license, we are obligated to pay Viracta mid-single digit percentage royalties on net sales of licensed products for therapeutic use and milestone payments ranging from $ 10.0 million to $ 25.0 million up to an aggregate maximum of $ 100.0 million for various regulatory approvals and cumulative net sales levels.

We may terminate the agreement, at our sole discretion, in whole or on a product by product and/or country by country basis, at any time upon 90 days’ prior written notice.

In addition, either party may terminate the agreement in the event of a material breach or for bankruptcy of the other party.

Fox Chase Cancer Center License Agreement

In 2004 and amended in 2008, we entered into an exclusive license agreement with Fox Chase Cancer Center, or Fox Chase, for the exclusive, worldwide right to certain patents and know-how pertaining to CD16 receptor bearing NK‑92 cell lines.

In consideration for this exclusive license, we agreed to pay Fox Chase (i) low single-digit percentage royalties on net sales of licensed products for therapeutic and diagnostic use;

and (ii) mid-twenties percentage royalties on any compensation we receive from sublicensees.

Rush University Medical Center License Agreement

In 2004, we entered into a 12 -year licensing agreement with Rush University Medical Center for the exclusive rights to license and grant sublicenses of certain intellectual property related to clinical use of NK‑92.

We are required to pay low to mid-single digit percentage royalties on net sales depending upon the various fields of studies and other factors.

We were required to pay a minimum annual royalty of $ 25,000 .

The Rush University Medical Center License Agreement also provides for payments in the aggregate amount of $ 2.5 million upon the company achieving various milestones, including upon (i) the completion of phase II clinical trial associated with the licensed intellectual property;

(ii) the approval by the FDA of a new drug application for a licensed product;

and (iii) the first year that sales of the licensed product equals or exceeds $ 0.3 million.

The license had a term of 12 years from 2006, the year in which royalty payments were first made, and included customary termination rights for both parties.

Beginning in 2018, this license converted to a perpetual, irrevocable, fully paid, royalty-free, exclusive license.

No milestones were met during the years ended December 31, 2020, 2019 and 2018.

Out-Licensing Agreement

Precigen (formerly known as Intrexon) License Agreement

In February 2010, we entered into a 17 -year license agreement with Precigen Corporation, Inc., or Precigen, pursuant to which we granted to Precigen a non-exclusive, worldwide, sublicensable license to research and sell products under certain patents relating to modified NK‑92 cells that express Precigen’s proprietary gene sequences for use as a therapeutic and prophylactic agent in humans in specified therapeutic areas.

In consideration for the license agreement, Precigen paid us a one-time fee of $ 0.4 million.

Prior to our adoption of ASC 606 at the beginning of 2018, this upfront payment had initially been recorded as deferred revenue and was being recognized into revenue on a straight-line basis.

Upon our adoption of ASC 606, we adjusted our accumulated deficit in an amount equal to the then remaining deferred revenue after concluding that under ASC 606 the upfront payment would have been recognized when the license was transferred in 2010.

Precigen will pay the following milestone payments:

$ 0.1 million upon the first IND filing;

$ 0.1 million upon the commencement of the first phase II clinical trial;

$ 0.4 million upon the commencement of the first phase III clinical trial;

and $ 0.5 million upon the first commercial sale relating to the licensed products.

Precigen is obligated to pay us a low single digit percentage royalty based on net sales of the licensed products by Precigen and a mid-teen percentage royalty based on revenues received by Precigen in connection with sublicenses of the licensed products.

No milestone payments were due or received in the years ended December 31, 2020, 2019 and 2018, and, therefore, we did no t record any milestone revenue for any of those years on the consolidated statements of operations.

To date, we have not had incurred any royalty or milestone payment obligations under this agreement, including during the years ended December 31, 2021, 2020 and 2019.

Commitments and Contingencies

Contingencies

We record accruals for loss contingencies to the extent that we conclude it is probable that a liability has been incurred and the amount of the related loss can be reasonably estimated.

Moreover, we record gain contingencies only when they are realizable, and the amount is known.

Additionally, we record our rights to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and when receipt is deemed probable.

This includes instances where our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund.

Securities Litigation

In March 2016, a putative securities class action complaint captioned Sudunagunta v.

Contingent Consideration Related to Business Combinations

VivaBioCell, S.p.A.

In April 2015, NantWorks, LLC (NantWorks), a related party, acquired a 100 % interest in VivaBioCell, S.p.A.

(VivaBioCell) through its wholly-owned subsidiary, VBC Holdings, LLC, (VBC Holdings) for $ 0.7 million, less working capital adjustments.

In June 2015, NantWorks contributed its equity interest in VBC Holdings to the company, in exchange for cash consideration equal to its cost basis in the investment.

VivaBioCell develops bioreactors and products based on cell culture and tissue engineering in Italy.

In connection with our acquisition of VBC, we are obligated to pay the former owners contingent consideration upon the achievement of certain milestones related to the GMP-in-a-Box technology.

A clinical milestone totaling $ 0.8 million was earned by the former owners of VivaBioCell, of which $ 0.4 million was paid during the year ended December 31, 2021.

The remaining $ 0.4 million was accrued as of December 31, 2021 and is expected to be paid in 2022.

If the regulatory milestone is achieved, we are obligated to pay approximately $ 2.3 million.

Altor BioScience Corporation

In connection with the 2017 acquisition of Altor BioScience Corporation (Altor), we issued contingent value rights (CVRs) under which we agreed to pay the prior stockholders of Altor approximately $ 304.0 million upon successful approval of the Biologics License Application (BLA) or foreign equivalent, for Anktiva by December 31, 2022 and approximately $ 304.0 million upon the first calendar year before December 31, 2026 in which worldwide net sales of Anktiva exceed $ 1.0 billion (with amounts payable in cash or shares of our common stock or a combination thereof).

Soon-Shiong and his related party hold approximately $ 279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs.

We may be required to pay the other prior Altor stockholders up to $ 164.2 million in settlement of the CVRs relating to the regulatory milestone and up to $ 164.2 million of the CVRs relating to the sales milestone should they choose to have the CVRs paid in cash instead of common stock.

As the transaction was recorded as an asset acquisition, future CVR payments will be recorded when the corresponding events are probable of achievement or the consideration becomes payable.

From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations.

We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business.

We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints.

If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve.

Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors.

Altor BioScience, LLC Litigation

In 2017, NantCell announced it had entered into a definitive merger agreement to acquire Altor BioScience Corporation.

An action captioned Gray v.

Soon-Shiong, et al.

was filed in Delaware Chancery Court by plaintiffs Clayland Boyden Gray (Gray) and Adam R.

The plaintiffs, two minority stockholders, asserted claims against the company and other defendants for (1) breach of fiduciary duty and (2) aiding and abetting breach of fiduciary duty and filed a motion to enjoin the merger.

The court denied the motion and permitted the merger to close.

Subsequent to the close of the merger, in 2017 the plaintiffs (joined by two additional minority stockholders, Barbara Sturm Waldman and Douglas E.

Henderson (Henderson)) filed a second amended complaint, asserting claims for (1) appraisal;

(2) quasi-appraisal;

(3) breach of fiduciary duty;

and (4) aiding and abetting breach of fiduciary duty.

The defendants moved to dismiss the second amended complaint, raising grounds that included a “standstill” agreement under which defendants maintained that Gray and Adam R.

Waldman and Barbara Strum Waldman (the Waldmans) agreed not to bring the lawsuit.

In a second action, Dyad Pharmaceutical Corporation (Dyad) filed a petition in Delaware Chancery Court for appraisal in connection with the merger.

Respondent moved to dismiss the appraisal petition in 2018, arguing in part that the petition was barred by the same “standstill” agreement.

In 2018, the court heard oral arguments on the motions to dismiss in both consolidated cases and converted the motions to dismiss into motions for summary judgment with regard to the “standstill” agreement argument (the Converted Motions).

The court issued an oral ruling in 2019 that dismissed certain claims and dismissed Altor BioScience from the action.

The following claims remained:

(a) the appraisal claims by all plaintiffs and Dyad (against Altor BioScience, LLC), and (b) Henderson’s claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty.

In 2019, the court issued a written order implementing its ruling on the Converted Motions (the Implementing Order).

In the Implementing Order, the court confirmed that all fiduciary duty claims brought by Gray, both individually and as trustee of the Gordon Gray Trust f/b/o C.

Boyden Gray, were dismissed.

Gray and the Waldmans filed answers denying the counterclaims and asserting defenses.

The plaintiffs then moved for leave to file a third amended complaint to add two former Altor stockholders as plaintiffs and a fiduciary duty claim on behalf of a purported class of former Altor stockholders, which the defendants opposed.

In 2020, the court granted the plaintiffs’ motion, and the plaintiffs filed the third amended complaint.

In 2020, the defendants answered the third amended complaint and asserted counter claims against the plaintiffs.

The defendants are seeking damages for attorneys’ fees and costs incurred as a result of the breaches of the “standstill” agreements discussed above and of stockholder releases.

The plaintiffs filed an answer denying the counterclaims and asserting defenses.

Trial was set to commence on August 8, 2022, but the parties have received notice that the Vice Chancellor assigned to the case is retiring, and there may be a new trial date.

The shares of the former Altor stockholders seeking appraisal met the definition of dissenting shares under the merger agreement and were not entitled to receive any portion of the merger consideration at the closing date.

However, these dissenting shares will automatically be converted to receive the portion of the merger consideration they were entitled to, on the later of the closing date or when the stockholder withdraws or loses the right to demand appraisal rights.

Payment for dissenting shares will be on the same terms and conditions originally stated in the merger agreement.

As of December 31, 2021 and 2020, we had accrued $ 7.1 million and $ 6.8 million, respectively, related to the dissenting share obligations.

The accrued amount represents the estimated low-end of the range of currently estimated payout amounts in accordance with ASC Topic 450, Contingencies , after considering the reasonable outcomes for settling the dissenting stockholder dispute along with any accrued statutory interest.

We cannot reasonably estimate a range of loss or likelihood of loss beyond the amounts recorded for dissenting shares as of December 31, 2021, as the dissenting stockholders have not yet provided a quantified value of their claim and, therefore, an upper end of the range of loss cannot be determined.

Discovery is ongoing, and the class certification motion relating to the putative class has not yet been decided.

We reassess the reasonableness of the recorded amount at each reporting period.

We believe the claims lack merit and intend to continue defending the case vigorously.

Sorrento Therapeutics, Inc.

(Sorrento), derivatively on behalf of NANTibody, filed an action in the Superior Court of California, Los Angeles County (the Superior Court) against the company, Dr.

Soon-Shiong and Charles Kim.

The action alleged that the defendants improperly caused NANTibody to acquire IgDraSol, Inc.

from our affiliate NantPharma, LLC (NantPharma) and sought to have the transaction undone and the purchase amount returned to NANTibody.

In 2019, we filed a demurrer to several causes of action alleged in the Superior Court action, and Sorrento filed an amended complaint, eliminating Mr.

Kim as a defendant and dropping the causes of action we had challenged in our demurrer.

Sorrento filed a related arbitration proceeding (the Cynviloq arbitration) against Dr.

Soon-Shiong and NantPharma;

the company is not named in the Cynviloq arbitration.

In 2020, the Superior Court granted Dr.

Soon-Shiong’s request for a preliminary injunction barring Sorrento from pursuing claims against him in the Cynviloq arbitration.

Sorrento then filed the claims it had previously asserted in arbitration against Dr.

Soon-Shiong in the Superior Court, and at Sorrento’s request, the arbitrator entered an order dismissing Sorrento’s claims against Dr.

Soon-Shiong in the Cynviloq arbitration.

The hearing in the Cynviloq arbitration commenced in June 2021, and continued with breaks until early October 2021.

The parties are now engaged in post-hearing briefing, and it is expected that summations will be scheduled in mid-July 2022.

Also in 2019, the company and Dr.

Soon-Shiong filed cross-claims in the Superior Court action against Sorrento and its Chief Executive Officer Henry Ji, asserting claims for fraud, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, unjust enrichment, and declaratory relief.

Our claims allege that Dr.

Ji and Sorrento breached the terms of an exclusive license agreement between the company and Sorrento related to Sorrento’s antibody library and that Sorrento did not perform its obligations under the exclusive license agreement.

The Superior Court ruled that the company’s claims should be pursued in arbitration and that Dr.

Soon-Shiong’s claims could be pursued in Superior Court.

In 2019, the company, along with NANTibody, filed an arbitration against Sorrento and Dr.

Ji asserting our claims relating to the exclusive license agreement.

In 2020, Sorrento sent letters purporting to terminate the exclusive license agreement with the company, and an exclusive license agreement with NANTibody and demanding the return of its confidential information and transfer of all regulatory filings and related materials.

As required pursuant to the exclusive license agreements, both parties must engage in good-faith negotiations before attempting to invoke any termination provision contained in the agreement.

Notwithstanding such negotiations, Sorrento sent a letter purporting to terminate the exclusive license agreements, maintaining the negotiations did not reach a successful resolution.

We believe we have cured any perceived breaches during the 90-day contractual cure period provided under the agreements.

Sorrento filed counterclaims against the company and NANTibody in the arbitration and requested leave to file a dispositive motion.

The hearings in the NANTibody arbitration commenced in April 2021 and concluded in early August 2021.

After post-hearing briefing was concluded, the parties were notified on November 30, 2021 that the arbitrator in the NANTibody arbitration had passed away.

A substitute arbitrator was appointed on February 25, 2022, and the parties will work with the substitute arbitrator to conclude the proceedings.

We intend to prosecute our claims, and to defend the claims asserted against us, vigorously.

An estimate of the possible loss or range of loss cannot be made at this time.

Shenzhen Beike Biotechnology Co.

In 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration.

The arbitration relates to a license, development, and commercialization agreement that Altor entered into with Beike in 2014, which agreement was amended and restated in 2017, pursuant to which Altor granted to Beike an exclusive license to use, research, develop and commercialize products based on Anktiva in China for human therapeutic uses.

