PDS Biotechnology Corp 10-K

ITEM 9A. Controls and Procedures Limitations of Internal Control System Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, within our company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. 97 Index Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures, (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)), as of December 31, 2022. Based on that evaluation, management has concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions Management’s Report on Internal Control over Financial Reporting Our Management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our management conducted an assessment of the effectiveness of our internal control over financial reporting based on the framework established in the 2013 Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on this assessment, our management has determined that our internal control over financial reporting was effective as of December 31, 2022. Changes in Internal Control over Financial Reporting There has been no change in our internal control over financial reporting in our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. ITEM 9B. Other Information Not applicable. ITEM 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. Not applicable. 98 Index PART III Certain information required by Part III is omitted from this Annual Report on Form 10-K because we will file a definitive Proxy Statement for the Annual Meeting of Stockholders pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the Proxy Statement), not later than 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, and the applicable information included in the Proxy Statement is incorporated herein by reference. ITEM 10. Directors, Executive Officers and Corporate Governance The information required by this Item is incorporated herein by reference to the Proxy Statement. ITEM 11. Executive Compensation The information required by this Item is incorporated herein by reference to the Proxy Statement. ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters The information required by this Item is incorporated herein by reference to the Proxy Statement. ITEM 13. Certain Relationships and Related Transactions, and Director Independence The information required by this Item is incorporated herein by reference to the Proxy Statement. ITEM 14. Principal Accounting Fees and Services The information required by this Item is incorporated herein by reference to the Proxy Statement. PART IV ITEM 15. Exhibits, Financial Statement Schedules (a) The following documents are filed as part of this report: (1) Financial Statements: The information concerning our consolidated financial statements, and Report of Independent Registered Public Accounting Firm required by this Item is incorporated by reference herein to the section of this Annual Report on Form 10-K in Item 8, entitled “(PCAOB ID 185 ) Financial Statements and Supplementary Data”. (2) Financial Statement Schedules: All schedules have been omitted because the required information is not present or not present in amounts sufficient to require submission of the schedules, or because the information required is shown in the financial statements or the notes thereto. (3) Exhibits: The list of exhibits required by Item 601 of Regulation S-K is set forth in the Exhibit Index immediately preceding the signature page to this Annual Report on Form 10-K and is incorporated herein by reference. ITEM 16. Form 10-K Summary We may voluntarily include a summary of information required by Form 10-K under this Item 16. We have elected not to include such summary information. 99 Index Exhibit Number Exhibit Description 2.1 Agreement and Plan of Merger and Reorganization, dated November 23, 2018, by and among Edge Therapeutics, Inc., Echos Merger Sub, Inc. and PDS Biotechnology Corporation (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on November 26, 2018, and incorporated by reference herein). 2.2 Amendment No. 1 to Agreement and Plan of Merger and Reorganization, dated January 24, 2019, by and among Edge Therapeutics, Inc., Echos Merger Sub, Inc. and PDS Biotechnology Corporation (filed as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed on January 30, 2019, and incorporated by reference herein). 3.1 Eighth Amended and Restated Certificate of Incorporation of Edge Therapeutics, Inc. (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on October 6, 2015, and incorporated by reference herein). 3.2 Third Amended and Restated Bylaws of PDS Biotechnology Corporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K filed on March 15, 2022, and incorporated by reference herein). 3.3 Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K on March 18, 2019, and incorporated by reference herein). 3.4 Certificate of Amendment to Amended and Restated Certificate of Incorporation (filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K on March 18, 2019, and incorporated by reference herein). 4.1 Form of Certificate of Common Stock (filed as Exhibit 4.1 to the Company’s Pre-Effective Amendment No. 1 to the registration statement on Form S-1 (File No. 333- 206416) filed on September 21, 2015, and incorporated by reference herein). 4.2 Description of Securities (filed as Exhibit 4.10 to the Company’s Annual Report on Form 10-K filed on March 27, 2020, and incorporated by reference herein). 4.3 Form of Indenture (filed as Exhibit 4.3 to the Company’s registration statement on Form S-3 (File No. 333-267041) on August 24, 2022, and incorporated by reference herein). 10.1 Form of Warrant issued under the Venture Loan and Security Agreement, dated August 24, 2022 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q on November 14, 2022, and incorporated by reference herein). 10.2++ Venture Loan and Security Agreement, dated August 24, 2022, by and among Horizon Technology Finance Corporation, as a lender and collateral agent, Powerscourt Investments XXV, LP, as a lender, PDS Operating Corporation, as a guarantor, and PDS Biotechnology Corporation, as borrower (filed as Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q on November 14, 2022, and incorporated by reference herein). 10.3 Clinical Trial Collaboration and Supply Agreement, dated May 19, 2017, by and between PDS Biotechnology Corporation and MSD International GmbH (filed as Exhibit 10.24 to the Company’s Registration Statement on Form S-4/A on January 25, 2019, and incorporated by reference herein). 10.4 Patent License Agreement, dated January 5, 2015, by and between PDS Biotechnology Corporation and National Institutes of Health, as amended by First Amendment, dated August 5, 2015 (filed as Exhibit 10.25 to the Company’s Registration Statement on Form S-4/A on January 25, 2019, and incorporated by reference herein). 10.5 Cost Reimbursement Agreement, dated November 1, 2015, by and between PDS Biotechnology Corporation and University of Kentucky Research Foundation (filed as Exhibit 10.26 to the Company’s Registration Statement on Form S-4/A on January 25, 2019, and incorporated by reference herein). 10.6 Cost Reimbursement Agreement, dated November 1, 2015, by and between PDS Biotechnology Corporation and University of Kentucky Research Foundation (filed as Exhibit 10.27 to the Company’s Registration Statement on Form S-4/A on January 25, 2019, and incorporated by reference herein). 10.7 Public Health Service Cooperative Research & Development Agreement for Intramural-PHS Clinical Research, dated effective as of February 2, 2015, by and between the National Cancer Institute and PDS Biotechnology Corporation (filed as Exhibit 10.28 to the Company’s Registration Statement on Form S-4/A on January 25, 2019, and incorporated by reference herein). 100 Index 10.8 DOTAP Chloride Enantiomer License Agreement effective November 1, 2008, between Merck Eprova AG and PDS Biotechnology Corporation (filed as Exhibit 10.29 to the Company’s Registration Statement on Form S-4/A on January 25, 2019, and incorporated by reference herein). 10.9*++ License Agreement dated as of December 30, 2022 by and between Merck KGaA, Darmstadt, Germany and PDS Biotechnology Corporation. 10.10 Share Transfer Agreement by and between PDS Biotechnology Corporation and Merck KGaA, Darmstadt, Germany. (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on January 3, 2023, and incorporated by reference herein). 10.11+ PDS Biotechnology 2010 Equity Incentive Plan, and forms of agreement thereunder (filed as Exhibit 10.2 to the Company’s Registration Statement on Form S-1/A on September 21, 2015, and incorporated by reference herein). 10.12+ Second Amended and Restated PDS Biotechnology Corporation 2014 Equity Incentive Plan (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K on December 9, 2020, and incorporated by reference herein). 10.13+ Employee Stock Option Agreement under the Second Amended and Restated PDS Biotechnology Corporation 2014 Equity Incentive Plan (filed as Exhibit 10.4 to the Company’s Current Report on Form 8-K filed on December 9, 2020, and incorporated by reference herein). 10.14+ PDS Biotechnology Corporation 2009 Stock Option Plan, as amended (filed as Exhibit 99.1 to the Company’s Registration Statement on Form S-8 on June 4, 2019, and incorporated by reference herein). 