ImmunityBio, Inc. 10-Q

ITEM 1. FINANCIAL STATEMENTS. ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (in thousands, except share and per share amounts) September 30, 2022 December 31, 2021 (Unaudited) ASSETS Current assets: Cash and cash equivalents $ 104,161 $ 181,101 Marketable securities 6,896 136,015 Due from related parties 1,488 1,333 Prepaid expenses and other current assets (including amounts with related parties) 30,547 15,898 Total current assets 143,092 334,347 Marketable securities, noncurrent 811 822 Property, plant and equipment, net 130,441 82,863 Intangible assets, net 20,471 1,420 Convertible note receivable 6,566 6,379 Operating lease right-of-use assets, net (including amounts with related parties) 46,429 36,304 Other assets (including amounts with related parties) 5,133 6,775 Total assets $ 352,943 $ 468,910 LIABILITIES AND STOCKHOLDERS’ DEFICIT Current liabilities: Accounts payable $ 20,237 $ 11,418 Accrued expenses and other liabilities 46,220 51,387 Related-party promissory note, net of deferred issuance costs — 299,236 Due to related parties 3,018 3,943 Operating lease liabilities (including amounts with related parties) 1,365 3,011 Total current liabilities 70,840 368,995 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 ) 287,761 — Operating lease liabilities, less current portion (including amounts with related parties) 49,561 37,068 Other liabilities 569 411 Total liabilities 782,024 712,823 Commitments and contingencies ( Note 7 ) Stockholders’ deficit: Common stock, $ 0.0001 par value; 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 September 30, 2022 and December 31, 2021, respectively; excluding treasury stock, 163,800 shares outstanding as of September 30, 2022 and December 31, 2021, respectively 40 40 Additional paid-in capital 1,843,724 1,719,704 Accumulated deficit ( 2,270,273 ) ( 1,961,921 ) Accumulated other comprehensive (loss) income ( 190 ) 4 Total ImmunityBio stockholders’ deficit ( 426,699 ) ( 242,173 ) Noncontrolling interests ( 2,382 ) ( 1,740 ) Total stockholders’ deficit ( 429,081 ) ( 243,913 ) Total liabilities and stockholders’ deficit $ 352,943 $ 468,910 The accompanying notes are an integral part of these condensed consolidated financial statements. 1 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Operations (in thousands, except share and per share amounts) (Unaudited) Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 Revenue $ 118 $ 66 $ 167 $ 544 Operating expenses: Research and development (including amounts with related parties) 71,612 49,277 190,072 144,205 Selling, general and administrative (including amounts with related parties) 19,310 29,625 76,493 107,345 Total operating expenses 90,922 78,902 266,565 251,550 Loss from operations ( 90,804 ) ( 78,836 ) ( 266,398 ) ( 251,006 ) 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 (expense), net (including amounts with related parties) 6 ( 38 ) 187 252 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 ) Income tax expense — — — ( 8 ) Net loss ( 111,161 ) ( 88,429 ) ( 308,994 ) ( 258,295 ) Net loss attributable to noncontrolling interests, net of tax ( 223 ) ( 800 ) ( 642 ) ( 2,764 ) Net loss attributable to ImmunityBio common stockholders $ ( 110,938 ) $ ( 87,629 ) $ ( 308,352 ) $ ( 255,531 ) Net loss per ImmunityBio common share – basic and diluted $ ( 0.28 ) $ ( 0.22 ) $ ( 0.77 ) $ ( 0.66 ) Weighted-average number of common shares used in computing net loss per share – basic and diluted 400,059,707 391,853,623 398,652,562 386,606,200 The accompanying notes are an integral part of these condensed consolidated financial statements. 2 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Comprehensive Loss (in thousands) (Unaudited) Three 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 (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 — Foreign currency translation adjustments ( 58 ) 17 ( 130 ) ( 85 ) Total other comprehensive (loss) income ( 80 ) 16 ( 194 ) ( 69 ) Comprehensive loss ( 111,241 ) ( 88,413 ) ( 309,188 ) ( 258,364 ) Less: Comprehensive loss attributable to noncontrolling interests ( 223 ) ( 800 ) ( 642 ) ( 2,764 ) Comprehensive loss attributable to ImmunityBio common stockholders $ ( 111,018 ) $ ( 87,613 ) $ ( 308,546 ) $ ( 255,600 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 3 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (in thousands, except share amounts) (Unaudited) Nine Months Ended September 30, 2022 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total ImmunityBio Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit Shares Amount Balance as of December 31, 2021 397,830,044 $ 40 $ 1,719,704 $ ( 1,961,921 ) $ 4 $ ( 242,173 ) $ ( 1,740 ) $ ( 243,913 ) Stock-based compensation expense — — 10,024 — — 10,024 — 10,024 Exercise of stock options 14,767 — 74 — — 74 — 74 Vesting of restricted stock units (RSUs) 177,783 — — — — — — — Net share settlement for RSUs vesting ( 65,832 ) — ( 372 ) — — ( 372 ) — ( 372 ) Other comprehensive (loss) income, net of tax — — — — ( 371 ) ( 371 ) — ( 371 ) Net loss — — — ( 102,826 ) — ( 102,826 ) ( 172 ) ( 102,998 ) 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 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 — — 10,630 — — 10,630 — 10,630 Exercise of stock options — — — — — — — — Vesting of RSUs 7,800 — — — — — — — Net share settlement for RSUs vesting ( 2,756 ) — ( 10 ) — — ( 10 ) — ( 10 ) 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 September 30, 2022 400,304,106 $ 40 $ 1,843,724 $ ( 2,270,273 ) $ ( 190 ) $ ( 426,699 ) $ ( 2,382 ) $ ( 429,081 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 4 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Stockholders’ Deficit (in thousands, except share amounts) (Unaudited) Nine Months Ended September 30, 2021 Common Stock Additional Paid-in Capital Accumulated Deficit Accumulated Other Comprehensive Income (Loss) Total ImmunityBio Stockholders’ Deficit Noncontrolling Interests Total Stockholders’ Deficit 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 ) 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 6,420,441 1 94,886 — — 94,887 — 94,887 Stock-based compensation expense — — 17,863 — — 17,863 — 17,863 Exercise of stock options 759,639 — 3,311 — — 3,311 — 3,311 Vesting of RSUs 100,359 — — — — — — — Net share settlement for RSUs vesting ( 20 ) — — — — — — — Other comprehensive (loss) income, net — — — — 75 75 — 75 Net loss — — — ( 88,288 ) — ( 88,288 ) ( 1,097 ) ( 89,385 ) Balance as of June 30, 2021 390,347,740 39 1,625,018 ( 1,783,033 ) 37 ( 157,939 ) ( 646 ) ( 158,585 ) Issuance of common stock under “at-the-market” 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 Exercise of stock options 176,196 — 678 — — 678 — 678 Vesting of RSUs 285,280 — — — — — — — Net share settlement for RSUs vesting ( 96,058 ) — ( 960 ) — — ( 960 ) — ( 960 ) 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 September 30, 2021 394,509,695 $ 39 $ 1,682,072 $ ( 1,870,662 ) $ 53 $ ( 188,498 ) $ ( 1,446 ) $ ( 189,944 ) The accompanying notes are an integral part of these condensed consolidated financial statements. 5 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (in thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Operating activities: Net loss $ ( 308,994 ) $ ( 258,295 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 30,829 47,001 Non-cash interest items, net (including amounts with related parties) 13,770 9,126 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 Impairment of intangible assets 681 — Unrealized (gains) losses on equity securities ( 162 ) ( 2,383 ) Other ( 127 ) ( 307 ) Changes in operating assets and liabilities: Prepaid expenses and other current assets ( 14,420 ) 425 Other assets 2,138 ( 4,844 ) Accounts payable 7,563 ( 170 ) Accrued expenses and other liabilities 7,253 624 Related parties ( 1,639 ) ( 4,714 ) Operating lease liabilities ( 2,306 ) ( 3,647 ) Net cash used in operating activities ( 246,782 ) ( 202,780 ) Investing activities: Purchases of property, plant and equipment ( 59,231 ) ( 23,160 ) 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 ) Maturities of marketable debt securities, available for sale 128,188 44,759 Proceeds from sales of marketable debt and equity securities 33,756 13,568 Investment in joint venture – an equity method investment ( 1,000 ) — Net cash provided by investing activities 46,191 52,916 Financing activities: Proceeds from equity offering, net of issuance costs paid — 136,948 Proceeds from issuance of related-party promissory notes, net of issuance costs paid 124,375 40,000 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 ) 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 ) Net change in cash, cash equivalents, and restricted cash ( 76,795 ) 29,609 Cash, cash equivalents, and restricted cash, beginning of period 181,280 35,094 Cash, cash equivalents, and restricted cash, end of period $ 104,485 $ 64,703 The accompanying notes are an integral part of these condensed consolidated financial statements. 