In the arbitration, Beike is asserting a claim for breach of contract under the license agreement.

Among other things, Beike alleges that we failed to use commercially reasonable efforts to deliver to Beike materials and data related to Anktiva.

Beike is seeking specific performance, or in the alternative, damages for the alleged breaches.

On September 25, 2020, the parties entered into a standstill and tolling agreement under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended.

The standstill agreement may be terminated by any party on ten calendar days’ notice, and upon termination, the parties will have the right to pursue claims arising from the license agreement in any appropriate tribunal.

The parties have been providing periodic updates to the International Chamber of Commerce confirming a stay of all proceedings during the standstill.

Given that this action remains at the pleading stage and no discovery has occurred, it remains too early to evaluate the likely outcome of the case or to estimate any range of potential loss.

We believe the claims lack merit and intend to defend the case vigorously and that we may have counterclaims.

Fox Chase Cancer Center Foundation Litigation

In, 2020, ImmunityBio filed a declaratory judgment lawsuit in the Superior Court for San Diego County, California, naming Fox Chase Cancer Center Foundation and Institute for Cancer Research (ICR) as the defendants (hereafter collectively Fox Chase).

This litigation relates to the license with Fox Chase and includes various intellectual property rights (the 2004 License).

Our initial court filing requested the Court to find that we have not breached material obligations under the 2004 License and that Fox Chase has not and cannot terminate the 2004 License.

Fox Chase filed a Cross-Complaint raising a patent inventorship challenge and moved the case to federal court.

On June 4, 2021, the federal court separated the parties’ claims, and returned ImmunityBio’s declaratory judgment claims back to the San Diego County court but retained the patent inventorship challenge.

On November 18, 2021, we reached a settlement with Fox Chase related to the 2004 License and agreed to a mechanism for addressing the patent inventorship dispute.

There was no financial impact to the company with respect to this settlement.

Litigation Related to the Merger with ImmunityBio, Inc.

In connection with the Merger with NantCell, Inc.

(formerly known as ImmunityBio, Inc., a private company), a Delaware corporation, via a wholly-owned subsidiary of NantKwest (the Merger Sub), seven complaints have been filed as individual actions in United States District Courts.

Three complaints have been filed in the United States District Court for the District of Delaware against NantKwest and its directors and are captioned Hargett v.

NantKwest, Inc., et al.

16‑cv‑01947 was filed in federal district court for the Central District of California related to the company’s restatement of certain interim financial statements for the periods ended June 30, 2015 and September 30, 2015.

A number of similar putative class actions were filed in federal and state court in California.

The actions originally filed in state court were removed to federal court, and the various related actions were consolidated.

Plaintiffs asserted causes of action for alleged violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b‑5 promulgated thereunder.

Plaintiffs sought unspecified damages, costs and attorneys’ fees, and equitable/injunctive or other relief on behalf of putative classes of persons who purchased or acquired the company’s securities during various time periods from July 28, 2015 through March 11, 2016.

In September 2017, the court denied defendants' motion to dismiss the third amended consolidated complaint.

On August 13, 2018, the district court granted plaintiffs’ motions for class certification and to strike plaintiffs’ claims under the Securities Exchange Act of 1934 and Rule 10b‑5.

On August 24, 2018, at the district court’s direction, plaintiffs filed a fourth amended consolidated complaint.

On August 27, 2018, defendants petitioned the U.S.

Court of Appeals for the Ninth Circuit to authorize interlocutory appeal of the class certification order.

On September 7, 2018, defendants answered the fourth amended consolidated complaint.

On September 21, 2018, the parties informed the Ninth Circuit that they had reached a settlement in principle, and the parties moved to stay appellate proceedings.

On September 24, 2018, the parties notified the district court that they had reached a settlement in principle.

On November 9, 2018, the plaintiffs filed an unopposed motion for preliminary approval of the settlement and notice to class members.

On January 9, 2019, the district court granted the motion for preliminary approval.

A final approval hearing was held on April 29, 2019, and the district court granted final approval and entered judgment on May 31, 2019.

Under the terms of the settlement, we paid $ 12.0 million to the plaintiffs as full and complete settlement of the litigation.

We were responsible for $ 1.2 million of the settlement amount, which was recognized in selling, general and administrative expense during the year ended December 31, 2018, while the remaining $ 10.8 million was fully funded by our insurance carriers under our directors’ and officers’ insurance policy.

We and the insurance carriers paid the settlement amount into a settlement fund during the year ended December 31, 2019.

Subsequent to receiving final approval of the settlement on May 31, 2019, the aforementioned settlement accrual, associated insurance claim receivable and restricted cash were released and are no longer reflected on the consolidated balance sheets.

, 1:21‑cv‑00197 (filed February 11, 2021) (the Hargett Complaint), Franchi v.

NantKwest, Inc., et al.

, 1:21‑cv‑00218 (filed February 16, 2021) (the Franchi Complaint), and Gross v.

NantKwest, Inc., et al.

, 1:21‑cv‑00223 (filed February 17, 2021) (the Gross Complaint).

One complaint has been filed in the United States District Court for the Southern District of New York and is captioned Leaman v.

NantKwest, Inc., et al.

, 1:21‑cv‑01351 (filed February 16, 2021) (the Leaman Complaint).

Two complaints have been filed in the United States District Court for the Southern District of California and are captioned Weiss v.

NantKwest, Inc., et al.

, 3:21‑cv‑00280 (filed February 16, 2021) (the Weiss Complaint) and Carlisle v.

NantKwest, Inc., et al.

, 3:21‑cv‑00304 (filed February 19, 2021) (the Carlisle Complaint).

One complaint has been filed in the United States District Court for the Eastern District of New York and was captioned Shenk v.

NantKwest, Inc., et al.

, 1:21‑cv‑00871 (filed February 18, 2021) (the Shenk Complaint, and collectively with the Hargett Complaint, the Franchi Complaint, the Gross Complaint, the Leaman Complaint, the Weiss Complaint, and the Carlisle Complaint, the Merger Actions).

The Shenk Complaint was voluntarily dismissed on March 10, 2021.

The Franchi Complaint was voluntarily dismissed on May 6, 2021.

The Leaman Complaint was voluntarily dismissed on May 7, 2021.

The Hargett Complaint and the Gross Complaint were both voluntarily dismissed on May 18, 2021.

The Hargett Complaint and the Gross Complaint also brought claims against ImmunityBio, Inc.

and Merger Sub.

The Merger Actions generally allege that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresents and/or omits certain purportedly material information relating to financial projections, analysis performed by the financial advisor to NantKwest’s Special Committee, alleged past engagements of the Special Committee’s financial advisor and industry consultant, and the terms of the engagement of such consultant.

The Merger Actions assert violations of Section 14(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 14a-9 promulgated thereunder against all defendants and violations of Section 20(a) of the Exchange Act against NantKwest’s directors.

The Merger Actions seek, among other things, an injunction enjoining the stockholder vote on the Merger and the consummation of the Merger unless and until certain additional information is disclosed to NantKwest’s stockholders, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees, and other relief the Court may deem just and proper.

Neither the stockholder vote on the Merger nor the Merger were enjoined and occurred on March 8 and March 9, 2021, respectively.

The company cannot predict the outcome of the Merger Actions.

The company believes the Merger Actions are without merit and the company and the individual defendants intend to vigorously defend against the Merger Actions and any subsequently filed similar actions.

If additional similar complaints are filed, absent new or significantly different allegations, the company will not necessarily disclose such additional filings.

Securities Litigation

In 2016, a putative securities class action complaint captioned Sudunagunta v.

NantKwest, Inc., et al ., 16-cv-01947 was filed in federal district court for the Central District of California related to our restatement of certain interim financial statements for the periods ended June 30, 2015 and September 30, 2015.

A number of similar putative class actions were filed in federal and state courts in California.

The plaintiffs asserted causes of action for alleged violations of Sections 11 and 15 of the Securities Act of 1933 and Sections 10(b) and 20(a) of the Exchange Act, and Rule 10b-5 promulgated thereunder.

The plaintiffs sought unspecified damages, costs and attorneys’ fees, and equitable/injunctive or other relief on behalf of putative classes of persons who purchased or acquired our securities during various time periods from July 28, 2015 through March 11, 2016.

In 2018, the district court granted the plaintiffs’ motions for class certification and to strike plaintiffs’ claims under the Exchange Act and Rule 10b-5.

The parties informed the Ninth Circuit that they had reached a settlement in principle, moved to stay in appellate proceedings , and notified the district court that they had reached a settlement in principle.

The plaintiffs then filed an unopposed motion for preliminary approval of the settlement and notice to class members.

A final approval hearing was held, and the district court granted final approval and entered judgment on May 31, 2019.

Under the terms of the settlement, we paid $ 12.0 million to the plaintiffs as a full and complete settlement of the litigation.

The company was responsible for $ 1.2 million of the settlement amount, which was recognized in selling, general and administrative expense, on the consolidated statement of operations for the year ended December 31, 2018, while the remaining $ 10.8 million was funded by our insurance carriers under our directors’ and officers’ insurance policy.

The settlement amount was deposited into a settlement fund during the year ended December 31, 2019.

Stipulation of Settlement

In early April 2019, following board approval, we entered into a settlement agreement, or the Stipulation of Settlement, with three stockholders of the company, each of whom had submitted a stockholder demand for the board to take action to remedy purported harm to the company resulting from certain alleged wrongful conduct concerning, among other things, disclosures about Dr.

In 2019, following approval by our Board of Directors, we entered into a settlement agreement (the Stipulation of Settlement) with three stockholders of the company, each of whom had submitted a stockholder demand for the Board of Directors to take action to remedy purported harm to the company resulting from certain alleged wrongful conduct concerning, among other things, disclosures about Dr.

Soon-Shiong’s compensation and a related-party lease agreement.

The Stipulation of Settlement called for us to adopt certain governance changes, and for the three stockholders to file a stockholder derivative action in the Superior Court of the State of California, County of San Diego, followed by an application for court approval of the Stipulation of Settlement.

On May 31, 2019, the court entered an order preliminarily approving the Stipulation of Settlement and scheduling the final settlement hearing for August 9, 2019.

Pursuant to the Stipulation of Settlement, we have provided stockholders with notice of the settlement and the final settlement hearing.

Under the terms of the Stipulation of Settlement, which received final approval by the court on August 9, 2019, we paid an attorney’s fee of $ 0.5 million to the plaintiffs as part of the settlement.

Of that amount, we were responsible for half, which was recognized in selling, general and administrative expense on the consolidated statements of operations during the year ended December 31, 2019, while the other half was funded by our insurance carrier.

We and the insurance carrier paid the settlement amount into a settlement fund in June 2019.

Subsequent to receiving final approval of the settlement on August 9, 2019, the aforementioned settlement accrual, associated insurance claim receivable and restricted cash were released and are no longer reflected on the consolidated balance sheets.

Insurance Recoveries

We have reflected our right to insurance recoveries, limited to the extent of incurred or probable losses, as a receivable when such recoveries have been agreed to with our third-party insurers and receipt is deemed probable.

This includes instances where our third-party insurers have agreed to pay, on our behalf, certain legal defense costs and settlement amounts directly to applicable law firms and a settlement fund.

The amount of such receivable recorded at December 31, 2019 was $ 34,000 , which is included in prepaid expenses and other current assets on our consolidated balance sheets.

There were no such receivables recorded as of December 31, 2020.

Contractual Obligations - Leases

On January 1, 2019, we adopted the new lease accounting guidance as discussed in further detail in Note 2.

The most significant change requires us to record the present value of operating lease payments as right-of-use assets and lease liabilities on our balance sheets.

We adopted the new guidance using the simplified transition approach.

As a result, reporting periods beginning on January 1, 2019 are presented under the new guidance, while periods prior to January 1, 2019 continue to be reported in accordance with our historical accounting.

The adoption of the new lease accounting guidance had a substantial impact on our balance sheet.

The most significant impacts were (1) the recognition of $ 13.5 million of operating lease right-of-use assets, net, and $ 16.4 million of operating lease liabilities, and (2) the derecognition of assets and liabilities associated with build-to-suit leases under ASC 840, resulting in the derecognition of property, plant and equipment, net, of $ 6.6 million and net adjustments to related liabilities of $ 5.7 million).

The build-to-suit leases were recorded as normal operating leases under ASC 842.

The difference between the excess of build-to-suit related liabilities and assets of $ 0.9 million was recorded as an increase to our accumulated deficit.

The cumulative-effect adjustment had no tax impact due to the valuation allowance against the gross deferred tax asset less reversing deferred tax liabilities.

Adoption of this standard had no material impact on our results of operations and cash flows.

The court entered an order preliminarily approving the Stipulation of Settlement.

Pursuant to the Stipulation of Settlement, we provided stockholders with notice of the settlement and the final settlement hearing.

Under the terms of the Stipulation of Settlement, which received final approval by the court on August 9, 2019, the company paid attorney fees of $ 0.5 million to the plaintiffs as part of the settlement.

Of that amount, we were responsible for half, which was recognized in selling, general and administrative expense, on the consolidated statement of operations for the year ended December 31, 2019, while the other half was funded by our insurance carrier.

The settlement amount was deposited into a settlement fund during the year ended December 31, 2019.

Precision Biologics, Inc.

In 2015, the company invested $ 50.0 million in cash in Precision in exchange for 41.0 million shares of Precision’s series A preferred stock (representing a 68.5 % ownership interest in Precision at the time of the investment).

In 2017, a Precision stockholder filed a complaint captioned Feldman v.

Soon-Shiong, et al.

(individually and derivatively on behalf of Precision), and filed an amended complaint against the company and other defendants asserting claims for breach of contract (including the implied covenant of good faith and fair dealing), tortious interference with contract, breach of the fiduciary duty of loyalty, the appointment of a custodian, fraud in the inducement, and violation of state “Blue Sky” laws.

The defendants moved to dismiss the amended complaint.

In 2018, the court heard oral arguments and issued an opinion granting in part, and denying in part, defendants’ motion.