10.15+ PDS Biotechnology Corporation 2018 Stock Option Plan (filed as Exhibit 99.2 to the Company’s Registration Statement on Form S-8 on June 4, 2019, and incorporated by reference herein). 10.16+ Form of PDS Biotechnology Corporation Option Agreement for 2009 Stock Option Plan, as amended (filed as Exhibit 99.3 to the Company’s Registration Statement on Form S-8 on June 4, 2019, and incorporated by reference herein). 10.17+ Form of PDS Biotechnology Corporation Option Agreement for 2018 Stock Incentive Plan (filed as Exhibit 99.4 to the Company’s Registration Statement on Form S-8 on June 4, 2019, and incorporated by reference herein). 10.18+ PDS Biotechnology Corporation 2019 Inducement Plan, as amended (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on May 18, 2022, and incorporated by reference herein). 10.19+ Form of Stock Option Grant Notice and Stock Option Agreement under the 2019 Inducement Plan (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K on June 20, 2019, and incorporated by reference herein). 10.20+ Form of Indemnification Agreement for officers and directors (filed as Exhibit 10.9 to the Company’s Registration Statement on Form S-1 on August 14, 2015, and incorporated by reference herein). 10.21 Common Stock Purchase Agreement, dated July 29, 2019, by and among the Company and Aspire Capital Fund, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K on July 30, 2019, and incorporated by reference herein). 10.22 Sublease Agreement, effective as of March 5, 2020, by and between PDS Biotechnology Corporation and COWI North America, Inc. (filed as Exhibit 10.37 to the Company’s Annual Report on Form 10-K filed on March 27, 2020, and incorporated by reference herein). 10.23++ Patent License Agreement dated as of November 5, 2021, by and between PDS Biotechnology Corporation and the U.S. Department of Health and Human Services, as represented by the National Cancer Institute (filed as Exhibit 10.19 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein). 10.24++ Option Agreement with University of Georgia Research Foundation, Inc. effective as of October 25, 2021 (filed as Exhibit 10.20 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein). 101 Index 10.25+ PDS Biotechnology Corporation Change of Control Severance Plan effective as of March 14, 2022 (filed as Exhibit 10.21 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein) 10.26+++ Amended and Restated Executive Employment Agreement by and between Frank K. Bedu-Addo and PDS Biotechnology Corporation, effective as of March 14, 2022 (filed as Exhibit 10.22 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein). 10.27+++ Executive Employment Agreement by and between Gregory Conn, Ph.D. and PDS Biotechnology Corporation, effective as of March 14, 2022 (filed as Exhibit 10.23 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein). 10.28+++ Executive Employment Agreement by and between Matthew Hill and PDS Biotechnology Corporation, effective as of March 14, 2022(filed as Exhibit 10.24 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein). 10.29+++ Executive Employment Agreement by and between Lauren V. Wood, M.D. and PDS Biotechnology Corporation, effective as of March 14, 2022 (filed as Exhibit 10.25 to the Company’s Annual Report on Form 10-K filed on March 31, 2022, and incorporated by reference herein). 10.30+++ Executive Employment Agreement by and between Spencer Brown and PDS Biotechnology Corporation, effective as of June 1, 2022 (filed as Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q filed on August 8, 2022, and incorporated herein by reference). 21.1* Subsidiary of PDS Biotechnology Corporation. 23.1* Consent of KPMG LLP. 31.1* Principal Executive Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2* Principal Financial Officer’s Certifications Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 32.2* Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith). 101.INS* Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document) 101.SCH* Inline XBRL Taxonomy Extension Schema Document 101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB* Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) + Indicates management contract or compensatory plan. * Filed herewith unless otherwise indicated as furnished herewith. ** Confidential Treatment has been requested with respect to certain portions of this Exhibit. Omitted portions have been filed separately with the Securities and Exchange Commission. ++ Certain portions of this exhibit have been redacted pursuant to Item 601(b)(10)(iv) of Regulation S-K. 102 Index SIGNATURES Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized. PDS Biotechnology Corporation March 28, 2023 By: /s/ Frank Bedu-Addo Frank Bedu-Addo, Ph.D. President and Chief Executive Officer March 28, 2023 By: /s/ Matthew Hill Matthew Hill Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-K has been signed by the following persons in the capacities indicated below and on the dates indicated: Signature Title Date /s/ Frank Bedu-Addo President and Chief Executive Officer and Director March 28, 2023 Frank Bedu-Addo, Ph.D. (Principal Executive Officer) /s/ Matthew Hill Chief Financial Officer March 28, 2023 Matthew Hill (Principal Financial and Accounting Officer) /s/ Gregory Freitag Director March 28, 2023 Gregory Freitag J.D., CPA /s/ Stephen Glover Director March 28, 2023 Stephen Glover /s/ Sir Richard Sykes Director March 28, 2023 Sir Richard Sykes /s/ Kamil Ali-Jackson Director March 28, 2023 Kamil Ali-Jackson /s/ Otis W. Brawley Director March 28, 2023 Otis W. Brawley /s/ Ilian Iliev Director March 28, 2023 Ilian Iliev 103 Index Report of Independent Registered Public Accounting Firm To the Stockholders and Board of Directors PDS Biotechnology Corporation: Opinion on the Consolidated Financial Statements We have audited the accompanying consolidated balance sheets of PDS Biotechnology Corporation and subsidiary (the Company) as of December 31, 2022 and 2021, the related consolidated statements of operations and comprehensive loss, changes in stockholders’ equity, and cash flows for the years then ended, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. Basis for Opinion These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matters Critical audit matters are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters. /s/ KPMG LLP We have served as the Company’s auditor since 2019. Short Hills, New Jersey March 28, 2023 104 Index PDS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY Consolidated Balance Sheets December 31, 2022 December 31, 2021 ASSETS Current assets: Cash and cash equivalents $ 73,820,160 $ 65,242,622 Prepaid expenses and other 2,660,230 1,597,569 Total current assets 76,480,390 66,840,191 Property and equipment, net – 86 Financing lease right-to-use assets 374,888 – Operating lease right-to-use asset 152,645 357,611 Total assets $ 77,007,923 $ 67,197,888 LIABILITIES AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable $ 1,219,287 $ 1,309,403 Accrued expenses 8,313,708 2,187,704 Financing lease obligation - short term 56,612 – Operating lease obligation - short term 231,429 258,924 Total current liabilities 9,821,036 3,756,031 Noncurrent liabilities: Note payable, net of debt discount 23,020,844 – Financing lease obligation-long term 164,013 – Operating lease obligation-long term – 231,430 Total liabilities 33,005,893 3,987,461 STOCKHOLDERS’ EQUITY Common stock, $ 0.00033 par value, 75,000,000 shares authorized at December 31, 2022 and December 31, 2021, 30,170,317 shares and 28,448,612 shares issued and outstanding at December 31, 2022 and December 31, 2021, respectively 9,956 9,387 Additional paid-in capital 145,550,491 123,904,602 Accumulated deficit ( 101,558,417 ) ( 60,703,562 ) Total stockholders’ equity 44,002,030 63,210,427 Total liabilities and stockholders’ equity $ 77,007,923 $ 67,197,888 See accompanying notes to the consolidated financial statements. 105 Index PDS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY Consolidated Statements of Operations and Comprehensive Loss Year Ended December 31, 2022 2021 Operating expenses: Research and development expenses $ 29,431,027 $ 11,254,538 General and administrative expenses 12,241,394 10,184,773 Total operating expenses 41,672,421 21,439,311 Loss from operations ( 41,672,421 ) ( 21,439,311 ) Interest income (expense), net Interest income 935,180 4,346 Interest expense ( 1,316,519 ) – Interest income (expense), net ( 381,339 ) 4,346 Loss before income taxes ( 42,053,760 ) ( 21,434,965 ) Benefit from income taxes 1,198,905 4,516,488 Net loss and comprehensive loss $ ( 40,854,855 ) $ ( 16,918,477 ) Per share information: Net loss per share, basic and diluted $ ( 1.43 ) $ ( 0.66 ) Weighted average common shares outstanding basic and diluted 28,599,221 25,597,125 See accompanying notes to the consolidated financial statements. 