6 Table of Contents ImmunityBio, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows (Continued) (in thousands) (Unaudited) Nine Months Ended September 30, 2022 2021 Reconciliation of cash, cash equivalents, and restricted cash, end of period: Cash and cash equivalents $ 104,161 $ 64,524 Restricted cash 324 179 Cash, cash equivalents, and restricted cash, end of period $ 104,485 $ 64,703 Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 21,000 $ 1,466 Income taxes 3 11 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 Property and equipment purchases included in accounts payable, accrued expenses and due to related parties 12,469 5,582 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 The accompanying notes are an integral part of these condensed consolidated financial statements. 7 Table of Contents ImmunityBio, Inc. and Subsidiaries Notes to Unaudited Condensed Consolidated Financial Statements 1. Description of Business In these notes to unaudited condensed consolidated financial statements, the terms “ImmunityBio,” “the company,” “the combined company,” “we,” “us,” and “our” refer to ImmunityBio and subsidiaries. Our Business ImmunityBio, Inc. is a clinical-stage biotechnology company developing next-generation therapies and vaccines that complement, harness, and amplify the immune system to defeat cancers and infectious diseases. We strive to be a vertically-integrated immunotherapy company designing and manufacturing our products so they are more effective, accessible, more conveniently stored, and more easily administered to patients. Our broad immunotherapy and cell therapy platforms are designed to attack cancer and infectious pathogens by activating both the innate immune system—natural killer (NK) cells, dendritic cells, and macrophages—and the adaptive immune system—B cells and T cells—in an orchestrated manner. The goal of this potentially best-in-class approach is to generate immunogenic cell death thereby eliminating rogue cells from the body whether they are cancerous or virally infected. 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, 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. Our platforms include 9 first-in-human therapeutic agents that are currently being studied in 27 clinical trials—17 of which are in Phase 2 or 3 development—across 13 indications in liquid and solid tumors, including bladder, pancreatic, and lung cancers. These are among the most frequent and lethal cancer types for which there are high failure rates for existing standards of care or, in some cases, no available effective treatment. In infectious disease, our pipeline currently targets such pathogens as the novel strain of the coronavirus (SARS-CoV-2) and human immunodeficiency virus (HIV). We have established Good Manufacturing Practice (GMP) manufacturing capacity at scale with cutting-edge cell manufacturing expertise and ready-to-scale facilities, as well as extensive and seasoned research and development (R&D), clinical trial, and regulatory operations, and development teams. The Merger On December 21, 2020 , NantKwest, Inc. (NantKwest) and NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company) ( NantCell) entered into an Agreement and Plan of Merger (the Merger Agreement ), pursuant to which NantKwest and NantCell agreed to combine their businesses. The Merger Agreement provided that a wholly-owned subsidiary of the company would merge with and into NantCell (the Merger ), with NantCell surviving the Merger as a wholly-owned subsidiary of the company. 8 Table of Contents On March 9, 2021 , we completed the Merger pursuant to the terms of the Merger Agreement. Under the terms of the Merger Agreement, at the effective time of the Merger (the Effective Time), each share of NantCell common stock , par value $ 0.001 per share, issued and outstanding immediately prior to the Effective Time, subject to certain exceptions as set forth in the Merger Agreement, was converted automatically into a right to receive 0.8190 (the Exchange Ratio) newly issued shares of common stock, par value $ 0.0001 per share, of the company (Company Common Stock), with cash paid in lieu of any fractional shares. At the Effective Time, each share of the company’s common stock issued and outstanding immediately prior to the Effective Time, remained an issued and outstanding share of the combined company. At the Effective Time, each outstanding option, RSU or warrant to purchase NantCell common stock was converted using the Exchange Ratio into an option, RSU or warrant, respectively, on the same terms and conditions immediately prior to the Effective Time, to purchase shares of Company Common Stock. Immediately following the Effective Time, the former stockholders of NantCell held approximately 71.5 % of the outstanding shares of Company Common Stock and the stockholders of NantKwest as of immediately prior to the Merger held approximately 28.5 % of the outstanding shares of Company Common Stock. As a result of the Merger and immediately following the Effective Time, Dr. Patrick Soon-Shiong, our Executive Chairman and Global Chief Scientific and Medical Officer, and his affiliates beneficially owned, in the aggregate, approximately 81.8 % of the outstanding shares of Company Common Stock. Following the consummation of the Merger, the symbol for shares of the company’s common stock was changed to “IBRX.” 2. Summary of Significant Accounting Policies Basis of Presentation The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (SEC). The unaudited condensed consolidated financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair presentation of our financial position and results of operations. The unaudited condensed consolidated financial statements do not include all information and notes required by U.S. GAAP for annual reports and therefore should be read in conjunction with our consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on March 1, 2022. These interim financials are not necessarily indicative of results expected for the full fiscal year. Principles of Consolidation The accompanying unaudited condensed consolidated financial statements include the accounts of the company, our wholly owned subsidiaries, and a variable interest entity (VIE) for which we are the primary beneficiary. Any material intercompany transactions and balances have been eliminated upon consolidation. For consolidated entities where we have less than 100% of ownership, we record net loss attributable to noncontrolling interest on the unaudited condensed consolidated statements of operations equal to the percentage of the ownership interest retained in such entities by the respective noncontrolling parties. We assess whether we are the primary beneficiary of a VIE at the inception of the arrangement and at each reporting date. 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. Liquidity 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. 9 Table of Contents The condensed consolidated financial statements have been prepared assuming the company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business, and do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or amounts and classification of liabilities that may result from the outcome of the uncertainty of our ability to continue as a going concern. 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 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. Without additional funds, we may choose to delay or reduce our operating or investment expenditures. Further, because of the risk and uncertainties associated with the potential commercialization of our product candidates in development, we may need additional funds to meet our needs sooner than planned. Use of Estimates The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. On an ongoing basis, we evaluate our estimates, including those related to the valuation of equity-based awards, deferred income taxes and related valuation allowances, preclinical and clinical trial accruals, impairment assessments, contingent value right measurement and assessments, the measurement of right-of-use assets and lease liabilities, useful lives of long-lived assets, loss contingencies, fair value measurements, asset acquisition, and the assessment of our ability to fund our operations for at least the next 12 months from the date of issuance of these condensed consolidated financial statements. We base our estimates on historical experience and on various other market-specific and relevant assumptions that we believe to be reasonable under the circumstances. Estimates are assessed each period and updated to reflect current information, such as the economic considerations related to the