What changed in this filing

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Item 1. Financial Statements

2022-11-09 compared with 2022-08-08 · 362 added, 254 removed, 780 unchanged (44% of the section changed)

4 unchanged sentences

(in thousands, except share and per share amounts)

September 30,

2022 December 31,

16 unchanged sentences

Accrued expenses and other liabilities 46,220 51,387

Related-party promissory notes, current portion 300,084 299,236

Related-party promissory note, net of deferred issuance costs — 299,236

Due to related parties 3,018 3,943

1 unchanged sentence

Total current liabilities 70,840 368,995

Related-party promissory notes, less current portion 312,541 306,349

Related-party promissory notes, net of discount, less current portion ( Note 9 )

373,293 306,349

Related-party convertible notes and accrued interest, net of discount, less current portion ( Note 9 )

Operating lease liabilities, less current portion (including amounts with related parties) 49,561 37,068

Deferred income tax liability 162 162

Other liabilities 569 411

3 unchanged sentences

Common stock, $ 0.0001 par value;

900,000,000 shares authorized;

900,000,000 and 500,000,000 shares authorized

as of September 30, 2022 and December 31, 2021, respectively;

400,304,106 and

397,830,044 shares issued and outstanding as of June 30, 2022 and

397,830,044 shares issued and outstanding as of September 30, 2022 and

December 31, 2021, respectively;

excluding treasury stock, 163,800 shares

outstanding as of June 30, 2022 and December 31, 2021, respectively

outstanding as of September 30, 2022 and December 31, 2021, respectively

Additional paid-in capital 1,843,724 1,719,704

11 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

9 unchanged sentences

Loss from operations ( 90,804 ) ( 78,836 ) ( 266,398 ) ( 251,006 )

Other (expense) income, net:

Interest and investment (loss) income, net ( 1,800 ) ( 177 ) ( 134 ) 8,767

Other expense, net:

Interest and investment income (loss), net 857 ( 5,941 ) 723 2,826

Interest expense (including amounts with related parties) ( 16,764 ) ( 3,614 ) ( 34,953 ) ( 10,359 )

Loss on equity method investment ( 4,456 ) — ( 8,553 ) —

Other income, net (including amounts

Other income (expense), net (including amounts

with related parties) 6 ( 38 ) 187 252

Total other (expense) income, net ( 15,213 ) ( 3,477 ) ( 22,239 ) 2,312

Total other expense, net ( 20,357 ) ( 9,593 ) ( 42,596 ) ( 7,281 )

Loss before income taxes and noncontrolling interests ( 111,161 ) ( 88,429 ) ( 308,994 ) ( 258,287 )

13 unchanged sentences

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

Net loss $ ( 111,161 ) $ ( 88,429 ) $ ( 308,994 ) $ ( 258,295 )

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

Net unrealized gains (losses) on available-for-sale securities 149 18 ( 161 ) 17

Reclassification of net realized gains (losses) on

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

Net unrealized (losses) gains on available-for-sale securities ( 22 ) ( 1 ) ( 183 ) 16

Reclassification of net realized gains on

available-for-sale securities included in net loss

119 ( 3 ) 119 —

Foreign currency translation adjustments ( 58 ) 17 ( 130 ) ( 85 )

Total other comprehensive income (loss) 257 75 ( 114 ) ( 85 )

Total other comprehensive (loss) income ( 80 ) 16 ( 194 ) ( 69 )

Comprehensive loss ( 111,241 ) ( 88,413 ) ( 309,188 ) ( 258,364 )

8 unchanged sentences

(in thousands, except share amounts)

Three Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Common Stock Additional

1 unchanged sentence

Comprehensive

Income (Loss)

Stockholders’

3 unchanged sentences

Shares Amount

Balance as of March 31, 2022

Balance as of December 31, 2021

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

6 unchanged sentences

( 65,832 ) — ( 372 ) — — ( 372 ) — ( 372 )

Other comprehensive income, net of tax

Other comprehensive (loss) income, net of tax

— — — — ( 371 ) ( 371 ) — ( 371 )

Net loss — — — ( 102,826 ) — ( 102,826 ) ( 172 ) ( 102,998 )

Balance as of June 30, 2022

Balance, March 31, 2022 397,956,762 40 1,729,430 ( 2,064,747 ) ( 367 ) ( 335,644 ) ( 1,912 ) ( 337,556 )

Stock-based compensation expense

— — 10,175 — — 10,175 — 10,175

Six Months Ended June 30, 2022

Common Stock Additional

Deficit Accumulated

Comprehensive

Income (Loss)

Stockholders’

Noncontrolling

Interests Total

Stockholders’

Shares Amount

Balance as of December 31, 2021

Exercise of stock options — — — — — — — —

Vesting of RSUs

116,608 — — — — — — —

Net share settlement for RSUs vesting

( 3,604 ) — ( 15 ) — — ( 15 ) — ( 15 )

Other comprehensive (loss) income, net of tax

— — — — 257 257 — 257

Net loss — — — ( 94,588 ) — ( 94,588 ) ( 247 ) ( 94,835 )

Balance as of June 30, 2022

398,069,766 40 1,739,590 ( 2,159,335 ) ( 110 ) ( 419,815 ) ( 2,159 ) ( 421,974 )

Stock-based compensation expense

2 unchanged sentences

Vesting of RSUs

7,800 — — — — — — —

Net share settlement for RSUs vesting

( 2,756 ) — ( 10 ) — — ( 10 ) — ( 10 )

Other comprehensive loss, net of tax

Shares issued pursuant to litigation settlement 2,229,296 — 10,656 — — 10,656 — 10,656

Gain on extinguishment of debt with related parties under common control — — 82,858 — — 82,858 — 82,858

Other comprehensive (loss) income, net of tax

— — — — ( 80 ) ( 80 ) — ( 80 )

Net loss — — — ( 110,938 ) — ( 110,938 ) ( 223 ) ( 111,161 )

Balance as of June 30, 2022

Balance as of September 30, 2022

400,304,106 $ 40 $ 1,843,724 $ ( 2,270,273 ) $ ( 190 ) $ ( 426,699 ) $ ( 2,382 ) $ ( 429,081 )

4 unchanged sentences

(in thousands, except share amounts)

Three Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Common Stock Additional

1 unchanged sentence

Comprehensive

(Loss) Income

Income (Loss)

Stockholders’

3 unchanged sentences

Shares Amount

Balance as of March 31, 2021

Balance as of December 31, 2020

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

Stock-based compensation expense — — 15,298 — — 15,298 — 15,298

Exercise of stock options 690,465 — 1,121 — — 1,121 — 1,121

Vesting of RSUs 235,725 — — — — — — —

Net share settlement for RSUs vesting ( 102,011 ) — ( 2,624 ) — — ( 2,624 ) — ( 2,624 )

Other comprehensive (loss) income, net of tax — — — — ( 160 ) ( 160 ) — ( 160 )

Net loss — — — ( 79,614 ) — ( 79,614 ) ( 867 ) ( 80,481 )

Balance as of March 31, 2021 383,067,321 38 1,508,958 ( 1,694,745 ) ( 38 ) ( 185,787 ) 451 ( 185,336 )

Issuance of common stock under “at-the-market”

offering, net of commissions and

offering costs of $ 3,077

offering, net of commissions and offering costs of $ 3,077

6,420,441 1 94,886 — — 94,887 — 94,887

Stock-based compensation expense — — 17,863 — — 17,863 — 17,863

— — 17,863 — — 17,863 — 17,863

Exercise of stock options 759,639 — 3,311 — — 3,311 — 3,311

1 unchanged sentence

Net share settlement for RSUs vesting ( 20 ) — — — — — — —

( 20 ) — — — — — — —

Other comprehensive income, net of tax

— — — — 75 75 — 75

Other comprehensive (loss) income, net — — — — 75 75 — 75

Net loss — — — ( 88,288 ) — ( 88,288 ) ( 1,097 ) ( 89,385 )

1 unchanged sentence

390,347,740 39 1,625,018 ( 1,783,033 ) 37 ( 157,939 ) ( 646 ) ( 158,585 )