In 2019, the parties completed fact discovery other than depositions (and certain document discovery subsequently ordered by the court).

The parties agreed in principle to the terms of a settlement and filed a settlement stipulation with the court.

A settlement hearing before the court was held, and the court approved the settlement, which was finalized on July 20, 2019.

Under the terms of the settlement, the company ended its investment in Precision.

As part of the deconsolidation, we withdrew $ 29.3 million in cash from the investment on our books and transferred $ 2.5 million to Precision.

In addition to $ 20.2 million of accumulated losses recorded in prior years, which represented the expected losses associated with giving up our preferred stock ownership and absorbing losses arising from the deconsolidation, we recorded a $ 0.9 million loss associated with the final settlement for the year ended December 31, 2019.

Lease Arrangements

We lease property in multiple facilities across the U.S.

and Italy, including facilities located in El Segundo and Culver City, CA that are leased from related parties.

Substantially all of our operating lease right-of-use assets and operating lease liabilities relate to facilities leases.

As of December 31, 2020, we lease:

(i) a research facility and office space in San Diego, California;

(ii) a research and manufacturing space in Culver City, California, from a related party;

(iii) research and manufacturing facilities in El Segundo, California, also from related parties;

(iv) a research facility in Torrance, California, and (v) a research facility in Woburn, Massachusetts.

See Note 10, Related Party Agreements , for further information.

See Note 8 , Related-Party Agreements , for additional information about our related-party leases.

Our leases generally have initial terms ranging from two to ten years and often include one or more options to renew.

These renewal terms can extend the lease term from one to three years , and are included in the lease term when it is reasonably certain that we will exercise the option.

These operating leases are included in operating lease right-of-use assets, net, on the consolidated balance sheets, and represent the right to use the underlying asset for the lease term.

Our obligations to make lease payments are included in current and non-current operating lease liabilities on the consolidated balance sheets.

Our operating right-of-use assets and lease liabilities as of December 31, 2020 and 2019, are as follows (in thousands):

These renewal terms can extend the lease term from one to seven years , and are included in the lease term when it is reasonably certain that we will exercise the option.

Information regarding our leases is as follows:

As of December 31,

Right-of-use assets:

Operating lease right-of-use assets, net (including amounts

with related parties)

Short-term lease liabilities:

Operating lease liabilities (including amounts with related parties)

Long-term lease liabilities:

Operating lease liabilities (including amounts with related parties)

Total lease liabilities:

Operating lease liabilities (including amounts with related parties)

The components of lease expense for the years ended December 31, 2020 and 2019 consist of (in thousands):

For the Year Ended December 31,

Weighted average remaining lease term 7.8 years 3.9 years

Weighted average discount rate 9.6 % 9.0 %

The components of lease expense consist of the following (in thousands):

Year Ended December 31,

2021 2020 2019

Operating lease costs $ 7,977 $ 5,668 $ 5,795

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Total lease costs $ 10,839 $ 9,232 $ 8,559

Rental expenses for operating leases during the year ended December 31, 2018, excluding common-area maintenance, was $ 2.8 million.

Cash paid during the years ended December 31, 2020 and 2019 for amounts included in the measurement of lease liabilities is as follows (in thousands):

For the Year Ended December 31,

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows for operating leases

The weighted-average remaining lease term as of December 31, 2020 and 2019 was 3.2 years and 4.5 years, respectively.

The weighted-average discount rate used in determining the present value of operating lease liabilities as of December 31, 2020 and 2019 was 9 % .

Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands):

Year Ended December 31,

2021 2020 2019

Cash paid for operating leases (excluding variable lease costs) $ 9,034 $ 7,843 $ 7,571

Future minimum lease payments as of December 31, 2021, including $ 24.1 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands).

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Years ending December 31:

Thereafter 26,098

Total future minimum lease payments 63,617

Interest 20,597

Tenant improvement allowance receivable 2,941

Present value of operating lease liabilities $ 40,079

In September 2020, we entered into a sublease agreement with Altor Bioscience Manufacturing Company, LLC, a related party (Note 10), whereby we leased approximately 6,901 square feet in El Segundo, California, including laboratory space and related furniture, fixtures and equipment.

The agreement also includes certain non-lease components related primarily to the right to use certain common areas within the building and the related furniture and fixtures.

This facility will be used to manufacture and produce clinical products for our oncology product candidate trials.

The lease runs from August 2020 through July 2022, and includes an option to extend the lease for an additional one-year term through July 2023.

The monthly fixed charge related to the agreement is $ 0.2 million, a portion of which is subject to annual increases of 3 % which began in November 2020 .

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses, both of which are variable lease expenses.

At inception of the lease we recognized an increase of $ 4.0 million in both operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets.

In August 2018, NantBio, Inc., or NantBio, a related party (Note 10), assigned an agreement to us for the use of a third-party research facility, which provides us with the exclusive right to use and access to a portion of the third party’s laboratory and vivarium premises.

In conjunction with the assignment, we reimbursed NantBio for upfront payments which it had made to the third party of $ 0.9 million, and paid $ 0.5 million directly to the third party for an aggregate value of $ 1.4 million.

The assigned agreement is for a term of ten years and expires in June 2027 .

The agreement may be terminated by us at any time, with or without cause.

In case of termination of the agreement, the third party will reimburse us for a pro-rata amount based upon the passage of time.

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, a related party (Note 10), for approximately 24,250 square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

The lease runs from July 2016 through July 2023.

We have the option to extend the lease for an additional three year term through July 2026.

The monthly rent is $ 0.1 million with annual increases of 3 % beginning in July 2017 .

In March 2016, we entered into a lease agreement for an approximately 7,893 square foot facility in Woburn, Massachusetts, for a research and development laboratory, related office and other related uses.

The initial lease term ran for 48 months from April 29, 2016 through May 31, 2020.

In June 2016, the lease was amended to add 260 square feet, for a total of 8,153 square feet.

Base rent for the initial term of the lease was $ 19,000 per month with a $ 1 per square foot annual increase on each anniversary date.

In August 2019, we exercised our right pursuant to the lease agreement to extend the term of the lease for an additional two years through May 31, 2022 .

Consequently, in August 2019 we recognized an increase of $ 0.6 million in both operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets.

Base rent for the extended term of the lease is $ 25,800 per month with an annual increase of 3 % on June 1, 2021.

In November 2015, we entered into a facility license agreement with NantWorks LLC, or NantWorks, a related party (Note 10), for approximately 9,500 square feet of office space in Culver City, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

The initial license was effective from May 2015 through December 2020.

Base monthly rent for the initial lease term was $ 47,000 , with annual increases of 3 % beginning in January 2017 .

In September 2020, we entered into an amendment to extend the term of this lease through December 31, 2021 .

Commencing on January 1, 2021 , the monthly rent will increase by 3 % to $ 54,500 .

Subsequent to December 31, 2021, the lease term will automatically renew on a month-to-month basis, terminable by either party with at least thirty days ’ prior written notice to the other party.

In addition, we will have a one-time option to extend the lease term through December 31, 2022.

If we exercise the option to extend the lease through December 31, 2022, or continue on a month-to-month basis, the monthly rent will increase by 3 % annually commencing on January 1 of each year.

On the date of amendment we recognized an increase of $ 1.2 million in both operating lease right-of-use assets and operating lease liabilities on the consolidated balance sheets, which reflects our belief that we will extend the term of this lease through December 31, 2022.

In June 2015, we entered into a lease agreement for an approximately 44,700 square foot facility in San Diego, California, for a research and development laboratory, related office and other related uses.

The term of the lease extends for seven years commencing on August 1, 2016.

The base rent is $ 0.2 million per month with 3 % annual increases on each anniversary date.

In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, a related party, for a facility primarily used for pharmaceutical development and manufacturing purposes.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our lease agreement with 605 Nash, LLC.

See Note 8 , Related-Party Agreements , for further information.

Unconditional Purchase Obligations

Unconditional purchase obligations are defined as an agreement to purchase goods or services that is enforceable and legally binding (non-cancelable, or cancelable only in certain circumstances).

We estimate our total unconditional purchase obligation commitment (for those contracts with terms in excess of one year) as of December 31, 2020, at $ 2.7 million.

Unconditional purchase obligations are defined as an agreement to purchase goods or services that are enforceable and legally binding (non-cancelable, or cancelable only in certain circumstances).

In the normal course of business, we enter into unconditional purchase obligation arrangements with a CMO to reserve manufacturing slots in its cGMP manufacturing facility for the manufacture and supply of cGMP batches per FDA and European Medicines Agency (EMA) regulations for commercial use.

The total amount of future non-cancelable purchase commitments related to the manufacture of cGMP batches is $ 3.5 million and $ 3.5 million for the years ending December 31, 2022 and 2023, respectively.

We estimate our total unconditional purchase obligation commitment (for contracts with terms in excess of one year) as of December 31, 2021, at $ 2.6 million.

Payments by year are estimated as follows:

2021 ($ 1.2 million), 2022 ($ 1.2 million) and 2023 ($ 0.3 million).

These commitments relate primarily to hosted software license subscription fees and related implementation costs and our pro-rata share is passed-through to us without any markup under the shared services agreement with NantWorks (as further described in Note 10 below).

2022 ($ 2.1 million) and 2023 ($ 0.5 million).

The purchase obligation amounts do not represent the entire anticipated purchases in the future, but represent only those items for which we are contractually obligated.

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For this reason, these amounts do not provide an indication of our expected future cash outflows related to purchases.

We did not enter into any significant contracts or material unconditional purchase commitments during the year ended December 31, 2021, other than those disclosed in these consolidated financial statements.

Related-Party Agreements

Our Executive Chairman, and principal stockholder, founded and has a controlling interest in NantWorks, which is a collection of multiple companies in the healthcare and technology space.

We conduct business with several affiliates under written agreements and informal arrangements.

Below is a summary of outstanding balances and a description of significant relationships (in thousands):

As of December 31,

Due from related party–NantBio, Inc.

$ 1,294 $ 1,294

Due from related party–NantOmics LLC — 591

Due from related parties–Various 39 118

Total due from related parties $ 1,333 $ 2,003

Due to related party–NantWorks $ 1,113 $ 10,650

Due to related party–Duley Road, LLC 1,380 2,787

Due to related party–NantBio, Inc.

Due to related party–605 Nash, LLC — —

Due to related party–Immuno-Oncology Clinic, Inc.

Due to related party–Various — 187

Total due to related parties $ 3,943 $ 14,838

Our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space.

As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new genetically modified NK cells for our product pipeline.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman.

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks provides corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy, and other support services.

We are charged for the services at cost plus reasonable allocations for indirect costs that relate to the employees providing the services.

For the years ended December 31, 2020, 2019 and 2018, we recorded $ 2.5 million, $ 2.1 million and $ 2.8 million, respectively, in selling, general and administrative expense, and $ 1.5 million, $ 1.5 million and $ 3.3 million, respectively, in research and development expense under this arrangement on the consolidated statements of operations.

These amounts exclude certain general and administrative expenses provided by third party vendors directly for our benefit, which have been reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

In June 2016, we amended the existing shared services agreement with NantWorks whereby we can provide support services to NantWorks and/or any of its affiliates.

For the years ended December 31, 2020, 2019 and 2018, we recorded expense reimbursements of $ 1.4 million, $ 1.2 million and $ 0.6 million, respectively, in selling, general and administrative expense and $ 1.6 million, $ 2.3 million and $ 2.6 million, respectively, in research and development expense.

At December 31, 2020 and 2019, we owed NantWorks a net amount of $ 1.2 million and $ 0.4 million, respectively, for all agreements between the two affiliates, which is included in due to related parties on the consolidated balance sheets.

In November 2015, we entered into a facility license agreement with NantWorks, which became effective in May 2015, for approximately 9,500 square feet in Culver City, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

In September 2020, we amended this agreement to extend the term of this lease through December 31, 2021 , as further described in Note 9, Commitments and Contingencies .

Lease expense for this facility for the years ended December 31, 2020, 2019 and 2018, is recorded in research and development expense on the consolidated statements of operations and was $ 0.6 million, $ 0.6 million, and $ 0.2 million, respectively.

Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer.

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks, a related party, provides corporate, general and administrative, manufacturing strategy, research and development, regulatory and clinical trial strategy, and other support services.

We are charged for the services at cost plus reasonable allocations of employee benefits, facilities and other direct or fairly allocated indirect costs that relate to the employees providing the services.

For the years ended December 31, 2021, 2020 and 2019, we recorded $ 4.4 million, $ 6.0 million and $ 6.8 million, respectively, in selling, general and administrative expense , and $ 0.4 million, $ 2.0 million and $ 1.5 million, respectively, of expense reimbursements under this arrangement in research and development expense , on the consolidated statements of operations.

These amounts exclude certain general and administrative expenses provided by third-party vendors directly for our benefit, which were reimbursed to NantWorks based on those vendors’ invoiced amounts without markup by NantWorks.

As of December 31, 2021 and 2020, we owed NantWorks a net amount of $ 1.1 million and $ 10.7 million, respectively, for all agreements between the two affiliates, which is included in due to related parties, on the consolidated balance sheets.

We also recorded $ 2.2 million and $ 1.0 million of prepaid expenses for services that have been passed through to the company from NantWorks as of December 31, 2021 and 2020, respectively, which are included in prepaid expenses and other current assets , on the consolidated balance sheets.

In November 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 rentable square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility.

The initial license was effective from May 2015 through December 2020.

The base rent for the initial lease term was $ 47,000 per month, with annual increases of 3 % beginning in January 2017.

In September 2020, we amended this agreement to extend the term of this lease through December 31, 2021.

Commencing January 1, 2021, the base rent increased by 3 % to approximately $ 54,500 per month.

Subsequent to December 31, 2021, the lease term will automatically renew on a month-to-month basis, terminable by either party with at least 30 days’ prior written notice to the other party.

Lease expense for this facility totaling $ 0.7 million, $ 0.6 million and $ 0.6 million for the years ended December 31, 2021, 2020 and 2019, respectively, was recorded in research and development expense , on the consolidated statements of operations.