impact that the ongoing coronavirus pandemic could have on our significant accounting estimates. Actual results could differ from those estimates. Significant Accounting Policies There have been no material changes to our significant accounting policies from those described in Note 2, Summary of Significant Accounting Policies, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the SEC on March 1, 2022. Acquisitions We make certain judgments to determine whether transactions should be accounted for as acquisitions of assets or as business combinations. If it is determined that substantially all of the fair value of gross assets acquired in a transaction is concentrated in a single asset (or a group of similar assets), the transaction is treated as an acquisition of assets. We evaluate the inputs, processes, and outputs associated with the acquired set of activities and assets. If the assets in a transaction include an input and a substantive process that together significantly contribute to the ability to create outputs, the transaction is treated as an acquisition of a business. We account for business combinations using the acquisition method of accounting, which requires that assets acquired and liabilities assumed generally be recorded at their fair values as of the acquisition date. Excess of consideration over the fair value of net assets acquired is recorded as goodwill. Estimating fair value requires us to make significant judgments and assumptions. We perform impairment testing of goodwill annually or more frequently if events or changes in circumstances indicate that it is more likely than not that the asset is impaired. 10 Table of Contents In transactions accounted for as asset acquisitions, the cost of an asset acquisition, including transaction costs, are allocated to identifiable assets acquired and liabilities assumed based on a relative fair value basis. Goodwill is not recognized in an asset acquisition. Any difference between the cost of an asset acquisition and the fair value of the net assets acquired is allocated to the non-monetary identifiable assets based on their relative fair values. In an asset acquisition, upfront payments allocated to in-process research and development projects at the acquisition date are expensed unless there is an alternative future use. In addition, product development milestones are expensed upon achievement. Any contingent consideration, such as payments upon achievement of various developmental, regulatory and commercial milestones, generally is not recognized at the acquisition date. Basic and Diluted Net Loss per Share of Common Stock Basic net loss per share is calculated by dividing the net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares outstanding for the period. Diluted loss per share is computed by dividing net loss attributable to ImmunityBio common stockholders by the weighted-average number of common shares, including the number of additional shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. For all periods presented, potentially dilutive securities are excluded from the computation of fully diluted loss per share as their effect is anti-dilutive. The following table details those securities that have been excluded from the computation of potentially dilutive securities: As of September 30, 2022 2021 (Unaudited) Outstanding stock options 9,340,177 4,194,268 Outstanding RSUs 6,948,527 7,076,402 Outstanding related-party warrants 1,638,000 1,638,000 Total 17,926,704 12,908,670 Amounts in the table above reflect the common stock equivalents of the noted instruments, including awards issued under the NantKwest 2015 Equity Incentive Plan (the 2015 Plan) and the NantKwest 2014 Equity Incentive Plan. At the Effective Time, each outstanding option or RSU issued under the 2015 NantCell Stock Incentive Plan and warrants issued by NantCell to purchase or acquire NantCell common stock were converted using the Exchange Ratio into an option, RSU or warrant, respectively, on the same terms and conditions immediately prior to the Effective Time . See Note 12 , Stock-Based Compensation , for further information. Recent Accounting Pronouncements Application of New or Revised Accounting Standards – Adopted In May 2021, the FASB issued Accounting Standards Update (ASU) 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This update provides guidance to clarify and reduce diversity in an accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that is not within the scope of another Topic. An entity should treat a modification of the terms or conditions or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange as an exchange of the original instrument for a new instrument. This update additionally provides further guidance on measuring the effect of a modification or an exchange of a freestanding equity-classified written call option that remains equity classified after modification or exchange on the basis of the substance of the transaction, in the same manner as if cash had been paid as consideration. This guidance is effective for the fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The company adopted this guidance on January 1, 2022 on a prospective basis. 11 Table of Contents 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 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. The guidance is effective for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The company adopted this guidance on January 1, 2022 on a modified prospective basis. 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. 3. Financial Statement Details Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following (in thousands): September 30, 2022 December 31, 2021 (Unaudited) Prepaid services $ 14,069 $ 6,966 Insurance claims receivable 5,000 — Insurance premium financing asset 2,461 2,598 Prepaid supplies 2,160 — Prepaid insurance 1,870 2,266 Prepaid software license fees 1,751 1,111 Other 3,236 2,957 Prepaid expenses and other current assets $ 30,547 $ 15,898 12 Table of Contents Property, Plant and Equipment, Net Property, plant and equipment, net, consist of the following (in thousands): September 30, 2022 December 31, 2021 (Unaudited) Leasehold improvements $ 68,490 $ 62,482 Equipment 66,239 54,284 Construction in progress 56,829 16,575 Furniture & fixtures 1,827 1,052 Software 1,658 1,544 Gross property, plant and equipment 195,043 135,937 Less: Accumulated depreciation and amortization 64,602 53,074 Property, plant and equipment, net $ 130,441 $ 82,863 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, 2021 (Unaudited) 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 ) 5,000 7,118 Financing obligation 2,461 2,598 Accrued research and development costs 2,204 2,107 Accrued laboratory equipment, supplies and related services 338 2,144 Other 1,545 2,595 Accrued expenses and other liabilities $ 46,220 $ 51,387 13 Table of Contents Interest and Investment Income (Loss), Net Interest and investment income (loss), net consists of the following (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Unaudited) (Unaudited) Unrealized gains (losses) from equity securities $ 614 $ ( 6,008 ) $ 162 $ 2,383 Interest income 253 101 2,193 552 Investment amortization expense, net ( 10 ) ( 34 ) ( 1,513 ) ( 282 ) Net realized (losses) gains on investments — — ( 119 ) 173 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 ) 14 Table of Contents 4. Financial Instruments Investments in Marketable Debt Securities 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 (Unaudited) Weighted- Average Remaining Contractual Life (in years) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Mutual funds $ 34 $ 9 $ ( 7 ) $ 36 Noncurrent: Foreign bonds 4.8 898 — ( 87 ) 811 Total $ 932 $ 9 $ ( 94 ) $ 847 As of December 31, 2021, the amortized cost, gross unrealized gains, gross unrealized losses and fair value of marketable debt securities, which were considered as available-for-sale, by type of security were as follows (in thousands): December 31, 2021 Weighted- Average Remaining Contractual Life (in years) Amortized Cost Gross Unrealized Gains Gross Unrealized Losses Fair Value Current: Corporate debt securities 0.5 $ 129,190 $ 10 $ ( 36 ) $ 129,164 Foreign bonds 0.4 116 — ( 1 ) 115 Mutual funds 35 3 — 38 Current portion 129,341 13 ( 37 ) 129,317 Noncurrent: Foreign bonds 5.0 719 103 — 822 Noncurrent portion 719 103 — 822 Total $ 130,060 $ 116 $ ( 37 ) $ 130,139 15 Table of Contents 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): September 30, 2022 (Unaudited) Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Mutual funds $ — $ — $ 35 $ ( 7 ) Foreign bonds — — 811 ( 87 ) Total $ — $ — $ 846 $ ( 94 ) December 31, 2021 Less than 12 months More than 12 months Estimated Fair Value Gross Unrealized Losses Estimated Fair Value Gross Unrealized Losses Corporate debt securities $ 86,158 $ ( 36 ) $ — $ — Mutual funds — — 34 ( 2 ) Foreign bonds 115 ( 1 ) 113 ( 1 ) 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 nine months ended September 30, 2022 and 2021. Marketable Equity Securities We held investments in marketable equity securities with readily determinable fair values of $ 6.9 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. 