Six Months Ended June 30, 2021

Common Stock Additional

Deficit Accumulated

Comprehensive

Stockholders’

Noncontrolling

Interests Total

Stockholders’

Shares Amount

Balance as of December 31, 2020

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

Issuance of common stock under “at-the-market”

offering, net of commissions and

offering costs of $ 3,077

offering, net of commissions and offering costs of $ 962

3,796,537 — 42,061 — — 42,061 — 42,061

Stock-based compensation expense — — 13,840 — — 13,840 — 13,840

— — 33,161 — — 33,161 — 33,161

Exercise of stock options 176,196 — 678 — — 678 — 678

1 unchanged sentence

Net share settlement for RSUs vesting ( 96,058 ) — ( 960 ) — — ( 960 ) — ( 960 )

( 102,031 ) — ( 2,624 ) — — ( 2,624 ) — ( 2,624 )

Other comprehensive loss, net of tax

— — — — ( 85 ) ( 85 ) — ( 85 )

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

Other comprehensive (loss) income, net of tax — — — — 16 16 — 16

Net loss — — — ( 87,629 ) — ( 87,629 ) ( 800 ) ( 88,429 )

Balance as of June 30, 2021

Balance as of September 30, 2021

394,509,695 $ 39 $ 1,682,072 $ ( 1,870,662 ) $ 53 $ ( 188,498 ) $ ( 1,446 ) $ ( 189,944 )

4 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

Operating activities:

2 unchanged sentences

Stock-based compensation expense 30,829 47,001

Depreciation and amortization 8,534 6,956

Non-cash interest items, net (including amounts with related parties) 13,770 9,126

Loss on equity method investment 4,097 —

Depreciation and amortization 13,034 10,643

Non-cash lease expense related to operating lease right-of-use assets 4,280 3,500

Amortization of net premiums and discounts on marketable debt securities 1,318 261

Unrealized losses (gains) on equity securities 452 ( 8,391 )

Impairment of intangible assets 681 —

Unrealized (gains) losses on equity securities ( 162 ) ( 2,383 )

Other ( 127 ) ( 307 )

7 unchanged sentences

Net cash used in operating activities

( 246,782 ) ( 202,780 )

Investing activities:

1 unchanged sentence

Purchase of intangible assets ( 21,229 ) —

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

Purchases of marketable debt securities, available-for-sale ( 34,293 ) ( 2,749 )

3 unchanged sentences

Net cash provided by investing activities

46,191 52,916

Financing activities:

3 unchanged sentences

Proceeds from exercises of stock options 74 5,110

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

Net share settlement for RSUs vesting ( 397 ) ( 3,584 )

Net cash (used in) provided by financing activities ( 313 ) 136,834

Principal payments of finance leases ( 40 ) —

Payment for contingent consideration ( 339 ) ( 419 )

Net cash provided by financing activities

123,673 179,490

Effect of exchange rate changes on cash, cash equivalents, and restricted cash 123 ( 17 )

7 unchanged sentences

(in thousands)

Six Months Ended

Nine Months Ended

September 30,

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

7 unchanged sentences

Supplemental disclosure of non-cash activities:

Gain on extinguishment of debt with related parties under common control $ 82,858 $ —

Right-of-use assets obtained in exchange for operating lease liabilities 13,787 19,461

1 unchanged sentence

accrued expenses and due to related parties

Common stock issued pursuant to litigation settlement 10,656 —

Right-of-use assets obtained in exchange for finance lease liabilities 199 —

Unrealized (losses) gains on marketable debt securities, net ( 64 ) 16

Unpaid offering costs included in accounts payable and accrued expenses — 140

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

10 unchanged sentences

Our ultimate goal is to employ this approach to 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, N-803, our novel antibody cytokine fusion protein, has received Breakthrough Therapy and Fast Track designations in combination with bacillus Calmette-Guérin ( BCG) from the United States (U.S.) Food and Drug Administration (FDA) for BCG -unresponsive non-muscle invasive bladder cancer (NMIBC) with carcinoma in situ (CIS) .

I n May 2022, we announced the submission of a Biologics License Application (BLA) to the FDA for our product candidate, N-803 in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease.

In July 2022, we announced the FDA has accepted our BLA for review and set a Prescription Drug User Fee Act (PDUFA) target action date of May 23, 2023.

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 ™ (N-803), our novel antibody cytokine fusion protein, has received Breakthrough Therapy and Fast Track designations in combination with bacillus Calmette-Guérin ( BCG) from the United States (U.S.) Food and Drug Administration (FDA) for BCG -unresponsive non-muscle invasive bladder cancer (NMIBC) with carcinoma in situ (CIS) .

I n May 2022, we announced the submission of a Biologics License Application (BLA) to the FDA for our product candidate, Anktiva in combination with BCG for the treatment of patients with BCG-unresponsive NMIBC with CIS with or without Ta or T1 disease.

In July 2022, we announced the FDA has accepted our BLA for review and set a target Prescription Drug User Fee Act (PDUFA) action date of May 23, 2023.

It is unclear when the FDA will approve our BLA, if at all.

30 unchanged sentences

This assessment is based on our power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and our obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

As of June 30, 2022, the company had an accumulated deficit of $ 2.2 billion.

We also had negative cash flows from operations of $ 166.2 million for the six months ended June 30, 2022.

As of September 30, 2022, the company had an accumulated deficit of $ 2.3 billion.

We also had negative cash flows from operations of $ 246.8 million for the nine months ended September 30, 2022.

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

1 unchanged sentence

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 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 June 30, 2022), 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 condensed 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 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 September 30, 2022), 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 condensed 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 offerings, or in separate financings, or obtain a credit facility.

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

30 unchanged sentences

The following table details those securities that have been excluded from the computation of potentially dilutive securities:

As of June 30,

As of September 30,

Outstanding stock options 9,340,177 4,194,268

13 unchanged sentences

The company adopted this guidance on January 1, 2022 on a prospective basis.

The adoption did not have a material impact on the company’s condensed consolidated financial statements.

In August 2020, the FASB issued ASU 2020-06, A ccounting for Convertible Instruments and Contracts in an Entity’s Own Equity , which simplifies and clarifies certain calculation and presentation matters related to convertible equity and debt instruments.

Specifically, ASU 2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removing the requirement to account for beneficial conversion features on such instruments.

Specifically, ASU 2020-06 removes requirements to separately account for conversion features as a derivative under ASC Topic 815 and removes the requirement to account for beneficial conversion features on such instruments.

In addition, ASU 2020-06 eliminates the treasury stock method when calculating diluted earnings per share for convertible instruments that can be settled in whole or in part with equity and requires the use of the if-converted method.

1 unchanged sentence

The company adopted this guidance on January 1, 2022 on a modified prospective basis.

The adoption did not have a material impact on the company’s condensed consolidated financial statements.

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 six months ended June 30, 2022 did not, or are not expected to, have a material effect on our condensed consolidated financial statements.

Application of New or Revised Accounting Standards – Not Yet Adopted

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions , which amends the guidance in Topic 820, Fair Value Measurement , to clarify that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value.

The amendments also clarify that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction.

In addition, ASU 2022-03 introduces new disclosure requirements for equity securities subject to contractual sale restrictions that are measured at fair value.

ASU 2022-03 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.

We are currently evaluating the impact of this standard on our condensed consolidated financial statements.

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 nine months ended September 30, 2022 did not, or are not expected to, have a material effect on our condensed consolidated financial statements.

Financial Statement Details

1 unchanged sentence

Prepaid expenses and other current assets consist of the following (in thousands):

September 30,

2022 December 31,

1 unchanged sentence

Insurance claims receivable 5,000 —

Insurance premium financing asset 2,461 2,598

Prepaid supplies 2,160 —

Prepaid software license fees 1,849 1,111

Prepaid insurance 1,870 2,266

Prepaid software license fees 1,751 1,111

Other 3,236 2,957

2 unchanged sentences

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

September 30,

2022 December 31,

2 unchanged sentences

Construction in progress 56,829 16,575

Software 1,658 1,544

Furniture & fixtures 1,827 1,052

Software 1,658 1,544

Gross property, plant and equipment 195,043 135,937

1 unchanged sentence

Property, plant and equipment, net $ 130,441 $ 82,863

Depreciation expense related to property, plant and equipment totaled $ 3.9 million and $ 4.0 million for the three months ended June 30, 2022 and 2021, respectively, and $ 7.7 million and $ 7.0 million for the six months ended June 30, 2022 and 2021, respectively.