106 Index PDS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY Consolidated Statements of Changes in Stockholders’ Equity Common Stock Additional Accumulated Shares Issued Amount Paid-in Capital Deficit Total Equity January 1, 2021 22,261,619 $ 7,346 $ 70,907,315 $ ( 43,785,085 ) $ 27,129,576 Stock - based compensation expense – – 257,622 – 257,622 Issuance of common stock from 401K match 16,642 – 35,747 – 35,747 Net loss – – – ( 3,048,618 ) ( 3,048,618 ) Balance - March 31, 2021 22,278,261 $ 7,346 $ 71,200,684 $ ( 46,833,703 ) $ 24,374,327 Stock based compensation expense – – 441,598 – 441,598 Issuance of common stock from 401K match – 5 ( 5 ) – – Issuance of common stock, from exercise of stock options 51,413 17 220,586 – 220,603 Issuances of common stock, net of issuance costs 6,088,235 2,009 48,542,989 – 48,544,998 Net loss – – – ( 588,931 ) ( 588,931 ) Balance - June 30 , 2021 28,417,909 $ 9,377 $ 120,405,851 $ ( 47,422,634 ) $ 72,992,594 Stock based compensation expense – – 1,701,763 – 1,701,763 Issuance of common stock, from exercise of stock options 17,158 6 123,501 – 123,507 Net loss – – – ( 6,960,966 ) ( 6,960,966 ) Balance September 30, 2021 28,435,067 $ 9,383 $ 122,231,115 $ ( 54,383,600 ) $ 67,856,898 Stock based compensation expense – – 1,673,475 – 1,673,475 Issuance of common stock, from exercise of stock options 13,545 4 12 – 16 Net loss – – – ( 6,319,962 ) ( 6,319,962 ) Balance - December 31, 2021 28,448,612 $ 9,387 $ 123,904,602 $ ( 60,703,562 ) $ 63,210,427 Common Stock Additional Accumulated Shares Issued Amount Paid-in Capital Deficit Total Equity January 1, 2022 28,448,612 $ 9,387 $ 123,904,602 $ ( 60,703,562 ) $ 63,210,427 Stock based compensation expense – – 1,128,973 – 1,128,973 Issuances of common stock, from exercise of stock options 2,282 1 7,487 – 7,488 Net loss – – – ( 8,473,522 ) ( 8,473,522 ) Balance - March 31, 2022 28,450,894 $ 9,388 $ 125,041,062 $ ( 69,177,084 ) $ 55,873,366 Stock based compensation expense – – 1,348,601 – 1,348,601 Issuances of common stock, from exercise of stock options 7,794 3 22,426 – 22,429 Net loss – – – ( 5,819,200 ) ( 5,819,200 ) Balance - June 30 , 2022 28,458,688 $ 9,391 $ 126,412,089 $ ( 74,996,284 ) $ 51,425,196 Stock based compensation expense – – 1,344,349 – 1,344,349 Issuance of warrants – – 1,713,741 – 1,713,741 Net loss – – – ( 7,424,450 ) ( 7,424,450 ) Balance September 30, 2022 28,458,688 $ 9,391 $ 129,470,179 $ ( 82,420,734 ) $ 47,058,836 Stock based compensation expense – – 1,374,233 – 1,374,233 Issuances of common stock, from exercise of stock options 269,535 89 1,563,756 – 1,563,845 Net shares for settlements of equity awards and taxes ( 175,184 ) ( 58 ) ( 1,713,247 ) – ( 1,713,305 ) Issuance of common stock for licensing agreement 378,787 125 4,999,863 – 4,999,988 Issuance of common stock from ATM 1,238,491 409 9,855,707 – 9,856,116 Net loss – – – ( 19,137,683 ) ( 19,137,683 ) Balance - December 31, 2022 30,170,317 $ 9,956 $ 145,550,491 $ ( 101,558,417 ) $ 44,002,030 See accompanying notes to the financial statements. 107 Index PDS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY Consolidated Statements of Cash Flows Year Ended December 31, 2022 2021 Cash flows from operating activities: Net loss $ ( 40,854,855 ) $ ( 16,918,477 ) Adjustments to reconcile net loss to net cash used in operating activities: Stock-based compensation expense 5,196,156 4,074,458 Issuance of shares in licensing agreement 4,999,988 – Stock-based 401K company common match – 35,747 Amortization of debt discount 183,914 – Depreciation expense 86 5,357 Operating lease expense 241,029 241,031 Finance lease amortization expense 48,992 – Changes in operating assets and liabilities: Prepaid expenses and other assets ( 1,062,661 ) ( 99,904 ) Finance lease right-to-use asset ( 423,880 ) – Accounts payable ( 90,116 ) ( 105,821 ) Accrued expenses 6,126,004 452,382 Finance lease liabilities 220,625 – Operating lease liabilities ( 294,988 ) ( 170,839 ) Net cash used in operating activities ( 25,709,706 ) ( 12,486,066 ) Cash flows from financing activities: Proceeds from issuance of note payable 25,000,000 – Payment for debt issuance costs ( 449,329 ) – Proceeds from exercise of stock options 151,416 344,125 Payment of taxes in equity transaction ( 270,959 ) – Proceeds from issuances of common stock, net of issuance costs 9,856,116 48,544,998 Net cash provided by financing activities 34,287,244 48,889,123 Net increase in cash and cash equivalents 8,577,538 36,403,057 Cash and cash equivalents at beginning of period 65,242,622 28,839,565 Cash and cash equivalents at end of period $ 73,820,160 $ 65,242,622 Supplemental information of cash and non-cash transactions: Cash paid for interest $ 852,221 $ – Fair value of warrants issued in connection with debt $ 1,713,741 $ – See accompanying notes to the consolidated financial statements. 108 Index PDS BIOTECHNOLOGY CORPORATION AND SUBSIDIARY Notes to Consolidated Financial Statements Note 1 – Nature of Operations PDS Biotechnology Corporation, a Delaware corporation (the “Company” or “PDS Biotech”), is a clinical-stage immunotherapy company developing a growing pipeline of molecularly targeted immunotherapies designed to overcome the limitations of current immunotherapy and vaccine technologies. The Company’s proprietary T cell activating platforms designed to train the immune system to attack and destroy disease; Versamune, and Versamune plus PDS0301 for treatments in oncology and Infectimune, for treatments in infectious disease. When paired with an antigen, which is a disease-related protein that is recognizable by the immune system, Versamune and Infectimune have both been shown to induce, in vivo, large quantities of high-quality, highly potent polyfunctional CD4 helper and CD8 killer T cells, a specific sub-type of T cell that is more effective at killing infected or target cells. Infectimune is also designed to promote the induction of disease-specific neutralizing antibodies. The Company’s immuno-oncology product candidates are of potential interest for use as a component of combination product candidates (for example, in combination with other leading technologies such as immune checkpoint inhibitors) to provide more effective treatments across a range of advanced and/or refractory cancers. The Company is also evaluating our immunotherapies as monotherapies in early-stage disease. PDS is developing targeted product candidates to treat several cancers including Human Papillomavirus (HPV)-associated cancers, melanoma, colorectal, lung, breast and prostate cancers. The Company infectious disease candidates are of potential interest for use in COVID-19 and universal influenza vaccines. PDS has developed numerous patents and patent applications and owns substantial know-how and trade secrets related to its Versamune platform. As of December 31, 2022, PDS holds seven ( 7 ) U.S. patents with granted claims directed to its platform technology and nineteen ( 19 ) pending U.S. patent applications. These issued patents will expire in 2026, 2029, 2031 and 2033. Should the more recently submitted patent applications currently in prosecution be issued, these will expire in 2033 through 2043 assuming no patent term extensions are granted. As of March 1, 2023, PDS holds seventy one ( 71 ) issued foreign patents and thirty-eight ( 38 ) pending or published foreign patent applications. Most of our international issued patents are issued in multiple countries including Europe, Japan and Australia, and all of which cover compositions of matter and methods of use related to its platform technology. These issued patents will expire in 2028-2037, or later if patent term extension applies. Most recently, the USPTO allowed two ( 2 ) applications methods of use related to the platform technology which when granted will run until November 2036. Licensed patents The Company has licensed patented antigens from the US government for use in our cationic lipid immunotherapies. The Company has licensed T cell receptor gamma alternate reading frame protein (“TARP”) from the National Cancer Institute (“NCI”) to develop and commercialize TARP peptide-based therapies in combination with the Company’s Versamune technology and any other of the Company’s proprietary technologies for prostate and breast cancers and Acute Myeloid Leukemia. These patents are directed to Immunogenic Peptides and Peptide Derivatives for The Treatment of Prostate and Breast Cancer Treatment and Multi-Epitope TARP Peptide Vaccine and Uses Thereof. These antigens are incorporated in PDS0102 with Versamune. The Company has licensed mucin-1 (“MUC1”) novel highly immunogenic agonist epitopes of MUC1 developed by the National Cancer Institute. MUC1 is highly expressed in multiple solid tumors and has been shown to be associated with drug resistance and poor disease prognosis in breast, colorectal, lung and ovarian cancers, for which PDS0103 is being developed. The Company has been granted patents and are pursuing additional patents that cover compositions and methods of use of cationic lipid immunotherapies with each of the licensed technologies . The Company entered into a non-exclusive agreement to license Computationally Optimized Broadly Reactive Antigen (COBRA) with the University of Georgia Research Foundation. These antigens are developed by Dr. Ted Ross at the University of Georgia. Management believes that the combination of these antigens with our proprietary Versamune technology has potential to induce a broad immune response as a universal flu vaccine. Exclusive License Agreement On December 30, 2022, the Company entered into a License Agreement (the “License Agreement”) with Merck KGaA, Darmstadt, Germany, pursuant to which Merck KGaA, Darmstadt, Germany has granted the Company an exclusive (even as to Merk KGaA), worldwide, sublicensable, milestone and royalty-bearing right and license to certain patent rights and certain related data (the “Licensed Technology”) to develop, manufacture, use, commercialize and otherwise exploit any product containing NHS-IL12 fusion protein known as M9241, now PDS0301. In consideration for the rights granted by Merck KGaA, Darmstadt, Germany, the Company (i) agreed to make a one-time up-front cash payment of $ 5.0 million to Merck KGaA, Darmstadt, Germany, and (ii) entered into a Share Transfer Agreement dated December 30, 2022 (the “Share Transfer Agreement”), pursuant to which the Company issued 378,787 shares of its common stock (the “Shares”) to Merck KGaA, Darmstadt, Germany in a private placement for an aggregate value of $ 5.0 million, as measured by the closing price of the Company’s common stock on the Nasdaq Capital Market as of December 30, 2022. Pursuant to the License Agreement, the Company agreed to make certain commercial sale milestone and royalty payments. 