5. Fair Value Measurements Fair value is defined as an exit price that would be received from the sale of an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. We use a three-tier fair value hierarchy to classify and disclose all assets and liabilities measured at fair value on a recurring basis, as well as assets and liabilities measured at fair value on a non-recurring basis, in periods subsequent to their initial measurement. The hierarchy requires us to use observable inputs when available, and to minimize the use of unobservable inputs, when determining fair value. 16 Table of Contents The three tiers are defined as follows: • Level 1—Observable inputs that reflect quoted market prices (unadjusted) for identical assets or liabilities in active markets at the measurement date. Since valuations are based on quoted prices that are readily and regularly available in an active market, the valuation of these products does not entail a significant degree of judgment. Our Level 1 assets consist of bank deposits, money market funds, and marketable equity securities. • Level 2—Observable inputs other than quoted prices in active markets that are observable either directly or indirectly in the marketplace for identical or similar assets and liabilities. Our Level 2 assets consist of corporate debt securities including commercial paper, government-sponsored securities and corporate bonds, as well as foreign municipal securities. • Level 3—Valuations based on inputs that are unobservable and significant to the overall fair value measurement. We utilize a third-party pricing service to assist in obtaining fair value pricing for our investments in marketable debt securities. Inputs are documented in accordance with the fair value disclosure hierarchy. The fair values of financial instruments other than marketable securities and cash and cash equivalents are determined through a combination of management estimates and third-party valuations. Recurring Valuations Financial assets and liabilities measured at fair value on a recurring basis are summarized below (in thousands): Fair Value Measurements at September 30, 2022 (Unaudited) Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 104,161 $ 104,161 $ — $ — Equity securities 6,860 6,860 — — Mutual funds 36 36 — — Noncurrent: Foreign bonds 811 — 811 — Total assets measured at fair value $ 111,868 $ 111,057 $ 811 $ — Fair Value Measurements at December 31, 2021 Total Level 1 Level 2 Level 3 Assets: Current: Cash and cash equivalents $ 181,101 (1) $ 51,421 $ 129,680 $ — Equity securities 6,698 6,698 — — Corporate debt securities 129,164 — 129,164 — Foreign bonds 115 115 — — Mutual funds 38 38 — — Noncurrent: Foreign bonds 822 822 — — Total assets measured at fair value $ 317,938 $ 59,094 $ 258,844 $ — _______________ (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. 17 Table of Contents 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. 6. Collaboration and License Agreements and Acquisition Collaboration Agreement Amyris Joint Venture In December 2021, ImmunityBio and Amyris, Inc. (Amyris) entered into a 50:50 joint venture arrangement and formed a new limited liability company to conduct the business of the joint venture. The purpose of the joint venture is to accelerate commercialization of a next-generation COVID-19 vaccine utilizing an RNA vaccine platform. As part of the limited liability agreement, we agreed to contribute $ 1.0 million in cash and priority access to our manufacturing capacity for the joint venture product. Amyris agreed to contribute $ 1.0 million in cash and rights to its license agreement with the Access to Advanced Health Institute (AAHI) (formerly known as the Infectious Disease Research Institute, or IDRI) for an RNA platform for the field of COVID-19. Both parties agreed to enter into a separate manufacturing and supply agreement and a sublicense agreement following the execution of the joint venture agreement. The joint venture agreement stipulates the initial terms for equal representation in the management of the newly-formed joint venture. The joint venture is managed by a board of directors consisting of four directors: two appointed by the company and two appointed by Amyris. Both parties agreed to make additional capital contributions in cash, in proportion to their respective interests, as determined by the board of directors of the joint venture. We considered the joint venture entity as a VIE and determined that we are not the primary beneficiary of the VIE. 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 $ 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 September 30, 2022, the carrying amount of our equity investment in the joint venture was zero . License Agreements 3M Innovative Properties Company (3M IPC) and the Access to Advanced Health Institute (AAHI) License Agreement We have licensed rights to 3M-052, a synthetic TLR7/8 agonist, 3M-052 formulations and related technology from 3M IPC and its affiliates and AAHI. In November 2021 we obtained nonexclusive rights in the field of SARS-CoV-2 and in June 2022 we modified those rights and expanded the scope of the license to include (1) SARS-CoV-2 and other infectious diseases including malaria, HIV, tuberculosis, hookworm and varicella zoster on an exclusive basis in countries other than low- and middle-income countries (LMIC), and (2) oncology applications, when used in combination with our proprietary technology and/or IL-15 agonists. In consideration for the license, we agreed to make certain periodic license payments, including $ 2.25 million each year through June 2025, with the June 2022 payment being partially offset by the $ 0.5 million previously paid under the initial November 2021 license agreement. We have also agreed to make payments upon the achievement of certain regulatory milestone events and tiered royalties ranging from the low to high single-digits as a percentage of net sales. 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. 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. 18 Table of Contents AAHI License Agreements In May 2021, we entered into two license agreements with AAHI pursuant to which we received a license to certain patents and know-how relating to AAHI’s (i) adjuvant formulations for the treatment, prevention and/or diagnosis of SARS-CoV-2 (the AAHI Adjuvant Formulation License Agreement) and (ii) RNA vaccine platform as further described below (the AAHI RNA License Agreement). Under both agreements, we were obligated to pay one-time, non-creditable, non-refundable upfront cash payments totaling $ 2.0 million. In addition, under the 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 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. Pursuant to the terms of the amended and restated AAHI RNA License Agreement, we made an additional one-time, non-creditable, non-refundable, upfront payment to AAHI of $ 1.5 million. The company is also required to pay license maintenance fees to AAHI as follows: $ 3.0 million in 2022 and $ 5.5 million annually from 2023 through 2030. The company may terminate the restated agreement without cause by paying AAHI a $ 10.0 million one-time early termination fee. In addition, the milestone payments to AAHI based on the achievement of certain development and regulatory milestones for the first licensed product were amended to a total of up to $ 4.0 million. We are required to pay royalties on annual net sales of licensed products on a country-by-country and product-by-product basis of a low to mid-single digit percentage. 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. Acquisition 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 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. The company accounted for the transaction as an asset acquisition because the Dunkirk Facility’s integrated set of assets and activities does not meet the definition of a business. 19 Table of Contents The total consideration for the acquisition was approximately $ 40.5 million, including a cash payment of $ 40.0 million, and transaction costs of approximately $ 0.5 million. The following table summarizes the fair value of assets acquired as of the acquisition date (in thousands): Construction in progress $ 10,043 Leasehold improvements 6,253 Definite-lived intangible assets (1) 21,229 Other depreciable assets and prepaid expenses 2,983 Total consideration $ 40,508 _______________ (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 $ 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: $ 0.5 million for the remainder of 2022; $ 2.0 million for each of the years from 2023 to 2026; and $ 10.5 million thereafter. 