Depreciation expense related to property, plant and equipment totaled $ 4.1 million and $ 3.7 million for the three months ended September 30, 2022 and 2021, respectively, and $ 11.7 million and $ 10.6 million for the nine months ended September 30, 2022 and 2021, respectively.

Accrued Expenses and Other Liabilities

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

September 30,

2022 December 31,

Accrued litigation payable ( Note 7 )

$ 15,656 $ 7,118

Accrued construction costs 8,931 8,145

Accrued preclinical and clinical trial costs 5,888 5,842

Accrued bonus $ 8,744 $ 8,316

Accrued professional and service fees 7,399 6,909

Accrued construction costs 7,340 8,145

Accrued preclinical and clinical trial costs 5,775 5,842

Accrued compensation 5,414 5,613

Accrued litigation payable ( Note 7 )

Financing obligation 2,461 2,598

Accrued research and development costs 2,204 2,107

2 unchanged sentences

Accrued expenses and other liabilities $ 46,220 $ 51,387

Interest and Investment (Loss) Income, Net

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

Interest and Investment Income (Loss), Net

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

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Unrealized (losses) gains from equity securities $ ( 1,871 ) $ ( 442 ) $ ( 452 ) $ 8,391

Unrealized gains (losses) from equity securities $ 614 $ ( 6,008 ) $ 162 $ 2,383

Interest income 253 101 2,193 552

1 unchanged sentence

Net realized (losses) gains on investments — — ( 119 ) 173

Interest and investment (loss) income , net $ ( 1,800 ) $ ( 177 ) $ ( 134 ) $ 8,767

Interest and investment income (loss), net $ 857 $ ( 5,941 ) $ 723 $ 2,826

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

Interest expense

Interest expense consists of the following (in thousands):

Three Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

(Unaudited) (Unaudited)

Interest expense on related-party notes payable $ ( 12,240 ) $ ( 3,593 ) $ ( 29,660 ) $ ( 10,307 )

Amortization of related-party notes discounts ( 4,498 ) — ( 5,242 ) —

Other interest expense ( 26 ) ( 21 ) ( 51 ) ( 52 )

Interest expense $ ( 16,764 ) $ ( 3,614 ) $ ( 34,953 ) $ ( 10,359 )

Financial Instruments

Investments in Marketable Debt Securities

As of June 30, 2022, 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):

June 30, 2022

As of September 30, 2022, 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):

September 30, 2022

Contractual Life

(in years) Amortized

Corporate debt securities 0.1 $ 14,764 $ — $ ( 9 ) $ 14,755

Mutual funds $ 34 $ 9 $ ( 7 ) $ 36

Current portion 14,798 9 ( 15 ) 14,792

Foreign bonds 4.8 898 — ( 87 ) 811

Noncurrent portion 969 1 ( 56 ) 914

Total $ 932 $ 9 $ ( 94 ) $ 847

10 unchanged sentences

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

At September 30, 2022, 13 of the securities were in an unrealized loss position.

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):

June 30, 2022

September 30, 2022

Less than 12 months More than 12 months

Losses Estimated

Corporate debt securities $ 7,074 $ ( 9 ) $ — $ —

Mutual funds $ — $ — $ 35 $ ( 7 )

8 unchanged sentences

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

Realized gains and losses on sales of available-for-sale marketable debt securities were not material for the three and six months ended June 30, 2022 and 2021.

Realized gains and losses on sales of available-for-sale marketable debt securities were not material for the three and nine months ended September 30, 2022 and 2021.

Marketable Equity Securities

We held investments in marketable equity securities with readily determinable fair values of $ 6.2 million and $ 6.7 million as of June 30, 2022 and December 31, 2021, respectively.

Unrealized losses recorded on these securities totaled $ 1.9 million and $ 0.4 million for the three months ended June 30, 2022 and 2021, respectively, and unrealized losses and gains totaled a $ 0.5 million loss and an $ 8.4 million gain for the six months ended June 30, 2022 and 2021, respectively, in interest and investment income loss (income), net , on the condensed consolidated statements of operations.

We held investments in marketable equity securities with readily determinable fair values of $ 6.9 million and $ 6.7 million as of September 30, 2022 and December 31, 2021, respectively.

Unrealized gains and losses recorded on these securities totaled a gain of $ 0.6 million and a loss of $ 6.0 million for the three months ended September 30, 2022 and 2021, respectively, and unrealized gains totaled $ 0.2 million and $ 2.4 million for the nine months ended September 30, 2022 and 2021, respectively, in interest and investment income loss (income), net , on the condensed consolidated statements of operations.

Fair Value Measurements

14 unchanged sentences

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

Fair Value Measurements at June 30, 2022

Fair Value Measurements at September 30, 2022

Total Level 1 Level 2 Level 3

1 unchanged sentence

Equity securities 6,860 6,860 — —

Corporate debt securities 14,755 — 14,755 —

Mutual funds 36 36 — —

1 unchanged sentence

Total assets measured at fair value $ 111,868 $ 111,057 $ 811 $ —

Accrued litigation payable $ 10,656 (1) $ 10,656 $ — $ —

Fair Value Measurements at December 31, 2021

8 unchanged sentences

_______________

(1) The accrued litigation payable as of June 30, 2022 was measured at the fair value of the company’s common stock to be issued pursuant to the terms of the court-approved settlement agreement related to the Altor BioScience, LLC litigation.

On July 9, 2022, the company issued 2,229,296 shares of its common stock with an aggregate market value of $ 10.7 million, based on the closing price of its common stock as of July 8, 2022.

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

(1) Amounts shown as a Level 2 measurement as of December 31, 2021 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.

Nonrecurring Valuations

We measured the fair value of the fixed-rate promissory notes and variable-rate promissory notes before and after amendments that were entered on August 31, 2022, as they were accounted for under the debt extinguishment accounting model.

We used the discounted cash flow analyses for promissory notes without a holder conversion option and used a binomial lattice convertible note model for the fixed-rate promissory notes with a holder conversion option.

Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be a Level 3 valuation.

See Note 9 , Related-Party Debt, for additional information.

Collaboration and License Agreements and Acquisition

13 unchanged sentences

In February 2022, we made a cash investment totaling $ 1.0 million in the joint venture’s common stock.

We account for our investment in the joint venture using the equity method of accounting, and recorded our 50 % share of the net loss from the joint venture totaling $ 3.9 million and $ 4.1 million, respectively, in other expense, net , on the condensed consolidated statement of operations for the three and six months ended June 30, 2022.

Such losses include $ 3.9 million of expenses incurred by us on behalf of the joint venture during the six months ended June 30, 2022.

We account for our investment in the joint venture using the equity method of accounting, and recorded our 50 % share of the net loss from the joint venture totaling $ 4.5 million and $ 8.6 million, respectively, in other expense, net , on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

Such losses include $ 8.4 million of expenses incurred by us on behalf of the joint venture during the nine months ended September 30, 2022.

We are not obligated to fund the joint venture’s potential future losses, and therefore will not record additional equity method losses that would result in our equity investment in the joint venture to fall below zero.

As of June 30, 2022, the carrying amount of our equity investment in the joint venture was zero .

As of September 30, 2022, the carrying amount of our equity investment in the joint venture was zero .

License Agreements

5 unchanged sentences

Beginning in April 2026, the annual minimum licensing payment is $ 1.0 million, which can be credited against any royalty payments due under this agreement.

We made a payment of $ 1.75 million for the annual license maintenance fee and recorded $ 0.2 million in research and development expense , on the condensed consolidated statements of operations during the three and six months ended June 30, 2022.

In June 2022, we made a payment of $ 1.75 million for the annual license maintenance fee.

