10-Q
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2023

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

Commission File Number: 001-40591

HCW Biologics Inc.

(Exact Name of Registrant as Specified in its Charter)

Delaware

82-5024477

( State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer
Identification No.)

2929 N. Commerce Parkway

Miramar, Florida

33025

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (954) 842–2024

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading

Symbol(s)

Name of each exchange
on which registered

Common Stock, par value $0.0001 per share

HCWB

The Nasdaq Stock Market LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

As of August 10, 2023, the registrant had 35,926,721 shares of common stock, $0.0001 par value per share, outstanding.


 

Table of Contents

Page

 

PART I.

FINANCIAL INFORMATION

1

 

Item 1.

Financial Statements

1

 

Unaudited condensed interim financial statements as of and for the three and six months ended June 30, 2022 and June 30, 2023:

 

 

Balance sheets

1

 

Statements of operations

2

 

Statements of changes in stockholders’ equity

3

 

Statements of cash flows

4

 

Notes to financial statements

5

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

Item 4.

Controls and Procedures

25

 

PART II.

OTHER INFORMATION

26

 

Item 1.

Legal Proceedings

26

 

Item 1A.

Risk Factors

26

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

26

 

Item 3.

Defaults Upon Senior Securities

26

 

Item 4.

Mine Safety Disclosures

26

 

Item 5.

Other Information

26

 

Item 6.

Exhibits

27

 

Signatures

28

 

 

i


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

HCW Biologics Inc.

Condensed Balance Sheets

 

 

 

December 31,

 

 

June 30,

 

 

 

2022

 

 

2023

 

 

 

 

 

 

Unaudited

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

22,326,356

 

 

$

7,449,010

 

Short-term investments

 

 

9,735,930

 

 

 

9,959,370

 

Accounts receivable, net

 

 

417,695

 

 

 

707,211

 

Prepaid expenses

 

 

1,394,923

 

 

 

1,356,520

 

Other current assets

 

 

196,015

 

 

 

327,055

 

Total current assets

 

 

34,070,919

 

 

 

19,799,166

 

Investments

 

 

1,599,751

 

 

 

1,599,751

 

Property, plant and equipment, net

 

 

10,804,610

 

 

 

12,623,308

 

Deposit for interest reserve

 

 

 

 

 

5,250,000

 

Other assets

 

 

333,875

 

 

 

211,019

 

Total assets

 

$

46,809,155

 

 

$

39,483,244

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

1,226,156

 

 

$

2,116,216

 

Accrued liabilities and other current liabilities

 

 

1,730,325

 

 

 

2,421,682

 

Total current liabilities

 

 

2,956,481

 

 

 

4,537,898

 

Debt, net

 

 

6,409,893

 

 

 

6,359,704

 

Other liabilities

 

 

14,275

 

 

 

 

Total liabilities

 

 

9,380,649

 

 

 

10,897,602

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

Common, $0.0001 par value; 250,000,000 shares authorized
   and
35,876,440 shares issued at December 31, 2022; 250,000,000 shares
   authorized and
35,926,721 shares issued at June 30, 2023

 

 

3,588

 

 

 

3,593

 

Additional paid-in capital

 

 

82,962,964

 

 

 

83,495,201

 

Accumulated deficit

 

 

(45,538,046

)

 

 

(54,913,152

)

Total stockholders’ equity

 

 

37,428,506

 

 

 

28,585,642

 

Total liabilities and stockholders’ equity

 

$

46,809,155

 

 

$

39,483,244

 

 

See accompanying notes to the unaudited condensed interim financial statements.

1


 

HCW Biologics Inc.