Immuno-Oncology Clinic, Inc.

Beginning in 2017, we entered into multiple agreements with Immuno-Oncology Clinic, Inc., or the Clinic (dba Chan Soon-Shiong Institutes for Medicine, in El Segundo, California), to conduct clinical trials related to certain of our product candidates.

The Clinic is a related party as it is owned by one officer of NantKwest and NantWorks manages the administrative operations of the Clinic.

Prior to June 30, 2019, one of the company’s officers was an investigator or sub-investigator for all of the company’s trials conducted at the Clinic.

Beginning in 2017, we entered into multiple agreements with Immuno-Oncology Clinic, Inc.

(the Clinic) to conduct clinical trials related to certain of our product candidates.

The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic.

Prior to June 30, 2019, one of our officers was an investigator or sub-investigator for all of our trials conducted at the Clinic.

In July 2019, we entered into a new agreement with the Clinic (the Clinic Agreement), which became effective on July 1, 2019.

The Clinic Agreement, as amended on March 31, 2020, covers clinical trial and research related activities on a non-exclusive basis relating to our existing clinical trials, commenced prior to July 1, 2019, and prospective clinical trials and research projects.

The Clinic Agreement, as amended on March 31, 2020, covers clinical trial and research-related activities on a non-exclusive basis relating to existing clinical trials, commenced prior to July 1, 2019, and prospective clinical trials and research projects.

The Clinic Agreement also specifies certain services and related costs that are excluded from the Clinic Agreement.

Prior to commencing any work under the Clinic Agreement, the parties have agreed to execute written work orders setting forth the terms and conditions related to specific services to be performed, including financial terms.

For clinical trials that commenced prior to July 1, 2019, fees incurred for services performed after July 1, 2019 are covered under the Clinic Agreement and applied towards the below-mentioned prepayments.

The Clinic Agreement allows for an automatic renewal and additional extensions beyond the initial one year term.

For clinical trials that commenced prior to July 1, 2019, excluding certain NantCell trials not covered by the agreement, fees incurred for services performed after July 1, 2019 are covered under the Clinic Agreement and applied towards the below-mentioned prepayments.

The Clinic Agreement allows for automatic renewal and additional extensions beyond the initial one-year term.

In consideration of the services to be performed under the Clinic Agreement, as amended on March 31, 2020, we agreed to make payments of up to $ 7.5 million to the Clinic, of which $ 3.8 million and $ 1.9 million were paid in July 2019 and October 2019, respectively.

As amended, a conditional payment of $ 1.875 million shall be due and payable at such time, if any, that the payments made in July 2019 and October 2019 have been earned by the Clinic through performance of services.

On a quarterly basis, our prepayment is increased by an interest credit computed in accordance with terms specified in the Clinic Agreement.

To the extent any portion of the prepayments remain unearned by the Clinic on the third anniversary of the Clinic Agreement, we may elect at our sole discretion either to (i) not extend the term of the Clinic Agreement and have the Clinic reimburse us for the total amount of any remaining unused portion of the prepayments, or (ii) extend the term of the Clinic Agreement for up to three additional one year periods, at which time the Clinic will reimburse us for the total amount of any remaining unused portion of the prepayments plus interest if reimbursement is not made within 60 days of expiration.

The Clinic may terminate this agreement upon each anniversary date upon sixty (60) days prior written notice and reimbursement in full to us of any outstanding unearned balance of the prepayments, provided that any such termination by the Clinic will not apply with respect to any work orders still in effect at the time of such termination.

In July 2019, we executed a clinical trial work order under the Clinic Agreement for an open-label, phase I study of PD‑L1.t‑haNK for infusion in subjects with locally advanced or metastatic solid cancers.

In July 2020, but effective on June 22, 2020, we and ImmunityBio executed a clinical trial work order under our existing master agreement with the Clinic for an open-label, randomized, comparative phase II study of ImmunityBio’s proprietary IL‑15 superagonist (N‑803) and Aldoxorubicin Hydrochloride (Aldoxorubicin) and our PD‑L1.t‑haNK with standard-of-care chemotherapy versus standard-of-care chemotherapy for first and second line treatment of locally or advanced metastatic pancreatic cancer.

During the years ended December 31, 2020, 2019 and 2018, $ 0.6 million, $ 1.1 million, and $ 2.7 million, respectively, was recognized in research and development expense on the consolidated statements of operations related to clinical trial and research related activities conducted for us by the Clinic.

As of December 31, 2020 and 2019, we owed the Clinic $ 0.3 million and $ 0.1 million, respectively, for services excluded from the Clinic Agreement, which are included in due to related parties on the consolidated balance sheets.

As of December 31, 2020 and 2019, we had prepaid balances related to the Clinic Agreement of $ 4.7 million and $ 5.1 million, respectively, which are included in prepaid expenses and other currents assets, and other assets, on the consolidated balance sheets.

We anticipate that the remaining prepayment amount as of December 31, 2020 will be utilized in future periods as the Clinic provides additional services pursuant to the Clinic Agreement.

ImmunityBio, Inc., or ImmunityBio, is a related party, as it is controlled by our Executive Chairman and principal stockholder, Dr.

Patrick Soon-Shiong.

On December 21, 2020 , we entered into a merger agreement with ImmunityBio pursuant to which NantKwest and ImmunityBio agreed to combine their businesses.

The proposed merger is discussed in additional detail in Note 4, Agreement and Plan of Merger with ImmunityBio .

In September 2020, we entered into a sublease agreement with Altor Bioscience Manufacturing Company, LLC, a subsidiary of ImmunityBio, whereby we leased approximately 6,901 square feet in El Segundo, California, including laboratory space and related furniture, fixtures and equipment.

The agreement also includes certain non-lease components related primarily to the right to use certain common areas within the building and the related furniture and fixtures.

This facility will be used to manufacture and produce clinical products for our oncology product candidate trials.

The lease runs from August 2020 through July 2022, and includes an option to extend the lease for an additional one-year term through July 2023.

The monthly fixed charge related to the agreement is $ 0.2 million, a portion of which is subject to annual increases of 3 % which began in November 2020.

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Lease expense for this facility is recorded in research and development expense on the consolidated statements of operations and was $ 0.9 million during the year ended December 31, 2020.

As of December 31, 2020, we owed $ 0.1 million under this agreement related to variable lease costs.

On August 21, 2020, we entered into a Collaboration Agreement with ImmunityBio as further described in Note 8, Collaboration and License Agreements .

As of December 31, 2020, the joint research activity under the Collaboration Agreement totaled $ 8.4 million, which has been included in research and development expense on the consolidated statements of operations.

Expenses incurred during the year ended December 31, 2020 were primarily related to purchases of equipment of $ 5.0 million, to be utilized in the manufacture of the hAd5 COVID‑19 vaccine candidate, and net program related costs of $ 3.4 million, after applying the eligible cost sharing under the Collaboration Agreement.

The equipment purchases do not have an alternative use and were therefore expensed as incurred within research and development expenses.

In January 2020, but effective on October 1, 2019, we entered into a Cost Allocation Agreement with ImmunityBio, which (together with related work orders) is described further in Note 8, Collaboration and License Agreements .

As of December 31, 2020, our balance owed to ImmunityBio related to the Cost Allocation Agreement was $ 0.3 million.

As of December 31, 2019, no balances were due between the parties with respect to the Cost Allocation Agreement.

In November 2018, we entered into an agreement with Etubics Corporation, or Etubics, a subsidiary of ImmunityBio.

Pursuant to this agreement we sold used laboratory equipment to Etubics for $ 0.3 million.

In conjunction with this sale, we recognized a loss on disposal of related laboratory equipment of $ 0.1 million, which was included in other income, net on the consolidated statements of operations.

In June 2015, we entered into a supply agreement with ImmunityBio pursuant to which we have the right to purchase ImmunityBio’s proprietary bioreactors, made according to specifications mutually agreed to with ImmunityBio.

We also have the right to purchase reagents and consumables associated with such equipment from ImmunityBio.

When an upfront payment is made, it is included in prepaid expenses on the consolidated balance sheets until the product is received.

The agreement had an initial term of five years and renews automatically for successive one-year periods unless terminated earlier.

At December 31, 2020 and 2019, we had $ 3.2 million and $ 1.8 million, respectively, in equipment purchased from ImmunityBio pursuant to our supply agreement, which has been included in property, plant and equipment, net, on the consolidated balance sheets.

During the years ended December 31, 2020, 2019 and 2018, we recorded research and development expense associated with reagents and consumables purchased from ImmunityBio pursuant to our supply agreement of $ 0.3 million, $ 0.1 million and $ 0.1 million, respectively, on the consolidated statements of operations.

At December 31, 2020 and 2019, we had $ 0.1 million and $ 0.5 million, respectively, included in prepaid expenses and other current assets on the consolidated balance sheets related to consumables purchased from ImmunityBio.

As amended, a conditional payment of $ 1.9 million shall be due and payable at such time, if any, that the payments made in July 2019 and October 2019 have been earned by the Clinic through the performance of services.

On a quarterly basis, our prepayment is increased by a nominal interest credit computed in accordance with terms specified in the Clinic Agreement.

The Clinic may terminate this agreement upon each anniversary date upon 60 days prior written notice and reimbursement in full to us of any outstanding unearned balance of the prepayments, provided that any such termination by the Clinic will not apply with respect to any work orders still in effect at the time of such termination.

We executed a clinical trial work order under the Clinic Agreement for an open-label, Phase 1 study of PD‑L1 t‑haNK ™ for infusion in subjects with locally advanced or metastatic solid cancers.

In July 2020, but effective on June 22, 2020, we and NantCell executed a clinical trial work order under our existing master agreement with the Clinic for an open-label, randomized, comparative Phase 2 study of our proprietary IL‑15 superagonist (Anktiva) and aldoxorubicin hydrochloride (aldoxorubicin) and our PD‑L1 t‑haNK with standard-of-care chemotherapy versus standard-of-care chemotherapy for patients with locally advanced or metastatic pancreatic cancer treated as first-line, second-line, or third-line or greater, in three separate cohorts, respectively.

During the year ended December 31, 2021, ImmunityBio executed multiple work orders under an existing master agreement with the Clinic.

Under these work orders, the parties agreed that the Clinic would serve as a site for the following multi-site clinical trials:

• A Phase 1B open-label study of the safety, reactogenicity, and immunogenicity of prophylactic vaccination with second-generation E1/E2B/E3-deleted adenoviral-COVID-19 in normal healthy volunteers;

• A Phase 1B open-label study of the safety, reactogenicity, and immunogenicity of subcutaneously and orally administered prophylactic vaccination with second-generation E1/E2B/E3-deleted adenoviral-COVID-19 in normal healthy volunteers;

• A Phase 1 study of the safety, reactogenicity, and immunogenicity of subcutaneously- and orally-administered supplemental spike & nucleocapsid-targeted COVID‑19 vaccine to enhance T cell-based immunogenicity in participants who have already received a vaccine authorized for emergency use;

• A Phase 1 study of the safety, reactogenicity, and immunogenicity of a supplemental spike & nucleocapsid-targeted COVID‑19 vaccine to enhance T cell-based immunogenicity in participants who have already received a vaccine authorized for emergency use;

• A Phase 1 open-label study of M‑ceNK cells in subjects with locally advanced or metastatic solid tumors.

In the second quarter of 2021, b ased on a review of our then updated clinical trial programs post-Merger, we updated our estimates of the investigator fees for the clinical trials that were underway or planned at the Clinic.

As certain programs costs are excluded from and certain services are subject to credit adjustments under the Clinic agreements, we determined the expected future fees for services to be performed were less than the carrying value of the prepaid asset on the consolidated balance sheets.

As a result, we partially wrote down the value of our prepayments under the Clinic agreements and recorded approximately $ 1.9 million in research and development expense , on the consolidated statement of operations for the three months ended June 30, 2021.

In November 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties and currently planned for the first half of 2022.

Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performe d by the Clinic as contemplated in the original agreements.

As a r esult, we wrote down the remaining value of our prepaid asset and recorded approximately $ 2.5 million in research and development expense , on the consolidated statement of operations for the three months ended December 31, 2021.

For the years ended December 31, 2021, 2020 and 2019, we incurred $ 1.6 million, $ 0.9 million and $ 1.1 million in research and development expense , on the consolidated statements of operations related to the Clinic Agreement.

As of December 31, 2021 and 2020, we owed the Clinic $ 0.5 million and $ 0.3 million, respectively, for services excluded from the Clinic Agreement.

As of December 31, 2020, we had prepaid balances related to the Clinic Agreement of $ 4.7 million.

Brink Biologics, Inc.

In 2015, we entered into an agreement with Brink Biologics, Inc.

(Brink) whereby we granted to Brink worldwide exclusive licenses to the use of certain cell lines and intellectual property for non-clinical laboratory testing.

Brink is a related party as our Executive Chairman, Global Chief Scientific and Medical Officer and our principal stockholder, and our Chief Corporate Affairs Officer and member of our board of directors, collectively own more than 50% of Brink’s outstanding shares.

We recognized revenue of $ 0.4 million for the year ended December 31, 2021 related to this license.

NantBio, Inc.

In March 2016, NantBio and the NCI entered into a CRADA.

The initial five-year agreement covered NantBio and its affiliates, including us.

Under the agreement, the parties collaborated on the preclinical and clinical development of proprietary recombinant NK cells and mAbs in monotherapy and combination immunotherapies.

In each of the contractual years under the agreement, we paid $ 0.6 million to the NCI for services under the agreement.

We recognized expenses related to this agreement ratably over a 12-month period for each funding year.

This CRADA expired in March 2021.

In November 2021, we entered into a third amendment to the 2015 NCI CRADA, which was effective as of March 16, 2021, and transferred the research plan from this expired CRADA into the research plan of the amended 2015 NCI CRADA.

We made a payment of $ 0.7 million and recorded $ 0.5 million in research and development expense , on the consolidated statements of operations related to the third amendment for the year ended December 31, 2021.