We expensed $ 0.4 million for the three months ended September 30, 2022, and $ 0.6 million for the nine months ended September 30, 2022, respectively, in research and development expense , on the condensed consolidated statements of operations.

AAHI License Agreements

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In addition, under the AAHI Adjuvant Formulation License Agreement we owe 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.

No milestone fees were incurred for the six months ended June 30, 2022.

No milestone fees were incurred for the nine months ended September 30, 2022.

In September 2021, we amended and restated the AAHI RNA License Agreement, pursuant to which AAHI granted us an exclusive, worldwide, sublicensable license to AAHI’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.

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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 $ 3.0 million for the annual license maintenance fee and recorded $ 0.3 million in research and development expense , on the condensed consolidated statements of operations during the three and six months ended June 30, 2022.

In June 2022, we made a payment of $ 3.0 million for the annual license maintenance fee.

We recorded $ 1.0 million and $ 1.5 million in research and development expense , on the condensed consolidated statements of operations during the nine months ended September 30, 2022 and 2021, respectively.

In connection with the license agreements, in May 2021 we also entered into a sponsored research agreement with the AAHI 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.

EnGeneIC License 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 endosomal delivery vector (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.

The parties continue to work on definitive agreements for this transaction.

Dunkirk Facility Leasehold Interest

On February 14, 2022, we completed the acquisition of a leasehold interest in approximately 409,000 rentable square feet of current Good Manufacturing Practice (cGMP) ISO Class 5 pharmaceutical manufacturing space in western New York (the Dunkirk Facility) from Athenex, Inc.

(the Seller), which we believe provides us with a state-of-the-art biotech production center that substantially expands and diversifies our manufacturing capacity in the U.S.

(the Seller), which we believe will provide us with a state-of-the-art biotech production center that will substantially expand and diversify our manufacturing capacity in the U.S.

and ability to scale production associated with certain of our product candidates.

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(1) Definite-lived intangible assets consist of favorable leasehold rights totaling $ 20.4 million and organized workforce totaling $ 0.8 million as of the acquisition date.

We recorded amortization expense of $ 0.6 million and $ 0.9 million, respectively, in research and development expense , on the condensed consolidated statement of operations for the three and six months ended June 30, 2022.

As of June 30, 2022, the remaining weighted-average amortization period for our definite-lived intangible assets was approximately 9.4 years.

We recorded amortization expense of $ 0.6 million and $ 1.4 million, respectively, in research and development expense , on the condensed consolidated statement of operations for the three and nine months ended September 30, 2022.

As of September 30, 2022, the remaining amortization period for our favorable leasehold rights is approximately 9.4 years.

Future amortization expense for the favorable leasehold rights is as follows:

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and $ 10.5 million thereafter.

Future amortization expense for the organized workforce is as follows:

$ 0.1 million for the remainder of 2022 and $ 0.3 million for 2023 and 2024.

Upon the closing of the Dunkirk transaction, the company became the tenant of the Dunkirk Facility under the Fort Schuyler Management Corporation Lease, dated October 1, 2021 and as amended as of the February 14, 2022 closing date (as amended, the Dunkirk Lease), with Fort Schuyler Management Corporation, a not-for-profit corporation affiliated with the State of New York (FSMC) as landlord.

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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.

Failure to satisfy the obligations over the lease term may give rise to certain rights and remedies of governmental authorities including, for example, termination of the lease agreement and other Facility Agreements and potential recoupment of a percentage of the grant funding received by the Seller for construction of the facility and other benefits received, subject to the terms and conditions of the applicable agreements.

Failure to satisfy the obligations over the lease term may give rise to certain rights and remedies of governmental authorities including, for example, termination of the Dunkirk Lease and other Facility Agreements and potential recoupment of a percentage of the grant funding received by the Seller for construction of the facility and other benefits received, subject to the terms and conditions of the applicable agreements.

In connection with the ongoing partnership with the State of New York (the State) to construct the Dunkirk Facility, we received funds from the State as reimbursement for certain expenses incurred related to such construction totaling $ 1.1 million for the three months ended September 30, 2022.

Although we believe that governmental funding will assist in funding a portion of the further build-out of the Dunkirk Facility, which we estimate to be approximately $ 8.0 million to $ 10.0 million of governmental funding remaining available as of September 30, 2022, there can be no assurance as to the final acceptance and timing of the requests for governmental funding that we submit, and we will need to plan and fund most of the additional build-out of, and purchase additional equipment for, the Dunkirk Facility in connection with our planned full operations.

In addition, any future governmental funding will be subject to the eligibility of submitted expenses, as well as our compliance with the obligations that we are subject to pursuant to the agreements with parties regarding the Dunkirk Facility as described above.

Dunkirk Facility Workforce Reduction

In September 2022, the company initiated a workforce reduction at the Dunkirk Facility as a result of upcoming construction at the project, which we believe may take approximately 12 to 18 months.

In connection with the workforce reduction, we recorded severance and retention benefits for the terminated employees totaling $ 1.0 million and wrote off the remaining unamortized organized workforce intangible asset totaling $ 0.7 million during the three months ended September 30, 2022 in selling, general and administrative expense, on the condensed consolidated statement of operations.

The terminated employees are not required to render service through their termination date in December 2022 to receive these benefits.

Commitments and Contingencies

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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 2021.

The remaining $ 0.4 million was accrued as of June 30, 2022 and is expected to be paid in 2022.

If the regulatory milestone is achieved, we are obligated to pay approximately $ 2.1 million.

A clinical milestone totaling $ 0.8 million was earned by the former owners of VivaBioCell, of which $ 0.4 million was paid during 2021, with the remaining clinical obligation settled in September 2022.

If the regulatory milestone is achieved, we are obligated to pay approximately $ 2.0 million to the former owners.

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 contingent upon successful approval of the BLA, or foreign equivalent, for N-803 by December 31, 2022 and approximately $ 304.0 million contingent upon calendar-year worldwide net sales of N-803 exceeding $ 1.0 billion prior to December 31, 2026 (with amounts payable in cash or shares of our common stock or a combination thereof).

We have submitted the BLA, and in July 2022, we announced the FDA has accepted our BLA for review and set a PDUFA target action date of May 23, 2023.

It is unclear when the FDA will approve our BLA, if at all.

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.

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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.

We have submitted the BLA, and in July 2022, we announced the FDA had accepted our BLA for review and set a target PDUFA action date of May 23, 2023.

It is unclear when the FDA will approve our BLA, if at all.

If the FDA does not approve our BLA by December 31, 2022, prior to its established target PDUFA action date, the $ 304.0 million related to the regulatory milestone will not be payable and the holders of these CVRs will not receive any cash or shares of our common stock on account of the regulatory milestone CVRs.

From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations.

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The plaintiffs filed an answer denying the counterclaims and asserting defenses.

Trial was set to commence on August 8, 2022, but the parties received notice that the Vice Chancellor assigned to the case was retiring, and there may be a new trial date.

Trial was set to commence on August 8, 2022, but the parties received notice that the Vice Chancellor assigned to the case was retiring, and a new trial date has not been set.

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, given that those shares were the subject of the above-described appraisal claims.

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On July 9, 2022, the company issued 2,229,296 shares of its common stock with an aggregate market value of $ 10.7 million, based on the closing price of its common stock as of July 8, 2022.

As of June 30, 2022 and December 31, 2021, we had accrued $ 10.7 million and $ 7.1 million, respectively, related to the dissenting share obligation.

As of December 31, 2021, we had accrued $ 7.1 million related to the dissenting share obligation.

In late April 2022, the company also agreed to the terms of a settlement with the putative class plaintiffs without any admission of liability or fault.

In exchange for class-wide releases, and assuming the settlement receives court approval, the company will make a settlement payment of $ 5.0 million in cash by December 31, 2022.

The parties are in the process of documenting and obtaining court approval of the settlement.

Prior to finalization and court approval, there can be no assurance as to when the settlement will be finalized and approved.

As of June 30, 2022, we have included $ 5.0 million of accrued litigation expense related to this settlement on the condensed consolidated balance sheet.