Condensed Statements of Operations

(Unaudited)

 

 

 

Three Months Ended
June 30,

 

 

 

Six Months Ended
June 30,

 

 

 

 

2022

 

 

2023

 

 

 

2022

 

 

2023

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

454,000

 

 

$

622,807

 

 

 

$

3,571,545

 

 

$

664,690

 

 

Cost of revenues

 

 

(287,200

)

 

 

(502,402

)

 

 

 

(1,615,276

)

 

 

(531,752

)

 

Net revenues

 

 

166,800

 

 

 

120,405

 

 

 

 

1,956,269

 

 

 

132,938

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Research and development

 

 

1,969,882

 

 

 

1,616,666

 

 

 

 

3,759,558

 

 

 

3,872,479

 

 

General and administrative

 

 

1,707,995

 

 

 

3,014,260

 

 

 

 

3,588,597

 

 

 

6,131,550

 

 

Total operating expenses

 

 

3,677,877

 

 

 

4,630,926

 

 

 

 

7,348,155

 

 

 

10,004,029

 

 

Loss from operations

 

 

(3,511,077

)

 

 

(4,510,521

)

 

 

 

(5,391,886

)

 

 

(9,871,091

)

 

Interest expense

 

 

 

 

 

(95,514

)

 

 

 

 

 

 

(188,951

)

 

Other (expense) income, net

 

 

516

 

 

 

301,615

 

 

 

 

(175,882

)

 

 

684,936

 

 

Net loss

 

$

(3,510,561

)

 

$

(4,304,420

)

 

 

$

(5,567,768

)

 

$

(9,375,106

)

 

Net loss per share, basic and diluted

 

$

(0.10

)

 

$

(0.12

)

 

 

$

(0.16

)

 

$

(0.26

)

 

Weighted average shares outstanding, basic and diluted

 

 

35,814,482

 

 

 

35,910,669

 

 

 

 

35,796,257

 

 

 

35,897,224

 

 

 

See accompanying notes to the unaudited condensed interim financial statements.

2


 

HCW Biologics Inc.

Condensed Statements of Changes in Stockholders’ Equity

For the Six Months Ended June 30, 2022 and June 30, 2023

(Unaudited)

 

 

 

Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2021

 

 

35,768,264

 

 

$

3,577

 

 

$

81,827,006

 

 

$

(30,637,343

)

 

$

51,193,240

 

Issuance of Common Stock upon exercise of stock options

 

 

11,225

 

 

 

1

 

 

 

2,272

 

 

 

 

 

 

2,273

 

Stock-based compensation

 

 

 

 

 

 

 

 

260,348

 

 

 

 

 

 

260,348

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,057,207

)

 

 

(2,057,207

)

Balance, March 31, 2022

 

 

35,779,489

 

 

$

3,578

 

 

$

82,089,626

 

 

$

(32,694,550

)

 

$

49,398,654

 

Issuance of Common Stock upon exercise of stock options

 

 

44,434

 

 

 

4

 

 

 

5,996

 

 

 

 

 

 

6,000

 

Stock-based compensation

 

 

 

 

 

 

 

 

271,335

 

 

 

 

 

 

271,335

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,510,561

)

 

 

(3,510,561

)

Balance, June 30, 2022

 

 

35,823,923

 

 

$

3,582

 

 

$

82,366,957

 

 

$

(36,205,111

)

 

$

46,165,428

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance, December 31, 2022

 

 

35,876,440

 

 

$

3,588

 

 

$

82,962,964

 

 

$

(45,538,046

)

 

$

37,428,506

 

Issuance of Common Stock upon exercise of stock options

 

 

10,195

 

 

 

1

 

 

 

1,900

 

 

 

 

 

 

1,901

 

Stock-based compensation

 

 

 

 

 

 

 

 

259,206

 

 

 

 

 

 

259,206

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,070,686

)

 

 

(5,070,686

)

Balance, March 31, 2023

 

 

35,886,635

 

 

$

3,589

 

 

$

83,224,070

 

 

$

(50,608,732

)

 

$

32,618,927

 

Issuance of Common Stock upon exercise of stock options

 

 

40,086

 

 

 

4

 

 

 

7,708

 

 

 

 

 

 

7,712

 

Stock-based compensation

 

 

 

 

 

 

 

 

263,423

 

 

 

 

 

 

263,423

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(4,304,420

)

 

 

(4,304,420

)

Balance, June 30, 2023

 

 

35,926,721

 

 

$

3,593

 

 

$

83,495,201

 

 

$

(54,913,152

)

 

$

28,585,642

 

 

See accompanying notes to the unaudited condensed interim financial statements.