See Note 6 , Collaboration and License Agreements—National Cancer Institute, for further information.

In August 2018, we entered into a supply agreement with NantCancerStemCell, LLC (NCSC), a 60% owned subsidiary of NantBio (with the other 40% owned by Sorrento).

Under this agreement, we agreed to supply VivaBioCell’s proprietary GMP-in-a-Box bioreactors and related consumables, made according to specifications mutually agreed to with both companies.

The agreement has an initial term of five years and renews automatically for successive one-year terms unless terminated by either party in the event of material default upon prior written notice of such default and the failure of the defaulting party to remedy the default within 30 days of the delivery of such notice, or upon 90 days’ prior written notice by NCSC.

We recognized revenue of $ 0.3 million for the year ended December 31, 2021 .

We recorded $ 0.1 million and $ 0.3 million of deferred revenue for bioreactors that were delivered but not installed as of December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, we recorded $ 0.9 million in due to related parties , on the consolidated balance sheets related to this agreement.

In 2018, we entered into a shared service agreement pursuant to which we are charged for services at cost, without mark-up or profit by NantBio, but including reasonable allocations of employee benefits that relate to the employees providing the services.

In April 2019, we agreed with NantBio to transfer certain NantBio employees and associated research and development projects, comprising the majority of NantBio’s business, to the company.

After the transfer, we settled certain employee bonuses and benefits that were accrued by NantBio for 2018.

As of December 31, 2021 and 2020, we recorded a net receivable from NantBio of $ 1.3 million, which included $ 1.0 million for employee bonuses and $ 0.3 million for vendor costs we paid on behalf of NantBio.

NantOmics, LLC

In 2019, we made a strategic decision and transferred certain employees from NantOmics, a related party that is controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, to the company.

After the transfer, we settled certain employee bonuses and benefits that were accrued by NantOmics for the year ended December 31, 2020.

We recorded no receivable and a $ 0.6 million receivable from NantOmics as of December 31, 2021 and 2020, respectively.

605 Doug St, LLC

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman, and principal stockholder, for approximately 24,250 square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP laboratory manufacturing facility.

In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 24,250 rentable square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility.

The lease runs from July 2016 through July 2023.

We have the option to extend the lease for an additional three-year term through July 2026.

The monthly rent is $ 0.1 million with annual increases of 3 % beginning in July 2017 .

Lease expense for this facility for the years ended December 31, 2020, 2019 and 2018, is recorded in research and development expense on the consolidated statements of operations and was $ 0.9 million, $ 0.9 million and $ 0.2 million, respectively.

At December 31, 2020 and 2019, no balances were due between the parties.

NantBio, Inc.

In August 2018, NantBio assigned an agreement to us for the use of a third-party research facility, which provides us with the exclusive right to use and access to a portion of the third party’s laboratory and vivarium premises.

NantBio is a related party as it is an affiliate of NantWorks.

In conjunction with the assignment, we reimbursed NantBio for upfront payments which it had made to the third party of $ 0.9 million and paid $ 0.5 million directly to the third party for an aggregate value of $ 1.4 million.

The assigned agreement is for a term of ten years and expires in June 2027 .

The agreement may be terminated by us at any time, with or without cause.

In case of termination of the agreement, the third party will reimburse us for a pro-rata amount based upon the passage of time.

In March 2016, NantBio and the National Cancer Institute entered into a cooperative research and development agreement.

The initial five-year agreement covers NantBio and its affiliates, including us.

Under the agreement, the parties are collaborating on the preclinical and clinical development of proprietary recombinant natural killer cells and monoclonal antibodies in monotherapy and in combination immunotherapies.

We benefited from the preclinical and clinical research conducted during the first four years under this agreement.

In each of the contractual years under the agreement we paid $ 0.6 million to the National Cancer Institute as a prepayment for services under the agreement.

We recognize research and development expense related to this agreement ratably over a 12 -month period for each funding year and recorded $0.6 million of expense related to this agreement in each of the years ended December 31, 2020, 2019 and 2018.

At December 31, 2020 and 2019, we had balances of $ 0.1 million and $ 0.1 million, respectively, included in prepaid expenses and other current assets related to this agreement on the consolidated balance sheets.

NantHealth Labs, Inc.

In March 2018, we entered into an agreement with NantHealth Labs, Inc., or NantHealth Labs, to obtain blood-based tumor profiling services.

NantHealth Labs is a related party, as it is a wholly owned subsidiary of NantHealth, Inc., a majority owned subsidiary of NantWorks.

We are obligated to pay NantHealth Labs fixed, per-patient fees.

The agreement has an initial term of five years and renews automatically for successive one-year periods, unless terminated earlier.

During the years ended December 31, 2019 and 2018, $ 10,000 and $ 0.3 million, respectively, has been recognized in research and development expense on the consolidated statements of operations.

There were no expenses associated with this agreement during the year ended December 31, 2020.

As of December 31, 2020 and 2019, no balances were due between the parties.

Stockholders’ Equity

Issuance of Common Stock – On June 29, 2020, the company closed an underwritten public offering of an aggregate of 8,521,500 shares of common stock, which included 4,811,500 shares issued to the public at a price of $ 9.50 per share (which includes 1,111,500 shares sold to the public upon full exercise of the underwriters’ option to purchase additional shares at a public offering price of $ 9.50 per share), less underwriting discounts and commissions, and 3,710,000 shares issued to our Executive Chairman and principal stockholder, Dr.

Patrick Soon-Shiong, at a price of $ 12.12 per share, less underwriting discounts and commissions.

All of the shares were offered by the company.

Including the underwriters’ option exercise, the aggregate gross proceeds from the offering were $ 90.7 million, before deducting underwriting discounts, commissions and other offering expenses of $ 4.4 million.

Stock Repurchase – In November 2015, the board of directors approved a share repurchase program, or the 2015 Share Repurchase Program, allowing the CEO or CFO, on behalf of the company, to repurchase from time to time, in the open market or in privately negotiated transactions, up to $ 50.0 million of our outstanding shares of common stock, exclusive of any commissions, markups or expenses.

We have the option to extend the lease for one additional three-year term through July 2026.

We have included the first option to extend the lease term for three years as part of the initial lease term as it is reasonably certain that we will exercise the option, which implies lease expiration in July 2026.

The base rent is approximately $ 72,385 per month, with annual increases of 3 % that began in July 2017.

Lease expense for this facility totaling $ 0.9 million for the years ended December 31, 2021, 2020 and 2019, respectively, was recorded in research and development expense , on the consolidated statements of operations.

Duley Road, LLC

In February 2017, Altor BioScience Corporation (succeeded by our wholly-owned subsidiary Altor BioScience, LLC), through its wholly-owned subsidiary, entered into a lease agreement with Duley Road, a related party that is indirectly controlled by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 12,000 rentable square feet of office and cGMP manufacturing facility space in El Segundo, California.

The lease term is from February 2017 through October 2024.

We have the option to extend the initial term for two consecutive five-year periods through October 2034.

The base rent is approximately $ 40,700 per month, with annual increases of 3 % that began in November 2018.

As of December 31, 2021 and 2020, we recorded rent payable to Duley Road of $ 0.2 million and $ 1.3 million, respectively.

For the years ended December 31, 2021 and 2020, we recorded rent expense of $ 0.6 million and $ 0.5 million, respectively, which is reflected in research and development expense , on the consolidated statements of operations.

Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California.

The first lease is for the first floor of the building with approximately 5,650 rentable square feet.

The lease has a seven-year term commencing in September 2019.

The second lease is for the second floor of the building with approximately 6,488 rentable square feet.

The lease has a seven-year term commencing in July 2019.

Both floors of the building are used for research and development and office space.

We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036.

The base rent for the two leases is approximately $ 35,800 per month that increases at a rate of 3 % per year.

As of December 31, 2021 and 2020, we recorded $ 0.9 million and $ 0.9 million of leasehold improvement payables, respectively, and $ 0.3 million and $ 0.6 million of lease-related payables to Duley Road, which were included in due to related parties , on the consolidated balance sheets.

For the years ended December 31, 2021 and 2020, we recorded $ 0.4 million and $ 0.3 million of rent expense for the two leases, respectively, which was included in research and development expense , on the consolidated statements of operations.

605 Nash, LLC

In February 2021 , but effective on January 1, 2021 , we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 rentable square feet (the Initial Premises) in a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California.

This facility is used primarily for pharmaceutical development and manufacturing purposes.

The lease term commenced in January 2021 and expires in December 2027 , and includes an option to extend the lease for one three-year term through December 2030 .

The base rent is approximately $ 20,300 per month with an annual increase of 3 % on January 1 of each year during the lease term.

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses.

We have included the first option to extend the lease term for three years as part of the initial lease term as it is reasonably certain that we will exercise the option.

We will receive a rent abatement for the first seven months , and a tenant improvement incentive of $ 0.3 million from the landlord for costs and expenses associated with the construction of tenant improvements for the Initial Premises.

During the year ended December 31, 2021, we recorded rent expense of $ 0.2 million, which is reflected in research and development expense, on the consolidated statement of operations.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our Initial Premises lease with 605 Nash.

The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the Expansion Premises).

The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has the option to extend the initial term for three years .

Per the terms of the amendment, the term of the Initial Premises lease was extended for an additional three months and now expires in March 2031.

Base rent for the Expansion Premises is approximately $ 170,400 per month with annual increases of 3 % on April 1 of each year.

We are responsible for the build out of the facility space and associated costs.

The amended lease provides for a rent abatement for the first seven months , and for a tenant improvement allowance of approximately $ 2.6 million for costs and expenses related to improvements made by us to the Expansion Premises.

During the year ended December 31, 2021, we incurred $ 1.5 million of rent expense related to the Expansion Premises lease agreement.

557 Doug St, LLC

On September 27, 2021, we entered into a Membership Interest Purchase Agreement with Nant Capital (the Purchase Agreement).

Nant Capital is a related party controlled by Dr.

The Purchase Agreement transferred all outstanding membership interests in 557 Doug St, LLC from the company to Nant Capital.

The only asset owned by 557 Doug St, LLC is the improved property located at 557 South Douglas Street, El Segundo, California with a building area of approximately 36,434 rentable square feet (the Douglas Property).

The purchase price under the Purchase Agreement was $ 22.0 million, and after the offset prorated property taxes of $ 0.1 million, the net proceeds from the sale were $ 21.9 million.

An independent appraisal of the Douglas Property (the Appraisal) assigned the Douglas Property a value of $ 22.0 million.

The net carrying value of the property was $ 20.5 million as of the closing date.

We accounted for the transfer as a sale of an asset to an entity under common control, recorded the transfer at book value and recognized the excess of net consideration over carrying book value of $ 1.4 million as a capital contribution received from Nant Capital in additional paid-in capital , on the consolidated statement of stockholders’ deficit for the year ended December 31, 2021.

In September 2021, we entered into a lease agreement with Nant Capital under which we leased back 557 South Douglas Street for an initial lease term of seven years , which commenced on September 27, 2021.

The monthly base rent under the lease is approximately $ 81,976 per month with an annual increase of 3 % on October 1 of each year beginning in 2022 during the initial term and, if applicable, during the option term.

For the first two years under the lease we will not be charged rent;

we will begin paying rent on October 1, 2023 at the current monthly base rent.

We prepaid the first month rent and security deposit totaling $ 0.2 million upon the execution of the lease.

We have an option to extend the lease for two additional seven-year periods when the prior term expires.

We have included the first option to extend the lease term for seven years as part of the initial lease term as it is reasonably certain that we will exercise the option, which implies lease expiration on September 30, 2035.

The lease is classified as an operating lease.

As of December 31, 2021, we recorded $ 0.3 million of rent expense for the lease, which was included in research and development expense , on the consolidated statements of operations.

420 Nash, LLC

On September 27, 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, whereby we leased an approximately 19,125 rentable square foot property located at 420 Nash Street, El Segundo, California, to be used primarily for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space.

Under the terms of the lease agreement, the lease term began on October 1, 2021 and expires on September 30, 2026.

The base rent is approximately $ 38,250 per month with an annual increase of 3 % on October 1 of each year beginning in 2022 during the initial term.

The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease.

We will receive a rent abatement for the first month of the lease, and a one-time improvement allowance of $ 15,000 from the landlord that will be credited against base rent obligations for the second month of the lease.

The company has options to extend the lease term for two additional consecutive periods of five years each.

At the beginning of each option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3 % during the option term.

We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031.

As of December 31, 2021, we recorded $ 0.1 million of rent expense for the lease, which was included in research and development expense , on the consolidated statement of operations.

Related-Party Notes Payable

Our related-party notes payable consist of the following (in thousands):

Total Notes and Interest Payable

as of December 31,

Related-Party Notes Payable Note

Year Outstanding

Advances Interest

Rate 2021 2020

Nant Capital (1)

2021 $ 300,000 SOFR + 5.4 %

$ 299,236 (1) $ —

Nant Capital (2)

2015 55,226 5.0 % 61,367 (3) 58,482 (3)

Nant Capital (2)

2020 50,000 6.0 % 53,810 (4) 50,764 (4)

Nant Capital (5)

2021 40,000 6.0 % 40,000 (5) —

NantMobile (2)

2019 55,000 3.0 % 58,359 (6) 56,660 (6)

NantWorks (2)

2017 43,418 5.0 % 54,067 (7) 51,546 (7)

2018 33,000 5.0 % 38,746 (8) 36,901 (8)

Total related-party notes payable $ 576,644 $ 605,585 $ 254,353

_______________

(1) The outstanding advance is due and payable on December 17, 2022.

This loan bears interest at Term SOFR + 5.4 %, which is compounded annually and payable quarterly commencing on March 17, 2022.

As of December 31, 2021, the interest rate on this loan was 5.47 %.

Accrued and unpaid interest on this note totaled $ 0.7 million as of December 31, 2021.

In the event of a default on the loan (as defined in the promissory note), including if we do not repay the loan at maturity, the company has the right, at its sole option, to convert the outstanding principal amount and accrued and unpaid interest due under this note into fully paid and non-assessable shares of the company’s common stock at a price per share equal to $ 5.67 .