The parties have submitted the settlement for court approval, and the court has set a hearing to review the settlement on December 5, 2022.

Prior to court approval, there can be no assurance as to whether or when the settlement will be approved.

As of September 30, 2022, we have included $ 5.0 million of accrued litigation expense related to this settlement on the condensed consolidated balance sheet.

Should the settlement with the class plaintiffs not be approved by the court, we cannot reasonably estimate a range of loss or likelihood of loss beyond the amounts recorded.

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Kim as a defendant and dropping the causes of action we had challenged in our demurrer.

The company believes the case is without merit and intends to vigorously defend against the claims asserted.

Trial has been set to commence in Sorrento’s Superior Court action on July 17, 2023.

Sorrento filed a related arbitration proceeding (the Cynviloq arbitration) against Dr.

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The hearing in the Cynviloq arbitration commenced in June 2021, and continued with breaks until early October 2021.

The parties completed post-hearing briefing in early May 2022, and summations will likely be scheduled for September 2022.

The parties completed post-hearing briefing in early May 2022, and summations were heard on September 8, 2022.

The matter is now under submission with the arbitrator.

Also in 2019, the company and Dr.

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A substitute arbitrator was appointed on February 25, 2022, and the parties have been working with the substitute arbitrator to conclude the proceedings.

Additional hearing sessions were held in May and July 2022, and summations are scheduled for August 2022.

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.

Additional hearing sessions were held in May and July 2022, and summations took place on August 2, 2022.

After summations, the arbitrator sent certain questions to the parties, and the parties provided responses on October 12, 2022.

The matter is now under submission.

The Superior Court actions remain pending, and it remains to be determined how, if at all, the outcomes of the arbitrations will affect the Superior Court actions.

A trial date has been set in the first-filed Superior Court action in July 2023.

An estimate of the possible loss or range of loss resulting from awards in the arbitrations or the Superior Court litigation cannot be made at this time.

Shenzhen Beike Biotechnology Co.

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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, several complaints were filed as individual actions in the United States District Courts, and subsequently were voluntarily dismissed.

Two complaints were 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), (together, the Merger Actions).

The Merger Actions generally allege that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresented and/or omitted 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 generally alleged that the Definitive Proxy Statement filed with the SEC on February 2, 2021 misrepresented and/or omitted 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 asserted 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.

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The Merger Actions were voluntarily dismissed on March 25, 2022.

We did not enter into any significant contracts during the six months ended June 30, 2022, other than those disclosed in these condensed consolidated financial statements.

We did not enter into any significant contracts during the nine months ended September 30, 2022, other than those disclosed in these condensed consolidated financial statements.

In addition, we are also a party to various contracts with contract research organizations and contract manufacturers that generally provide for termination on notice, with the exact amounts in the event of termination to be based on the timing of the termination and the terms of the agreement.

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We lease property in multiple facilities across the U.S.

(including the Dunkirk Facility in upstate New York) and Italy, including facilities located in El Segundo, CA, that are leased from related parties.

(including the Dunkirk Facility in upstate New York) and Italy, including facilities located in El Segundo, CA, which are leased from related parties.

Substantially all of our operating lease right-of-use assets and operating lease liabilities relate to facilities leases.

All of our finance leases are related to equipment rental at the Dunkirk Facility.

See Note 10 , Related-Party Agreements , for additional information about our related-party leases.

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These renewal terms can extend the lease term from one to ten years , and are included in the lease term when it is reasonably certain that we will exercise the option.

Information regarding our operating leases is as follows:

Supplemental balance sheet information related to our leases is as follows (in thousands):

September 30,

2022 December 31,

Weighted average remaining lease term 7.0 years 7.8 years

Classification (Unaudited)

Operating lease assets Operating lease right-of-use assets $ 46,429 $ 36,304

Finance lease assets Other assets 154 —

Total lease assets $ 46,583 $ 36,304

Operating lease liabilities Operating lease liabilities $ 1,365 $ 3,011

Finance lease liabilities Accrued expenses and other liabilities 75 —

Operating lease liabilities Operating lease liabilities, less current portion 49,561 37,068

Finance lease liabilities Other liabilities 84 —

Total lease liabilities $ 51,085 $ 40,079

Information regarding our lease terms is as follows:

September 30,

2022 December 31,

Weighted-average remaining lease term:

Operating leases 6.8 years 7.8 years

Finance leases 2.0 years N/A

Weighted-average discount rate:

Operating leases 10.5 % 9.6 %

Finance leases 11.7 % N/A

The components of lease expense consist of the following (in thousands):

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

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Operating lease costs $ 2,841 $ 1,546 $ 8,091 $ 5,410

Short-term lease costs 2,086 — 2,086 —

Finance lease costs (including amortization and

interest costs) 56 — 56 —

Variable lease costs 808 856 2,924 2,039

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Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands):

Six Months Ended

Nine Months Ended

September 30,

Cash paid for operating leases (excluding variable lease costs) $ 7,350 $ 5,878

Future minimum lease payments as of June 30, 2022, including $ 14.8 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands).

Financing cash flow from finance leases 40 —

Operating cash flow from finance leases 11 —

Future minimum lease payments as of September 30, 2022, including $ 14.8 million related to options to extend lease terms that are reasonably certain of being exercised, are presented in the following table (in thousands).

Common area maintenance costs and taxes are not included in these payments.

Years ending December 31:

2022 (excluding the six months ended June 30, 2022)

2022 (excluding the nine months ended September 30, 2022)

$ 2,632 $ 22 $ 2,654

2023 9,534 88 9,622

2024 12,112 66 12,178

2025 12,151 — 12,151

2026 10,289 — 10,289

Thereafter 31,457 — 31,457

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Other than the lease described above, the acquisition of a leasehold interest at the Dunkirk Facility discussed in Note 6 , Collaboration and License Agreements and Acquisition , the entry into new related-party leases and the termination of an existing related-party lease discussed in Note 10 , Related-Party Agreements , there have been no other material changes related to our existing lease agreements from those disclosed in Note 8 of the Notes to Consolidated Financial Statements of our Annual Report on Form 10-K filed with the SEC on March 1, 2022.

Related-Party Agreements

Our related-party promissory notes consist of the following (in thousands):

Total Notes and Interest Payable

Related-Party Promissory Notes Maturity

Year Outstanding

Advances Interest

Rate June 30,

2022 December 31,

Nant Capital, LLC (1)

2022 $ 300,000 Term SOFR + 5.4 %

$ 300,084 (1) $ 299,236 (1)

Nant Capital, LLC (2)

2025 55,226 5.0 % 62,864 (3) 61,367 (3)

Nant Capital, LLC (2)

Related-Party Debt

On August 31, 2022, the company entered into a new promissory note and executed amendments and restated several of our outstanding promissory notes with entities under common control and affiliated with Dr.

Below is a summary of such promissory notes.

$ 125.0 million Variable-Rate Promissory Note

On August 31, 2022, the company executed a $ 125.0 million promissory note with Nant Capital, LLC (Nant Capital), an entity affiliated with Dr.

This note bears interest at Term Secured Overnight Financing Rate (SOFR) plus 8.0 % per annum.

The accrued interest on this note shall be payable quarterly on the last business day of March, June, September and December, commencing on September 30, 2022.

The outstanding principal amount and any accrued and unpaid interest are due on December 31, 2023.

The company may prepay this note at any time, in whole or in part, without premium or penalty.

The company received net proceeds of $ 124.4 million, net of a $ 0.6 million origination fee paid to the lender.

The company intends to use the net proceeds from this note for commercialization efforts, clinical trials, working capital, and general corporate purposes.

The interest paid in cash amounted to $ 1.2 million for the three months ended September 30, 2022.

$ 300.0 million Variable-Rate Promissory Note

On August 31, 2022, the company amended and restated its $ 300.0 million variable-rate promissory note with Nant Capital.

Prior to the amendment and restatement, the outstanding balance due under the promissory note was due and payable on December 17, 2022, the loan bore interest at Term SOFR + 5.4 %, which was payable quarterly commencing on March 17, 2022, and the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), in whole or in part, upon five business days’ prior written notice to the lender.