3


 

HCW Biologics Inc.

Condensed Statements of Cash Flows

(Unaudited)

 

 

 

Six Months Ended June 30,

 

 

 

2022

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net loss

 

$

(5,567,768

)

 

$

(9,375,106

)

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

 

 

 

 

 

 

Depreciation and amortization

 

 

292,363

 

 

 

583,180

 

Stock-based compensation

 

 

531,683

 

 

 

522,629

 

Unrealized loss (gain) on investments, net

 

 

209,337

 

 

 

(223,440

)

Reduction in the carrying amount of right-of-use asset

 

 

836

 

 

 

(418

)

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(213,934

)

 

 

(289,516

)

Deposit for interest reserve

 

 

 

 

 

(5,250,000

)

Prepaid expenses and other assets

 

 

1,863,759

 

 

 

(49,819

)

Accounts payable and other liabilities

 

 

(1,347,729

)

 

 

1,212,921

 

Operating lease liability

 

 

(50,545

)

 

 

(160,490

)

Net cash used in operating activities

 

 

(4,281,998

)

 

 

(13,030,059

)

Cash flows from investing activities:

 

 

 

 

 

 

Purchases of property and equipment

 

 

(36,461

)

 

 

(1,856,900

)

Proceeds for sale or maturities of short-term investments

 

 

7,999,840

 

 

 

 

Net cash provided by (used in) investing activities

 

 

7,963,379

 

 

 

(1,856,900

)

Cash flows from financing activities:

 

 

 

 

 

 

Proceeds from issuance of common stock

 

 

8,273

 

 

 

9,613

 

Net cash provided by financing activities

 

 

8,273

 

 

 

9,613

 

Net changes in cash and cash equivalents

 

 

3,689,654

 

 

 

(14,877,346

)

Cash and cash equivalents at the beginning of the period

 

 

11,730,677

 

 

 

22,326,356

 

Cash and cash equivalents at the end of the period

 

$

15,420,331

 

 

$

7,449,010

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

188,951

 

Noncash operating, investing and financing activities:

 

 

 

 

 

 

Operating lease liabilities arising from obtaining right-of-use assets

 

$

269,134

 

 

$

 

Capital expenditures accrued, but not yet paid

 

$

 

 

$

357,466

 

Purchases of property and equipment included in accounts payable and other liabilities

 

$

 

 

$

18,382

 

 

 

See accompanying notes to the unaudited condensed interim financial statements.

4


 

HCW Biologics Inc.

Notes to Condensed Financial Statements

(Unaudited)

1. Organization and Summary of Significant Accounting Policies

Organization

 

HCW Biologics Inc. (the “Company”) is a biopharmaceutical company focused on discovering and developing novel immunotherapies to lengthen healthspan by disrupting the link between chronic, low-grade inflammation and age-related diseases. The Company believes age-related low-grade chronic inflammation, or “inflammaging,” is a significant contributing factor to several chronic diseases and conditions, such as cancer, cardiovascular disease, diabetes, neurodegenerative diseases, and autoimmune diseases. The Company is located in Miramar, Florida and was incorporated in the state of Delaware in April 2018.

Liquidity

As of June 30, 2023, the Company had not generated any revenue from commercial product sales of its internally-developed immunotherapeutic products for the treatment of cancer and other age-related diseases. In the course of its development activities, the Company has sustained operating losses and expects to continue to incur operating losses for the foreseeable future. Since inception, substantially all the Company’s activities have consisted of research, development, establishing large-scale cGMP production for clinical trials, and raising capital. The Company's total revenues to date have been generated solely from the Wugen License and manufacturing and supply arrangement with Wugen. In the three and six months ended June 30, 2023, the Company recognized revenues from manufacturing and supply of materials for Wugen of $622,807 and $664,690, respectively.