109 Note 2 – Summary of Significant Accounting Policies (A) Use of estimates: The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the reported amounts of revenues and expenses at the date of the consolidated financial statements and during the reporting periods, and to disclose contingent assets and liabilities at the date of the consolidated financial statements. Actual results could differ from those estimates. The most significant estimate relates to the fair value of securities underlying stock-based compensation. (B) Significant risks and uncertainties: The Company’s operations are subject to a number of factors that may affect its operating results and financial condition. Such factors include, but are not limited to: the clinical and regulatory development of its products, the Company’s ability to preserve its cash resources, the Company’s ability to add product candidates to its pipeline, the Company’s intellectual property, competition from products manufactured and sold or being developed by other companies, the price of, and demand for, Company products if approved for sale, the Company’s ability to negotiate favorable licensing or other manufacturing and marketing agreements for its products, and the Company’s ability to raise capital. The Company currently has no commercially approved products. As such, there can be no assurance that the Company’s future research and development programs will be successfully commercialized. Developing and commercializing a product requires significant time and capital and is subject to regulatory review and approval as well as competition from other biotechnology and pharmaceutical companies. The Company operates in an environment of rapid change and is dependent upon the continued services of its employees and consultants and obtaining and protecting its intellectual property. (C) Cash equivalents and concentration of cash balance: The Company considers all highly liquid securities with a maturity weighted average of less than three months to be cash equivalents. The Company’s cash and cash equivalents in bank deposit accounts, at times, may exceed federally insured limits. (D) Property and equipment: Property and equipment are recorded at cost. Depreciation is recorded for property and equipment using the straight-line method over the estimated useful life of five years . The Company reviews the recoverability of all long-lived assets, including the related useful lives, whenever events or changes in circumstances indicate that the carrying amount of a long-lived asset might not be recoverable. (E) Research and development: Costs incurred in connection with research and development activities are expensed as incurred. These costs include licensing fees to use certain technology in the Company’s research and development projects as well as fees paid to consultants and entities that perform certain research and testing on behalf of the Company. Under the terms of the License Agreement, the Company agreed to $ 5 million in an initial payment in cash and an additional $ 5 million in Company Stock, plus future milestone and royalty payments. The Company accounts for milestone payments as expense in research and development and royalties as a reduction in revenues. (F) Patent costs: The Company expenses patent costs as incurred and classifies such costs as general and administrative expenses in the accompanying statements of operations and comprehensive loss. (G) Stock-based compensation: The Company accounts for its stock-based compensation in accordance with ASC Topic 718, Compensation—Stock Compensation (“ASC 718”). ASC 718 requires all stock-based payments to employees, directors and non-employees to be recognized as expense in the consolidated statements of operations and comprehensive loss based on their grant date fair values. In order to determine the fair value of stock options on the date of grant, the Company uses the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option term, risk-free interest rate and dividend yield. While the risk-free interest rate and dividend yield are less subjective assumptions that are based on factual data derived from public sources, the expected stock-price volatility and option term assumptions require a greater level of judgment. The Company expenses the fair value of its stock-based compensation awards to employees and directors on a straight-line basis over the requisite service period, which is generally the vesting period. The Company recognizes forfeitures as they occur. 110 Index (H) Net loss per common share: Basic net loss per common share is calculated by dividing the net loss by the weighted average number of common stock shares outstanding during the period. Diluted net loss per common share is the same as basic net loss per common share, because potentially dilutive securities would have an antidilutive effect as the Company incurred a net loss for the years ended December 31, 2022 and 2021. The potentially dilutive securities excluded from the determination of diluted loss per share as their effect is antidilutive, are as follows: Year Ended December 31, 2022 2021 Stock options to purchase Common Stock 4,171,311 3,163,835 Warrants to purchase Common Stock 506,229 197,518 Total 4,677,540 3,361,353 (I) Income taxes: The Company provides for deferred income taxes under the asset and liability method, which requires deferred tax assets and liabilities to be recognized for the future tax consequences attributable to net operating loss carryforwards and for differences between the financial statement carrying amounts and the respective tax bases of assets and liabilities. Deferred tax assets are reduced if necessary, by a valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. (J) Fair value of financial instruments: FASB ASC 820, Fair Value Measurement Disclosures, specifies a hierarchy of valuation techniques based on whether the inputs to those valuation techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect market assumptions. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). The three levels of the fair value hierarchy are as follows: • Level 1 — Unadjusted quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. Level 1 primarily consists of financial instruments whose value is based on quoted market prices such as exchange-traded instruments and listed equities. • Level 2 — Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly (e.g., quoted prices of similar assets or liabilities in active markets, or quoted prices for identical or similar assets or liabilities in markets that are not active). Level 2 includes financial instruments that are valued using models or other valuation methodologies. • Level 3 — Unobservable inputs for the asset or liability. Financial instruments are considered Level 3 when their fair values are determined using pricing models, discounted cash flows or similar techniques and at least one significant model assumption or input is unobservable. (K) Leases: The Company determines if an arrangement is a lease at inception and recognizes the lease in accordance with ASC 842, Lease Accounting. Operating leases are included in right-of-use ("ROU") assets, current portion, lease liability and long-term lease liability in the Company's consolidated balance sheets. ROU assets represent the right to use an underlying asset for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of the lease payments over the lease term. The Company determines the portion of the lease liability that is current as the difference between the calculated lease liability at the end of the current period and the lease liability that is projected 12 months from the current period. (L) Subsequent events: Subsequent events have been evaluated through the date these financial statements were issued. See Note 14. 