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. The Dunkirk Facility, as well as certain equipment, is owned by FSMC and is leased to us under the Dunkirk Lease. Our annual lease payment will be $ 2.00 per year for an initial 10-year term, with an option to renew the lease under substantially the same terms and conditions for an additional 10-year term. As part of the transaction, we assumed certain of the Seller’s obligations under various third-party agreements (the Facility Agreements), subject to the terms and conditions of the purchase agreement by and between the company and Seller dated as of January 7, 2022, and committed to spend an aggregate of $ 1.52 billion on operational expenses during the initial term, and an additional $ 1.50 billion on operational expenses if we elect to renew the lease for the additional 10-year term. We also committed to hiring 450 employees at the Dunkirk Facility within the first 5 years of operations, with 300 such employees to be hired within the first 2.5 years of operation. 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 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. 20 Table of Contents 7. Commitments and Contingencies Contingent Consideration Related to Business Combinations VivaBioCell, S.p.A. In April 2015, NantWorks, LLC (NantWorks), a related party, acquired a 100 % interest in VivaBioCell, S.p.A. (VivaBioCell) through its wholly-owned subsidiary, VBC Holdings, LLC, (VBC Holdings) for $ 0.7 million, less working capital adjustments. In June 2015, NantWorks contributed its equity interest in VBC Holdings to the company, in exchange for cash consideration equal to its cost basis in the investment. VivaBioCell develops bioreactors and products based on cell culture and tissue engineering in Italy. In connection with our acquisition of VBC, we are obligated to pay the former owners contingent consideration upon the achievement of certain milestones related to the GMP-in-a-Box technology. A clinical milestone totaling $ 0.8 million was earned by the former owners of VivaBioCell, of which $ 0.4 million was paid during 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). Dr. Soon-Shiong and his related party hold approximately $ 279.5 million in the aggregate of CVRs and they have both irrevocably agreed to receive shares of the company’s common stock in satisfaction of their CVRs. We may be required to pay the other prior Altor stockholders up to $ 164.2 million in settlement of the CVRs relating to the regulatory milestone and up to $ 164.2 million of the CVRs relating to the sales milestone should they choose to have the CVRs paid in cash instead of common stock. As the transaction was recorded as an asset acquisition, future CVR payments will be recorded when the corresponding events are probable of achievement or the consideration becomes payable. 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. Litigation From time to time, we may be involved in various claims and legal proceedings relating to claims arising out of our operations. We are not currently a party to any legal proceedings that, in the opinion of our management, are likely to have a material adverse effect on our business. We are aware of complaints that have been filed regarding the Merger, but we have not been served with any of such complaints. If we are served with any such complaints, we will assess at that time any contingencies for which we may need to reserve. Regardless of the outcome, litigation can have an adverse impact on us because of defense and settlement costs, diversion of management resources, and other factors. Altor BioScience, LLC Litigation In 2017, NantCell announced it had entered into a definitive merger agreement to acquire Altor BioScience Corporation. An action captioned Gray v. Soon-Shiong, et al. was filed in Delaware Chancery Court by plaintiffs Clayland Boyden Gray (Gray) and Adam R. Waldman. The plaintiffs, two minority stockholders, asserted claims against the company and other defendants for (1) breach of fiduciary duty and (2) aiding and abetting breach of fiduciary duty and filed a motion to enjoin the merger. The court denied the motion and permitted the merger to close. 21 Table of Contents Subsequent to the close of the merger, in 2017 the plaintiffs (joined by two additional minority stockholders, Barbara Sturm Waldman and Douglas E. Henderson (Henderson)) filed a second amended complaint, asserting claims for (1) appraisal; (2) quasi-appraisal; (3) breach of fiduciary duty; and (4) aiding and abetting breach of fiduciary duty. The defendants moved to dismiss the second amended complaint, raising grounds that included a “standstill” agreement under which defendants maintained that Gray and Adam R. Waldman and Barbara Strum Waldman (the Waldmans) agreed not to bring the lawsuit. In a second action, Dyad Pharmaceutical Corporation (Dyad) filed a petition in Delaware Chancery Court for appraisal in connection with the merger. Respondent moved to dismiss the appraisal petition in 2018, arguing in part that the petition was barred by the same “standstill” agreement. In 2018, the court heard oral arguments on the motions to dismiss in both consolidated cases and converted the motions to dismiss into motions for summary judgment with regard to the “standstill” agreement argument (the Converted Motions). The court issued an oral ruling in 2019 that dismissed certain claims and dismissed Altor BioScience from the action. The following claims remained: (a) the appraisal claims by all plaintiffs and Dyad (against Altor BioScience, LLC), and (b) Henderson’s claims for breach of fiduciary duty and aiding and abetting breach of fiduciary duty. In 2019, the court issued a written order implementing its ruling on the Converted Motions (the Implementing Order). In the Implementing Order, the court confirmed that all fiduciary duty claims brought by Gray, both individually and as trustee of the Gordon Gray Trust f/b/o C. Boyden Gray, were dismissed. Gray and the Waldmans filed answers denying the counterclaims and asserting defenses. The plaintiffs then moved for leave to file a third amended complaint to add two former Altor stockholders as plaintiffs and a fiduciary duty claim on behalf of a purported class of former Altor stockholders, which the defendants opposed. In 2020, the court granted the plaintiffs’ motion, and the plaintiffs filed the third amended complaint. In 2020, the defendants answered the third amended complaint and asserted counter claims against the plaintiffs. The defendants are seeking damages for attorneys’ fees and costs incurred as a result of the breaches of the “standstill” agreements discussed above and of stockholder releases. The plaintiffs filed an answer denying the counterclaims and asserting defenses. Trial was set to commence on August 8, 2022, but the parties 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. In late March 2022, the company agreed to the terms of a settlement with the appraisal petitioners, without any admission of liability or fault. The settlement provides that in exchange for complete releases, the appraisal petitioners, who as a group held 3,167,565 dissenting Altor shares, collectively will receive an aggregate of 2,229,296 shares of the company’s common stock issued in a private placement, plus an aggregate of $ 21.13 in cash in lieu of fractional shares. The company’s Board of Directors approved the settlement and stock issuance in April 2022, and the court approved the settlement and dismissed the appraisal petitioners’ claims on July 9, 2022. 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 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 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. The company intends to defend the case vigorously should that prove necessary. 22 Table of Contents Sorrento Therapeutics, Inc. Litigation Sorrento Therapeutics, Inc. (Sorrento), derivatively on behalf of NANTibody, LLC (NANTibody) filed an action in the Superior Court of California, Los Angeles County (the Superior Court) against the company, Dr. Soon-Shiong and Charles Kim. The action alleged that the defendants improperly caused NANTibody to acquire IgDraSol, Inc. from our affiliate NantPharma, LLC (NantPharma) and sought to have the transaction undone and the purchase amount returned to NANTibody. In 2019, we filed a demurrer to several causes of action alleged in the Superior Court action, and Sorrento filed an amended complaint, eliminating Mr. Kim as a defendant and dropping the causes of action we had challenged in our demurrer. 