As of June 30, 2023, the Company had cash and cash equivalents of $7.4 million, a deposit for interest reserve of $5.3 million, and short-term investments of $10.0 million held in U.S. government-backed securities. Since inception to June 30, 2023, the Company incurred cumulative net losses of $52.2 million. Management expects to incur additional losses in the future to conduct product research and development and recognizes the need to raise additional capital to fully implement its business plan. The Company intends to focus its efforts to raise capital from non-dilutive funding sources. This includes out-licensing rights to technology or regional markets, third-party collaboration funding, cooperative agreements for clinical trials, or other business development transactions. In addition, when or if market conditions are more favorable, the Company may raise capital through additional debt or equity financings. However, if such financing is not available at adequate levels, the Company will need to reevaluate its operating plan and may be required to delay the development of some of its products.

5


 

Summary of Significant Accounting Policies

Basis of Presentation

Unaudited Interim Financial Information

 

The accompanying unaudited condensed interim financial statements as of June 30, 2023 and for the three and six months ended June 30, 2022 and 2023 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and pursuant to Article 10 of Regulation S-X of the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed interim financial statements include only normal and recurring adjustments that the Company believes are necessary to fairly state the Company’s financial position and the results of its operations and cash flows. The results for the three and six months ended June 30, 2023 are not necessarily indicative of the results expected for the full fiscal year or any subsequent interim period. The condensed balance sheet at December 31, 2022 has been derived from the audited financial statements at that date but does not include all disclosures required by U.S. GAAP for complete financial statements. Because all of the disclosures required by U.S. GAAP for complete financial statements are not included herein, these unaudited condensed interim financial statements and the notes accompanying them should be read in conjunction with the Company’s audited financial statements for the year ended December 31, 2022 which appear in the Company’s Annual Report on Form 10-K (No. 001-40591) filed for the year ended December 31, 2022 with the Securities and Exchange Commission (the “SEC”) on March 28, 2023 and in other filings with the SEC.

Deposit for Interest Reserve

The Company agreed to establish an interest reserve account for the purpose of paying interest on outstanding debt under the Development Line of Credit Agreement which is further described in Note 8. Commitments and Contingencies - Project Financing herein. As of June 30, 2023, there was a balance of $5.3 million included in Deposit for interest reserve in noncurrent assets on the accompanying condensed balance sheet.

Revenue Recognition

The Company accounts for revenues in accordance with Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (“Topic 606”). To determine revenue recognition for arrangements that fall within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the Company satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that it will collect the consideration it is entitled to in exchange for the goods or services transferred to the customer.

At contract inception, the Company assesses the goods or services promised within each contract, determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied. To date, the Company's revenues have been generated solely from transactions with Wugen. The Wugen License includes licenses of intellectual property, cost reimbursements, upfront signing fees, milestone payments and royalties on future licensee’s product sales. In addition, the Company and Wugen have an agreement for supply of materials, from which the Company also recognizes revenues.

 

License Grants:

 

For out-licensing arrangements that include a grant of a license to the Company’s intellectual property, the Company considers whether the license grant is distinct from the other performance obligations included in the arrangement. For licenses that are distinct, the Company recognizes revenues from nonrefundable, upfront payments and other consideration allocated to the license when the license term has begun and the Company has provided all necessary information regarding the underlying intellectual property to the customer, which generally occurs at or near the inception of the arrangement.

 

6


 

Milestone and Contingent Payments:

 

At the inception of the arrangement and at each reporting date thereafter, the Company assesses whether it should include any milestone and contingent payments or other forms of variable consideration in the transaction price using the most likely amount method. If it is probable that a significant reversal of cumulative revenue would not occur upon resolution of the uncertainty, the associated milestone value is included in the transaction price. At the end of each subsequent reporting period, the Company re-evaluates the probability of achievement of each such milestone and any related constraint and, if necessary, adjusts its estimate of the overall transaction price. Since milestone and contingent payments may become payable to the Company upon the initiation of a clinical study or filing for or receipt of regulatory approval, the Company reviews the relevant facts and circumstances to determine when the Company should update the transaction price, which may occur before the triggering event. When the Company updates the transaction price for milestone and contingent payments, the Company allocates the changes in the total transaction price to each performance obligation in the agreement on the same basis as the initial allocation. Any such adjustments are recorded on a cumulative catch-up basis in the period of adjustment, which may result in recognizing revenue for previously satisfied performance obligations in such period. The Company’s licensees will generally pay milestones payments subsequent to achievement of the triggering event.