The terms of this promissory note were amended and restated to extend the maturity date of the loan to December 31, 2023, increase the interest rate on the loan to Term SOFR + 8.0 % per annum, and reset the quarterly interest payment date from the 17th of the month to the last business day of March, June, September and December, commencing on September 30, 2022.

No other material terms or conditions of this variable-rate promissory note were modified as part of the August 31, 2022 amendment and restatement.

In the event of a default on the loan (as defined in both the original and amended and restated promissory notes), including if the company does not repay the loan at maturity, the company had and continues to have 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 .

Fixed-Rate Convertible Promissory Notes

On August 31, 2022, the company also amended and restated an aggregate of $ 315.1 million (including outstanding principal and accrued and unpaid interest) of fixed-rate promissory notes held by entities affiliated with Dr.

Prior to the amendments and restatements, these notes bore and continue to bear interest at a per annum rate ranging from 3.0 % to 6.0 %, provide that the outstanding principal was and continues to be due and payable on September 30, 2025, and accrued and unpaid interest was or continues to be payable either upon maturity or, with respect to one of the notes, on a quarterly basis.

Prior to the amendments and restatements, the company could and can continue to prepay the outstanding principal (together with accrued and unpaid interest), either in whole or in part, at any time without premium or penalty and without the prior consent of the lender, now subject to an advance notice period of at least five business days during which the lender can convert the amount requested to be prepaid by the company into shares of the company’s common stock, as part of the amendment and restatement described below.

The terms of these fixed-rate promissory notes were amended and restated to include a conversion feature that gives each lender the right at any time, including upon notice of prepayment, at its sole option, to convert the entire outstanding principal amount and accrued and unpaid interest due under each note at the time of conversion into shares of the company’s common stock at a price of $ 5.67 per share.

No other material terms or conditions of these fixed-rate promissory notes were modified as part of the August 31, 2022 amendments and restatements.

Since all of the above promissory notes were entered into or amended at the same time and with entities under common control, the company determined that the promissory notes were required to be evaluated collectively to accurately capture the economics of the transactions entered in contemplation of each other and contemporaneously.

ASC 470-50, Debt – Modifications and Extinguishments, provides that a modification or an exchange that adds or eliminates a substantive conversion option as of the conversion date would always be considered substantial and require extinguishment accounting.

Accordingly, as a result of the addition of the conversion feature to the fixed-rate promissory notes, the fixed-rate promissory notes and the variable-rate promissory notes were determined to be extinguished given the contemporaneous nature of the amendments.

The company performed a valuation of the fixed-rate promissory notes and variable-rate promissory notes before and after amendments.

Under this model, the company calculated a gain on extinguishment of $ 82.9 million, representing the difference between the fair value of the new and amended promissory notes and the carrying value of the extinguished debt, net of any unamortized related-party notes discounts plus the cash proceeds from the new promissory note.

Since the debt was obtained from entities under common control, such gain was recorded in additional paid-in capital , on the condensed consolidated statement of stockholders’ deficit for the three and nine months ended September 30, 2022.

Also, the difference between face values of the new and amended promissory notes (and accrued interest on the date of the amendment) and the fair values of the new and restated promissory notes was recorded as a debt discount to be amortized as interest expense over the remaining term (or until conversion in the case of fixed-rate promissory notes) of the respective promissory notes.

The company recorded amortization of the debt discount totaling $ 4.2 million in interest expense, on the condensed consolidated statement of operations during the three months ended September 30, 2022.

The fair values of the promissory notes without a holder conversion option were estimated using discounted cash flow analyses, based on market rates available to the company for similar debt at issuance after consideration of default and credit risk and the level of subordination.

The fair values of the fixed-rate promissory notes, which were each modified to include a holder conversion option, were determined based on a binomial lattice convertible note model.

The analysis involved the construction of various intermediate lattices:

stock price tree, conversion value tree, conversion probability tree, and discount rate tree.

Since certain of the factors analyzed are considered to be unobservable inputs, both the discounted cash flow model and the lattice model are considered to be Level 3 valuations.

Significant unobservable inputs used for the discounted cash flow analysis included market yields from 18.0 % to 24.8 % and a risk free rate of 4.1 %, and the significant unobservable inputs used for the binomial lattice model included a volatility of 84.9 %, a market yield of 17.4 % and a risk free rate of 3.5 %.

Our related-party debt is summarized below (in thousands):

Balances at September 30, 2022

Year Interest

Rate Outstanding

Advances Accrued

Discounts Total

Related-Party Notes:

Nant Capital (1) 2023 Term SOFR + 8.0 %

$ 300,000 $ — $ 43,135 $ 256,865

Nant Capital, LLC (5)

Nant Capital (1) 2023 Term SOFR + 8.0 %

125,000 — 8,572 116,428

Total related-party notes 425,000 — 51,707 373,293

Related-Party Convertible Notes:

Nant Capital 2025 5.0 % 55,226 8,398 5,673 57,951

Nant Capital 2025 6.0 % 50,000 6,189 4,463 51,726

Nant Capital 2025 6.0 % 40,000 — 2,778 37,222

NantMobile, LLC 2025 3.0 % 55,000 4,668 6,485 53,183

2025 55,000 3.0 % 59,227 (6) 58,359 (6)

NantWorks, LLC (2)

2025 43,418 5.0 % 55,374 (7) 54,067 (7)

NantWorks 2025 5.0 % 43,418 12,654 4,995 51,077

NantCancerStemCell, LLC 2025 5.0 % 33,000 7,181 3,579 36,602

Total related-party convertible notes 276,644 39,090 27,973 287,761

Total related-party debt $ 701,644 $ 39,090 $ 79,680 $ 661,054

_______________

Total related-party promissory notes $ 576,644 $ 612,625 $ 605,585

(1) The interest rate on our related-party variable-rate notes as of September 30, 2022 was 11.55 %.

Balances at December 31, 2021

Year Interest

Rate Outstanding

Advances Accrued

Debt Issuance

Related-Party Note:

Nant Capital (1) 2022 Term SOFR + 5.4 %

$ 300,000 $ 674 $ 1,438 $ 299,236

(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 June 30, 2022, the interest rate on this loan was 7.29 %.

We paid $ 9.9 million in interest on this loan during the six months ended June 30, 2022.

Accrued and unpaid interest on this note totaled $ 0.8 million as of June 30, 2022.

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 .

Total amortization on the debt issuance cost of $ 1.5 million paid to the lender was $ 0.8 million as of June 30, 2022 and 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 promissory notes 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 $ 7.6 million and $ 6.1 million as of June 30, 2022 and December 31, 2021, respectively.

(4) Accrued and unpaid interest on this note totaled $ 5.4 million and $ 3.8 million as of June 30, 2022 and December 31, 2021, respectively.

(5) The outstanding principal is due and payable on September 30, 2025.

Interest on this related-party promissory note is compounded annually and payable quarterly commencing on June 30, 2021.

We paid $ 1.2 million in interest on this loan during the six months ended June 30, 2022.

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 $ 4.2 million and $ 3.4 million as of June 30, 2022 and December 31, 2021, respectively.

(7) Accrued and unpaid interest on this note totaled $ 12.0 million and $ 10.6 million as of June 30, 2022 and December 31, 2021, respectively.

(8) Accrued and unpaid interest on this note totaled $ 6.7 million and $ 5.7 million as of June 30, 2022 and December 31, 2021, respectively.

The following table summarizes our estimated future contractual obligations for related-party promissory notes as of June 30, 2022 (unaudited;

Related-Party Convertible Notes:

Nant Capital 2025 5.0 % 55,226 6,141 — 61,367

Nant Capital 2025 6.0 % 50,000 3,810 — 53,810

Nant Capital 2025 6.0 % 40,000 — — 40,000

NantMobile 2025 3.0 % 55,000 3,359 — 58,359

NantWorks 2025 5.0 % 43,418 10,649 — 54,067

NCSC 2025 5.0 % 33,000 5,746 — 38,746

Total related-party convertible notes 276,644 29,705 — 306,349

Total related-party debt $ 576,644 $ 30,379 $ 1,438 $ 605,585

_______________

(1) The interest rate on our related-party variable-rate note as of December 31, 2021 was 5.47 %.