111 Index (M) New accounting standards adopted: Recently Adopted Accounting Pronouncements Recently issued accounting pronouncements did not, or are not believed by management to, have a material effect on our present or future consolidated financial statements. Recent Accounting Pronouncements Not Yet Adopted All recently issued accounting pronouncements are not expected to have a material effect on the consolidated financial statements. Note 3 – Liquidity and Capital Resources As of December 31, 2022, the Company had $ 73.8 million of cash and cash equivalents. The Company’s primary uses of cash are to fund operating expenses, primarily research and development expenditures. Cash used to fund operating expenses is impacted by the timing of when the Company pays these expenses, as reflected in the change to the Company’s outstanding accounts payable and accrued expenses. In May 2021, the Company received approximately $ 4.5 million from the net sale of tax benefits through 2019 to an unrelated, profitable New Jersey corporation pursuant the Company’s participation in the New Jersey Technology Business Tax Certificate Transfer Net Operating Loss (NOL) program for State Fiscal Year 2020. In June 2021, the Company completed an underwritten public offering in which it sold 6,088,235 shares of common stock at a public offering price of $ 8.50 per share pursuant to the 2020 Shelf Registration Statement, which includes 794,117 shares issued upon the exercise by the underwriter of its option to purchase additional shares at the public offering price, minus underwriting discounts and commissions. the Company received gross proceeds of approximately $ 51.7 million and net proceeds of approximately $ 48.5 million, after deducting underwriting discounts and offering expenses. Approximately $ 29,300,000 of Shelf Securities remain available for future sale under the 2020 Shelf Registration Statement. In April 2022, the Company received approximately $ 1.2 million from the net sale of tax benefits to an unrelated, profitable New Jersey corporation pursuant the Company’s participation in the New Jersey Technology Business Tax Certificate Transfer NOL program for State Fiscal Year 2021. In August 2022, the Company filed a shelf registration statement, or the 2022 Shelf Registration Statement, with the SEC for the issuance of common stock, preferred stock, warrants, rights, debt securities, and units, which the Company refers to collectively as the Shelf Securities, up to an aggregate amount of $ 150 million, $ 50 million of which covers the offer, issuance and sale by the Company of its common stock under the Sales Agreement (as discussed below). The 2022 Shelf Registration Statement was declared effective on September 2, 2022. In August 2022, the Company entered into an At Market Issuance Sales Agreement, or the Sales Agreement, with B. Riley Securities, Inc. and BTIG, LLC, each an Agent and collectively the Agents, with respect to an at-the-market offering program under which the Company may offer and sell, from time to time at its sole discretion, shares of its common stock, having an aggregate offering price of up to $ 50.0 million , or the Placement Shares, through or to the Agents, as sales agents or principals. Upon delivery of a placement notice and subject to the terms and conditions of the Sales Agreement, the Agents may sell the Placement Shares by any method permitted by law deemed to be an “at the market” offering as defined in Rule 415 of the Securities Act of 1933, as amended, including, without limitation, sales made through The Nasdaq Capital Market or on any other existing trading market for the Company’s common stock. The Agents will use commercially reasonable efforts to sell the Placement Shares from time to time, based upon the Company’s instructions (including any price, time or size limits or other customary parameters or conditions the Company may impose). The Company will pay the Agents a commission equal to three percent ( 3 % ) of the gross sales proceeds of any Placement Shares sold through the Agents under the Sales Agreement, and the Company has also provided the Agents with customary indemnification and contribution rights. The Company is not obligated to make any sales of its common stock under the Sales Agreement. The offering of Placement Shares pursuant to the Sales Agreement will terminate upon the earlier of (i) the sale of all Placement Shares subject to the Sales Agreement or (ii) termination of the Sales Agreement in accordance with its terms. For the year ended December 31, 2022, we sold 1,238,491 shares of our common stock for a net value of $ 9.9 million pursuant to the Sales Agreement. In the first quarter of 2023, we sold 553,293 shares of our common stock for a net value of $ 4.6 million pursuant to the Sales Agreement. 112 Index In August 2022, the Company entered into a venture loan and security agreement, or the Loan and Security Agreement, with Horizon Technology Finance Corporation, as lender and collateral agent for itself and the other lenders. The Loan and Security Agreement provides for the following 6 separate and independent term loans: (a) a term loan in the amount of $ 7,500,000 , or Loan A, (b) a term loan in the amount of $ 10,000,000 , or Loan B, (c) a term loan in the amount of $ 3,750,000 , or Loan C, (d) a term loan in the amount of $ 3,750,000 , or Loan D, (e) a term loan in the amount of $ 5,000,000 , or Loan E, and (f) a term loan in the amount of $ 5,000,000 , or Loan F, (with each of Loan A, Loan B, Loan C, Loan D, Loan E, and Loan F, individually a Loan and, collectively, the Loans). Loan A, Loan B, Loan C, and Loan D were delivered to the Company on August 24, 2022. In total, we received $ 24.6 million in net proceeds. Loan E and Loan F are uncommitted Loans that may be advanced by the lenders upon their discretion prior to July 31, 2023 upon the satisfaction of certain conditions. The Company may only use the proceeds of the Loans for working capital or general corporate purposes. Each Loan matures on the 48 -month anniversary following the applicable funding date unless accelerated pursuant to certain events of default. The principal balance of each Loan bears a floating interest. The interest rate is calculated initially and, thereafter, each calendar month as the sum of (a) the per annum rate of interest from time to time published in The Wall Street Journal as contemplated by the Loan and Security Agreement, or any successor publication thereto, as the “prime rate” then in effect, plus (b) 5.75 %; provided that, in the event such rate of interest is less than 4.00 %, such rate shall be deemed to be 4.00 % for purposes of calculating the interest rate. Interest is payable on a monthly basis based on each Loan principal amount outstanding the preceding month. The Company, at its option upon at least ten ( 10 ) business days’ written notice to the lenders, may prepay all (and not less than all) of the outstanding Loan by simultaneously paying to each lender an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; plus (ii) an amount equal to (A) if such Loan is prepaid on or before the Loan Amortization Date (as defined in the Loan and Security Agreement) applicable to such Loan, 3 % of the then outstanding principal balance of such Loan, (B) if such Loan is prepaid after the Loan Amortization Date applicable to such Loan, but on or before the date that is 12 months after such Loan Amortization Date, 2 % of the then outstanding principal balance of such Loan, or (C) if such Loan is prepaid more than 12 months after the Loan Amortization Date but prior to the stated maturity date applicable to such Loan, 1 % of the then outstanding principal balance of such Loan; plus (iii) the outstanding principal balance of such Loan; plus (iv) all other sums, if any, that shall have become due and payable thereunder. No prepayment premium will be applied to any outstanding balance of any Loan paid on the stated maturity date. The Loan and Security Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. The Company evaluated whether there are any conditions and events, considered in the aggregate, that raise substantial doubt about its ability to continue as a going concern within one year beyond the filing of this Annual Report on Form 10-K. The Company’s budgeted cash requirements in 2023 and beyond include expenses related to continuing development and clinical studies. Based on its available cash resources and cash flow projections as of the date the consolidated financial statements were available for issuance, management believes there are sufficient funds to continue operations and research and development programs into the third quarter of 2024. The Company plans to continue to fund its operations and capital funding needs through needs through existing cash and additional equity and/or debt. However, the Company cannot be certain that additional financing will be available when needed or that, if available, financing will be obtained on terms favorable to the Company or its existing stockholders. The Company may also enter into government funding programs and consider selectively partnering for clinical development and commercialization. The sale of additional equity would result in additional dilution to the Company’s stockholders. Incurring debt financing would result in debt service obligations, and the instruments governing such debt could provide for operating and financing covenants that would restrict its operations. If the Company is unable to raise additional capital in sufficient amounts or on acceptable terms, we may be required to delay, limit, reduce, or terminate its product development or future commercialization efforts or grant rights to develop and market immunotherapies that the Company would otherwise prefer to develop and market itself. Any of these actions could harm its business, results of operations and prospects. Failure to obtain adequate financing also may adversely affect the Company’s ability to operate as a going concern. Note 4 – Fair Value of Financial Instruments There were no transfers between Levels 1, 2, or 3 during the years ended December 31, 2022 or 2021. Fair Value Measurements at Reporting Date Using Total Quoted Prices in Active Markets (Level 1) Quoted Prices in Inactive Markets (Level 2) Significant Unobservable Inputs (Level 3) As of December 31, 2022: Cash and cash equivalents $ 73,820,160 $ 73,820,160 $ – $ – As of December 31, 2021: Cash and cash equivalents $ 65,242,622 $ 65,242,622 $ – $ – The carrying value of the Loan and Security Agreement approximated its fair value at December 31, 2022 due to its variable rate. The FV of the Company ’ s long-term debt are based on Level 2 inputs. 