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. Soon-Shiong and NantPharma; the company is not named in the Cynviloq arbitration. In 2020, the Superior Court granted Dr. Soon-Shiong’s request for a preliminary injunction barring Sorrento from pursuing claims against him in the Cynviloq arbitration. Sorrento then filed the claims it had previously asserted in arbitration against Dr. Soon-Shiong in the Superior Court, and at Sorrento’s request, the arbitrator entered an order dismissing Sorrento’s claims against Dr. Soon-Shiong in the Cynviloq arbitration. The hearing in the Cynviloq arbitration commenced in June 2021, and continued with breaks until early October 2021. The parties 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. Soon-Shiong filed cross-claims in the Superior Court action against Sorrento and its Chief Executive Officer Henry Ji, asserting claims for fraud, breach of contract, breach of the covenant of good faith and fair dealing, tortious interference with contract, unjust enrichment, and declaratory relief. Our claims allege that Dr. Ji and Sorrento breached the terms of an exclusive license agreement between the company and Sorrento related to Sorrento’s antibody library and that Sorrento did not perform its obligations under the exclusive license agreement. The Superior Court ruled that the company’s claims should be pursued in arbitration and that Dr. Soon-Shiong’s claims could be pursued in Superior Court. In 2019, the company, along with NANTibody, filed an arbitration against Sorrento and Dr. Ji asserting our claims relating to the exclusive license agreement. In 2020, Sorrento sent letters purporting to terminate the exclusive license agreement with the company, and an exclusive license agreement with NANTibody and demanding the return of its confidential information and transfer of all regulatory filings and related materials. As required pursuant to the exclusive license agreements, both parties must engage in good-faith negotiations before attempting to invoke any termination provision contained in the agreement. Notwithstanding such negotiations, Sorrento sent a letter purporting to terminate the exclusive license agreements, maintaining the negotiations did not reach a successful resolution. We believe we have cured any perceived breaches during the 90-day contractual cure period provided under the agreements. Sorrento filed counterclaims against the company and NANTibody in the arbitration and requested leave to file a dispositive motion. The hearings in the NANTibody arbitration commenced in April 2021 and concluded in early August 2021. After post-hearing briefing was concluded, the parties were notified on November 30, 2021 that the arbitrator in the NANTibody arbitration had passed away. A substitute arbitrator was appointed on February 25, 2022, and the parties have been working with the substitute arbitrator to conclude the proceedings. 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. 23 Table of Contents Shenzhen Beike Biotechnology Co. Ltd. Arbitration In 2020, we received a Request for Arbitration before the International Chamber of Commerce, International Court of Arbitration. The arbitration relates to a license, development, and commercialization agreement that Altor entered into with Beike in 2014, which agreement was amended and restated in 2017, pursuant to which Altor granted to Beike an exclusive license to use, research, develop and commercialize products based on N-803 in China for human therapeutic uses. In the arbitration, Beike is asserting a claim for breach of contract under the license agreement. Among other things, Beike alleges that we failed to use commercially reasonable efforts to deliver to Beike materials and data related to N-803. Beike is seeking specific performance, or in the alternative, damages for the alleged breaches. On September 25, 2020, the parties entered into a standstill and tolling agreement under which, among other things, the parties affirmed they will perform certain of their obligations under the license agreement by specified dates and agreed that all deadlines in the arbitration are indefinitely extended. The standstill agreement may be terminated by any party on ten calendar days’ notice, and upon termination, the parties will have the right to pursue claims arising from the license agreement in any appropriate tribunal. The parties have been providing periodic updates to the International Chamber of Commerce confirming a stay of all proceedings during the standstill. Given that this action remains at the pleading stage and no discovery has occurred, it remains too early to evaluate the likely outcome of the case or to estimate any range of potential loss. We believe the claims lack merit and intend to defend the case vigorously and further believe that we may have counterclaims. Litigation Related to the Merger with ImmunityBio, Inc. In connection with the Merger with NantCell, Inc. (formerly known as ImmunityBio, Inc., a private company), a Delaware corporation, via a wholly-owned subsidiary of NantKwest, several complaints were filed as individual actions in the United States District Courts, and subsequently were voluntarily dismissed (the Merger Actions). 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. The Merger Actions sought, among other things, an injunction enjoining the stockholder vote on the Merger and the consummation of the Merger unless and until certain additional information was disclosed to NantKwest’s stockholders, costs of the action, including plaintiffs’ attorneys’ fees and experts’ fees, and other relief the Court may deem just and proper. Neither the stockholder vote on the Merger nor the Merger were enjoined and both occurred on March 8 and March 9, 2021, respectively. The Merger Actions were voluntarily dismissed on March 25, 2022. Commitments 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. There have been no material changes in unconditional purchase commitments from those disclosed in Note 7, Commitments and Contingencies, of the “Notes to Consolidated Financial Statements” that appears in Part II, Item 8. “Financial Statements and Supplementary Data” of our Annual Report on Form 10-K filed with the SEC on March 1, 2022. 8. Lease Arrangements 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, 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. Our leases generally have initial terms ranging from two to ten years and often include one or more options to renew. These renewal terms can extend the lease term from one to ten years , and are included in the lease term when it is reasonably certain that we will exercise the option. 24 Table of Contents Supplemental balance sheet information related to our leases is as follows (in thousands): September 30, 2022 December 31, 2021 Classification (Unaudited) Assets 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 Liabilities Current Operating lease liabilities Operating lease liabilities $ 1,365 $ 3,011 Finance lease liabilities Accrued expenses and other liabilities 75 — Non-current 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, 2021 (Unaudited) 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 September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Unaudited) (Unaudited) 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 Total lease costs $ 5,791 $ 2,402 $ 13,157 $ 7,449 25 Table of Contents Cash paid for amounts included in the measurement of lease liabilities is as follows (in thousands): Nine Months Ended September 30, 2022 2021 (Unaudited) Cash paid for operating leases (excluding variable lease costs) $ 7,350 $ 5,878 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: Operating Leases Finance Leases Total 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 Total future minimum lease payments 78,175 176 78,351 Less: Interest 23,362 17 23,379 Less: Tenant improvement allowance receivable 3,887 — 3,887 Present value of operating lease liabilities $ 50,926 $ 159 $ 51,085 3530 John Hopkins Court In April 2022, we extended our existing lease for 44,681 rentable square feet at 3530 John Hopkins Court in San Diego, California from July 31, 2023 to July 31, 2030 (the Extended Lease Term). This facility is used primarily as a research laboratory and our corporate offices. The Extended Lease Term will commence on August 1, 2023, and includes an option to extend the lease for one five-year term through July 31, 2035. The base rent effective during the Extended Lease Term will be approximately $ 323,937 per month with an annual increase of 3 % beginning on August 1, 2024. At the beginning of the option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement). We will receive a rent abatement for the first seven months of the Extended Lease Term beginning on August 1, 2023, and a tenant improvement allowance of $ 0.7 million from the landlord for costs and expenses associated with the construction of tenant improvements that can be used during the 12-month period ending on August 1, 2024 . 