The following table summarizes the estimated future contractual obligations for our related-party debt as of September 30, 2022 (unaudited;

in thousands):

Payments Interest

2022 (excluding the six months ended June 30, 2022)

Principal Payments Interest Payments (1)

Notes Non-convertible

Notes Convertible

Notes Non-convertible

2022 (excluding the nine months ended

September 30, 2022)

$ — $ — $ 605 $ 12,376 $ 12,981

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2025 276,644 — 82,267 — 358,911

Total principal and estimated interest due on related-party

promissory notes $ 576,644 $ 102,799 $ 679,443

Total principal and estimated interest

due on related-party debt $ 276,644 $ 425,000 $ 87,679 $ 61,477 $ 850,800

_______________

(1) Interest payments on our fixed-rate promissory notes are calculated based on contractual interest rates and scheduled maturity dates.

Interest payments on our variable-rate promissory note are calculated based on schedule maturity dates and the Term SOFR rate plus the contractual spread per the loan agreement.

The rate on our variable-rate promissory note as of June 30, 2022 was 7.29 %.

(1) Interest payments on our fixed-rate convertible notes are calculated based on contractual interest rates and scheduled maturity dates.

Interest payments on our variable-rate notes are calculated based on Term SOFR plus the contractual spread per the loan agreements.

The rate on our variable-rate notes as of September 30, 2022 was 11.55 %.

Related-Party Agreements

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):

September 30,

2022 December 31,

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Due to related party–Duley Road, LLC $ 1,710 $ 1,380

Due to related party–NantWorks, LLC 1,179 1,113

Due to related party–NantWorks — 1,113

Due to related party–NantBio, Inc.

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Shared Services Agreement

Under the NantWorks shared services agreement executed in November 2015, but effective August 2015, NantWorks, a related party, provides corporate, general and administrative, certain research and development, and other support services.

Under the amended and restated shared services agreement with NantWorks dated as of June 2016, but effective as of August 2015, NantWorks, a related party, provides corporate, general and administrative, certain research and development, 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 six months ended June 30, 2022 and 2021, we recorded $ 2.3 million and $ 3.0 million, respectively, in selling, general and administrative expense , and $ 0.3 million and $ 0.4 million, respectively, of expense reimbursements under this arrangement in research and development expense , on the condensed consolidated statements of operations.

For the nine months ended September 30, 2022 and 2021, we recorded $ 3.0 million and $ 4.2 million, respectively, in selling, general and administrative expense , and $ 0.6 million and $ 0.4 million, respectively, of expense reimbursements under this arrangement in research and development expense , on the condensed 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 June 30, 2022 and December 31, 2021, we owed NantWorks a net amount of $ 1.2 million and $ 1.1 million, respectively, for all agreements between the two affiliates, which is included in due to related parties, on the condensed consolidated balance sheets.

We also recorded $ 2.8 million and $ 2.2 million of prepaid expenses for services that have been passed through to the company from NantWorks as of June 30, 2022 and December 31, 2021, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets.

As of September 30, 2022, we did not have a net amount due from or due to NantWorks.

As of December 31, 2021, we owed NantWorks a net amount of $ 1.1 million for all agreements between the two affiliates, which was included in due to related parties, on the condensed consolidated balance sheets.

We also recorded $ 2.3 million and $ 2.2 million of prepaid expenses for services that have been passed through to the company from NantWorks as of September 30, 2022 and December 31, 2021, respectively, which are included in prepaid expenses and other current assets , on the condensed consolidated balance sheets.

Facility License Agreement

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The space continues to be rented on a month-to-month basis, which can be terminated by either party with at least 30 days’ prior written notice to the other party.

We recorded license fee expense for this facility totaling $ 0.8 million and $ 0.3 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

We recorded license fee expense for this facility totaling $ 1.6 million and $ 0.5 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

Immuno-Oncology Clinic, Inc.

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As a result, we wrote down the remaining value of our prepaid asset and recorded approximately $ 4.4 million in research and development expense , on the condensed consolidated statement of operations for the year ended December 31, 2021 .

We recorded $ 1.3 million and $ 0.8 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic.

As of June 30, 2022, we have no balances due from or to the Clinic.

We recorded $ 2.0 million and $ 1.4 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations related to clinical trial and transition services provided by the Clinic.

As of September 30, 2022, we have no balances due from or to the Clinic.

NantBio, Inc.

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).

In August 2018, we entered into a supply agreement with 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 no revenue for the six months ended June 30, 2022 and $ 0.3 million of revenue for the six months ended June 30, 2021.

We recorded $ 0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities , on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021.

As of June 30, 2022 and December 31, 2021, we recorded $ 0.9 million in due to related parties , on the condensed consolidated balance sheets related to this agreement.

We recognized no revenue for the nine months ended September 30, 2022 and $ 0.3 million of revenue for the nine months ended September 30, 2021.

We recorded $ 0.1 million and $ 0.1 million of deferred revenue for bioreactors that were delivered but not installed in accrued expenses and other liabilities , on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021, respectively.

As of September 30, 2022 and December 31, 2021, we recorded $ 0.9 million in due to related parties , on the condensed 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.

As of June 30, 2022 and December 31, 2021, we recorded a net receivable from NantBio of $ 1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019.

As of September 30, 2022 and December 31, 2021, we recorded a net receivable from NantBio of $ 1.3 million for amounts we paid on behalf of NantBio during the year ended December 31, 2019.

605 Doug St, LLC

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The base rent is approximately $ 72,385 per month, with annual increases of 3 % that began in July 2017.

We recorded lease expense for this facility of $ 0.4 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

We recorded lease expense for this facility of $ 0.7 million and $ 0.7 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed 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.

In February 2017, we 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 June 30, 2022 and December 31, 2021, we recorded rent payable to Duley Road of $ 0.3 million and $ 0.2 million, respectively.

We recorded rent expense for this lease of $ 0.2 million and $ 0.3 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

The base rent is approximately $ 40,700 per month, with annual increases of 3 %.

Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California.

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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 June 30, 2022 and December 31, 2021, we recorded $ 0.9 million and $ 0.9 million of leasehold improvement payables, respectively, and $ 0.6 million and $ 0.3 million of lease-related payables to Duley Road, which were included in due to related parties , on the condensed consolidated balance sheets.

We recorded rent expense for this lease of $ 0.2 million for the six months ended June 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

The base rent for the two leases is approximately $ 35,800 per month, with annual increases of 3 %.

As of September 30, 2022 and December 31, 2021, we recorded $ 0.9 million of leasehold improvement payables, respectively, and $ 0.8 million and $ 0.5 million of lease-related payables to Duley Road, which were included in due to related parties , on the condensed consolidated balance sheets.

We recorded rent expense for these leases totaling $ 0.6 million and $ 0.7 million for the nine months ended September 30, 2022 and 2021, respectively, in research and development expense , on the condensed consolidated statements of operations.

605 Nash, LLC

4 unchanged sentences

In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses.

We received 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.

W e recorded rent expense for this lease of $ 0.1 million for the six months ended June 30, 2022 and 2021 , respectively, in research and development expense, on the condensed consolidated statements of operations.

We received a rent abatement for the first seven months .

The lease also provides a tenant improvement incentive of $ 0.3 million for costs and expenses associated with the construction of tenant improvements for the Initial Premises.

In May 2021, but effective on April 1, 2021, we entered into an amendment to our Initial Premises lease with 605 Nash.

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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.

We recorded rent expense related to the Expansion Premises lease agreement of $ 1.0 million and $ 0.5 million for the six months ended June 30, 2022 and 2021, respectively, i n research and development expense, on the condensed consolidated statements of operations

We received a rent abatement for the first seven months .

The amended lease provides for a tenant improvement allowance of approximately $ 2.6 million for costs and expenses related to improvements made by us to the Expansion Premises.