113 Index Note 5 – Property and Equipment Property and equipment is summarized as follows: December 31, 2022 2021 Furniture and equipment $ 14,964 $ 14,964 Computer and Telephone equipment 13,545 13,545 Lab equipment 86,911 86,911 Total furniture and equipment 115,420 115,420 Less accumulated depreciation ( 115,420 ) ( 115,334 ) Property and equipment, net $ 0 $ 86 Depreciation expense for the years ended December 31, 2022 and 2021 was $ 86 and $ 5,357 , respectively. Note 6 – Leases Operating Lease Effective March 5, 2020, the Company entered into a sublease for approximately 11,200 square feet of office space located at 25B Vreeland Road, Suite 300, Florham Park, NJ. The sublease commenced on May 1, 2020 and will continue for a term of forty ( 40 ) months with an option to renew through October 31, 2027. As of December 31, 2022, there are eight ( 8 ) months remaining in the lease term. Upon inception of the lease, the Company recognized approximately $ 0.7 million of a ROU asset and operating lease liabilities. The discount rate used to measure the operating lease liability as of May 1, 2020, was 9.15 %. Throughout the period described above the Company has maintained, and continues to maintain, a month-to-month lease for its research facilities at the Princeton Innovation Center BioLabs located at 303A College Road E, Princeton NJ, 08540. Supplemental cash flow information related to operating leases is as follows: Year Ended December 31, 2022 2021 Cash paid for operating lease liabilities $ 294,987 $ 170,839 For the year ended December 31, 2022, the Company’s operating lease expense was $ 241,029 . Year ended December 31, 2023 $ 239,470 2024 – 2025 – 2026 – 2027 and after – Total future minimum lease payments 239,470 Less imputed interest ( 8,041 ) $ 231,429 Financing Lease The Company has financed certain laboratory equipment as follows: Year Ended December 31, 2022 2021 Cash paid for finance lease liabilities $ 423,880 $ – Year ended December 31, 2023 $ 74,096 2024 65,432 2025 65,432 2026 35,690 2027 and after 22,305 Total future minimum lease payments 262,955 Less imputed interest ( 42,330 ) Remaining lease liability $ 220,625 The Company entered into four financing leases for laboratory equipment with a total cost of $ 423,880 with two to four-year terms and a capitalized interest rate of 9.15 %. Each of the lease agreements include a bargain purchase option to acquire the equipment at the end of the lease term. The aggregate monthly payments are approximately $ 5,452 . Finance lease depreciation expense for the years ended December 31, 2022 and 2021 was $ 48,992 and $ 0 , respectively. 114 Index Note 7 – Accrued Expenses Accrued expenses consist of the following: December 31, 2022 2021 Accrued research and development costs $ 5,645,737 $ 227,400 Accrued professional fees 550,259 485,400 Accrued compensation 1,837,330 1,458,310 Accrued interest on debt 280,382 – Accrued rent – 16,594 Total $ 8,313,708 $ 2,187,704 Note 8 – Stock-Based Compensation In 2014, the Company’s stockholders approved the 2014 Equity Incentive Plan pursuant to which the Company may grant up to 91,367 shares as ISOs, NQs and restricted stock units (“RSUs”), subject to increases as hereafter described (the “Plan Limit”). In addition, on January 1, 2015, and each January 1 thereafter and prior to the termination of the 2014 Equity Incentive Plan, pursuant to the terms of the 2014 Equity Incentive Plan, the Plan Limit was and shall be increased by the lesser of (x) 4 % of the number of shares of Common Stock outstanding as of the immediately preceding December 31 and (y) such lesser number as the Board of Directors may determine in its discretion. In March 2019, the Plan was amended and restated which removed the annual increase component and was limited to 826,292 shares. On December 8, 2020, the Company adopted the Second Amended and Restated PDS Biotechnology Corporation 2014 Equity Inventive Plan (the “Restated Plan”), which amended and restated the Amended and Restated PDS Biotechnology Corporation 2014 Equity Incentive Plan (the “Current Plan”). The Restated Plan is identical to the Current Plan in all material respects, except as follows: (a) the number of shares of Common Stock authorized for issuance under the Restated Plan will increase from 826,292 shares to 3,339,243 shares, plus the total number of shares that remained available for issuance, that are not covered by outstanding awards issued under the Current Plan, immediately prior to December 8, 2020; and (b) the Restated Plan will terminate on December 7, 2030, unless earlier terminated. In 2018, the Company’s stockholders approved the 2018 Stock Incentive Plan pursuant to which the Company may grant up to 558,071 shares as (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Restricted Stock, (iv) Preferred Stock, (v) Stock Reload Options and/or (vi) Other Stock-Based Awards. As of December 31, 2022, there were 190,799 shares available for grant under the 2018 Stock Incentive Plan. On June 17, 2019, the Board adopted the 2019 Inducement Plan (the “Inducement Plan”). On December 8, 2020, the Company amended the Inducement Plan solely to increase the total number of shares of Common Stock reserved for issuance under the Inducement Plan from 200,000 shares to 500,000 shares. On May 17, 2022, the Company further amended the Inducement Plan solely to increase the total number of shares of Common Stock reserved for issuance under the Inducement Plan from 500,000 shares to 1,100,000 shares. The Inducement Plan provides for the grant of non-qualified stock options. The Inducement Plan, and each amendment thereto, was recommended for approval by the Compensation Committee of the Board and subsequently approved and adopted by the Board without stockholder approval pursuant to Rule 5635(c)(4) of the Nasdaq Listing Rules . The Inducement Plan is administered by the Compensation Committee of the Board. In accordance with Rule 5635(c)(4) of the Nasdaq Listing Rules, non-qualified stock options under the Inducement Plan may only be made to an employee who has not previously been an employee of the Company or member of the Board of Directors of the Company (or any parent or subsidiary of the Company)), if he or she is granted such non-qualified stock options in connection with his or her commencement of employment with the Company or a subsidiary and such grant is an inducement material to his or her entering into employment with the Company or such subsidiary. As of December 31, 2022, there were 215,215 shares available for grant under the Inducement Plan. The following table summarizes the components of stock-based compensation expense in the consolidated statements of operations and comprehensive loss for the years ended December 31, 2022 and 2021: Year Ended December 31, 2022 2021 Research and development $ 1,868,352 $ 1,395,957 General and administrative 3,327,804 2,678,500 Total $ 5,196,156 $ 4,074,457 115 Index In lieu of higher cash compensation, the Company has granted non-employee options to consultants and expensed $ 1,383 and $ 1,389 during the years ended December 31, 2022 and 2021, respectively. The following table summarizes the stock option activity for the Company’ stock option plans for the year ended December 31, 2022: Number of Shares Weighted Average Exercise Price Weighted Average Remaining Contractual Life in Years Aggregate Intrinsic Value Balance at January 1, 2022 3,163,835 $ 5.57 7.90 10,839,589 Granted 1,596,005 $ 5.50 9.14 560,930 Exercised ( 279,611 ) $ 5.68 – – Forfeited ( 308,918 ) $ 5.24 – – Options outstanding at December 31, 2022 4,171,311 $ 5.56 7.89 $ 32,779,920 Vested and expected to vest at December 31, 2022 4,171,311 $ 5.56 7.89 $ 32,779,920 Exercisable at December 31, 2022 1,819,185 $ 6.09 6.82 $ 13,785,526 As of December 31, 2022 there was approximately $ 12,257,982 of unamortized stock compensation expense, which is expected to be recognized over a remaining average vesting period of 2.63 years. The weighted-average grant date fair value of the stock options granted in 2022 was $ 4.40 per share. The fair value of options granted during the year ended December 31, 2022 was estimated using the Black-Scholes option valuation model utilizing the following assumptions: Year Ended December 31, 2022 2021 Weighted Average Volatility 99.63 % 100.53 % Risk-Free Interest Rate 1.79 % 0.49 % Expected Term in Years 6.39 6.06 Dividend Rate – – Fair Value of Option on Grant Date $ 4.40 $ 7.65 Expected volatility . The expected volatility assumption is based on volatilities of a peer group of similar companies in the biotechnology industry whose share prices are publicly available. Risk-free interest rate . The risk-free interest rate assumption is based on observed interest rates appropriate for the expected term of the stock option grants. Expected term. The expected term represents the period options are expected to be outstanding. The expected term of the options is based on using the simplified method, which is the midpoint between the requisite service period and the contractual term of the option, since the Company has a limited history of being a public company from March 15, 2019 (the date of the Merger) to develop reasonable expectations about future exercise patterns and employment duration for the stock options grants. Expected dividend rate . The expected dividend yield assumption is based on the fact that the Company has never paid cash dividends and has no present intention to pay cash dividends. 