
Introductory Note This note details the merger of NKGen Biotech, Inc. with Legacy NKGen, including share exchanges and redemption proceeds - On September 29, 2023, NKGen Biotech, Inc. (formerly Graf Acquisition Corp. IV) completed a merger with Legacy NKGen, with Legacy NKGen becoming a wholly-owned subsidiary. Graf changed its name to NKGen Biotech, Inc., and Legacy NKGen became NKGen Operating Biotech, Inc.8 - All outstanding shares of Legacy NKGen Common Stock were exchanged at a ratio of 0.408 for 15,595,260 shares of NKGen Biotech, Inc. Common Stock. Options to purchase Legacy NKGen Common Stock were also converted into options for NKGen Biotech, Inc. Common Stock9 - Holders of 3,386,528 Graf common stock shares redeemed their shares for approximately $35.4 million. The Company received approximately $21.9 million in gross proceeds from the Graf trust account and warrant-related transactions, with an additional $32.9 million deposited into escrow accounts not yet received11 Special Note Regarding Forward-Looking Statements This note outlines the Company's forward-looking statements, their inherent risks, and the policy on updating such information - This Quarterly Report contains forward-looking statements regarding the Company's future expectations, plans, financial performance, and liquidity, which are subject to various risks and uncertainties1617 - Key factors that could cause actual results to differ include the Company's ability to raise future financing, continue as a going concern, successfully commercialize product candidates, and manage operational and financial performance amidst industry and global economic conditions1821 - The Company does not undertake any obligation to update these forward-looking statements to reflect events or circumstances after the report date, except as required by applicable securities laws20 Part I - Financial Information This part provides the Company's financial information, including statements and management's discussion and analysis Item 1. Financial Statements This section presents NKGen Biotech's unaudited condensed consolidated financial statements, reflecting the Business Combination and prepared on a going concern basis Condensed Consolidated Balance Sheets This section provides a snapshot of the Company's financial position, detailing assets, liabilities, and stockholders' equity at specific dates Condensed Consolidated Balance Sheets (in thousands) | Metric | September 30, 2023 (in thousands) | December 31, 2022 (in thousands) | | :----------------------------------- | :-------------------------------- | :--------------------------------- | | Cash and cash equivalents | $8,786 | $117 | | Total current assets | $10,349 | $350 | | Total assets | $25,198 | $16,330 | | Total current liabilities | $38,848 | $14,741 | | Total liabilities | $65,836 | $14,767 | | Total stockholders' equity (deficit) | $(40,638) | $1,563 | | Accumulated deficit | $(128,524) | $(79,176) | Condensed Consolidated Statements of Operations and Comprehensive Loss This section details the Company's revenues, expenses, and net loss over specific periods, highlighting operational and non-operating financial performance For the Three Months Ended September 30, (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Revenues | $0 | $3 | $(3) | * | | Research and development | $3,929 | $4,121 | $(192) | (5)% | | General and administrative | $2,974 | $1,874 | $1,100 | 59% | | Total expenses | $6,903 | $5,995 | $908 | 15% | | Loss from operations | $(6,903) | $(5,992) | $(911) | 15% | | Interest expense | $(211) | $(636) | $425 | (67)% | | Change in fair value of convertible promissory notes| $1,741 | $(73) | $1,814 | * | | Loss on issuance of forward purchase contract | $(24,475) | $0 | $(24,475) | * | | Transaction costs expensed | $(3,329) | $0 | $(3,329) | * | | Net loss and comprehensive loss | $(33,177) | $(6,693) | $(26,484) | 396% | | Net loss per share, basic and diluted | $(2.48) | $(1.10) | $(1.38) | 125% | For the Nine Months Ended September 30, (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | Change ($) | Change (%) | | :-------------------------------------------------- | :------------------ | :------------------ | :--------- | :--------- | | Revenues | $0 | $77 | $(77) | * | | Research and development | $11,577 | $12,659 | $(1,082) | (9)% | | General and administrative | $8,737 | $5,501 | $3,236 | 59% | | Total expenses | $20,314 | $18,163 | $2,151 | 12% | | Loss from operations | $(20,314) | $(18,086) | $(2,228) | 12% | | Interest expense | $(307) | $(1,690) | $1,383 | (82)% | | Change in fair value of convertible promissory notes| $(1,043) | $(88) | $(955) | * | | Loss on issuance of forward purchase contract | $(24,475) | $0 | $(24,475) | * | | Transaction costs expensed | $(3,329) | $0 | $(3,329) | * | | Net loss and comprehensive loss | $(49,348) | $(19,806) | $(29,542) | 149% | | Net loss per share, basic and diluted | $(3.70) | $(3.32) | $(0.38) | 11% | Condensed Consolidated Statements of Stockholders' Deficit This section outlines changes in the Company's stockholders' equity (deficit), including accumulated deficit and impacts from recapitalization transactions - Total stockholders' equity (deficit) decreased from $1,563 thousand as of December 31, 2022, to $(40,638) thousand as of September 30, 202326 - The accumulated deficit increased significantly from $(79,176) thousand as of December 31, 2022, to $(128,524) thousand as of September 30, 202326 - The reverse recapitalization transactions, net, resulted in a $3,928 thousand impact on total stockholders' deficit and a $36,842 thousand impact on additional paid-in capital for the nine months ended September 30, 20233384 Condensed Consolidated Statements of Cash Flows This section presents the Company's cash inflows and outflows from operating, investing, and financing activities over specific periods For the Nine Months Ended September 30, (in thousands) | Metric | 2023 (in thousands) | 2022 (in thousands) | | :----------------------------------- | :------------------ | :------------------ | | Net cash used in operating activities| $(15,009) | $(17,091) | | Net cash used in investing activities| $(30) | $(158) | | Net cash provided by financing activities| $23,958 | $16,985 | | Net increase in cash, cash equivalents, and restricted cash | $8,919 | $(264) | | Cash, cash equivalents, and restricted cash at end of period | $9,036 | $87 | Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for the condensed consolidated financial statements, covering accounting policies, financial instruments, and significant events 1. Company Information This note provides an overview of NKGen Biotech, Inc., its business focus, recent Business Combination, and going concern considerations - NKGen Biotech, Inc. is a clinical-stage biotechnology company focused on developing autologous, allogeneic, and CAR-NK natural killer cell therapies using its proprietary SNK platform41 - The Company completed a Business Combination on September 29, 2023, merging with Legacy NKGen, and its Common Stock and warrants began trading on Nasdaq on October 2, 202343 - As of September 30, 2023, the Company had an accumulated deficit of $128.5 million and cash and cash equivalents of $8.8 million, raising substantial doubt about its ability to continue as a going concern for the next twelve months46 2. Summary of Significant Accounting Policies This note outlines the Company's significant accounting policies, including the treatment of the Business Combination as a reverse recapitalization - The Business Combination was accounted for as a common control transaction and reverse recapitalization, with financial statements representing a continuation of Legacy NKGen's financials48 - All prior periods have been retrospectively adjusted using an Exchange Ratio of approximately 0.408 to reflect the reverse recapitalization4950 - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards7778 3. Reverse Recapitalization This note details the financial impacts of the reverse recapitalization, including conversion of notes and shares, and transaction costs incurred - In connection with the Business Combination, Legacy NKGen's convertible notes and shares were converted into 2,278,598 shares and 15,595,262 shares of the Company's Common Stock, respectively, after applying the Exchange Ratio82 - Legacy NKGen incurred $7.5 million in transaction costs, with $4.2 million allocated to equity-classified instruments and $3.3 million to liability-classified instruments81 Net Cash Proceeds from Business Combination at Closing (in thousands) | Metric | Amount | | :------------------------------------------ | :----- | | Closing proceeds | | | Proceeds from issuance of common stock | $1,667 | | Proceeds from issuance of PIPE warrants | $10,210| | Proceeds from issuance of senior convertible promissory notes with warrants | $10,000| | Net cash proceeds from the Business Combination at Closing | $9,661| 4. Private Placement This note describes the Private Placement Agreements, funds held in escrow, and the recorded loss on issuance of forward purchase contract - The Company entered into Private Placement Agreements with FPA Investors, who purchased 3,168,121 shares of Common Stock for $32.9 million, which was deposited into escrow accounts85 - Funds in escrow may be released to the Company or FPA Investors based on factors including the Company's Common Stock price and shares sold by FPA Investors, with all funds released by the one-year anniversary of Closing868788 - A loss on issuance of forward purchase contract totaling $24.5 million was recorded at Closing, comprising a $20.2 million derivative liability and $4.3 million for Bonus Shares93 5. Warrants This note details the various types of warrants issued, their classification as equity or liability, exercise prices, and related provisions - Public Warrants (3,432,286) and SPA Warrants (1,000,000) are equity-classified, exercisable at $11.50, and became exercisable 30 days post-Business Combination9597 - Private Warrants (4,721,533) and Working Capital Warrants (523,140) are liability-classified, exercisable at $11.50, and subject to transfer restrictions9698 - PIPE Warrants (10,209,994) were purchased for $10.2 million, are liability-classified, and have varying exercise prices ($10.00, $12.50, $15.00) subject to adjustment and a downside protection provision99 6. Convertible Notes This note describes the conversion of Legacy Convertible