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. 26 Table of Contents 9. 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. Soon-Shiong. 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. Soon-Shiong. 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. Soon-Shiong. 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. 27 Table of Contents 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 %. 28 Table of Contents Our related-party debt is summarized below (in thousands): Balances at September 30, 2022 (Unaudited) Maturity Year Interest Rate Outstanding Advances Accrued Interest Added to Note Less: Unamortized Discounts Total Related-Party Notes: Nant Capital (1) 2023 Term SOFR + 8.0 % $ 300,000 $ — $ 43,135 $ 256,865 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 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 _______________ (1) The interest rate on our related-party variable-rate notes as of September 30, 2022 was 11.55 %. 29 Table of Contents Balances at December 31, 2021 Maturity Year Interest Rate Outstanding Advances Accrued Interest Added to Note Less: Unamortized Debt Issuance Costs Total Related-Party Note: Nant Capital (1) 2022 Term SOFR + 5.4 % $ 300,000 $ 674 $ 1,438 $ 299,236 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): Principal Payments Interest Payments (1) Convertible Notes Non-convertible Notes Convertible Notes Non-convertible Notes Total 2022 (excluding the nine months ended September 30, 2022) $ — $ — $ 605 $ 12,376 $ 12,981 2023 — 425,000 2,400 49,101 476,501 2024 — — 2,407 — 2,407 2025 276,644 — 82,267 — 358,911 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 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 %. 30 Table of Contents 10. 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, 2021 (Unaudited) Due from related party–NantBio, Inc. $ 1,294 $ 1,294 Due from related parties–Various 194 39 Total due from related parties $ 1,488 $ 1,333 Due to related party–Duley Road, LLC $ 1,710 $ 1,380 Due to related party–NantWorks — 1,113 Due to related party–NantBio, Inc. 943 943 Due to related party–Immuno-Oncology Clinic, Inc. — 507 Due to related party–Various 365 — Total due to related parties $ 3,018 $ 3,943 Our Executive Chairman, Global Chief Scientific and Medical Officer, and principal stockholder founded and has a controlling interest in NantWorks, which is a collection of companies in the healthcare and technology space. As described below, we have entered into arrangements with NantWorks, and certain affiliates of NantWorks, to facilitate the development of new immunotherapies for our product pipeline. Affiliates of NantWorks are also affiliates of the company due to the common control by and/or common ownership interest of our Executive Chairman and Global Chief Scientific and Medical Officer. NantWorks, LLC Shared Services Agreement 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 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 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 In 2015, we entered into a facility license agreement with NantWorks for approximately 9,500 square feet of office space in Culver City, California, which was converted to a research and development laboratory and a cGMP manufacturing facility. In 2020, we amended this agreement to extend the term of this license agreement through December 31, 2021. Commencing on January 1, 2022, the license fee increased by 3 % to approximately $ 56,120 per month. 31 Table of Contents On May 6, 2022, we amended our facility license agreement with NantWorks to expand the licensed premises by 36,830 rentable square feet to an aggregate total of 46,330 rentable square feet. Effective May 1, 2022, the license fee is approximately $ 273,700 per month, which is subject to a 3 % increase commencing on January 1 of each year. 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 $ 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. We entered into multiple agreements with Immuno-Oncology Clinic, Inc. (the Clinic) to conduct clinical trials related to certain of our product candidates. The Clinic is a related party as it is owned by an officer of the company and NantWorks manages the administrative operations of the Clinic. Pursuant to the terms of the Clinic agreement (as amended), we made payments totaling $ 5.6 million in consideration of future services to be performed by the Clinic. In 2021, we completed a review of alternative structures that could support our more complex clinical trial requirements and made a decision to explore a potential transition of clinical trials at the Clinic to a new structure (including contracting with a new, non-affiliated professional corporation) to be determined and agreed upon by all parties. Based on this decision to explore a potential transition, we determined that it was more likely than not that the previously recorded prepaid asset would not result in the collection of fees for services performed by the Clinic as contemplated in the original agreements. 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 $ 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 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 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 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. 32 Table of Contents 605 Doug St, LLC In September 2016, we entered into a lease agreement with 605 Doug St, LLC, an entity owned by our Executive Chairman and Global Chief Scientific and Medical Officer, for approximately 24,250 rentable square feet in El Segundo, California, which has been converted to a research and development laboratory and a cGMP manufacturing facility. The lease runs from July 2016 through July 2023. We have the option to extend the lease for one additional three-year term through July 2026. 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 $ 0.7 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, 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 %. Effective in January 2019, we entered into two lease agreements with Duley Road for a second building located in El Segundo, California. The first lease is for the first floor of the building with approximately 5,650 rentable square feet. The lease has a seven-year term commencing in September 2019. The second lease is for the second floor of the building with approximately 6,488 rentable square feet. The lease has a seven-year term commencing in July 2019. Both floors of the building are used for research and development and office space. We have options to extend the initial terms of both leases for two consecutive five-year periods through 2036. The base rent for the two leases is approximately $ 35,800 per month, 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 In February 2021 , but effective on January 1, 2021 , we entered into a lease agreement with 605 Nash, a related party, whereby we leased approximately 6,883 square feet (the Initial Premises) i n a two story mixed use building containing approximately 64,643 rentable square feet on 605-607 Nash Street in El Segundo, California. This facility is used primarily for pharmaceutical development and manufacturing purposes. The lease term commenced in January 2021 and expires in December 2027 , and includes an option to extend the lease for one three-year term through December 2030 . The base rent is approximately $ 20,300 per month with an annual increase of 3 % on January 1 of each year during the initial term and, if applicable, during the option term. In addition, under the agreement, we are required to pay our share of estimated property taxes and operating expenses. 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. The amendment expanded the leased square feet by approximately 57,760 rentable square feet (the Expansion Premises). The lease term of the Expansion Premises commenced in April 2021 and expires in March 2028, whereby the company has the option to extend the initial term for three years . Per the terms of the amendment, the term of the Initial Premises lease was extended for an additional three months and now expires on March 31, 2028. Base rent for the Expansion Premises is approximately $ 170,400 per month with annual increases of 3 % on April 1 of each year. We are responsible for the build out of the facility space and associated costs. 