Debt issuance cost of $ 1.5 million paid to the lender in December 31, 2021 was recorded as a reduction of the principal amount of the note.

(2) All outstanding advances and accrued and unpaid interest is due and payable on September 30, 2025.

Interest on related-party notes payable is compounded annually.

We may prepay the outstanding principal at any time without premium, penalty or the prior consent of the issuer.

All outstanding amounts under the notes become due and payable upon certain bankruptcy and insolvency-related events.

There are no equity or equity-linked convertible rights related to these promissory notes.

(3) Accrued and unpaid interest on this note totaled $ 6.1 million and $ 3.3 million as of December 31, 2021 and 2020, respectively.

(4) Accrued and unpaid interest on this note totaled $ 3.8 million and $ 0.8 million as of December 31, 2021 and 2020, respectively.

(5) The outstanding principal is due and payable on September 30, 2025.

Interest on this related-party note is compounded annually and payable quarterly commencing on June 30, 2021.

We paid $ 2.0 million in interest on this loan during the year ended December 31, 2021.

All outstanding amounts under the note become due and payable upon certain bankruptcy and insolvency-related events.

There are no equity or equity-linked convertible rights related to this promissory note.

(6) Accrued and unpaid interest on this note totaled $ 3.4 million and $ 1.7 million as of December 31, 2021 and 2020, respectively.

(7) Accrued and unpaid interest on this note totaled $ 10.6 million and $ 8.1 million as of December 31, 2021 and 2020, respectively.

(8) Accrued and unpaid interest on this note totaled $ 5.7 million and $ 3.9 million as of December 31, 2021 and 2020, respectively.

The following table summarizes our estimated future contractual obligations for related-party notes payable as of December 31, 2021 (in thousands):

Payments Interest

2022 $ 300,000 $ 18,808 (2) $ 318,808

2023 — 2,400 2,400

2024 — 2,407 2,407

2025 276,644 85,823 (3) 362,467

Total principal and estimated interest due on related-party notes $ 576,644 $ 109,438 $ 686,082

_______________

(1) Interest payments on our fixed-rate debt are calculated based on contractual interest rates and scheduled maturity dates.

Interest payments on our variable-rate debt are calculated based on schedule maturity dates and the Term SOFR rate plus the contractual spread per the loan agreement.

The rate on this debt as of December 31, 2021 was 5.47 %.

(2) Interest shown includes $ 0.7 million of accrued and unpaid interest as of December 31, 2021 related to the $ 300.0 million variable-rate loan.

Interest on our $ 300.0 million variable-rate loan and our $ 40.0 million fixed-rate loan are payable on a monthly and quarterly basis, respectively.

(3) Interest shown includes $ 29.7 million of accrued and unpaid interest of December 31, 2021.

Interest on these notes is payable at maturity on September 30, 2025.

Stockholders’ Deficit

Stock Authorized for Issuance

As of December 31, 2021, the company was authorized to issue up to 500,000,000 shares of its common stock, par value $ 0.0001 per share, and 20,000,000 shares of our preferred stock, par value $ 0.0001 per share.

As of December 31, 2021, there were 397,830,044 shares of our common stock outstanding (excluding 163,800 shares held by a majority owned subsidiary of the company that are treated as treasury shares for accounting purposes).

Effective February 1, 2022, ImmunityBio amended and restated its Amended and Restated Certificate of Incorporation to increase the number of shares of common stock that the company is authorized to issue from 500,000,000 shares to 900,000,000 shares.

The number of shares of preferred stock that the company is authorized to issue remains unchanged at 20,000,000 shares.

See Note 13 , Subsequent Events .

Common Stock Issued in Connection with the Merger

Under the terms of the Merger Agreement, at the Effective Time of the Merger, each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 newly issued shares of common stock , par value $ 0.0001 per share, resulting in the issuance of approximately 273.7 million shares of Company Common Stock.

From and after the Effective Time, all of such NantCell shares ceased to be outstanding, were canceled and ceased to exist.

At the Effective Time, each share of our common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company.

Since the Merger was accounted for as a transaction between entities under common control, the outstanding shares presented on the consolidated financial statements assume that NantCell outstanding common stock was converted into shares of Company Common Stock for all periods presented, and in connection with the conversion, those shares of common stock were recorded at the company’s par value of $ 0.0001 per share.

Stock Repurchases

2015 Share Repurchase Program

In 2015, the Board of Directors approved the 2015 Share Repurchase Program, which allows our CEO or chief financial officer (CFO), to repurchase on behalf of the company, from time to time in the open market or in privately negotiated transactions, up to $ 50.0 million of our outstanding shares of common stock, exclusive of any commissions, markups or expenses.

The timing and amounts of any purchases were and will continue to be based on market conditions and other factors, including price, regulatory requirements and other corporate considerations.

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We have financed, and expect to continue to finance, the purchases with existing cash balances.

The shares are formally retired through board approval upon repurchase.

To date, we have repurchased 6,403,489 shares of our common stock under the 2015 Share Repurchase Program at a total cost of $ 31.7 million.

In addition, we have paid $ 0.1 million of broker commissions on repurchases.

We did no t repurchase any shares during the year ended December 31, 2020.

During the years ended December 31, 2019 and 2018, we repurchased 473,586 shares for $ 0.5 million and 138,349 shares for $ 0.2 million, respectively.

At December 31, 2020, $ 18.3 million remained authorized for repurchase under the 2015 Share Repurchase Program.

Common Stock Reserved for Future Issuance

We are authorized to issue up to 500,000,000 shares of our common stock, par value $ 0.0001 per share at December 31, 2020.

As of December 31, 2020, there were 108,726,551 shares of our common stock issued and outstanding.

The following table summarizes the common shares reserved for issuance on exercise or vesting of various awards at December 31, 2020:

Outstanding stock options

Outstanding RSUs

Total shares reserved for future issuance

Shares repurchased under this program are formally retired through approval of the Board of Directors upon repurchase.

No shares of our common stock were repurchased during the years ended December 31, 2021 and 2020 under the program.

During the year ended December 31, 2019, we repurchased 473,586 shares at a cost of $ 0.5 million.

Since the plan’s inception, we have repurchased a total of 6,403,489 shares at a total cost of $ 31.7 million.

As of December 31, 2021, $ 18.3 million remained authorized for repurchase under the program.

Other Repurchase

During the year ended December 31, 2019, we entered into a stock transfer agreement with a stockholder and purchased 204,750 shares of our common stock at a price of $ 9.77 per share for an aggregate purchase price of $ 2.0 million in cash.

All shares repurchased in this transaction were retired and reduced the number of shares issued and outstanding.

Open Market Sale Agreement

On April 30, 2021, we entered into an Open Market Sale Agreement (the Sale Agreement) with respect to an ATM offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $ 500.0 million through our sales agent.

We pay our sales agent a commission of up to 3.0 % of the gross sales proceeds of any shares of our common stock sold through them under the Sale Agreement, and also have provided them with customary indemnification and contribution rights.

During the year ended December 31, 2021, we received net proceeds totaling $ 164.5 million from the issuance of 13,295,817 shares under the ATM, which we expect to use for general corporate purposes, including to progress our clinical development programs, fund other research and development activities, make capital expenditures and fund working capital.

We may also use a portion of the net proceeds to license intellectual property or to make acquisitions or investments.

As of December 31, 2021, we had $ 330.8 million available for future stock issuances under the ATM.

We are not obligated to sell any shares and may at any time suspend solicitation and offers under the Sale Agreement.

The Sale Agreement may be terminated by us at any time given written notice to the sales agent for any reason or by the sales agent at any time by giving written notice to us for any reason or immediately under certain circumstances, and shall automatically terminate upon the issuance and sale of all of the shares.

Other Sales of Common Stock

During the year ended December 31, 2020, the company closed an underwritten public offering of an aggregate of 8,521,500 shares of common stock, which included 4,811,500 shares issued to the public at a price of $ 9.50 per share (including 1,111,500 shares sold to the public upon full exercise of the underwriters’ option to purchase additional shares at a public offering price of $ 9.50 per share), less underwriting discounts and commissions, and 3,710,000 shares issued to Dr.

Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, at a price of $ 12.12 per share, less underwriting discounts and commissions.

All of the shares were offered by the company.

During the year ended December 31, 2019, the company sold 2,047,500 shares of common stock at a price of $ 14.66 per share to a private party and received net proceeds totaling $ 30.0 million.

Stock-Based Compensation

2014 Equity Incentive Plan – In March 2014, the company’s board of directors and stockholders approved the 2014 Equity Incentive Plan, or 2014 Plan, under which 11,109,000 shares of common stock were reserved for the granting of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code, non-statutory stock options, stock appreciation rights, restricted stock awards, restricted stock units and performance awards to employees, directors and consultants.

The maximum term of awards granted under the 2014 Plan is ten years .

Recipients of stock awards are eligible to purchase shares of our common stock at an exercise price equal to no less than the estimated fair market value of such stock on the date of grant.

As of December 31, 2020, there were approximately 1.1 million vested and exercisable options outstanding under the 2014 Plan, and there were no additional shares available for future grant.

2015 Equity Incentive Plan – In July 2015, the company’s board of directors adopted and the company’s stockholders approved the 2015 Equity Incentive Plan, or 2015 Plan.

The 2015 Plan, as amended, permits the grant of incentive stock options to the company’s employees, and for the grant of non-statutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to the company’s employees, directors and consultants.

The 2015 Plan is the only equity plan of the company available for future grant of equity awards to employees, directors and consultants of the company.

In April 2019, the company’s board of directors adopted, and in June 2019 the company’s stockholders approved, a first amendment to the 2015 Plan to reserve a further 3,000,000 shares of common stock for issuance pursuant to the 2015 Plan.

In March 2020, the company’s board of directors adopted, and in June 2020 the company’s stockholders approved, a second amendment to the 2015 Plan to reserve a further 3,000,000 shares of common stock for issuance pursuant to the 2015 Plan.

As of December 31, 2020, a total of approximately 10.2 million shares of common stock were reserved for issuance pursuant to the 2015 Plan and a total of approximately 7.2 million shares were available for future grant.

In addition, the number of shares reserved for future grant under the 2015 Plan include shares subject to stock options granted under the 2014 Plan that expire or terminate without having been exercised in full and shares issued pursuant to awards granted under the 2014 Plan that are forfeited to or repurchased by us (provided that the maximum number of shares that may be added to the 2015 Plan pursuant to this provision is approximately 1.1 million shares as of December 31, 2020).

2015 Equity Incentive Plan

In 2015, the Board of Directors adopted, and our stockholders approved, the 2015 Plan.

The 2015 Plan, as amended, permits the grant of incentive stock options to the company’s employees, and the grant of non-statutory stock options, restricted stock, RSUs, stock appreciation rights, performance units and performance shares to the company’s employees, directors and consultants.

Pursuant to the Merger, we assumed 7,121,110 RSUs (adjusted for the Exchange Ratio of 0.8190 ) issued under the 2015 NC Plan.

As of December 31, 2021, the 2015 Plan is the only equity plan available for grant of equity awards to employees, directors and consultants of the company.

As of December 31, 2021, a total of approximately 5.0 million shares were available for future grants under the 2015 Plan.

Stock-Based Compensation

The following table presents all stock-based compensation as included on the consolidated statements of operations (in thousands):

For the Year Ended December 31,

The following table presents stock-based compensation included on the consolidated statements of operations (in thousands):

Year Ended December 31,

2021 2020 2019

Stock-based compensation expense:

Warrants for common stock to an officer

Employee stock options

Employee RSUs

Non-employee RSUs

Stock options $ 11,623 $ 1,426 $ 2,053

RSUs 45,558 761 1,368

$ 57,181 $ 2,187 $ 3,421

Stock-based compensation expense in operating expenses:

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Selling, general and administrative 38,362 1,926 2,133

$ 57,181 $ 2,187 $ 3,421

On March 18, 2021, the Board of Directors approved to modify certain non-qualified stock options that were assumed in the Merger and otherwise would have expired during a period when the grantees were legally restricted from exercising these awards.

The expiration date of these options was extended to thirty (30) days following the effective date of Post-Effective Amendment No.

1 on Form S-3 to our Form S-4 Registration Statement.

We recorded an incremental stock-based compensation expense of approximately $ 2.7 million for this stock option modification.

On March 29, 2021, in connection with the resignation of two former independent directors, the Board of Directors approved the acceleration of vesting of 83,333 shares of unvested stock options of the former directors on the date of their respective resignations.

The modified options are exercisable for ninety ( 90 ) days after the date of the modification.

We recorded an incremental stock-based compensation expense of approximately $ 2.3 million for this stock option modification.

The stock option modifications were measured as the excess of the fair value of the modified awards over the fair value of the original awards immediately before the modifications.

The incremental stock-based compensation was recorded in selling, general and administrative expense , on the consolidated statement of operations for the year ended December 31, 2021.

Stock Options

The following table summarizes stock option activity and related information under all equity incentive plans for the years ended December 31, 2020, 2019 and 2018:

Exercise Price

The following table summarizes stock option activity and related information for the year ended December 31, 2021:

(in thousands)

Contractual Life

Outstanding as of December 31, 2017

Options granted

Outstanding at December 31, 2020

Options exercised

Outstanding as of December 31, 2019

Options granted

Options exercised

Options forfeited

Outstanding as of December 31, 2020

Vested and Exercisable as of December 31, 2020

4,996,284 $ 9.96 $ 29,746 4.7

Granted 1,069,940 $ 21.38

Exercised ( 1,817,300 ) $ 3.95

Expired/forfeited ( 123,994 ) $ 10.10

Outstanding at December 31, 2021

4,124,930 $ 15.62 $ 4,178 5.3

Vested and exercisable at December 31, 2021

3,038,322 $ 13.89 $ 3,978 3.9

On February 5, 2021, the Compensation Committee of the Board of Directors granted Richard Adcock, our chief executive officer, a stock option award (the Option Grant) to purchase 750,000 shares of our common stock pursuant to our 2015 Plan.