116 Index Note 9 - Stockholders’ Equity Preferred Stock The Company currently has 5,000,000 shares of preferred stock authorized. Voting Shares of preferred stock may be issued in one or more series, from time to time, with each such series to consist of such number of shares and to have such voting powers relative to other classes or series of preferred stock, if any, or common stock, full or limited or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and such qualifications, limitations or restrictions thereof, as shall be stated in the resolution or resolutions providing for the issuance of such series adopted by the Company’s Board of Directors. Common Stock The Company currently has 75,000,000 shares of common authorized. Voting Each holder of a share of common stock is entitled to one vote for each share of common stock. Dividends Dividends may be declared and paid as and when determined by the Board of Directors and subject to any preferential dividend rights of any then outstanding preferred stock. Preemptive Rights. The holders of common stock shall have no preemptive rights to subscribe for any shares of any class of stock of the Company whether now or hereafter authorized. Liquidation Rights Upon the dissolution or liquidation of the Company, whether voluntary or involuntary, holders of the common stock will be entitled to receive all assets of the Company available for distribution to its stockholders, subject to any preferential rights of any then outstanding preferred stock. Note 10 – Income Taxes A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate is as follows: December 31, 2022 2021 Federal statutory rate 21.0 % 21.0 % State taxes 4.8 % ( 13.0 )% Extraordinary gain 0.0 % 0.0 % Permanent differences ( 0.4 )% ( 8.9 )% Research and development 2.9 % 2.8 % State Taxes/Sale of NOL 2.9 % 21.0 % Valuation Allowance ( 28.3 )% ( 1.8 )% Other 0.0 % 0.0 % Effective tax rate 2.9 % 21.1 % 117 Index The tax effects of temporary differences that give rise to significant portions of the deferred tax assets were as follows: December 31, 2022 2021 Federal net operating losses $ 25,063,210 $ 22,831,097 State net operating losses 3,166,596 3,426,561 Stock options 2,696,879 1,374,830 Federal tax credit 2,893,412 1,661,238 State tax credits 511,557 410,089 Research and Development Capitalization (IRC 174) 4,506,729 – License Agreement 2,811,000 – Amortization 29,463 35,579 Accrued expense – 4,665 Depreciation 732,064 719,666 Lease liabilities 127,278 137,838 Other 15,278 15,278 Total gross deferred tax assets 42,553,261 30,616,841 Less valuation allowance ( 42,404,971 ) ( 30,516,318 ) Deferred tax assets, net $ 148,290 $ 100,523 Right of use asset $ ( 148,290 ) $ ( 100,523 ) Total gross deferred tax liabilities ( 148,290 ) ( 100,523 ) Deferred tax, net $ – $ – In assessing the realizability of the net deferred tax assets, the Company considers all relevant positive and negative evidence to determine whether it is more likely than not that some portion of the deferred income tax will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. At December 31, 2022 and 2021, the Company has recorded a full valuation allowance against its net deferred tax assets of approximately $ 42.4 and $ 30.5 million respectively. The change in the valuation allowance during the year ended 2022 was approximately $ 11.9 million. The Tax Cuts and Jobs Act of 2017 (TCJA) has modified the IRC 174 expenses related to research and development for the tax years beginning after December 31, 2021. Under the TCJA, the Company must now capitalize the expenditures related to research and development activities and amortize over five years for U.S. activities and 15 years for non-U.S. activities using a mid-year convention. Therefore, the capitalization of research and development costs in accordance with IRC 174 resulted in a deferred tax asset of $ 4.5 million. At December 31, 2022, the Company had federal net operating loss (“NOL”) carryforwards of approximately $ 119.3 million. At December 31, 2022, the Company had federal research and development credit carryforwards of approximately $ 2.9 million. The federal net operating loss carryforwards begin to expire in 2028, losses generated in 2018 or later of $ 89.4 million will carry forward indefinitely. The federal credit carryforwards begin to expire in 2032 . Section 382 and 383 of the Internal Revenue Code of 1986 subject the future utilization of net operating losses and certain other tax attributes, such as research and experimental tax credits, to an annual limitation in the event certain ownership changes, as defined. The Company may be subject to the net operating loss utilization provisions of Section 382 of the Internal Revenue Code. The effect of an ownership change would be the imposition of an annual limitation on the use of NOL carryforwards attributable to periods before the change. The amount of the annual limitation depends upon the value of the Company immediately before the change, changes to the Company’s capital during a specified period prior to the change, and the federal published interest rate. Although the Company has not completed an analysis under Section 382 of the Code, it is likely that the utilization of the NOLs will be limited. At December 31, 2022, the Company had approximately $ 44.5 million of State of New Jersey NOLs which expire between 2029 and 2041 . At December 31, 2022, the Company had approximately $ 0.6 million of the State of New Jersey research development credits carryforwards. The State of New Jersey has enacted legislation permitting certain corporations located in New Jersey to sell state tax loss carryforwards and state research and development credits, or net loss carryforwards. The Technology Business Tax Certificate Transfer Program enables qualified, unprofitable NJ-based technology or biotechnology companies with fewer than 225 US employees (including parent company and all subsidiary) to sell a percentage of New Jersey NOLs and research and development (“R&D”) tax credits to unrelated profitable corporations. In 2022, the company sold New Jersey NOL carryforwards and R&D Credits, resulting in the recognition of $ 1.2 million of income tax benefit, net of transaction costs. There is no certainty as to whether this program will continue. Entities are also required to evaluate, measure, recognize and disclose any uncertain income tax provisions taken on their income tax returns. The Company has analyzed its tax positions and has concluded that as of December 31, 2022, there were no uncertain positions. The Company’s U.S. federal and state net operating losses have occurred since its inception in 2009 and as such, tax years subject to potential tax examination could apply from that date because the utilization of net operating losses from prior years opens the relevant year to audit by the IRS and/or state taxing authorities. Interest and penalties, if any, as they relate to income taxes assessed, are included in the income tax provision. The Company did no t have any unrecognized tax benefits and has no t accrued any interest or penalties for the years ended December 31, 2022 and 2021 118 Index Note 11 – Commitments and Contingencies Rent For the years ended December 31, 2022 and 2021, rent was $ 232,500 and $ 185,195 , respectively, for month-to-month arrangements not impacted by the adoption of ASC 842. Exclusive License Agreement Pursuant to the Merck KGaA License Agreement, we agreed to make (i) development and first commercial sale milestone payments totaling up to $ 11 million upon the achievement of certain milestones, including the dosing of the fifth patient in a Phase 3 trial of the product and first commercial sale of the product for a first and second indications in a major market, and (ii) up to $ 105 million upon achieving certain aggregate sales levels of the product. We also agreed to pay Merck KGaA, Darmstadt, Germany a royalty of 10 % on aggregate net sales of product as specified in the Merck KGaA License Agreement on a product-by-product and country-by-country basis until the later of: (i) ten years after the first commercial sale of a product