Notes and the terms of the newly issued Senior Convertible Notes to NKMAX - Legacy Convertible Notes (2019 and 2023) totaling $18.9 million were converted into 2,278,598 shares of the Company's Common Stock immediately prior to Closing100101102 - Senior Convertible Notes of $10.0 million were issued to NKMAX with a four-year term, 5.0% cash interest (or 8.0% PIK), and a conversion price of $10.00 per share, with a put option exercisable by NKMAX 2.5 years after issuance103 7. Debt This note outlines the Company's debt obligations, including a revolving line of credit and various related party loans - In June 2023, the Company entered into a $5.0 million revolving line of credit with a commercial bank, secured by all Company assets, with $4.9 million drawn as of September 30, 2023104105 - Additional Related Party Loans totaling $5.0 million were entered into with NKMAX from January to April 2023, bearing 4.6% interest and maturing on December 31, 2024107 - A $0.3 million Short Term Related Party Loan with a 30-day term and 5.12% interest was raised in September 2023 and repaid on October 5, 2023109163 8. Related-Party Transactions This note details transactions and financial instruments involving related parties, including Founder Shares and various loans and expenses - Of the 4,290,375 Founder Shares, 1,773,631 were forfeited, 1,173,631 became restricted Deferred Founder Shares subject to vesting conditions, and 1,343,113 remained outstanding and fully vested110 - Related party financial instruments include Founder Shares, SPA Warrants, Working Capital Warrants, Senior Convertible Notes, select Legacy Convertible Notes, Related Party Loans, Short Term Related Party Loan, and Private Warrants113 - Research and development expenses for laboratory supplies from NKMAX were $0.4 million for the three and nine months ended September 30, 2023, up from $0.1 million in the prior year periods115 9. Fair Value of Financial Instruments This note describes the fair value measurements of financial instruments, particularly liability-classified warrants and derivative liabilities Liabilities Measured at Fair Value on a Recurring Basis (in thousands) | Metric | Balance as of September 30, 2023 | | :-------------------------------- | :------------------------------- | | Private Warrants | $1,841 | | Working Capital Warrants | $204 | | Forward Purchase Derivative Liability | $20,201 | | PIPE Warrants | $10,210 | | Total | $32,456 | - The fair value of Legacy Convertible Notes immediately prior to conversion at Closing was $18.9 million, based on the fair value of the Company's Common Stock at $8.30 per share121 - The fair value of the Senior Convertible Notes was determined using a binomial lattice model, and the Private and Working Capital Warrants were valued using a Black-Scholes model with Level 3 inputs123127 10. Stockholders' Equity This note details the Company's common stock, equity incentive plans, stock option activity, and unrecognized stock-based compensation - As of September 30, 2023, the Company had 21,888,976 shares of Common Stock issued and outstanding, with 500,000,000 authorized137 - The Company adopted a 2023 Equity Incentive Plan (12% of fully diluted common stock) and an Employee Stock Purchase Plan (3% of fully diluted common stock) upon the Business Combination139140 Stock Option Activity for the Nine Months Ended September 30, 2023 | Metric | Stock Options Outstanding | Weighted Average Exercise Price | | :----------------------------------- | :------------------------ | :------------------------------ | | Outstanding as of December 31, 2022 | 185,231 | $1.37 | | Granted | 2,173,693 | $6.67 | | Forfeited | (244,298) | $6.61 | | Exercised | (12,866) | $1.73 | | Outstanding as of September 30, 2023 | 2,101,760 | $6.25 | - Total unrecognized stock-based compensation related to unvested awards was $14.6 million as of September 30, 2023, to be recognized over approximately 3.2 years146 11. Property and Equipment, net This note provides a breakdown of the Company's property and equipment, net of accumulated depreciation, and related depreciation expenses Property and Equipment, net (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :----------------------- | :----------------- | :---------------- | | Land | $5,025 | $5,025 | | Buildings | $8,325 | $8,325 | | Lab equipment | $4,003 | $4,003 | | Total | $18,211 | $18,211 | | Less: Accumulated depreciation | $(3,541) | $(2,690) | | Total Property and equipment, net | $14,670 | $15,521 | - Depreciation expense was $0.3 million for each of the three months ended September 30, 2023 and 2022, and $0.9 million for each of the nine months ended September 30, 2023 and 2022148 12. Additional Balance Sheet Information This note provides additional details on prepaid expenses, other current assets, accounts payable, and accrued expenses Prepaid expenses and other current assets (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :---------------- | | Prepaid expenses | $1,200 | $133 | | Revolving line of credit issuance fees | $72 | $0 | | Total Prepaid expenses and other current assets | $1,313 | $204 | Accounts payable and accrued expenses (in thousands) | Category | September 30, 2023 | December 31, 2022 | | :-------------------------------- | :----------------- | :---------------- | | Accounts payable | $7,938 | $975 | | Accrued liabilities | $4,239 | $1,359 | | Employee compensation | $730 | $291 | | Total Accounts payable and accrued expenses | $12,965 | $2,652 | 13. Collaboration Agreement This note describes the discontinuation of the strategic collaboration with Affimed GmbH and its impact on research and development expenses - The strategic collaboration with Affimed GmbH to initiate a Phase 1/2 trial of SNK01 in combination with AFM24 was discontinued by mutual agreement in June 2023150 - Reductions to research and development expenses due to this collaboration were $0.2 million for the three months ended September 30, 2023, and $0.2 million for the nine months ended September 30, 2023151152 14. Commitments and Contingencies This note outlines the Company's operating lease commitments, intercompany license obligations, and the absence of material legal proceedings - The Company's operating lease for office space at 19700 Fairchild expires on December 31, 2023, with total undiscounted lease payments of $0.1 million committed for 2023153155 - Under the Intercompany License with NKMAX, the Company acquired exclusive rights to NK cell therapy intellectual property, paying an upfront fee of $1.0 million and is obligated to pay milestone payments ($1.0M-$5.0M) and mid-single digit royalties on net sales156157 - The Company is not subject to any currently pending legal matters or claims that would have a material adverse effect on its financial position, results of operations, or cash flows158 15. Income Taxes This note explains the Company's effective tax rate and the recording of a valuation allowance against deferred tax assets - The Company's effective tax rate was 0% for the three and nine months ended September 30, 2023 and 2022, primarily due to changes in deferred tax balances offset by valuation allowances160161 - A valuation allowance was recorded as of September 30, 2023 and 2022, as it was determined that it was more likely than not that none or substantially none of the deferred tax assets would be realized162 16. Subsequent Events This note discloses significant events occurring after the reporting period, specifically the repayment of a short-term related party loan - The $0.3 million Short Term Related Party Loan was fully repaid on October 5, 2023163 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's analysis of the Company's financial condition, operations, and liquidity, highlighting the Business Combination, R&D, and financing needs Overview This section provides an overview of NKGen Biotech, Inc.'s clinical-stage biotechnology focus, recent Business Combination, and key development milestones - NKGen Biotech, Inc. is a clinical-stage biotechnology company focused on developing autologous, allogeneic, and CAR-NK cell therapies using its proprietary SNK platform for neurodegenerative diseases and cancer166 - The Company completed a Business Combination on September 29, 2023, resulting in its Common Stock and warrants trading on Nasdaq under 'NKGN' and 'NKGNW' respectively168 - Recent business highlights include IND clearance for SNK02 in solid tumors (Oct 2022) and SNK01 in Alzheimer's Disease (Oct 2023), with plans to advance clinical development and invest in manufacturing technology171 Factors Affecting Our Performance This section discusses key factors impacting the Company's performance, including its limited operating history, significant losses, and need for additional capital - The Company has a limited operating history and has incurred significant net losses ($33.2 million for Q3 2023, $49.3 million for 9M 2023), with an accumulated deficit of $128.5 million as of September 30, 2023173 - Significant expenses and operating losses are expected to continue for several years due to ongoing clinical trials, R&D, manufacturing, and public company operational costs173 - The Company lacks insufficient immediate funds for operations and liquidity, requiring additional capital, and has expressed substantial doubt about its ability to continue as a going concern175 Key Components of Results of Operations This section explains the key components of the Company's results of operations, including revenue, R&D, G&A expenses, and non-operating items - The Company has not generated product revenue to date and ceased COVID-19 testing services, which were a minor revenue source in prior periods176177 - Research and development expenses are expected to increase as the Company advances its product candidates through preclinical studies and clinical trials179 - General and administrative expenses are anticipated to rise due to one-time costs of becoming a public company and ongoing operational requirements184 - Significant non-operating expenses for 2023 include a $24.5 million loss on issuance of forward purchase contract and $3.3 million in expensed transaction costs related to the Business Combination188189 Results of Operations This section presents a detailed comparison of the Company's financial performance for the three and nine months ended September 30, 2023 and 2022 Comparison of Three Months Ended September 30, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :------------------------------------------ | :--- | :--- | :------- | :------- | | Revenues | $0 | $3 | $(3) | * | | Research and development | $3,929 | $4,121 | $(192) | (5)% | | General and administrative | $2,974 | $1,874 | $1,100 | 59% | | Total expenses | $6,903 | $5,995 | $908 | 15% | | Net loss and comprehensive loss | $(33,177) | $(6,693) | $(26,484) | 396% | Comparison of Nine Months Ended September 30, 2023 and 2022 (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :------------------------------------------ | :--- | :--- | :------- | :------- | | Revenues | $0 | $77 | $(77) | * | | Research and development | $11,577 | $12,659 | $(1,082) | (9)% | | General and administrative | $8,737 | $5,501 | $3,236 | 59% | | Total expenses | $20,314 | $18,163 | $2,151 | 12% | | Net loss and comprehensive loss | $(49,348) | $(19,806) | $(29,542) | 149% | - Research and development expenses decreased by 5% for Q3 2023 and 9% for 9M 2023, primarily due to decreased indirect R&D expenses, partially offset by increased direct R&D for SNK02 Phase 1 trials197198203204 - General and administrative expenses increased by 59% for both Q3 and 9M 2023, driven by higher stock-based compensation and professional fees related to becoming a public company209210 Liquidity and Capital Resources This section discusses the Company's liquidity, capital resources, ongoing operating losses, and the critical need for additional financing to continue operations - The Company has incurred operating losses and negative cash flows since inception, with cash and cash equivalents of $8.8 million and a working capital deficit of $31.5 million as of September 30, 2023221223 - Substantial doubt exists about the Company's ability to continue as a going concern, necessitating immediate additional capital to cover accrued expenses ($10.6 million as of Oct 31, 2023) and outstanding debts ($20.2 million as of Sep 30, 2023)224226228 - The revolving line of credit requires maintaining a minimum cash balance of $15.0 million by December 31, 2023, with failure potentially leading to default and foreclosure on assets224235 - Proceeds from Private Placement Agreements ($32.9 million) are held in escrow and not yet received by the Company, and warrant exercises may not yield cash proceeds243248250252254 Contractual Obligations and Commitments This section outlines the Company's contractual obligations and commitments, specifically detailing its operating lease for office space - The Company's operating lease for office space at 19700 Fairchild expires on December 31, 2023, with a remaining obligation of $0.1 million as of September 30, 2023265 Critical Accounting Policies and Estimates This section describes the Company's critical accounting policies and estimates, including those for accrued expenses, stock-based compensation, and financial instrument valuation - Critical accounting policies involve significant estimates and assumptions, including accrued clinical and R&D expenses, stock-based compensation, valuation of common shares, and accounting for select financial instruments issued in the Business Combination266267277 - The fair value of financial instruments, particularly liability-classified ones like Private Warrants, Working Capital Warrants, and forward purchase derivative liability, requires complex valuation models and Level 3 unobservable inputs289291295 - The accounting classification of financial instruments (equity vs. liability) significantly impacts reported financial position and results of operations, determined by assessing ASC 480 and ASC 815 criteria277278283 Recently Issued and Adopted Accounting Pronouncements This section refers to the notes to the financial statements for details on recently issued and adopted accounting pronouncements - The Company refers to Note 2 of the unaudited condensed consolidated financial statements for details on recently issued and adopted accounting pronouncements297 Emerging Growth Company Status This section explains the Company's status as an 'emerging growth company' and 'smaller reporting company' and its implications for disclosure requirements - The Company qualifies as an 'emerging growth company' and 'smaller reporting company,' allowing it to take advantage of certain disclosure exemptions, which may affect investor attractiveness and comparability298300 - The Company has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards, adopting them at the same time as private companies78298 Item 3. Quantitative and Qualitative Disclosures About Market Risk As a 'smaller reporting company' as defined by Rule 12b-2 of the Exchange Act, NKGen Biotech, Inc. is not required to disclose information under this section - As a 'smaller reporting company' as defined by Rule 12b-2 of the Exchange Act, NKGen Biotech, Inc. is not required to disclose quantitative and qualitative information about market risk301 Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control - Management, with the participation of the Principal Executive Officer and Principal Financial Officer, concluded that disclosure controls and procedures were effective as of September 30, 2023303 - No changes in internal control over financial reporting were identified during