We recorded rent expense for the Initial and Expansion Premises leases totaling $ 1.6 million and $ 1.2 million for the nine months ended September 30, 2022 and 2021, respectively, i n research and development expense, on the condensed consolidated statements of operations

557 Doug St, LLC

Effective September 27, 2021, we entered into a lease agreement with Nant Capital under which we leased 557 South Douglas Street in El Segundo, California.

Effective May 31, 2022, we executed a lease termination agreement with Nant Capital under which we will receive a full refund of the first month’s rent and security deposit totaling $ 0.2 million that we paid upon execution of the lease.

We recorded rent expense related to this lease of $ 0.4 million for the six months ended June 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

We recognized a gain of $ 0.6 million on the disposal of this lease for the three months ended June 30, 2022 in other income, net , on the condensed consolidated statement of operations.

Effective September 27, 2021, we entered into a lease agreement with Nant Capital, a related party controlled by Dr.

Soon-Shiong, under which we leased 557 South Douglas Street in El Segundo, California.

Effective May 31, 2022, we executed a lease termination agreement with Nant Capital under which we received a full refund of the first month’s rent and security deposit totaling $ 0.2 million that we paid upon execution of the lease.

We recorded year-to-date rent expense of $ 0.4 million prior to the termination of the lease, in research and development expense , on the condensed consolidated statement of operations.

We recognized a gain of $ 0.6 million on the disposal of this lease for the nine months ended September 30, 2022 in other income, net , on the condensed consolidated statement of operations.

420 Nash, LLC

7 unchanged sentences

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.

We recorded $ 0.3 million of rent expense related to this lease for the six months ended June 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

We recorded $ 0.4 million of rent expense related to this lease for the nine months ended September 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

23 Alaska, LLC

5 unchanged sentences

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.

The company is responsible for the costs associated with the build-out of the premises and will received a one-time tenant improvement allowance of $ 945,300 from the landlord.

The company is responsible for the costs associated with the build-out of the premises and will received a one-time tenant improvement allowance of approximately $ 0.9 million from the landlord.

The company has an option to extend the lease term for one additional consecutive five-year period.

At the beginning of the 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 recorded $ 0.3 million of rent expense for this lease for the six months ended June 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

We recorded $ 0.6 million of rent expense for this lease for the nine months ended September 30, 2022 in research and development expense , on the condensed consolidated statement of operations.

Stockholders’ Deficit

3 unchanged sentences

Stock Repurchases

No shares of our common stock were repurchased during the six months ended June 30, 2022 and 2021 under the company’s 2015 Share Repurchase Program.

As of June 30, 2022, $ 18.3 million remained authorized for repurchase under the program.

No shares of our common stock were repurchased during the nine months ended September 30, 2022 and 2021 under the company’s 2015 Share Repurchase Program.

As of September 30, 2022, $ 18.3 million remained authorized to use for share repurchases under the program.

Open Market Sale Agreement

1 unchanged sentence

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.

We issued no shares under the ATM during the six months ended June 30, 2022.

As of June 30, 2022, we had $ 330.8 million available for future stock issuances under the ATM.

We issued no shares under the ATM during the nine months ended September 30, 2022.

As of September 30, 2022, 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.

3 unchanged sentences

At the company’s 2022 Annual Meeting of Stockholders held on June 14, 2022, stockholders approved an amendment to increase the number of shares of common stock authorized for issuance under the 2015 Plan by 19,900,000 shares.

As of June 30, 2022, approximately 18.5 million shares were available for future grants under the 2015 Plan.

As of September 30, 2022, approximately 18.3 million shares were available for future grants under the 2015 Plan.

Stock-Based Compensation

1 unchanged sentence

Three Months Ended

June 30, Six Months Ended

September 30, Nine Months Ended

September 30,

2022 2021 2022 2021

9 unchanged sentences

Stock Options

The following table summarizes stock option activity and related information for the six months ended June 30, 2022:

The following table summarizes stock option activity and related information for the nine months ended September 30, 2022:

(in thousands)

4 unchanged sentences

Forfeited/expired ( 506,242 ) $ 5.95

Outstanding at June 30, 2022

Outstanding at September 30, 2022

9,340,177 $ 9.84 $ 4,655 7.4

Vested and exercisable at June 30, 2022

Vested and exercisable at September 30, 2022

3,463,222 $ 14.70 $ 2,650 4.0

4 unchanged sentences

Subject to the company’s attainment of a financial goal for the fiscal year ending December 31, 2022, 1/3rd of the shares subject to the option shall vest in equal annual installments on each of the first, second and third anniversaries of the vesting commencement date, such that all shares shall be fully vested on the third anniversary of the vesting commencement date, subject to the recipient continuing to be a “service provider” through each applicable vesting date.

As of June 30, 2022, the unrecognized compensation cost related to outstanding stock options was $ 28.6 million, which is expected to be recognized over a remaining weighted-average period of 2.2 years.

The total intrinsic value of stock options exercised during the six months ended June 30, 2022 was immaterial.

Cash proceeds received from stock option exercises during the six months ended June 30, 2022 and 2021 totaled $ 0.1 million and $ 4.4 million, respectively.

As of September 30, 2022, the unrecognized compensation cost related to outstanding stock options was $ 24.4 million, which is expected to be recognized over a remaining weighted-average period of 2.0 years.

The total intrinsic value of stock options exercised during the nine months ended September 30, 2022 was immaterial.

Cash proceeds received from stock option exercises during the nine months ended September 30, 2022 and 2021 totaled $ 0.1 million and $ 5.0 million, respectively.

As of December 31, 2021, a total of 3,038,322 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:

Six Months Ended

Nine Months Ended

September 30,

Expected term 5.7 years

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Restricted Stock Units

The following table summarizes RSU activity during the six months ended June 30, 2022:

The following table summarizes RSU activity during the nine months ended September 30, 2022:

Nonvested balance at December 31, 2021

3 unchanged sentences

Forfeited/canceled ( 928,940 ) $ 17.77

Nonvested balance at June 30, 2022

Nonvested balance at September 30, 2022

6,948,527 $ 18.63

As of June 30, 2022, there was $ 89.9 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 3.1 years.

The total intrinsic value of RSUs vested during the six months ended June 30, 2022 was $ 1.1 million.

As of September 30, 2022, there was $ 80.8 million of unrecognized stock-based compensation expense related to RSUs that is expected to be recognized over a weighted-average period of 2.9 years.

The total intrinsic value of RSUs vested during the nine months ended September 30, 2022 was $ 1.6 million.

RSUs awarded to employees and consultants of affiliated companies are 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 10 , 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 $ 0.3 million and $ 0.5 million of deemed dividends for the six months ended June 30, 2022 and 2021 in additional paid-in capital, on the condensed consolidated balance sheets, with a corresponding credit to stock-based compensation expense.

We estimated such benefit at the grant date fair value of $ 4.0 million and recorded $ 0.3 million and $ 0.8 million of deemed dividends for the nine months ended September 30, 2022 and 2021 in additional paid-in capital, on the condensed 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 June 30, 2022.

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 September 30, 2022.

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.

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

From inception through June 30, 2022, we have not been required to pay U.S.

From inception through September 30, 2022, we have not been required to pay U.S.

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

8 unchanged sentences

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).

Inflation Reduction Act of 2022

The Inflation Reduction Act of 2022 (IRA) was passed by Congress and signed into law on August 16, 2022 by President Biden.

The IRA includes a number of tax provisions that may impact the company’s tax position in current and future periods.

The legislation includes provisions that will impose a new corporate minimum income tax, an excise tax on the buyback of a corporation’s stock from its stockholders, new tax credits for the production of renewable energy sources, the sequestration of carbon, the production of hydrogen energy, etc.

The company is currently reviewing and evaluating the application of the provisions of the IRA to its operations and the effect on its current and future operations.

The provisions of the new tax law are complex and sometimes incorporate new concepts that generally have excluded brother-sister corporations, partnerships and other affiliated entities from consideration.

Based on the review, the company’s operations and financial condition was not impacted by the IRA during the three months ended September 30, 2022.

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

What changed 10-Q

Item 1. Financial Statements