in a given country; and (ii) the expiration or invalidation of the licensed patents covering the compound or product in such country (collectively, the “Royalty Term”). The royalty rate is subject to reduction in that event that a product is not covered by a valid patent claim, a biosimilar to the compound or the product comes on the market in a particular country, or if we obtain a license to any intellectual property owned or controlled by a third-party which but for such license would be infringed by making, using or selling the compound. Legal Proceedings The Company may be involved, from time to time, in legal proceedings and claims arising in the ordinary course of its business. Such matters are subject to many uncertainties and outcomes are not predictable with assurance. While there can be no assurances as to the ultimate outcome of any legal proceeding or other loss contingency involving the Company, management does not believe any pending matter will be resolved in a manner that would have a material adverse effect on its financial position, results of operations or cash flows. Note 12 – Venture Loan and Security Agreement In August 2022, the Company entered into a Venture Loan and Security Agreement (the “Loan and Security Agreement”) with Horizon Technology Finance Corporation, as a lender and collateral agent for itself and the other Lenders (in such capacity, the “Collateral Agent”), and the other persons party thereto from time to time as lenders (“Lenders”). Term loan Amounts . The Loan and Security Agreement provides for the following six ( 6 ) separate and independent term loans: (a) a term loan in the amount of $ 7,500,000 (“Loan A”), (b) a term loan in the amount of $ 10,000,000 (“Loan B”), (c) a term loan in the amount of $ 3,750,000 (“Loan C”), (d) a term loan in the amount of $ 3,750,000 (“Loan D”), (e) a term loan in the amount of $ 5,000,000 (“Loan E”), and (f) a term loan in the amount of $ 5,000,000 (“Loan F”) (with each of Loan A, Loan B, Loan C, Loan D, Loan E, and Loan F, individually a “Loan” and, collectively, the “Loans”). Loan A, Loan B, Loan C, and Loan D were delivered to the Company on August 24, 2022. Loan E and Loan F are uncommitted Loans that may be advanced by the Lenders upon their discretion prior to July 31, 2023 upon the satisfaction by the Company of certain agreed upon conditions precedents. The Company may only use the proceeds of the Loans for working capital or general corporate purposes. Maturity. Each Loan matures on the 48 month anniversary following the applicable date on which a Loan is made to or on account of the Company under the Loan and Security Agreement (the “Maturity Date”) unless accelerated pursuant to agreed upon events of default. All amounts outstanding under each Loan will be due and payable upon the earlier of the Maturity Date or the acceleration of the loans and commitments upon an event of default. Interest Rate . The principal balance of each Loan bears a floating interest. The interest rate is calculated initially and, thereafter, each calendar month as the sum of (a) the per annum rate of interest from time to time published in The Wall Street Journal as contemplated by the Loan and Security Agreement, or any successor publication thereto, as the “prime rate” then in effect, plus (b) 5.75 %; provided that, in the event such rate of interest is less than 4.00 %, such rate shall be deemed to be 4.00 % for purposes of calculating the interest rate. Interest is payable on a monthly basis based on each Loan principal amount outstanding the preceding month. Amortization. Each Loan shall commence amortization upon the date set forth on the promissory note executed in connection with the respective Loan, upon which the Company is required to commence making equal payments of principal plus accrued interest on the outstanding principal amount of the respect Loan (the “Loan Amortization Date”), and continuing thereafter on the first business day of each calendar month through the Maturity Date. 119 Index Prepayment Premium. The Company may, at its option upon at least ten ( 10 ) business days’ written notice to the Lenders, prepay all (and not less than all) of the outstanding Loan by simultaneously paying to each Lender an amount equal to (i) any accrued and unpaid interest on the outstanding principal balance of the Loans; plus (ii) an amount equal to (A) if such Loan is prepaid on or before the Loan Amortization Date applicable to such Loan, three percent ( 3 %) of the then outstanding principal balance of such Loan, (B) if such Loan is prepaid after the Loan Amortization Date applicable to such Loan, but on or before the date that is twelve (12) months after such Loan Amortization Date, two percent ( 2 %) of the then outstanding principal balance of such Loan, or (C) if such Loan is prepaid more than twelve (12) months after the Loan Amortization Date but prior to the stated Maturity Date applicable to such Loan, one percent ( 1 %) of the then outstanding principal balance of such Loan; plus (iii) the outstanding principal balance of such Loan; plus (iv) all other sums, if any, that shall have become due and payable hereunder. No prepayment premium will be applied to any outstanding balance of any Loan paid on the stated Maturity Date. Security . The Company’s obligations are secured by a security interest in all of the assets of the Company, subject to limited exceptions and excluding the Company’s intellectual property. Covenants; Representations and Warranties; Other Provisions . The Loan and Security Agreement contains customary representations, warranties and covenants, including covenants by the Company limiting additional indebtedness, liens, including on intellectual property, guaranties, mergers and consolidations, substantial asset sales, investments and loans, certain corporate changes, transactions with affiliates and fundamental changes. As of December 31, 2022, the Company is in compliance with all covenants. Default Provisions . The Loan and Security Agreement provides for events of default customary for term loans of this type, including but not limited to non-payment, breaches or defaults in the performance of covenants, insolvency, and bankruptcy by and/or of the Company. Warrant and Debt Discount. In connection with the Loan and Security Agreement, the Company issued Horizon Technology Finance Corporation and Powerscourt Investments XXV, LP warrants to purchase an aggregate total of 381,625 shares of the Company’s common stock at an initial exercise price of $ 3.6685 per share. Each warrant is classified as equity and is exercisable at any time for a period beginning on the date of grant and ending on the earlier of (A) 10 years from the date of grant, and (B) the closing of (A) (i) the sale, lease, exchange, conveyance or other disposition of all or substantially all of the Company’s property or business, or (ii) its merger into or consolidation with any other corporation (other than a wholly-owned subsidiary of the Company), or any transaction (including a merger or other reorganization) or series of related transactions, in which more than 50 % of the voting power of the Company is disposed of, in each case, for cash or for marketable securities meeting certain requirements as described in the applicable warrants. The key assumptions used in Black-Scholes option pricing model were (i) expected term of 10 years , (ii) a risk-free rate of 3.11 %, (iii) expected volatility of 93.8 %, (iv) and no estimated dividend yield. In addition, the Company incurred third party and lender fees of $ 449,329 . These proceeds were allocated on a basis that approximates the relative fair value method. The fair value of the warrant and fees incurred were recorded as a debt discount and are being recognized as interest expense over the life of the loan and Security Agreement using the effective interest method. The unamortized debt discount was $ 2,916,655 as of December 31, 2022. The Company recognized interest expense of $ 1,288,776 for the year ended December 31, 2022 and $ 183,914 was related to the amortization of the debt discount for the year ended December 31, 2022. Note 13 – Retirement Plan The Company has a 401(k) defined contribution plan for the benefit for all employees and permits voluntary contributions by employees subject to IRS-imposed limitations. In the first quarter of 2021, the company matched employee’s contributions with company stock valued at $ 35,747 . The 401(k) employer cash contribution match for the year ended December 31, 2022 and the nine month period ended 2021 were $ 157,009 and $ 60,428 respectively. Note 14 – Subsequent Events On January 5, 2023, the Company granted an option to purchase 1,124,600 shares of common stock to the management and employees of the Company with a strike price of $ 11.61 vesting 25 % on the first anniversary and the remaining vesting in equal monthly installments thereafter until fully vested. Included in the above mentioned grant, the Company granted an option to purchase 385,300 , 137,200 and 161,200 to its Chief Executive Officer, Chief Scientific Officer and its Chief Medical Officer, respectively. In the first quarter of 2023, the Company sold 553,293 shares of common stock for a value of $ 4.6 million pursuant to its Sales Agreement . 120