the period covered by this Quarterly Report that materially affected, or are reasonably likely to materially affect, internal control over financial reporting304 Part II - Other Information This part provides other information, including legal proceedings, risk factors, and a list of exhibits filed with the Quarterly Report Item 1. Legal Proceedings The Company is not currently subject to any legal proceedings or claims that would materially affect its financial position or results of operations - The Company's management believes there are no claims or actions pending against it that could have a material adverse effect on its results of operations, financial condition, or cash flows306 Item 1A. Risk Factors This section details comprehensive risks and uncertainties that could materially affect the Company's business, financial condition, and operating results Summary of Risks Related to Our Business and Industry This section summarizes key risks related to the Company's business and industry, including development challenges, clinical trial unpredictability, and manufacturing complexities - The Company's business depends on the success of its novel NK cell therapy platform, which faces significant development, commercialization, and manufacturing challenges308 - Clinical development is a lengthy, expensive, and unpredictable process, with potential for substantial delays due to various factors outside the Company's control308 - Results from compassionate use programs or early clinical trials are not indicative of future clinical trial results or sufficient for regulatory approval308 Summary of Risks Related to Our Financial Position This section summarizes key risks related to the Company's financial position, including insufficient funds, significant losses, and the need for additional capital - The Company lacks insufficient funds for operations and liquidity, and management has expressed substantial doubt about its ability to continue as a going concern309 - The Company has a limited operating history, has incurred significant losses since inception, and expects continued losses for the foreseeable future, with no revenue from product sales309 - Additional capital is required, which may dilute stockholders, restrict operations, or necessitate relinquishing rights to product candidates309 Summary of Risks Related to Government Regulations This section summarizes key risks related to government regulations, including lengthy approval processes, export controls, and evolving healthcare and data privacy laws - The regulatory approval process by the FDA and comparable foreign authorities is lengthy, time-consuming, and inherently unpredictable, potentially leading to delays or denial of approval310 - The Company is subject to U.S. and foreign export/import controls, sanctions, anti-corruption, and anti-money laundering laws, with potential for criminal/civil liability for violations310 - Healthcare reform initiatives and stringent, evolving data privacy and security laws could harm the business, leading to regulatory actions, litigation, fines, and operational disruptions310 Summary of Risks Related to Our Intellectual Property This section summarizes key risks related to the Company's intellectual property, including license termination, need for third-party IP, and inadequate patent terms - Termination of the license agreement with NKMAX could result in the loss of rights to key components of the NK cell technology platform313 - The Company may need to license additional intellectual property from third parties, which may not be available or on commercially reasonable terms313 - The duration of patent terms may be inadequate to protect the Company's competitive position, and patent expiration could lead to increased competition313 Risks Related to Our Business and Industry This section details specific risks related to the Company's business and industry, including going concern doubts, platform development challenges, and clinical trial uncertainties - The Company's ability to continue as a going concern is in substantial doubt due to insufficient funds and ongoing operating losses, requiring immediate additional capital, which may not be secured on acceptable terms316317318 - Success is highly dependent on the unproven NK cell therapy platform, which faces significant challenges in development, commercialization, and manufacturing, with potential for delays and increased costs324325326 - Clinical trials are expensive, time-consuming, and uncertain, with early-stage or compassionate use results not predictive of later-stage success or regulatory approval, and potential for serious adverse events331360361363 Risks Related to Our Financial Position This section details specific risks related to the Company's financial position, including limited operating history, ongoing losses, capital requirements, and debt covenants - The Company has a limited operating history, incurred significant losses ($49.3 million for 9M 2023, $128.5 million accumulated deficit as of Sep 30, 2023), and expects continued losses due to ongoing product development420421 - No revenue from product sales to date; profitability is uncertain and depends on successful clinical development, regulatory