 

Materials Supply:

 

The Company provides clinical and research grade materials so that licensees may develop products based on the licensed molecules. The Company plans to enter into commercialization supply agreements when licensees enter the commercial stage of their company. The amounts billed are recognized as revenue as the performance obligations are satisfied by the Company, once the Company determines that a contract exists.

 

On June 18, 2021, the Company entered into a master services agreement (“MSA”) for the supply of materials for clinical development of licensed products. On March 14, 2022, the Company entered into statements-of-work (“SOWs”) contemplated under the MSA for all current and historical purchases of clinical and research grade materials. The Company determined that upon entering into the SOWs all requirements were met to qualify as a contract under Topic 606. The manufacturing of the clinical and research materials supplied by the Company each represents a single performance obligation that is satisfied over time. The Company recognizes revenue using an input method based on the costs incurred relative to the total expected cost, which determines the extent of the Company's progress toward completion. As part of the accounting for these arrangements, the Company must develop estimates and assumptions that require judgement to determine the progress towards completion. The Company reviews its estimate of the progress toward completion based on the best information available to recognize the cumulative progress toward completion as of the end of each reporting period, and makes revisions to such estimates, if facts and circumstances change during each reporting period.

 

The Company recognized revenue related to sale of development supply materials to its licensee, Wugen, of $454,000 and $3,571,545, respectively, for the three and six months ended June 30, 2022; and $622,807 and $664,690, respectively, for three and six months ended June 30, 2023.

Investments

The Company holds a minority interest in Wugen which is accounted for using the measurement alternative whereby the investment is recorded at cost less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same investee. No impairment has been recognized on the minority interest in Wugen as of June 30, 2023. As of December 31, 2022 and June 30, 2023, the Company included $1.6 million for the investment in Wugen in Investments in the accompanying condensed balance sheets.

The Company invests in bills and notes issued by the U.S. Treasury which are classified as trading securities. The Company reported a fair value of $9.7 million and $10.0 million for the fair value of investments in U.S. Treasury bills as of December 31, 2022 and June 30, 2023, respectively, included in Short-term investments in the accompanying condensed balance sheets.

Operating Leases

The Company determines if an arrangement is a lease at inception. Operating leases are included in Other assets, Accrued liabilities and other current liabilities, and Other liabilities on the accompanying condensed balance sheets. Operating lease Right of Use (“ROU”) assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives and initial direct costs incurred. The Company has a lease agreement with lease and non-lease components, which are accounted for separately.

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Net Loss Per Share

Basic loss per share of common stock is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding during each period. Diluted loss per share of common stock includes the effect, if any, from the potential exercise of stock options and unvested shares of restricted stock, which would result in the issuance of incremental shares of common stock. For diluted net loss per share, the weighted-average number of shares of common stock is the same for basic net loss per share due to the fact that when a net loss exists, dilutive securities are not included in the calculation as the impact is anti-dilutive.

2. Accrued Liabilities and Other Current Liabilities

As of December 31, 2022, the Company had a balance of $1.7 million included in Accrued liabilities and other current liabilities in the accompanying condensed balance sheet, consisting primarily of $416,000 for legal expenses, $277,500 for clinical expenses, $524,000 for bonus expenses, $134,000 for salary and benefits, and $178,000 for a lease liability.

As of June 30, 2023, the Company had a balance of $2.4 million in Accrued liabilities and other current liabilities in the accompanying condensed balance sheet, consisting primarily of the following: $994,000 for legal expenses related to legal proceedings which are further described in Note 8. Commitments and Contingencies - Legal herein; $377,000 for clinical expenses; $365,000 performance-related bonus payable; $115,000 for salary and benefits; $79,000 for legal expenses related to the execution of the Company's patent prosecution strategy and other legal expenses incurred in the ordinary course of business; $112,000 for a lease liability; and $97,101 for the current portion of long-term debt.