The Option Grant has an exercise price of $ 23.72 per share, the closing price as reported on the Nasdaq on the date of grant.

In addition, the Option Grant shall vest according to the following vesting schedule:

one-third of the Option Grant (i.e., 250,000 options) shall vest in equal installments on each of the first, second, and third anniversaries of the date of grant, such that all shares shall be fully vested on the third anniversary of the date of grant, subject to Mr.

Adcock remaining in continuous service as defined in the 2015 Plan through the applicable vesting dates.

This grant of equity awards to Mr.

Adcock was made in connection with his appointment as chief executive officer of the company, which was effective as of October 26, 2020, and was modified from the recommended equity grant described in Mr.

Adcock’s offer of employment as of that date.

On May 3, 2021, the Compensation Committee of the Board of Directors granted each of our newly-appointed independent directors a non-qualified stock option award to purchase 21,873 shares of our common stock pursuant to the 2015 Plan at an exercise price of $ 17.24 per share, the closing price as reported on the Nasdaq on the date of grant.

The shares subject to the award will vest in three ( 3 ) equal installments on each of the first, second and third anniversary date of their appointment to the Board of Directors, such that the award will be fully vested on the third anniversary date in 2024, subject to the director continuing to be a service provider as defined in the 2015 Plan through the applicable vesting dates.

On June 10, 2021, the Compensation Committee of the Board of Directors granted our Chairman and each of the independent members of our Board of Directors a non-qualified stock option award to purchase 26,064 shares of our common stock pursuant to the 2015 Plan at an exercise price of $ 14.91 per share, the closing price as reported on the Nasdaq on the date of grant.

The shares subject to the award will vest 100 % on the earlier to occur of June 10, 2022 or the date immediately preceding the 2022 annual meeting of stockholders, subject to the recipient continuing to be a service provider as defined in the 2015 Plan through the applicable vesting date.

These grants were made in connection with the re-election of our Executive Chairman (who then later also became our Global Chief Scientific and Medical Officer), and independent directors to the Board of Directors at the 2021 Annual Meeting of Stockholders.

As of December 31, 2021, the unrecognized compensation cost related to outstanding stock options was $ 11.8 million, which is expected to be recognized over a remaining weighted-average period of 2.0 years.

For the years ended December 31, 2020, 2019 and 2018, there were 166,667 , 343,810 , and 462,875 stock options vested, respectively, with weighted-average exercises prices of $ 2.09 , $ 3.51 , and $ 8.45 , respectively.

The total intrinsic value of stock options exercised during the years ended December 31, 2020, 2019 and 2018 was $ 12.7 million, $ 0.2 million and $ 0.6 million, respectively.

Cash proceeds received from stock option exercises for the years ended December 31, 2020, 2019 and 2018 was $ 1.2 million, $ 4.1 million and $ 0 , respectively.

As of December 31, 2019 and 2018, a total of 3,973,614 and 5,577,531 vested and exercisable shares were outstanding, respectively.

The following table provides a summary of options outstanding and vested as of December 31, 2020:

Exercise Prices

Average Remaining

Contractual Life

Average Remaining

Contractual Life

We may grant stock options to both employees and directors of the company and to employees of related parties that provide shared services to the company under the company’s shared services agreement with NantWorks (Note 10).

The fair value of each stock option issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

For the Year Ended December 31,

Expected term (in years)

Risk-free interest rate

Expected volatility

Dividend yield

Weighted-average grant date fair value

The total intrinsic value of stock options exercised during the year ended December 31, 2021 was $ 21.3 million.

Cash proceeds received from stock option exercises during the year ended December 31, 2021 was $ 5.4 million.

As of December 31, 2020, a total of 4,345,497 vested and exercisable shares were outstanding.

The fair value of stock options issued was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

Year Ended December 31,

2021 2020 2019

Expected life (in years) 5.9 years 5.5 years N/A

Risk-free interest rate 0.7 % 0.4 % N/A

Volatility factor 101.0 % 96.8 % N/A

Dividend yield 0.0 % 0.0 % N/A

Weighted-average grant date fair value $ 16.80 $ 4.64 N/A

The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options.

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Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued.

For grants issued during 2020, the expected volatility was estimated based on the historical volatility of our common stock.

For grants issued during 2018, the expected volatility was based on a weighted-average calculation of the company’s common stock together with a peer group of comparable companies whose share prices are publicly available.

The assumed dividend yield was based on the company’s expectation of not paying dividends in the foreseeable future.

There were no grants issued during 2019.

The expected volatility was estimated based on the historical volatility of our common stock.

The assumed dividend yield was based on our expectation of not paying dividends for the foreseeable future.

Restricted Stock Units

The following table summarizes the restricted stock units, or RSUs, activity under the 2015 Plan:

Unvested balance as of December 31, 2017

Forfeited/canceled

Unvested balance as of December 31, 2018

Forfeited/canceled

Unvested balance as of December 31, 2019

The following table summarizes RSU activity during the year ended December 31, 2021:

Nonvested balance at December 31, 2020

466,842 $ 2.52

Granted 8,665,942 $ 23.27

Vested ( 873,058 ) $ 19.61

Forfeited/canceled ( 1,743,837 ) $ 24.77

Unvested balance as of December 31, 2020

We may grant RSUs to both employees and directors of the company and to employees of related parties that provide shared services to the company under the company’s shared services agreement with NantWorks (Note 10).

During the year ended December 31, 2018, we granted 90,906 RSUs to employees of related companies under our shared services agreement with NantWorks (Note 10).

There were no grants made to non-employees during the years ended December 31, 2020 and 2019.

Nonvested balance at December 31, 2021

6,515,889 $ 21.88

As of December 31, 2021, there was $ 112.1 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 3.5 years.

Of that amount, $ 0.6 million of unrecognized expense is related to employee grants with a remaining weighted-average period of 1.9 years and $ 6,400 of unrecognized expense is related to non-employee grants with a remaining weighted-average period of 0.2 years.

The following table summarizes the company’s warrant activity:

Outstanding as of December 31, 2017

Warrants exercised

Warrants expired

Outstanding as of December 31, 2018

Warrants exercised

Outstanding as of December 31, 2019

Cash proceeds recognized from exercises of warrants during the years ended December 31, 2019 and 2018, were $ 35.2 million and $ 0.1 million, respectively.

No warrants were issued during the years ended December 31, 2020, 2019 and 2018, and as of December 31, 2020 and 2019 there were no warrants outstanding.

The amount of loss before taxes is as follows (in thousands):

For the Year Ended December 31,

The total intrinsic value of RSUs vested during the year ended December 31, 2021 was $ 12.2 million.

We may grant RSUs to both employees and directors of the company and to employees of related parties that provide shared services to the company under our shared services agreement with NantWorks as discussed in Note 8 , Related-Party Agreements .

The grant date fair value of an RSU equals the closing price of our common stock on the date of grant.

On February 5, 2021, the Compensation Committee of the Board of Directors granted Mr.

Adcock two awards totaling 400,000 RSUs (each an RSU Award and collectively, the RSU Awards) of our common stock pursuant to the 2015 Plan.

The RSU Awards are comprised of two separate awards, one settled by issuing 150,000 shares of our common stock and the other to be settled by issuing 250,000 shares of our common stock upon vesting.

The first RSU Award vested immediately on the date of grant with the company retaining shares equal in value to the company’s tax withholding obligations.

The second RSU Award will vest according to the following schedule:

one-third (i.e., 83,333 ) of the shares subject to the RSU Award shall vest in equal annual installments on each of the first, second and third anniversaries of the date of grant, such that all shares shall be fully vested on the third anniversary of the date of grant, subject to Mr.

Adcock remaining in continuous service as defined in the 2015 Plan through the applicable vesting dates.

This grant of equity awards to Mr.

Adcock’s offer of employment as of that date.

On March 4, 2021, prior to the Merger, NantCell awarded 7,121,110 RSUs (adjusted for the Exchange Ratio of 0.8190 ) to certain employees, consultants and/or service providers of NantCell and its affiliates, pursuant to the NC 2015 Plan.

These RSU awards were subject to a performance condition in connection with a “Liquidity Event”, defined as either (i) NantCell’s registration of shares for issuance on a securities offering or (ii) the closing of a corporate transaction.

In addition, the vesting of certain performance-based RSU grants accelerates upon obtaining approval by the FDA of a BLA or equivalent application for approval of Anktiva for use in the treatment of non-muscle-invasive bladder cancer.

These performance-based RSUs are also subject to service conditions and are scheduled to cliff vest on the last date of each tranche as defined by the individual grant agreements.

On March 9, 2021, we completed the Merger with NantCell, and the performance condition related to the Liquidity Event was met.

The fair value of the RSUs was estimated based on a third-party valuation as of the grant date of March 4, 2021 and was derived primarily from the estimated probabilities of the Merger close on March 9, 2021 and the other exit assumptions.

Once the liquidity event related performance condition was met as of March 9, 2021 due to the Merger, compensation expense for these RSUs began to be recognized on a graded vesting attribution approach over the requisite service period for each participant, which ranges from six-month to seventy ( 70 )-month vesting periods.

During the year ended December 31, 2021, we recorded approximately $ 40.5 million of stock-based compensation expense related to these awards, of which approximately $ 18.9 million was recorded in research and development expense and approximately $ 21.6 million was recorded in selling, general and administrative expense , on the consolidated statement of operations.

The RSUs awarded to employees and consultants of affiliated companies were accounted for as stock-based compensation in accordance with ASU 2018-07, Compensation—Stock Compensation (Topic 718) , as the compensation was in exchange for continued support or services expected to be provided to the company over the vesting periods under the NantWorks shared services agreement discussed in Note 8 , Related-Party Agreements .

We have evaluated the associated benefit of these awards to the affiliated companies under common control and determined that the benefit is limited to the retention of their employees.

We estimated such benefit at the grant date fair value of $ 4.0 million and recorded $ 0.9 million of deemed dividends for the year ended December 31, 2021 in additional paid-in capital, on the consolidated balance sheets, with a corresponding credit to stock-based compensation expense.

In connection with the Merger, warrants issued to NantWorks, a related party, in connection with NantCell’s acquisition of Altor were assumed by the company.

After applying the Exchange Ratio at the Effective Time of the Merger, a total of 1,638,000 warrants with an exercise price of $ 3.24 per share were outstanding as of December 31, 2021.

The fair value of $ 18.0 million assigned to the warrants will be recognized in equity upon achievement of a performance-based vesting condition pertaining to building manufacturing capacity to support supply requirements for one of our product candidates.

We are subject to U.S.

federal income tax, as well as income tax in Italy, South Korea, California and other states.

From inception through December 31, 2021, we have not been required to pay U.S.

federal and state income taxes because of current and accumulated net operating losses.

Our federal returns for tax years 2018 through 2020 remain open to examination, and our state returns remain subject to examination for tax years 2017 through 2020.

The Italian and South Korea returns for tax years 2016 through 2020 remain open to examination.

Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service (IRS) or other respective tax authorities.

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

There are no cumulative earnings in our Italian and South Korean subsidiaries as of December 31, 2021 that would be subject to U.S.

income tax or foreign withholding tax.

We plan to indefinitely reinvest any future earnings of our foreign subsidiaries.

On March 9, 2021, the company completed the Merger with NantCell.

The Merger is accounted for as a transaction between entities under common control, and is considered a nontaxable transaction for U.S.

income tax purposes, as it is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code).

Our loss before taxes is as follows (in thousands):

Year Ended December 31,

2021 2020 2019

loss before taxes $ ( 347,226 ) $ ( 223,519 ) $ ( 159,089 )

Foreign income (loss) before taxes

Foreign loss before taxes ( 2,613 ) ( 2,514 ) ( 1,174 )

Loss before income taxes $ ( 349,839 ) $ ( 226,033 ) $ ( 160,263 )

Income tax (expense) benefit for the years ended December 31, 2020, 2019 and 2018 consist of the following (in thousands):

For the Year Ended December 31,

Income tax (expense) benefit consists of the following (in thousands):

Year Ended December 31,

2021 2020 2019

Federal $ — $ — $ —

State ( 9 ) ( 5 ) ( 3 )

Foreign — — —

Total current ( 9 ) ( 5 ) ( 3 )

Federal — 1,187 77

State — 664 31

Foreign — — —

Total deferred — 1,851 108

Income tax (expense) benefit

The components that comprise the company’s net deferred tax assets at December 31, 2020 and 2019 consist of the following (in thousands):

Total income tax (expense) benefit $ ( 9 ) $ 1,846 $ 105

The components that comprise our net deferred tax assets consist of the following (in thousands):

As of December 31,

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Net operating loss carryforwards $ 314,612 $ 223,123

Stock compensation

Stock-based compensation 23,116 13,305

Research and development credits 17,716 21

Operating lease liabilities 10,316 5,456

Depreciation and amortization

Interest expense 8,531 5,055

Amortization 4,407 5,860

Depreciation — 5,523

Investments 3,227 2,490

Accrued compensation 2,525 1,527

Leases and other accrued liabilities

Other accrued liabilities 905 418

Other 2,055 3,334

Total deferred tax assets 387,410 266,112

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Operating lease right-of-use assets ( 9,345 ) ( 4,668 )

Depreciation ( 2,905 ) —

Indefinite-lived intangible assets ( 162 ) ( 170 )

Total deferred tax liabilities ( 12,412 ) ( 4,838 )

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Net deferred tax liability $ ( 162 ) $ ( 170 )

A reconciliation of the federal statutory income tax rate to the company’s effective income tax rate for the years ended December 31, 2020, 2019 and 2018 is as follows:

For the Year Ended December 31,

Tax computed at federal statutory rate

As of December 31, 2021, we have federal net operating losses (NOLs) of $ 1.3 billion, state NOLs of $ 1.2 billion, and foreign NOLs of $ 8.0 million.

Of the $ 1.3 billion in federal NOLs, $ 850.3 million do not expire and will be able to be used to offset 80% of taxable income in future years.