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 33 Table of Contents 557 Doug St, LLC 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 On September 27, 2021, we entered into a lease agreement with 420 Nash, LLC, a related party, whereby we leased an approximately 19,125 rentable square foot property located at 420 Nash Street, El Segundo, California, to be used primarily for the warehousing and storage of drug manufacturing supplies, products and equipment and ancillary office space. Under the terms of the lease agreement, the lease term began on October 1, 2021 and expires on September 30, 2026. The base rent is approximately $ 38,250 per month with an annual increase of 3 % on October 1 of each year beginning in 2022 during the initial term. The company is responsible for the payment of real property taxes, repairs and maintenance, improvements, insurance and operating expenses during the term of the lease. We received a rent abatement for the first month of the lease, and a one-time improvement allowance of $ 15,000 from the landlord that was credited against base rent obligations for the second month of the lease. The company has options to extend the lease term for two additional consecutive periods of five years each. At the beginning of each option term, the initial monthly base rent will be adjusted to market rent (as defined in the lease agreement) with an annual increase of 3 % during the option term. We have included the first option to extend the lease term for five years as part of the initial term of the lease as it is reasonably certain that we will exercise the option, which implies lease expiration in September 2031. 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 On May 6, 2022, we entered into a lease agreement with 23 Alaska, LLC, a related party, for a 47,265 rentable square foot facility located at 2335 Alaska Ave., El Segundo, California, to be used primarily for pharmaceutical development and manufacturing, research and development, and office space. Under the terms of the agreement, the lease term begins on May 1, 2022 and expires on April 30, 2027. The base rent is approximately $ 139,400 per month with an annual increase of 3 % on May 1 of each year beginning in 2023 during the initial term. We will receive a rent abatement for the second through sixth month of the lease. We are also required to pay $ 7,600 per month for parking during the initial term and extension term, if exercised. 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 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 $ 0.6 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. 34 Table of Contents 11. Stockholders’ Deficit Stock Authorized for Issuance Effective February 1, 2022, ImmunityBio amended and restated its Amended and Restated Certificate of Incorporation to increase the number of shares of common stock that the company is authorized to issue from 500,000,000 shares, $ 0.0001 par value per share, to 900,000,000 shares, $ 0.0001 par value per share. The number of shares of preferred stock that the company is authorized to issue remains unchanged at 20,000,000 shares. Stock Repurchases 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 On April 30, 2021, we entered into an open market sale agreement (the Sale Agreement) with respect to an ATM offering program under which we may offer and sell, from time to time at our sole discretion, shares of our common stock, having an aggregate offering price of up to $ 500.0 million through our sales agent. We pay our sales agent a commission of up to 3.0 % of the gross sales proceeds of any shares of our common stock sold through them under the Sale Agreement, and also have provided them with customary indemnification and contribution rights. 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. The Sale Agreement may be terminated by us at any time given written notice to the sales agent for any reason or by the sales agent at any time by giving written notice to us for any reason or immediately under certain circumstances, and shall automatically terminate upon the issuance and sale of all of the shares. 12. Stock-Based Compensation 2015 Equity Incentive Plan 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 September 30, 2022, approximately 18.3 million shares were available for future grants under the 2015 Plan. Stock-Based Compensation The following table presents stock-based compensation included on the condensed consolidated statements of operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2022 2021 2022 2021 (Unaudited) (Unaudited) Stock-based compensation expense: Stock options $ 3,790 $ 1,815 $ 9,554 $ 9,780 RSUs 6,840 12,025 21,275 37,221 $ 10,630 $ 13,840 $ 30,829 $ 47,001 Stock-based compensation expense in operating expenses: Research and development $ 3,915 $ 4,928 $ 10,116 $ 16,361 Selling, general and administrative 6,715 8,912 20,713 30,640 $ 10,630 $ 13,840 $ 30,829 $ 47,001 35 Table of Contents Stock Options The following table summarizes stock option activity and related information for the nine months ended September 30, 2022: Number of Options Weighted- Average Exercise Price Aggregate Intrinsic Value (in thousands) Weighted- Average Remaining Contractual Life (in years) Outstanding at December 31, 2021 4,124,930 $ 15.62 $ 4,178 5.3 Granted 5,736,256 $ 5.33 Exercised ( 14,767 ) $ 5.07 Forfeited/expired ( 506,242 ) $ 5.95 Outstanding at September 30, 2022 9,340,177 $ 9.84 $ 4,655 7.4 Vested and exercisable at September 30, 2022 3,463,222 $ 14.70 $ 2,650 4.0 On March 23, 2022, the Compensation Committee of the Board of Directors granted option awards to purchase a total of 4,728,634 shares of our common stock pursuant to the 2015 Plan at an exercise price of $ 5.83 per share, the closing price reported on the Nasdaq on the date of grant. Of the option awards granted, 3,903,634 shares subject to such option awards were awarded to employees of the company (of which 825,000 options were awarded to the company’s named executive officers (NEOs)). The shares subject to the option shall vest in equal annual installments of 1/3rd on each of the first, second and third anniversaries of March 23, 2022 (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” as defined in the 2015 Plan through each applicable vesting date. The remaining 825,000 shares subject to such option awards were awarded to the company’s NEOs. 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 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. 36 Table of Contents 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: Nine Months Ended September 30, 2022 (Unaudited) Expected term 5.7 years Risk-free interest rate 2.6 % Expected volatility 101.8 % Dividend yield 0.0 % Weighted-average grant date fair value $ 4.20 The expected term was estimated using the average of the contractual term and the weighted-average vesting term of the options. The risk-free interest rate was based on the U.S. Treasury’s rates for U.S. Treasury zero-coupon bonds with maturities similar to those of the expected term of the award being valued. The expected volatility was estimated based on the historical volatility of our common stock. The assumed dividend yield was based on our expectation of not paying dividends in the foreseeable future. Restricted Stock Units The following table summarizes RSU activity during the nine months ended September 30, 2022: Number of Units Weighted- Average Grant Date Fair Value Nonvested balance at December 31, 2021 6,515,889 $ 21.88 Granted 1,663,769 $ 4.14 Vested ( 302,191 ) $ 11.48 Forfeited/canceled ( 928,940 ) $ 17.77 Nonvested balance at September 30, 2022 6,948,527 $ 18.63 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 $ 0.8 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. Warrants 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 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. 37 Table of Contents 13. Income Taxes We are subject to U.S. federal income tax, as well as income tax in Italy, South Korea, California and other states. From inception through 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). The company computes its quarterly income tax provision by using a forecasted annual effective tax rate and adjusts for any discrete items arising during the quarter. No tax benefit was provided for losses incurred in the U.S., Italy, and South Korea because those losses are offset by a full valuation allowance. The company is no longer subject to income tax examination by the U.S. federal, state or local tax authorities for years ended on or before December 31, 2016. Carryforward attributes that were generated in years where the statute of limitations is closed may still be adjusted upon examination by the Internal Revenue Service or other respective tax authorities. No income tax returns are currently under examination by taxing authorities. On March 9, 2021, the company completed the Merger with NantCell. The Merger is accounted for as a transaction between entities under common control, and is considered a nontaxable transaction for U.S. income tax purposes, as it is intended to qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the Code). 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. 38 Table of Contents