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3. Debt, Net

On August 15, 2022, the Company entered into a loan and security agreement (the "2022 Loan Agreement") with Cogent Bank ("Cogent"), pursuant to which it received $6.5 million in gross proceeds to purchase a building that will become the Company's new headquarters. The Cogent loan is secured by a first priority lien on the building.

As of June 30, 2023, the Company had $6.5 million in gross principal outstanding in a loan under the 2022 Loan Agreement. The interest-only period is one year followed by 48 months of equal payments of principal and interest beginning on September 15, 2023 based on a 25-year amortization rate. The unamortized balance is due on August 15, 2027 (the “Cogent Maturity Date”), and bears interest at a fixed per annum rate equal to 5.75%. Upon the Cogent Maturity Date, a final payment of unamortized principal will be due. The Company is in compliance with all covenants as of June 30, 2023. The Company has the option to prepay the outstanding balance of the loan prior to the Cogent Maturity Date without penalty.

As of December 31, 2022, the Cogent loan consisted of a long-term portion of $6.5 million which is included in Debt, net on the accompanying condensed balance sheet. As of June 30, 2023, it consisted of a current portion of $97,101 which is included in Accrued liabilities and other current liabilities and a noncurrent portion of $6.4 million which is included in Debt, net in the accompanying condensed balance sheet.

4. Preferred Stock

At December 31, 2022 and June 30, 2023, the Company has 10,000,000 shares of preferred stock authorized and no shares issued.

5. Net Loss Per Share

The following table summarizes the computation of the basic and diluted net loss per share:

 

 

Three Months Ended June 30,

 

 

Six Months Ended June 30,

 

 

 

 

2022

 

 

2023

 

 

2022

 

 

2023

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

$

(3,510,561

)

 

$

(4,304,420

)

 

$

(5,567,768

)

 

$

(9,375,106

)

 

Denominator:

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding

 

 

35,814,482

 

 

 

35,910,669

 

 

 

35,796,257

 

 

 

35,897,224

 

 

Net loss per share, basic and diluted

 

$

(0.10

)

 

$

(0.12

)

 

$

(0.16

)

 

$

(0.26

)

 

 

 

The following table summarizes the outstanding potentially dilutive securities that have been excluded in the calculation of diluted net loss per share because their inclusion would be anti-dilutive:

 

 

At June 30,

 

 

 

2022

 

 

2023

 

Common stock options

 

 

1,924,317

 

 

 

1,873,806

 

Potentially diluted securities

 

 

1,924,317

 

 

 

1,873,806

 

 

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6. Fair Value of Financial Instruments

The carrying amount of the Company’s financial instruments, including cash and cash equivalents, accounts receivable, prepaid expenses and other current assets, U.S. government-backed securities with maturity dates up to one year, accounts payable, accrued liabilities and other current liabilities, approximate fair value due to their short-term maturities. The balance of funds included in Deposit for interest reserve is held in a non-interest bearing account and its carrying value approximates its fair value.

Money market funds included in cash and cash equivalents and U.S. government-backed securities are measured at fair value based on quoted prices in active markets, which are considered Level 1 inputs. No transfers between levels occurred during the periods presented. The following table presents the Company’s assets which were measured at fair value at December 31, 2022 and June 30, 2023:

 

 

 

At December 31, 2022:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

19,458,020

 

 

$

 

 

$

 

 

$

19,458,020

 

Treasury notes

 

 

9,735,930

 

 

 

 

 

 

 

 

 

9,735,930

 

 Total

 

$

29,193,950

 

 

$

 

 

$

 

 

$

29,193,950

 

 

 

 

At June 30, 2023:

 

 

 

Level 1

 

 

Level 2

 

 

Level 3

 

 

Total

 

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

Money market funds

 

$

6,422,104

 

 

$

 

 

$

 

 

$

6,422,104

 

Treasury notes

 

 

9,959,370