Of the $ 1.2 billion in state NOLs, $ 50.4 million do not expire and will be able to be used to offset 80% of taxable income in future years.

The remaining federal NOL carryforwards expire beginning in 2022, the remaining state NOL carryforwards expire beginning in 2022, the South Korean NOL carryforwards expire beginning in 2022 and the Italian NOLs do not expire.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some or all of our deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Based on the level of historical operating results and the uncertainty of economic conditions, we have recorded a valuation allowance of $ 375.1 million and $ 261.4 million as of December 31, 2021 and 2020, respectively.

The change in the valuation allowance for the years ended December 31, 2021 and 2020 were increases of $ 113.7 million and $ 63.4 million, respectively, which were mainly driven by losses from which we cannot benefit.

The portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be credited directly to contributed capital is $ 0.2 million.

A reconciliation of the federal statutory income tax rate to our effective income tax rate is as follows:

Year Ended December 31,

2021 2020 2019

Federal statutory tax rate 21.0 % 21.0 % 21.0 %

State income taxes, net of federal tax benefit 7.0 % 7.2 % ( 0.8 ) %

Other permanent items ( 0.1 ) % ( 0.1 ) % 1.6 %

Tax rate adjustment 1.5 % ( 0.3 ) % 0.2 %

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Stock-based compensation 0.5 % 1.3 % ( 33.9 ) %

Other ( 0.9 ) % ( 0.2 ) % 0.2 %

Valuation allowance ( 32.7 ) % ( 28.2 ) % 11.7 %

Effective income tax rate 0.0 % 0.8 % 0.1 %

Pursuant to Internal Revenue Code Sections 382 and 383, annual use of the company's net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50 % occurs within a three-year period.

We completed an Internal Revenue Code Section 382/383 analysis through March 2019 regarding the limitation of net operating loss and research and development credit carryforwards.

As a result, we derecognized a portion of the deferred tax assets for net operating losses and federal and state research and development credits of $ 0.8 million from our deferred tax asset schedule as of December 31, 2020.

There is no impact to tax expense for the derecognition of the net operating losses and federal and state research and development credits due to the valuation allowance recorded against the deferred tax assets.

Additionally, we have not recognized the deferred tax asset for research and development credit carryforwards as of December 31, 2020 and 2019 because we are a part of a controlled group of affiliated companies with common ownership and cannot complete our calculation of the credit until the time that all members of the controlled group complete their analysis and calculation of qualified research expenditures.

In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized.

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.

Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment.

Based on the level of historical operating results and the uncertainty of the economic conditions, we have recorded a full valuation allowance of $ 121.4 million at December 31, 2020.

The change in the valuation allowance for the year ended December 31, 2020 was an increase of $ 29.7 million which was mainly driven by losses for which the company cannot benefit.

The portion of the valuation allowance for deferred tax assets for which subsequently recognized tax benefits will be credited directly to contributed capital is $ 0.2 million.

At December 31, 2020, the company has federal net operating losses, or NOLs, of $ 389.8 million, state NOLs of $ 350.3 million, and foreign NOLs of $ 0.2 million.

Of the $ 389.8 million in federal NOLs, $ 226.4 million will not expire and will be able to offset 80 % of taxable income in future years.

Of the $ 350.3 million in state NOLs, $ 4.4 million will not expire and will be able to offset 80 % of taxable income in future years.

The remaining federal NOL carryforwards begin to expire in 2024 , the remaining state NOL carryforwards begin to expire in 2030 and the foreign NOL carryforwards begin to expire in 2022 .

At December 31, 2020, the company also had federal research tax credit carryforwards of $ 11.1 million and state research tax credits of $ 7.8 million.

The federal research tax credit carryforwards begin to expire in 2034 and certain state research tax credit carryforwards begin to expire in 2031 .

The California research tax credits can be carried forward indefinitely.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act, or the CARES Act, was signed into law in response to the economic challenges facing U.S.

Under the CARES Act, the Internal Revenue Code was amended to allow for federal NOL carrybacks for five years to offset previous years income, or the federal NOLs can be carried forward indefinitely to offset 100 % of taxable income for tax year 2020 and 80 % of taxable income for tax years 2021 and thereafter.

Pursuant to Code Sections 382 and 383, annual use of our net operating loss and research and development credit carryforwards may be limited in the event a cumulative change in ownership of more than 50% occurs within a three-year period.

We have not recognized the deferred tax assets for federal and state NOLs and credits of $ 274.2 million from our deferred tax asset schedules as of December 31, 2021 due to Section 382/383 limitations.

There is no impact to tax expense for the derecognition of net operating losses, and federal and state research and development credits due to the valuation allowance recorded against our deferred tax assets.

As of December 31, 2021, we also had federal research tax credit carryforwards of $ 22.6 million and state research tax credits of $ 8.4 million.

The federal research tax credit carryforwards expire beginning in 2032 and certain state research tax credit carryforwards expire beginning in 2030.

Our California research tax credits can be carried forward indefinitely.

Net operating losses and tax credits also are limited when there is a separate return limitation year (SRLY).

These rules generally limit the use of the acquired or departing members’ net operating loss and tax credit carryovers to the amount of taxable income such entity contributes to consolidated taxable income.

The 80% limitation also applies to SRLY NOL carryovers and tax credits.

Therefore, any SRLY NOLs and tax credits will be subject to this limitation, as well as Section 382 and 383 limitations.

As of December 31, 2021 and 2020, we have $ 33.1 million and $ 19.6 million of interest, respectively, that is temporarily disallowed pursuant to IRC Section 163(j).

This interest can be carried forward indefinitely and will be deductible when the company generates sufficient adjusted taxable income.

On March 27, 2020, the U.S.

enacted the Coronavirus Aid, Relief and Economic Security Act (the CARES Act).

The Cares Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the U.S.

economy and fund a nationwide effort to curtail the effect of COVID-19.

The CARES Act provides sweeping tax changes in response to the COVID-19 pandemic.

Under the CARES Act, some of the more significant provisions are NOL carrybacks for five years to offset previous years’ income, or can be carried forward indefinitely to offset 100% of taxable income for the tax year beginning before 2021 and 80% of taxable income for tax years 2021 and thereafter, increasing the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act.

As of December 31, 2021 and 2020, we did not record any income tax (provision) benefit resulting from the CARES Act, mainly due to our history of net operating losses generated and the maintenance of a full valuation allowance against our net deferred tax assets.

There was no material impact from the provisions of the Cares Act for the years ended December 31, 2021 and 2020.

On June 29, 2020, the state of California enacted Assembly Bill No.

85 (AB 85) suspending California net operating loss utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022.

There was no material impact from the provisions of AB 85 in 2020.

The following table summarizes the changes to the amount of unrecognized tax benefits (in thousands):

Unrecognized tax benefits as of December 31, 2018

Decrease for prior year tax positions

Increase for current year tax positions

Unrecognized tax benefits as of December 31, 2019

Decrease for prior year tax positions

Increase for current year tax positions

Unrecognized tax benefits as of December 31, 2020

Included in the balance of unrecognized tax benefits at December 31, 2020, is $ 18.3 million that, if recognized, would not impact our income tax benefit or effective tax rate as long as the deferred tax asset remains subject to a full valuation allowance.

We do not expect that the unrecognized tax benefits will change within 12 months of this reporting date.

Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact the company's effective tax rate.

85 (AB 85) suspending California NOL utilization and imposing a cap on the amount of business incentive tax credits companies can utilize, effective for tax years 2020, 2021 and 2022.

There was no material impact from the provisions of AB 85 for the years ended December 31, 2021 and 2020.

On February 9, 2022, Senate Bill No.

113 was enacted that removed the limitations on the use of NOLs and the cap on the business incentive tax credits that were suspended in accordance with AB 85 effective for tax year 2022.

A summary of changes to the amount of unrecognized tax benefits is as follows (in thousands):

Year Ended December 31,

2021 2020 2019

Unrecognized tax benefits, beginning of year $ 20,413 $ 15,656 $ 11,983

Additions based on tax positions related to the current year 536 4,763 3,680

Reductions for tax positions of prior years ( 7,445 ) ( 6 ) ( 7 )

Unrecognized tax benefits, end of year $ 13,504 $ 20,413 $ 15,656

Included in the balance of unrecognized tax benefits as of December 31, 2021 is $ 11.4 million that, if recognized, would not impact our income tax benefit or effective tax rate as long as the deferred tax asset remains subject to a full valuation allowance.

We do not expect that the unrecognized tax benefits will change within 12 months of December 31, 2021.

Due to the existence of the valuation allowance, future changes in our unrecognized tax benefits will not impact our effective tax rate.

We have not incurred any material interest or penalties as of the current reporting date with respect to income tax matters.

We are subject to U.S.

federal income tax and various state income taxes.

The federal returns for tax years 2017 through 2020 remain open to examination and the state returns remain subject to examination for tax years 2016 through 2020 .

All other state jurisdictions remain open to examination.

Prior to the adoption of ASU 2019‑12 in the first quarter of 2020, as described in Note 2, intraperiod tax allocation rules required us to allocate the provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive income.

In periods in which we had a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive income, we had to allocate the tax provision to the other categories of earnings.

Prior to the adoption of ASU 2019‑12 in the first quarter of 2020, intra-period tax allocation rules required us to allocate the provision for income taxes between continuing operations and other categories of earnings, such as other comprehensive (loss) income.

In periods in which we had a year-to-date pre-tax loss from continuing operations and pre-tax income in other categories of earnings, such as other comprehensive (loss) income, we had to allocate the tax provision to the other categories of earnings.

We then recorded a related tax benefit in continuing operations.

However, with the adoption of ASU 2019‑12, we are no longer required to allocate the tax provision to the other categories of earnings and related benefit to continuing operations under these circumstances.

Summarized Quarterly Data (Unaudited)

The following financial information reflects all normal recurring adjustments that are, in the opinion of management, necessary for a fair statement of the results of the interim periods.

The table below presents unaudited quarterly data for years ended December 31, 2020 and 2019 (in thousands, except for share and per share amounts):

Operating expenses

Operating loss

Net loss per share - basic and diluted

Shares used in calculating net loss per share - basic and

Operating expenses

Operating loss

Net loss per share - basic and diluted

Shares used in calculating net loss per share - basic and

However, with the adoption of ASU 2019‑12, we are no longer required to allocate the tax provision to the other categories of earnings and related benefits to continuing operations under these circumstances.

Employee Benefits

Defined Contribution Benefit Plan – In December 2015, the company adopted a 401(k) retirement and savings plan, or the 401(k) Plan, covering all employees.

The 401(k) Plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the Internal Revenue Service.

Defined Contribution Benefit Plan

In December 2015, we adopted a 401(k) retirement and savings plan (the 401(k) Plan) covering all employees.

The 401(k) Plan allows employees to make pre- and post-tax contributions up to the maximum allowable amount set by the IRS.

The company, at its discretion, may make certain contributions to the 401(k) Plan.

We made contributions of $ 0.5 million, $ 0.6 million and $ 0.5 million during the years ended December 31, 2020, 2019 and 2018, respectively.

Compensated Absences – Under our vacation policy, salaried employees are provided unlimited vacation leave.

We made contributions totaling $ 1.7 million, $ 1.1 million and $ 0.9 million to the 401(k) Plan for the years ended December 31, 2021, 2020 and 2019, respectively.

Compensated Absences

Under our vacation policy, salaried employees are provided unlimited vacation leave.

Therefore, we do not record an accrual for paid leave related to these employees since we are unable to reasonably estimate the compensated absences that these employees will take.

Subsequent Event

Related Party Lease Agreement

In February 2021, but effective on January 1, 2021, we entered into a lease agreement with 605 Nash, LLC, whereby we leased approximately 6,883 square feet in El Segundo, California.

605 Nash, LLC is a related party, as it is owned by our Executive Chairman and principal stockholder, Dr.

Patrick Soon‑Shiong.

This facility will be used primarily for pharmaceutical development and manufacturing purposes.

The lease runs from January 2021 through December 2027 , and includes an option to extend the lease for an additional three year term through December 2030 .

Base rent for the term of the lease is approximately $ 20,300 per month with an annual increase of 3 % on January 1 of each year during the initial term and, if applicable, during the option term.

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses, both of which are variable lease expenses.

Subsequent Events

Increase in Shares of Common Stock Authorized for Issuance

Effective February 1, 2022, ImmunityBio amended its Amended and Restated Certificate of Incorporation to increase the number of shares that the company is authorized to issue from 500,000,000 shares of common stock, $ 0.0001 par value per share, to 900,000,000 shares of common stock, $ 0.0001 par value per share.

The number of shares of preferred stock, $ 0.0001 par value per share, that the company is authorized to issue remained unchanged at 20,000,000 shares.

Acquisition of cGMP ISO Class 5 Manufacturing Facility

On February 14, 2022, we acquired a leasehold interest in approximately 409,000 rentable square feet of cGMP ISO Class 5 pharmaceutical manufacturing space in western New York (the Dunkirk Facility) from Athenex, Inc.

This facility provides us with a state-of-the-art biotech production center that substantially expands and diversifies our existing manufacturing capacity in the U.S.

We paid approximately $ 40.0 million to Athenex, and the leasehold interest in the Dunkirk Facility was transferred to us.

Our annual lease payment will be $ 2.00 per year for an initial 10-year term, with an option to renew the lease under substantially the same terms and conditions for an additional 10-year term.

As part of the transaction, we assumed obligations under various third-party agreements, and committed to spend $ 1.52 billion on operational expenses during the initial term, and an additional $ 1.50 billion on operational expenses if we elect to renew the lease for the additional 10-year term.

We also committed to hiring 450 employees at the Dunkirk Facility within the first five years of operations, with 300 such employees to be hired within the first 2.5 years of operations.

We are eligible for certain sales-tax exemption savings during the development of the Dunkirk Facility, and certain property tax savings over the next 20 years, subject to certain terms and conditions, including performance of certain of the obligations described above.

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