approvals, and commercialization, which will require substantial additional time and resources423424 - Additional capital is required, which may lead to stockholder dilution, debt obligations, or relinquishing rights to product candidates, with no guarantee of availability on acceptable terms428429430 - The East West Bank Loan Agreement grants a security interest in all assets and imposes financial covenants, including a $15.0 million minimum cash balance by Dec 31, 2023, with default potentially leading to acceleration of debt and foreclosure432433 Risks Related to Government Regulations This section details specific risks related to government regulations, including unpredictable approval processes, export controls, and impacts of healthcare and data privacy laws - The regulatory approval process by the FDA and comparable foreign authorities is lengthy, time-consuming, and inherently unpredictable, potentially leading to delays, denial of approval, or approval for narrow indications436437438 - The Company is subject to U.S. and foreign export/import controls, sanctions, anti-corruption, and anti-money laundering laws, with non-compliance risking substantial civil or criminal fines, imprisonment, and reputational harm441442 - Healthcare reform initiatives (e.g., Inflation Reduction Act of 2022) and stringent, evolving data privacy and security laws (e.g., CCPA, EU GDPR) could increase costs, restrict operations, and lead to regulatory actions, litigation, fines, and operational disruptions444451452 Risks Related to Manufacturing This section details specific risks related to manufacturing, including complexities of cell therapy production, scaling challenges, and dependency on third-party storage - The novel and complex manufacturing process for engineered human cells is susceptible to product loss, failure, or variation, and scaling up for commercialization presents significant risks and potential delays463464465 - Changes to the manufacturing process during development or after commercialization may require comparability studies, potentially causing delays or additional clinical testing if comparability is not established469 - Dependency on third parties to store NK cells, viral vectors, and cell banks, with damage or loss causing delays in replacement and potential business suffering477 Risks Related to Our Intellectual Property This section details specific risks related to the Company's intellectual property, including license termination, need for third-party IP, and patent protection limitations - Termination of the Intercompany License with NKMAX could result in the loss of critical intellectual property rights for product development and commercialization, materially affecting the business480481 - The Company may need to license additional third-party intellectual property, which may not be available or on commercially reasonable terms, potentially hindering business growth482 - Patent terms may be inadequate to protect competitive position, and expiration could lead to increased competition and adverse business effects, as patent protection is expensive and uncertain491493494495 Risks Related to Ownership of our Securities This section details specific risks related to owning the Company's securities, including disclosure exemptions, stock price volatility, and potential dilution from future sales - As an 'emerging growth company' and 'smaller reporting company,' the Company benefits from disclosure exemptions, which may make its securities less attractive to investors and comparison to other public companies difficult524525526 - The stock price may be volatile and decline regardless of operating performance, influenced by market fluctuations, analyst coverage, and general economic conditions530531 - Future sales of shares by existing stockholders, including those from registration statements and warrant exercises, could cause the stock price to decline due to dilution or perceived selling pressure533534535 - The Company may not receive cash proceeds from warrant exercises, especially if exercised on a cashless basis or if the stock price is below the exercise price, and may be required to make cash payments or issue additional shares under certain circumstances (e.g., PIPE Warrants, Forward Purchase Agreements)536537540541 Item 2. Exhibits This section lists all exhibits filed as part of this Quarterly Report on Form 10-Q, including merger agreements, financial agreements, and employment documents - The report includes various exhibits such as the Merger Agreement, Amended and Restated Certificate of Incorporation and Bylaws, Forward Purchase Agreements, Warrant Subscription Agreements, Securities Purchase Agreement, and several loan agreements576577 - Key employment offer letters and equity incentive plans (2019 and 2023) are also filed as exhibits577578 Signatures This section contains the official signatures of the Company's Chief Executive Officer and Interim Chief Financial Officer, certifying the report - The report was signed on November 14, 2023, by Paul Y. Song, Chief Executive Officer (Principal Executive Officer), and James A. Graf, Interim Chief Financial Officer (Principal Financial and Accounting Officer) of NKGen Biotech, Inc.584585